Everforth Inc: Form 10-Q for the period ended Jun 30, 2026

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are based upon current expectations, as well as management's beliefs and assumptions, and involve a high degree of risk and uncertainty. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Statements that include the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions that convey uncertainty of future events or outcomes are forward-looking statements. Our actual results could differ materially from those discussed or suggested in the forward-looking statements herein. Factors that could cause or contribute to such differences include those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 10-K"). In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements in this document are based on information available to us as of the filing date of this Quarterly Report on Form 10-Q and we assume no obligation to update any forward-looking statements or the reasons why our actual results may differ.

OVERVIEW

Everforth is a technology and digital engineering company that provides IT solutions to clients across the commercial and government sectors through its two segments: Commercial Segment and Federal Government Segment (see Note 1. General in Part I, Item 1 in this Quarterly Report on Form 10-Q).

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2026 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2025

Revenues

Consolidated revenues for the quarter were $1.0 billion, down 1.3 percent year-over-year. The table below shows our revenues by segment for the three months ended June 30, 2026 and 2025 (in millions).

Commercial Segment revenues were approximately 70 percent of total revenues and were down 0.9 percent year-over-year. From an industry perspective, the decrease was attributable to reduced revenue from clients across Business Services, Financial Services, Consumer and Industrial, and Healthcare, partially offset by year-over-year revenue growth in TMT. Federal Government Segment revenues were approximately 30 percent of total revenues and were down 2.3 percent year-over-year. The decrease was mainly attributable to reduced revenue from Defense and Intelligence and Federal Civilian agencies, partially offset by increases in revenues from National Security agencies and other customers.

Gross Profit and Gross Margin

The table below shows gross profit and gross margin by segment for the three months ended June 30, 2026 and 2025 (in millions).

Gross profit is comprised of revenues, less costs of services, which consist primarily of compensation for our contract professionals, other direct costs, and reimbursable out-of-pocket expenses.

Consolidated gross profit declined 3.0 percent year-over-year. Gross margin for the second quarter of 2026 was 28.3 percent, a compression of 40 basis points compared with the second quarter of 2025. Gross margin for the Commercial Segment was down 90 basis points year-over-year, primarily driven by business mix related to a smaller contribution from some of our higher-margin solutions including permanent placement revenues, as well as changes in foreign currency exchange rates primarily related to our delivery center in Mexico. Gross margin for the Federal Government Segment was up 40 basis points year-over-year, driven by focused efforts to improve profitability across the contract portfolio.

Selling, General, and Administrative Expenses

Selling, general, and administrative ("SG&A") expenses consist primarily of compensation expense for our field operations and corporate staff, information systems, rent, public company expenses, and other general and administrative expenses. SG&A expenses were $226.2 million, compared with $216.8 million in the second quarter of 2025. SG&A expenses in the second quarter of 2026 included $9.8 million in acquisition, integration, and strategic planning expenses, compared with $8.3 million in the second quarter of 2025.

Amortization of Intangible Assets

Amortization of intangible assets was $17.3 million, compared with $16.9 million in the second quarter of 2025. The increase relates to the effects of the Quinnox acquisition, partially offset by older intangibles reaching the end of their useful lives.

Interest Expense, Net

Interest expense, net, which consists primarily of cash-based interest expense, amortization and adjustments to deferred loan costs, and interest income, was $20.4 million, up from $18.2 million in the second quarter of 2025. The increase was due to higher outstanding borrowings. The weighted-average outstanding borrowings and cash-based interest rates in the second quarter of 2026 and 2025 were $1.49 billion and 5.3 percent, and $1.28 billion and 5.6 percent, respectively.

Provision for Income Taxes

The provision for income taxes was $6.5 million, down from $12.1 million in the second quarter of 2025 due to lower income before income taxes. The effective tax rate was 31.4 percent, up from 29.2 percent in the second quarter of 2025. The increase in the effective tax rate reflects higher foreign income taxes, the non-renewal of the Work Opportunity Tax Credit ("WOTC"), and lower income before income taxes.

