Aeries Technology(AERT) - 2025 Q4 - Annual Report

Part I This section details the company's business operations, corporate history, key risk factors, cybersecurity measures, and property locations Business Overview Aeries Technology provides professional and technology consulting, specializing in Global Capability Centers for private equity and middle-market firms, leveraging AI for efficiency and growth - The company's core business is providing professional and technology consulting services, specializing in the design, set-up, and management of Global Capability Centers (GCCs) for private equity portfolio companies and middle-market companies[22] - Aeries' GCC model aims to deliver significant cost savings (targeting a minimum of 40%, with some clients achieving over 60%) by leveraging cost-effective geographies, AI, and process improvements[22][39] - Key growth strategies include expanding within the private equity ecosystem, cross-selling additional solutions like AI and RPA to existing customers, and accelerating growth into the mid-market enterprise segment[40] - As of March 31, 2025, the company had over 30 clients. Revenue is concentrated, with the top five clients accounting for 57% of revenue in FY2025. Two individual clients contributed 21% and 12% of revenue, respectively[56] - The company completed a business combination with Worldwide Webb Acquisition Corp. (WWAC) on November 6, 2023, which was accounted for as a reverse recapitalization, with AARK being the accounting acquirer[82][84] Services and Solutions Aeries offers modular Global Capability Center services, including setup, optimization, and advisory, across various business functions with AI integration - Aeries offers modular GCC services, including end-to-end setup and operation, optimization modules for existing centers, and full-lifecycle advisory and consulting support[43][44][46][48] - The company provides expertise in core business functions such as Technology, Finance & Accounting, IT Infrastructure, and Cybersecurity, aiming for a 50%+ cost advantage over onshore teams[49][50][54] - Aeries embeds AI-powered transformation services within its GCC models, offering AI strategy, intelligent automation (RPA, IDP), predictive analytics, and process optimization to accelerate clients' digital maturity[51][52][55] Corporate History and Business Combination The company completed a reverse recapitalization with WWAC in November 2023, leading to a significant increase in Aeries' economic interest in AARK and establishing a dual-class share structure - On November 6, 2023, the company consummated a business combination with WWAC, which was accounted for as a reverse recapitalization. Post-combination, Aeries owned 38.24% of the economic interests of AARK[82][84] - Exchange Agreements allow holders of AARK and ATG shares to exchange them for Class A ordinary shares or cash, subject to certain conditions. On April 5, 2024, Mr. Raman Kumar exchanged 9,500 AARK shares for 21,337,000 Class A shares, increasing Aeries' economic interest in AARK from 38.24% to 96.91%[86][87][88] - The company has a dual-class share structure. A Class V share, held by a business associate of Mr. Kumar, has special voting rights (51% of total votes) in the event of extraordinary events like a hostile takeover attempt, effectively making Aeries a "controlled company"[83][212][213] - The company is classified as an "emerging growth company" and a "smaller reporting company," allowing it to take advantage of reduced disclosure obligations[91][94] Risk Factors The company faces substantial going concern risk due to recurring losses and a working capital deficit, compounded by significant customer loss, high client concentration, and material weaknesses in internal controls - Going Concern Risk: The company has identified conditions that raise substantial doubt about its ability to continue as a going concern. This is due to a net loss of $21.6 million in FY2025, a working capital deficit of $11.1 million, and obligations under Forward Purchase Agreements (FPAs)[104] - Loss of Significant Customer: A significant customer provided a non-renewal notice, expected to result in an annual revenue loss of approximately $11.5 million. While a one-time buyout payment of ~$3.0 million is expected, this may not offset the long-term impact[106][142] - Material Weaknesses in Internal Control: The company identified material weaknesses in its internal control over financial reporting, related to improper segregation of duties, inadequate processes for recording transactions, and poor information/communication policies. This led to a