Willdan Group, Inc.: Form 10-Q for the period ended Jul 3, 2026

Our Company

We are a technical services company focused on energy and infrastructure solutions. Our solutions include energy planning and analytics, consulting, software, public finance, engineering, and program implementation. We serve utilities, state and local governments, and commercial customers in the United States and Canada.

Our broad portfolio of services operates within two financial reporting segments: (1) Energy and (2) Engineering and Consulting. The interfaces and synergies between these segments are important elements of our strategy to design and deliver trusted, comprehensive, innovative, and proven solutions and services for our customers.

Our Energy segment addresses power grid resiliency, efficiency, and reliability. Services include in-depth energy planning studies, economic analysis, modeling and forecasting software, decarbonization, program design and implementation, energy efficiency, turnkey energy and infrastructure projects, grid modernization, and utility-scale electrical engineering and construction management. Clients in this segment are investor-owned and municipal utilities, commercial clients including retailers, pharmaceuticals, industrial concerns and hyperscalers, and state and local governments, school districts and government agencies.

Our Engineering & Consulting segment addresses sustainability and growth in civil infrastructure. We often serve as a municipality’s engineering department. Services include municipal and civil engineering, building and safety, code enforcement, fire plan and inspection, city engineering, construction management, design engineering, planning, and financial and municipal advisory services. Clients in this segment are state and local governments, school districts, and utility districts.

We were founded in 1964 and are headquartered in Anaheim, California.

Results of Operations

Second Quarter Overview

The following table sets forth, for the periods indicated, certain information derived from our condensed consolidated statements of comprehensive income(1):

(in thousands, except percentages)

(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.

(in thousands, except percentages)

11

(1) Percentages are expressed as a percentage of contract revenue and may not total due to rounding.

40

The following tables provide information about disaggregated revenue of our two segments, Energy and Engineering and Consulting, by contract type, client type and geographical region:

(in thousands)

(in thousands)

(1) Amounts may not add to the totals due to rounding.

(2) Includes the portion of revenue related to small business programs paid by the end user/customer.

(3) Revenue from our foreign operations was not material for the three and six months ended July 3, 2026 and July 4, 2025.

Three Months Ended July 3, 2026 Compared to Three Months Ended July 4, 2025

Contract revenue. Consolidated contract revenue increased $57.6 million, or 33.2%, in the three months ended July 3, 2026, compared to the three months ended July 4, 2025, as a result of increased demand for our services in both our Energy segment and our Engineering and Consulting segment.

Contract revenue in our Energy segment increased $55.9 million, or 38.1%, in the three months ended July 3, 2026, compared to the three months ended July 4, 2025, primarily as a result of higher revenues across all of our service offerings, combined with incremental revenues from our acquisition of Burton Energy Group, LLC. (“Burton”) in May 2026.

Contract revenue in our Engineering and Consulting segment increased $1.7 million, or 6.4%, in the three months ended July 3, 2026, compared to the three months ended July 4, 2025, primarily due to increased demand for services provided to our clients, combined with the incremental revenues from our acquisition Compass Municipal Advisors, LLC. (“Compass”) in January 2026.

Direct costs of contract revenue. Direct costs of consolidated contract revenue increased $38.4 million, or 36.5%, for the three months ended July 3, 2026, compared to the three months ended July 4, 2025, primarily as a result of the increased volume in contract revenues as described above. As a percentage of contract revenue, subcontractor services and other direct costs increased to 49.3% in the three months ended July 3, 2026 from 45.3% in the three months ended July 4, 2025, primarily due to the higher mix of construction management revenues in the current period. Direct salaries and wages increased $3.1 million, or 11.8%, to support the increased volume of projects in the three months ended July 3, 2026, compared to the three months ended July 4, 2025 and declined, as a percentage of contract revenues, to 12.9% in the three months ended July 3, 2026, from 15.4% in the three months ended July 4, 2025, reflecting the increased construction management revenues in the current period.

Direct costs of contract revenue in our Energy segment increased $37.3 million, or 40.2%, for the three months ended July 3, 2026, compared to the three months ended July 4, 2025. Direct costs of contract revenue for the Engineering and Consulting segment increased $1.1 million, or 8.7%, in the three months ended July 3, 2026, compared to the three months ended July 4, 2025.

Gross Profit. Gross profit increased 28% to $87.5 million, or 37.9% gross margin, for the three months ended July 3, 2026, compared to gross profit of $68.3 million, or 39.4% gross margin, for the three months ended July 4, 2025. The decrease in our gross margin was primarily driven by the changes in the mix of revenues as described above, including the addition of Burton.