Net Income

Net income was $14.2 million, down from $29.3 million in the second quarter of 2025.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2026 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2025

Revenues

Revenues for the first six months of the year were $2.0 billion, down 0.7 percent year-over-year. The table below shows our revenues by segment for the six months ended June 30, 2026 and 2025 (in millions).

Commercial Segment revenues were approximately 70 percent of total revenues and were down 0.2 percent year-over-year. From an industry perspective, the decrease was mainly attributable to revenue decline from clients across Business Services and Financial Services, partially offset by year-over-year growth across TMT, Healthcare, and Consumer and Industrial. Federal Government Segment revenues were approximately 30 percent of total revenues and were down 1.7 percent year-over-year. The decrease was mainly attributable to revenue declines from Defense and Intelligence and Federal Civilian agencies, partially offset by increases in revenues from National Security agencies and other customers.

Gross Profit and Gross Margin

The table below shows gross profit and gross margin by segment for the six months ended June 30, 2026 and 2025 (in millions).

Consolidated gross profit declined 3.1 percent year-over-year. Gross margin for the first six months of 2026 was 27.9 percent, a compression of 70 basis points from the first six months of 2025. Gross margin for the Commercial Segment was down 120 basis points year-over-year, primarily driven by business mix related to a smaller contribution from some of our higher-margin solutions including permanent placement revenues, as well as changes in foreign currency exchange rates primarily related to our delivery center in Mexico. Gross margin for the Federal Government Segment was up 30 basis points year-over-year, driven by focused efforts to improve profitability across the contract portfolio.

Selling, General, and Administrative Expenses

SG&A expenses were $450.6 million, compared with $431.3 million in the first six months of 2025. SG&A expenses in the first six months of 2026 included $22.6 million in acquisition, integration, and strategic planning expenses, compared with $11.6 million in the first six months of 2025.

Amortization of Intangible Assets

Amortization of intangible assets was $31.8 million, compared with $31.2 million in the first six months of 2025. The increase relates to the effects of the Quinnox acquisition, partially offset by older intangibles that have reached the end of their useful lives.

Interest Expense, Net

Interest expense, net was $37.5 million, up from $33.6 million in the first six months of 2025. The weighted-average outstanding borrowings and cash-based interest rates in the first six months of 2026 and 2025 were $1.38 billion and 5.3 percent, and $1.20 billion and 5.6 percent, respectively.

Provision for Income Taxes

The provision for income taxes was $11.6 million, down from $22.4 million in the first six months of 2025 due to lower income before income taxes. The effective tax rate was 37.1 percent, up from 30.9 percent in the first six months of 2025. The increase in the effective tax rate reflects higher foreign income taxes, the non-renewal of the WOTC, and lower income before income taxes.

Net Income

Net income was $19.7 million, down from $50.2 million in the first six months of 2025.

Commercial Segment - IT Consulting Metrics

The book‑to‑bill ratio represents the ratio of consulting bookings to related revenues for a specified period. Commercial IT consulting accounts for approximately 50 percent of the segment’s revenues and has increased as a proportion of the segment’s revenues over time. Bookings represent the value of new contracts entered into during the period, including adjustments for changes in contract scope and contract terminations. Measuring bookings involves the use of estimates and judgments and there are no independent standards or requirements governing the calculation of bookings. There is no assurance these bookings will result in future revenues.