restatement of prior financial statements[218][219] - Client Concentration: The business is dependent on key clients, with the top five accounting for 57% of revenue in FY2025. The loss of any key client could materially harm the business[141] - Receivables Risk: The company faces challenges in collecting accounts receivable, particularly in the Middle East and Asia Pacific. In FY2025, it wrote off $9.5 million in receivables and recorded an allowance for doubtful accounts of $3.6 million[132][134] - Controlled Company Status: Due to the voting power of the Class V shareholder, Aeries is a "controlled company" under Nasdaq rules, exempting it from certain corporate governance requirements, such as having a majority of independent directors[212] Cybersecurity Aeries manages cybersecurity risk through a dedicated committee, regular assessments, and Board oversight, maintaining ISO 27001:2022 and SOC 2 Type 2 certifications - The company's risk management program is governed by a cybersecurity committee of senior executives and an Enterprise Risk Management lead, utilizing third-party consultants and maintaining cyber insurance[241] - The Board of Directors oversees cybersecurity risk, receiving at least one annual report from the cybersecurity committee on risks, threats, and program status[244] - The company is ISO 27001:2022 certified and compliant with SOC 2 Type 2 certification, indicating adherence to recognized cybersecurity frameworks[74] Properties The company maintains its corporate office in Mumbai, with global delivery centers across India and Mexico, alongside a Singapore headquarters and U.S. sales offices Global Delivery Centers | Location | Centers | | :--- | :--- | | Hyderabad | 2 | | Bengaluru | 4 | | Mumbai | 3 | | Pune | 1 | | Mexico (Guadalajara) | 3 | Part II This section covers the company's common equity market, management's financial analysis, auditor changes, and internal control effectiveness Market for Common Equity and Related Matters Aeries' Class A shares and warrants trade on Nasdaq, with no anticipated cash dividends, and the report details various unregistered share issuances related to the Business Combination - Class A ordinary shares and warrants are traded on Nasdaq under the symbols "AERT" and "AERTW," respectively[254] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining earnings for business development and growth[256] - In connection with the Business Combination, the company issued 5,638,530 Class A shares to Innovo Consultancy DMCC (controlled by Mr. Kumar) and 2,677,227 shares to non-redeeming shareholders[259][260] - On April 5, 2024, Mr. Kumar exchanged 9,500 AARK ordinary shares for 21,337,000 Class A ordinary shares under the Exchange Agreement[264] Management's Discussion and Analysis (MD&A) MD&A highlights a 3% revenue decrease and a $21.6 million net loss in FY2025, driven by increased SG&A, with management expressing substantial doubt about going concern due to liquidity issues Fiscal Year 2025 vs 2024 Financial Performance (in thousands) | Metric | FY 2025 | FY 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues, net | $70,198 | $72,509 | (3)% | | Gross Profit | $16,720 | $21,641 | (23)% | | (Loss) / income from operations | $(28,770) | $2,987 | (1,063)% | | Net (loss) / income | $(21,595) | $17,256 | (225)% | | Net (loss) / income attributable to shareholders | $(19,714) | $15,657 | (226)% | - Going Concern Warning: Management has identified conditions raising substantial doubt about the company's ability to continue as a going concern. Key factors include a net loss of $21.6 million, a working capital deficit of $11.1 million, liabilities from Forward Purchase Agreements (FPAs), a $9.5 million write-off of receivables, and the non-renewal of a significant customer contract expected to cause an $11.5 million annual revenue loss[311][314] - SG&A expenses increased by 144% to $45.5 million, primarily due to an $11.1 million increase in stock-based compensation, $9.1 million in bad debts, a $1.7 million impairment loss, and a $1.2 million increase in provisions for expected credit loss[303] Adjusted EBITDA Reconciliation (in thousands) | | Year Ended March 31, | | :--- | :--- | :--- | | | 2025 | 2024 | | Net (loss) / income | $(21,595) | $17,256 | | Adjustments | | | | Stock-based compensation | 12,746 | 1,626 | | Business Combination and M&A costs | 6,993 | 3,067 | | Change in fair value of derivative liabilities | (5,323) | (16,167) | | Other adjustments (Depreciation, Interest, etc.) | 3,348 | 3,458 | | Adjusted EBITDA | $(4,652) | $9,192 | | Adjusted EBITDA margin | (6.6)% | 12.7% | Changes in and