General and administrative expenses. General and administrative (“G&A”) expenses increased $11.2 million, or 19.8%, to $67.7 million in the three months ended July 3, 2026, compared to $56.5 million for the three months ended July 4, 2025. As a percentage of contract revenues, G&A decreased to 29.3% in the three months ended July 3, 2026 from 32.6% in the three months ended July 4, 2025. G&A expenses consisted of an increase of $10.3 million, or 25.3%, in the Energy segment combined with an increase of $2.3 million, or 23.1%, in the Engineering and Consulting segment, and the remaining decrease in unallocated corporate expenses.

The overall increase in G&A expenses consisted of an increase of $7.9 million in salaries and wages, payroll taxes and employee benefits, an increase of $1.6 million in stock-based compensation, and an increase of $1.5 million in depreciation and amortization. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increased staffing from acquisitions, an increase in incentive compensation consistent with the increase in operating profit, and higher fringe benefit costs consistent with the growth in direct and indirect labor costs. The increase in stock-based compensation expenses was primarily related to new stock grants to current employees, executives, and Board of directors at a higher stock price. The increase in depreciation and amortization was primarily related to higher amortization of intangible assets from recent acquisitions.

Income (loss) from operations. Operating income increased 67.0% to $19.7 million for the three months ended July 3, 2026, compared to an operating income of $11.8 million for the three months ended July 4, 2025, as a result of the factors noted above.

Total other expense, net. Total other expense, net, decreased $1.0 million, or 60.4%, for the three months ended July 3, 2026, compared to the three months ended July 4, 2025, primarily due to the lower interest expense resulting from the reduced interest rate spread derived from lower debt leverage levels under our credit facilities, combined with the absence of a one-time charge for unamortized debt issuance costs related to our prior credit facilities that we had in the second quarter of fiscal year 2025.

Income tax expense (benefit). We recorded an income tax benefit of $5.3 million for the three months ended July 3, 2026, an effective tax benefit rate of 27.5% on income before income tax expense, compared to an income tax benefit of $5.3 million for the three months ended July 4, 2025, an effective tax benefit rate of 51.6% on income before tax expense. The decrease in the effective tax benefit rate resulted from the increase in income before income tax, partially offset by the increases in discrete items related to stock compensation deductions and additional energy-efficiency building deductions.

Net income (loss). Our net income increased 57.7% to $24.3 million for the three months ended July 3, 2026, as compared to a net income of $15.4 million for the three months ended July 4, 2025. The increase in net income was primarily attributable to the increase in income from operations combined with a reduction in Total other expense, net.

Six Months Ended July 3, 2026 Compared to Six Months Ended July 4, 2025

Contract revenue. Consolidated contract revenue increased $60.3 million, or 18.5%, in the six months ended July 3, 2026, compared to the six months ended July 4, 2025, as a result of increased demand for our services in both our Energy segment and our Engineering and Consulting segment. The rate of growth was impacted by the effect of having one fewer week in the first half of fiscal year 2026 when compared to our first fiscal half of fiscal year 2025. When removing the impact of the additional week in the first half of fiscal year 2025, contract revenue increased 23.1% in the six months ended July 3, 2026, compared to the adjusted six months ended July 4, 2025.

Contract revenue in our Energy segment increased $57.6 million, or 21.1%, in the six months ended July 3, 2026, compared to the six months ended July 4, 2025, primarily as a result of higher revenues across all of our service offerings, combined with incremental revenues from our acquisition of Burton.

Contract revenue in our Engineering and Consulting segment increased $2.7 million, or 5.2%, in the six months ended July 3, 2026, compared to the six months ended July 4, 2025, primarily due to increased demand for services provided to our clients, combined with the incremental revenues from our acquisition of Compass.

Direct costs of contract revenue. Direct costs of consolidated contract revenue increased $35.7 million, or 17.8%, for the six months ended July 3, 2026, compared to the six months ended July 4, 2025, primarily as a result of the increased volume of contract revenues as described above. As a percentage of contract revenue, subcontractor services and other direct costs increased to 45.7% in the six months ended July 3, 2026 from 44.7% in the six months ended July 4, 2025, reflecting the higher mix of construction management revenues. Direct salaries and wages increased $4.7 million, or 8.7%, to support the increased volume of projects in the six months ended July 3, 2026, compared to the six months ended July 4, 2025, and declined, as a percentage of contract revenue, to 15.3% in the six months ended July 3, 2026, from 16.7% in the six months ended July 4, 2025.

