Overview

Aeries Technology is a global provider of professional and management services and technology consulting, specializing in the establishment and management of dedicated delivery centers known as “Global Capability Centers” (GCCs) for portfolio companies of private equity firms and mid-market enterprises. Aeries’ engagement models are designed to provide a mix of deep vertical specialty, functional expertise, and digital systems and solutions to scale, optimize and transform a client’s business operations. By leveraging AI, implementing process improvements, and recruiting talent in cost-effective geographies, Aeries is positioned to deliver significant cost savings to its clients.

Aeries supports and drives its clients’ global growth by providing a range of services, including professional advisory services and operations management services, to build and manage GCCs in suitable and cost-effective locations based on client business needs. A key aspect of Aeries’ service is its focus on digital transformation, leveraging cutting-edge technologies like AI to drive innovation and streamline operations.

Aeries’ clients use its services to manage their organizational operations, including software development, IT, data analytics, cybersecurity, finance, HR, and customer service. Aeries hires appropriate talent and personnel on its payroll for deployment on client operations, providing them with opportunities for promotion, recognition and career progression.

As of December 31, 2024, Aeries had more than 30 clients spanning across industries like e-commerce, telecom, security, healthcare, and engineering.

Key Factors Affecting Performance and Comparability

Market Opportunity Aeries’ current markets are North America, Asia Pacific, and the Middle East, with a primary focus on the United States. The company is focused on the private equity ecosystem and mid-market enterprises, providing services and expertise to help clients through their digital transformation journeys.

Private Markets As private market investing evolves, Aeries’ service offerings will adapt accordingly. While periods of macroeconomic growth typically foster increased investment activity, economic slowdowns or volatility could potentially dampen this growth momentum.

Macro-economic headwinds Aeries’ operational performance is influenced by prevailing economic conditions, including macroeconomic factors, inflation, and business sentiment. The company has been impacted by persistent economic and geopolitical uncertainty, including concerns over wage inflation, potential deceleration in global growth, and increased foreign currency volatility.

Customer Retention and Early Termination of Long-Term Contracts Maintaining long-term customer relationships is important, as a significant portion of Aeries’ revenue is derived from these contracts. Clients may choose to terminate or not renew contracts, which could negatively impact the company’s operational results and financial condition, even with contractual provisions providing some financial protection.

Income Taxes Aeries’ effective tax rate has historically varied and will continue to vary based on the tax rate in its jurisdictions of operation, the geographical sources of its earnings, tax relief and incentives, financing and tax planning strategies, and movements in its tax reserves.

Financing Costs Aeries regularly evaluates its variable and fixed-rate debt obligations, which include a revolving credit facility, an unsecured loan from a director, and vehicle loans. Changes in prevailing interest rates and the interest rate charged by the bank will affect the company’s financing cost basis and overall cost of borrowing.

Results of Operations

Overview Aeries has one operating segment and presents and discusses revenues by customer location, which the company believes best depicts how the nature, amount, timing and uncertainty of its revenues and cash flows are affected by industry, market and other economic factors.

The majority of Aeries’ revenues are earned in U.S. dollars, while its costs are primarily incurred in Indian rupees, U.S. dollars, and Mexican pesos. The company bears a substantial portion of the risk of inflation and currency exchange rate fluctuations, which could negatively affect its operating results.

Comparison of the Three Months Ended December 31, 2024 and 2023

Revenue, net For the three months ended December 31, 2024, revenue decreased by $1.3 million or 7% to $17.6 million, primarily due to a $6.1 million decrease from the ramp-down in existing client engagements and the completion of certain consulting projects, partially offset by $4.8 million in revenue growth from new and existing clients.

Cost of Revenue Cost of revenue increased by $0.7 million or 6% to $13.6 million, driven by a $1.6 million increase in employee compensation and benefits, including bonuses, and a $0.3 million increase in administrative costs, partially offset by a $1.2 million decrease in fees to external consultants.

Gross Profit and Margin Gross profit decreased by $2.0 million or 33%, and gross profit margin decreased by 900 basis points to 23%, primarily due to the decline in revenue and the increase in cost of revenue.

Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $3.9 million or 73% to $9.2 million, primarily driven by a $2.1 million provision for expected credit loss on customer receivables, a $1.4 million increase in employee compensation and benefits, and a $0.4 million increase in travel and other administrative costs.

Total Other Income (Expense), net Total other income (expense), net was $5.8 million, compared to $(16.5) million in the prior year period, a $22.2 million or 135% change, primarily due to a change in the fair value of the forward purchase agreement put option liability.

Income Tax Expenses (Benefit) Income tax benefit was $1.4 million, a $1.9 million or 359% decrease compared to a $0.6 million provision in the prior year period, primarily due to increased recognition of deferred tax benefits and lower taxable income.

Comparison of the Nine Months Ended December 31, 2024 and 2023

The key highlights for the nine-month period are:

• Revenue decreased by $1.7 million or 3% to $51.1 million, with $13.9 million in growth from new and existing clients offset by a $15.6 million decrease from the ramp-down in existing engagements and project completions.
• Cost of revenue increased by $2.0 million or 5% to $39.5 million, driven by a $4.9 million increase in employee compensation and benefits, partially offset by a $3.6 million decrease in fees to external consultants.
• Gross profit decreased by $3.7 million or 24%, and gross profit margin decreased by 600 basis points to 23%.
• Selling, general and administrative expenses increased by $25.0 million or 203% to $37.3 million, primarily due to a $11.1 million increase in stock-based compensation, a $5.7 million provision for expected credit loss, and other increases in personnel, legal, and administrative costs.
• Total other income (expense), net was $7.0 million, compared to $(16.4) million in the prior year period, a $23.5 million or 143% change.
• Income tax benefit was $3.0 million, a $4.5 million or 310% decrease compared to a $1.5 million provision in the prior year period.

Non-GAAP Financial Measures

Aeries uses non-GAAP financial measures, including Adjusted EBITDA and Core Adjusted EBITDA, to provide additional information to investors and facilitate comparisons of historical operating results, identify trends in underlying operating results, and provide additional insight and transparency on how the company evaluates the business.

Adjusted EBITDA is defined as net income from operations before interest, taxes, depreciation and amortization, further adjusted to exclude stock-based compensation, M&A transaction-related costs, and changes in fair value of derivative liabilities. Core Adjusted EBITDA excludes EBITDA from non-core business, which includes consulting services primarily for customers in the Middle East.

The company provides reconciliations between the GAAP and non-GAAP financial measures to allow for a better understanding of the adjustments made.

Liquidity and Capital Resources

As of December 31, 2024, Aeries had a working capital deficit of $10.4 million, primarily due to current liabilities related to forward purchase agreements (FPAs) entered into as part of the Business Combination. The company’s ability to continue as a going concern is dependent on successfully executing its mitigation plan, which includes raising additional funds, restructuring current liabilities, and further reducing non-core expenses.

The company’s cash flow analysis shows:

• Net cash used in operating activities decreased by $1.9 million, primarily due to a decrease in net income and adjustments, partially offset by improved working capital management.
• Net cash used in investing activities increased by $0.2 million, primarily for the purchase of property and equipment and issuance of loans to affiliates.
• Net cash provided by financing activities decreased by $3.1 million, primarily due to lower proceeds from the Business Combination and debt financing, partially offset by lower repayments of debt and other liabilities.

Aeries continues to evaluate its options to improve its available cash balances, liquidity, and cash generated from operations, including raising additional funds, restructuring liabilities, and further reducing non-core expenses.