Federal Government Segment Metrics

Contract backlog for our Federal Government Segment represents the estimated amount of future revenues to be recognized under awarded contracts, including task orders and options, at a point in time ("Contract Backlog"). These estimates are subject to change and may be affected by the execution of new contracts, the extension or early termination of existing contracts, the non-renewal or completion of current contracts, and adjustments to estimates for previously included contracts. There is no assurance our contract backlog will result in future revenues. The timing of the execution of new contracts and other changes are affected by the funding cycles of the government and can vary from quarter to quarter. New contract awards are the estimated amount of future revenues to be recognized under contracts awarded during a specified period, including adjustments to estimates for contracts awarded in previous periods (“New Contract Awards”). Information regarding New Contract Awards is not comparable to, nor should it be substituted for, an analysis of reported revenues. Due to variability, New Contract Awards are presented on a trailing-twelve-months (“TTM”) basis. The book-to-bill ratio for our Federal Government Segment is the ratio of New Contract Awards to revenues for a specified period. Contract backlog coverage ratio is calculated as total Contract Backlog divided by TTM revenues.

(Dollars in millions)

(Dollars in millions)

Liquidity and Capital Resources

Our working capital, which is current assets less current liabilities, at June 30, 2026, was $523.2 million, and our cash and cash equivalents were $152.9 million. Our cash flows from operating activities have been our primary source of liquidity and have been sufficient to meet our working capital and capital expenditure needs. At June 30, 2026, we had approximately $180.0 million available under the $500.0 million revolving credit facility. We believe that our cash and cash equivalents on hand, expected operating cash flows, and availability under our revolving credit facility will be sufficient to fulfill our obligations, working capital requirements, and capital expenditures for the next 12 months and beyond.

Net cash provided by operating activities was $70.7 million for the first six months of 2026, compared with $141.7 million in the same period of 2025. Net cash provided by operating activities before changes in operating assets and liabilities was $112.4 million, compared with $137.5 million in the same period of 2025. Changes in operating assets and liabilities resulted in net cash usage of $41.7 million for the first six months of 2026, compared with net cash provided of $4.2 million in the same period of 2025. This year-over-year change primarily related to an increase in accounts receivable days sales outstanding in the first six months of 2026.

Net cash used in investing activities for the first six months of 2026 was $298.9 million, comprised of $283.6 million used to acquire Quinnox and $15.3 million used for capital expenditures. Net cash used in investing activities for the first six months of 2025 was $325.4 million, comprised of $306.1 million used to acquire TopBloc and $19.3 million used for capital expenditures.

Net cash provided by financing activities was $220.3 million for the first six months of 2026 and included net borrowings under the senior secured credit facility totaling $269.2 million, offset by $50.5 million used to repurchase the Company's common stock. Net cash provided by financing activities in the first six months of the prior year was $116.3 million and included net borrowings under the senior secured credit facility totaling $177.5 million, offset by $59.9 million used to repurchase the Company's common stock.

For details on the (i) senior secured credit facility, comprised of a revolving credit facility, term loan A, and term loan B, and (ii) unsecured senior notes, see Note 5. Long-Term Debt in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Commitments and Contingencies — There have been no material changes to our contractual cash obligations from those described in our 2025 10-K.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that significantly impact the Company.

Critical Accounting Policies

There were no material changes to our critical accounting policies and estimates during the second quarter of 2026 compared with those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2025 10-K.

Interest Rates — With respect to our quantitative and qualitative disclosures about interest rates risks, there have been no material changes to the information included in our 2025 10-K. Our exposure to interest rate risk is associated with our debt instruments. See Note 5. Long-Term Debt in Part I, Item 1 in this Quarterly Report on Form 10-Q for a further description of our debt instruments. A hypothetical 100-basis-point change in interest rates on variable-rate debt would have resulted in an interest expense fluctuation of approximately $9.0 million based on $901.8 million of debt outstanding for any 12-month period. We have not entered into any market risk sensitive instruments for trading purposes.

Foreign Currencies — Our exposure to fluctuations in foreign currency exchange rates relates primarily to our foreign subsidiaries. Exchange rates impact the U.S. dollar value of our reported revenues and earnings. During the six months ended June 30, 2026, our foreign subsidiaries' revenues and costs of services were approximately two and six percent of the respective consolidated totals.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. The term "disclosure controls and procedures" means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.