Direct costs of contract revenue in our Energy segment increased $33.9 million, or 19.3%, for the six months ended July 3, 2026, compared to the six months ended July 4, 2025. Direct costs of contract revenue for the Engineering and Consulting segment increased $1.8 million, or 7.5%, in the six months ended July 3, 2026, compared to the six months ended July 4, 2025.

Gross Profit. Gross profit increased 19.5% to $150.6 million, or 39.0% gross margin, for the six months ended July 3, 2026, compared to gross profit of $126.0 million, or 38.7% gross margin, for the six months ended July 4, 2025. The increase in our gross margin was primarily driven by the changes in the mix of revenues.

General and administrative expenses. G&A expenses increased $16.5 million, or 15.4%, to $123.6 million in the six months ended July 3, 2026, compared to $107.1 million for the six months ended July 4, 2025. As a percentage of contract revenue, G&A expenses were 32.0% of contract revenues in the six months ended July 3, 2026 compared to 32.9% for the six months ended July 4, 2025. G&A expenses consisted of an increase of $13.3 million, or 16.7%, in the Energy segment combined with an increase of $2.7 million, or 12.9%, in the Engineering and Consulting segment, and the remaining increase in unallocated corporate expenses.

The overall increase in G&A expenses consisted of an increase of $9.8 million in salaries and wages, payroll taxes and employee benefits, an increase of $2.9 million in stock-based compensation, an increase of $2.5 million in depreciation and amortization, and an increase of $1.4 million in other general and administrative expenses. The increase in salaries and wages, payroll taxes and employee benefits was primarily due to increased staffing from acquisitions, an increase in incentive compensation, consistent with the improvement in operating profit, and higher fringe benefit costs consistent with the growth in direct and indirect labor costs. The increase in stock-based compensation expenses was primarily related to new stock grants to current employees, executives and Board of directors at a higher stock price. The increase in depreciation and amortization was primarily related to higher amortization of intangible assets from recent acquisitions. The increase in other general and administrative expenses was primarily due to increased professional service fees and computer-related expenses.

Income (loss) from operations. Operating income increased 43.4% to $27.0 million for the six months ended July 3, 2026, compared to an operating income of $18.9 million for the six months ended July 4, 2025, as a result of the factors noted above.

Total other expense, net. Total other expense, net, decreased $2.8 million, or 80.2%, for the six months ended July 3, 2026, compared to the six months ended July 4, 2025, primarily due to the reduced interest rate spread derived from lower debt leverage levels under our credit facilities, combined with the absence of a one-time charge for unamortized debt issuance costs related to our prior credit facilities that we had in the second quarter of fiscal 2025 and the absence of a one-time charge related to a facility lease modification that we had in the first fiscal quarter of fiscal 2025.

Income tax expense (benefit). We recorded an income tax benefit of $6.5 million for the six months ended July 3, 2026, an effective tax benefit rate of 24.8% on income before income tax expense, compared to an income tax benefit of $4.7 million for the six months ended July 4, 2025, an effective tax rate of 30.9% on income before tax expense. The increase in the effective tax rate resulted from the increase in income before income tax, partially offset by the increases in discrete items related to stock compensation deductions and additional energy-efficiency building deductions.

Net income (loss). Our net income was $32.9 million for the six months ended July 3, 2026, as compared to a net income of $20.1 million for the six months ended July 4, 2025. The increase in net income was primarily attributable to the increase in income from operations combined with a reduction in Total other expense, net.

Liquidity and Capital Resources

(in thousands)

Sources of Cash

Our primary sources of liquidity for the next 12 months and beyond are cash generated from operations, cash and cash equivalents, and available borrowings under our Revolving Credit Facility and Delayed Draw Term Loan under the Amended and Restated Credit Agreement (the “Credit Facilities”, such agreement, the “Amended and Restated Credit Agreement”). We believe that these sources will be sufficient to finance our operating activities for at least the next 12 months.

As of July 3, 2026, we had a fully drawn $50.0 million term loan with $47.5 million outstanding, a $100 million Revolving Credit Facility with $20.0 million outstanding and $1.6 million in letters of credit issued. We also had an undrawn $50.0 million Delayed Draw Term Loan. The Delayed Draw Term Loan must be drawn before May 2027. The Credit Facilities are each scheduled to mature on May 5, 2030. In addition to the Credit Facilities, we had $34.9 million of unrestricted cash and cash equivalents as of July 3, 2026. Unhedged borrowings under our Credit Facilities, exclusive of the effects of upfront fees, undrawn fees and issuance cost amortization, bore interest at an annual rate of 5.3% as of July 3, 2026. See Part I, Item 1, Note 6, “Debt Obligations”, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2026, for information regarding our indebtedness, including information about the Amended and Restated Credit

Agreement and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

Cash Flows from Operating Activities

Cash flows provided by operating activities were $19.5 million for the six months ended July 3, 2026, as compared to cash flows provided by operating activities of $28.7 million for the six months ended July 4, 2025. Cash flows from operating activities primarily consists of net income, adjusted for non-cash charges, such as depreciation and amortization and stock-based compensation, plus or minus changes in current operating assets and liabilities. Cash flows provided by operating activities for the six months ended July 3, 2026, resulted primarily from higher working capital requirements to support the growth in revenues, partially offset by the higher income from operations. Cash flows provided by operating activities for the six months ended July 4, 2025, resulted primarily from the increase in earnings and lower working capital requirements.

Cash Flows from Investing Activities

Cash flows used in investing activities were $54.1 million for the six months ended July 3, 2026, as compared to cash flows used in investing activities of $39.6 million for the six months ended July 4, 2025. Cash flows used in investing activities for the six months ended July 3, 2026 and for the six months ended July 4, 2025 were primarily due to cash paid for acquisitions, combined with cash paid for the development of proprietary software and the purchase of computers and equipment.

Cash Flows from Financing Activities

Cash flows provided by financing activities were $7.9 million for the six months ended July 3, 2026, as compared to cash flows used in financing activities of $30.9 million for the six months ended July 4, 2025.

For the six months ended July 3, 2026, cash flows provided by financing activities were primarily attributable to borrowings, and repayments, of $30.0 million and $10.0 million, respectively, related to the Revolving Credit Facility combined with the receipt, and disbursement, of $7.2 million and $2.9 million, respectively, related to utility rebates, $1.9 million of proceeds from sales of common stock under the employee stock purchase plan, and $1.5 million of proceeds from stock option exercises. Cash flows provided by financing activities were partially offset by $9.0 million cash used to fund withholding taxes on vesting stock grants, $8.8 million in payments for contingent consideration, and $1.3 million cash used to pay down our Term Loan. For the six months ended July 4, 2025, cash flows used in financing activities were primarily attributable to the $28.4 million cash used to pay down our Revolving Credit Facility, $3.1 million cash used to fund withholding taxes on vesting stock grants, combined with repayments, and borrowings, of $90.0 million and $88.4 million, respectively, related to our Amended and Restated Credit Agreement. Cash flows used in financing activities were partially offset by $1.9 million in proceeds from stock option exercise, and $1.5 million of proceeds from sales of common stock under the employee stock purchase plan.

Under certain utility contracts, we periodically receive cash deposits to be held in trust for the payment of energy incentive rebates to be sent directly to the utility’s end-customer on behalf of the utility. We act solely as the utility’s agent to distribute these funds to the end-customer and, accordingly, we classify these contractually restricted funds as restricted cash. Because these funds are held in trust for pass through to the utility’s customers and have no impact on our working capital or operating cash flows, these cash receipts are presented in the condensed consolidated statement of cash flows as financing cash inflows, “Receipt of restricted cash”, with the subsequent payments classified as financing cash outflows, “Payment of restricted cash.”

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements or liabilities. In addition, our policy is not to enter into futures or forward contracts. Finally, we do not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities that are not included in the consolidated financial statements. We have, however, an administrative services agreement with Genesys in which we provide Genesys with ongoing administrative, operational and other non-professional support services. We manage Genesys and have the power to direct the activities that most significantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys. Accordingly, we are the primary beneficiary of Genesys and consolidate Genesys as a variable interest entity.

Short and Long-term Uses of Cash

General

Our principal uses of cash are to fund operating expenses, support working capital requirements, finance capital expenditures, and pay down outstanding debt. From time to time, we also use cash to help fund business acquisitions. Our cash and cash equivalents are impacted by the timing of when we invoice and are paid by our customers for services rendered and when we pay expenses as reflected in the change in our outstanding accounts payable and accrued expenses.

Contractual Obligations

The following table sets forth our known contractual obligations as of July 3, 2026:

(in thousands)

(1) Debt includes $47.2 million outstanding on our Term Loan A (“TLA”), net of issuance costs, $20.0 million outstanding on our Revolving Credit Facility, and no borrowed amounts outstanding on our Delayed Draw Term Loan as of July 3, 2026. We have assumed no future borrowings or repayments after July 3, 2026 (other than at maturity) for purposes of this table. Our TLA and Revolving Credit Facility are scheduled to mature on May 5, 2030.

(2) Borrowings under our TLA and Revolving Credit Facility bear interest at a variable rate. Future interest payments on our Credit Facility are estimated using floating rates in effect as of July 3, 2026.

We have contingent obligations to make earnout payments in connection with our acquisitions of Enica, APG, Compass, and Burton subject to their future financial performance. We are contingently obligated to pay up to $6.0 million in cash if Enica exceeds certain financial targets during the two years after the Enica closing date of October 23, 2024. We are contingently obligated to pay up to $18.0 million in cash if APG exceeds certain financial targets during the three years after the APG closing date of March 3, 2025. We are contingently obligated to pay up to $1.0 million in cash if Compass exceeds certain financial targets during the one year after the Compass closing date of January 2, 2026. We are contingently obligated to pay up to $12.0 million in cash if Burton exceeds certain financial targets during the two years after the Burton closing date of May 4, 2026.

As of July 3, 2026, we had contingent consideration payable of $22.8 million related to the acquisitions of Enica, APG, Compass, and Burton. Through the six months ended July 3, 2026, our statement of operations includes $1.8 million of interest accretion (excluding fair value adjustments) related to the contingent consideration.

Outstanding Indebtedness

See Part I, Item 1, Note 6, “Debt Obligations”, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and Part II, Item 8, Note 5, “Debt Obligations”, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2026, for information regarding our indebtedness, including information about new borrowings and repayments, principal repayment terms, interest rates, covenants, and other key terms of our outstanding indebtedness.

Interest Rate Swap

From time to time, we enter into interest rate swap agreements to moderate our exposure to fluctuations in interest rates underlying our variable rate debt. For more information, see Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk”, and Note 5, “Derivative Financial Instruments”, to the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Impact of Inflation

Due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin, historically, our operations have not been materially impacted by inflation.

While not material to our results of operations and financial condition, we have experienced higher cost of materials and delays in our supply chain for equipment. The prices of finished products from manufacturers are subject to fluctuation and increases. It is difficult to accurately measure the impact of inflation, tariffs, price escalation, raw material costs, and other factors that impact the cost of finished goods due to the imprecise nature of the estimates required.

We are often able to mitigate the impact of future price increases by entering into fixed price purchase orders for materials and equipment, and subcontracts on our projects, as well as, when appropriate, including cost escalation factors into our proposals. Despite our best mitigation efforts, significant price increases in equipment and disruptions to our supply chain could materially impact our results of operations and financial condition. In addition, inflationary pressures, including expectations of future inflation, may impact the customers of our utility clients, which may lead to delayed or deferred decisions regarding expenditures to improve energy efficiency, and therefore potentially impact our future revenues.

Impact of Certain Federal Policies

Federal policies related to tariffs and renewable energy incentives have been subject to frequent and significant changes from executive orders issued by the new federal administration. While we have not experienced a material impact to our operating results or our outlook for future business, there can be no assurance that these measures will not impact our ability to procure cost-effective pricing of materials used in our projects at various building sites, or result in a reduction in demand for our services as a result of inflation, lead times, or other impacts that may derive from changes in the current administration’s executive orders.

Components of Revenue and Expense

Contract Revenue

We generally provide our services under contracts, purchase orders or retainer letters. The agreements we enter into with our clients typically incorporate one of three principal types of pricing provisions: time-and-materials, unit-based, and fixed price. Revenue on our time-and-materials and unit-based contracts are recognized as the work is performed in accordance with specific terms of the contract. As of July 3, 2026, 16% of our contracts are time-and-materials contracts, 33% are unit-based contracts, and 51% are fixed price contracts, compared to 19% are time-and-materials contracts, 36% are unit-based contracts, and 45% are fixed price contracts, as of July 4, 2025.

Some of these contracts include maximum contract prices, but contract maximums are often adjusted to reflect the level of effort to achieve client objectives and thus the majority of these contracts are not expected to exceed the maximum. Contract revenue on our fixed price contracts is determined on the percentage of completion method based generally on the ratio of direct costs incurred to date to estimated total direct costs at completion. Many of our fixed price contracts involve a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete.

Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions become known. When the revised estimate indicates a loss, such loss is recognized in the current period in its entirety. Claims and change orders that have not been finalized are evaluated to determine whether or not a change has occurred in the enforceable rights and obligations of the original contract. If these non-finalized changes qualify as a contract modification, a determination is made whether to account for the change in contract value as a modification to the existing contract, or a separate contract and revenue under the claims or change orders is recognized accordingly. Costs related to un-priced change orders are expensed when incurred, and recognition of the related revenue is based on the assessment above of whether or not a contract modification has occurred. Estimated profit for un-priced change orders is recognized only if collection is probable.

Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, which could impact the profitability of that contract. In addition, during the term of a contract, public agencies may request additional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients, with prior notice, to terminate the contracts at any time without cause. While we have a large volume of contracts, the renewal, termination or modification of a contract, in particular contracts with Consolidated Edison, the Dormitory Authority-State of New York, the New York City Housing Authority, and utility programs associated with Los Angeles Department of Water and Power and Southern California Edison, may have a material effect on our consolidated operations.

Some of our contracts include certain performance guarantees, such as a guaranteed energy saving quantity. Such guarantees are generally measured upon completion of a project. In the event that the measured performance level is less than the guaranteed level, any resulting financial penalty, including any additional work that may be required to fulfill the guarantee, is estimated and charged to direct expenses in the current period. We have not experienced any significant costs under such guarantees.

Direct Costs of Contract Revenue

Direct costs of contract revenue consist primarily of that portion of salaries and wages that have been incurred in connection with revenue producing projects. Direct costs of contract revenue also include material costs, subcontractor services, equipment and other expenses that are incurred in connection with revenue producing projects. Direct costs of contract revenue exclude that portion of salaries and wages related to marketing efforts, vacations, holidays and other time not spent directly generating revenue under existing contracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costs for all of our personnel are included in general and administrative expenses since no allocation of these costs is made to direct costs of contract revenue.

Other companies may classify as direct costs of contract revenue some of the costs that we classify as general and administrative costs. We expense direct costs of contract revenue when incurred.

General and Administrative Expenses

G&A expenses include the costs of the marketing and support staff, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees who provide our services. G&A expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Within G&A expenses, “Other” includes expenses such as professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs. We expense general and administrative costs when incurred.

Critical Accounting Policies

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). To prepare these financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses in the reporting period. Our actual results may differ from these estimates. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate.

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for our fiscal year ended January 2, 2026. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 2, 2026 for a discussion of our critical accounting policies and estimates.

Recent Accounting Standards

For a description of recently issued and adopted accounting pronouncements, including adoption dates and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 2, “Recent Accounting Pronouncements”, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Interest Rate Risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market risk sensitive financial instruments, including long-term debt.

As of July 3, 2026, we had cash and cash equivalents of $39.2 million, including restricted cash. This amount represents cash on hand in business checking accounts with our banks. We do not engage in trading activities and do not participate in foreign currency transactions.

We are subject to interest rate risk in connection with our Term Loan A (“TLA”) and borrowings, if any, under our Revolving Credit Facility, each of which bears interest at variable rates. As of July 3, 2026, the Company had a fully drawn $50.0 million TLA with $47.5 million outstanding, a $100.0 million Revolving Credit Facility with $20.0 million outstanding, and $1.6 million in letters of credit issued, and a $50.0 million Delayed Draw Term Loan with no borrowed amounts. Each of our TLA, Revolving Credit Facility and Delayed Draw Term Loan mature on May 5, 2030 and are governed by our Amended and Restated Credit Agreement.

Based upon the amount of our outstanding indebtedness as of July 3, 2026, a one percentage point increase in the effective interest rate would change our annual interest expense by approximately $0.7 million in fiscal year 2026.

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15-d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer 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 in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer, Michael A. Bieber, and our Chief Financial Officer and Executive Vice President, Creighton K. Early, as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, an evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of July 3, 2026. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, at a reasonable assurance level, as of July 3, 2026.

On January 2, 2026 and May 4, 2026, we completed the acquisition of Compass Municipal Advisors, LLC. (“Compass”) and Burton, respectively. Prior to the acquisition, Compass and Burton were privately-held companies and were not subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements applicable to public reporting companies. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into Compass and Burton, and, if needed, to augment our company-wide controls to reflect the risks that may be inherent in the acquisition of these privately-held companies.

Other than our integration of Compass and Burton, there have been no changes in our internal control over financial reporting during the quarter ended July 3, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There are no material changes to the risk factors set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended January 2, 2026.