Disagreements with Accountants Aeries dismissed KNAV CPA LLP and appointed Manohar Chowdhry & Associates due to disagreements over audit scope expansion for revenue recognition and noted material weaknesses - The company dismissed its auditor, KNAV CPA LLP, on August 11, 2024, and appointed Manohar Chowdhry & Associates[350][356] - A disagreement occurred with KNAV over the need to expand audit procedures for revenue recognition in the Middle East and APAC region, which the company felt required more accessible auditing resources located in India[353] - A previously disclosed material weakness in internal control over financial reporting was noted as a "reportable event" under SEC regulations[355] Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2025, due to material weaknesses in internal control over financial reporting, prompting a remediation plan - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025[359] - Material weaknesses were identified in internal control over financial reporting, including: improper segregation of duties, inadequate processes for timely recording of transactions, and inadequate design of communication policies and monitoring activities[365] - These weaknesses led to a restatement of previously issued financial statements to correct misreporting of EPS and share counts[364] - A remediation plan is in process, focusing on improving financial statement review processes and communication with service providers, but its success is not guaranteed[367][368][369] Part III This section outlines the company's corporate governance structure, executive compensation, security ownership, and related party transactions Directors, Executive Officers and Corporate Governance This section details the Board and executive team, noting Aeries' "controlled company" status under Nasdaq rules, and outlines the three standing Board committees - Key leadership includes Venu Raman Kumar as Chairman of the Board and Bhisham (Ajay) Khare as Chief Executive Officer[375] - The company is a "controlled company" under Nasdaq rules, exempting it from the requirement to have a majority of independent directors on its board[412] - The Board has three committees: Audit, Compensation, and Nominating & Corporate Governance. The Audit Committee consists of three independent directors, each qualifying as an "audit committee financial expert"[413][415] Executive Compensation FY2025 executive compensation primarily comprised base salaries and substantial stock/option awards, with no cash bonuses, and new employment agreements outlining future terms FY2025 Summary Compensation Table (in thousands) | Name and Principal Position | Salary ($) | Stock/Option Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Bhisham (Ajay) Khare (CEO) | 389 | 3,460 | 257 | 4,105 | | Sudhir Appukuttan Panikassery (Former CEO) | 565 | 7,314 | 165 | 8,044 | | Daniel S. Webb (CFO & CIO) | 400 | 1,047 | 15 | 1,462 | | Unnikrishnan (Unni) Balakrishnan Nambiar (CTO) | 283 | 925 | - | 1,209 | - No annual cash incentive bonuses were paid to Named Executive Officers for fiscal year 2025[445] - In March 2025, the company entered into new employment agreements with its NEOs, establishing base salaries and severance provisions. Termination without "cause" or for "good reason" entitles the executive to 12 months of base salary as severance[461][464][470] - Non-employee directors receive an annual cash fee of $50,000. The Chairman, Venu Raman Kumar, has a separate agreement for an annual fee, which was temporarily reduced[481][482][488] Security Ownership As of June 25, 2025, Chairman Venu Raman Kumar beneficially owns 58.2% of Class A shares, with insiders collectively holding 79.2%, reinforcing the company's controlled status via a dual-class share structure Beneficial Ownership of Class A Ordinary Shares (as of June 25, 2025) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage of Class A | | :--- | :--- | :--- | | Venu Raman Kumar (Chairman) | 28,098,530 | 58.2% | | Sudhir Appukuttan Panikassery (Vice Chairman) | 5,151,005 | 10.9% | | Bhisham (Ajay) Khare (CEO) | 3,358,624 | 6.9% | | All executive officers and directors as a group (9 individuals) | 38,106,533 | 79.2% | - The company has a dual-class share structure. A single Class V ordinary share holds 51% of the voting power in the event of a hostile change of control or matters related to the appointment/removal of directors[491] Related Party Transactions The company engages in extensive related party transactions with entities controlled by Chairman Venu Raman Kumar and his family, including intercompany loans and consulting services - The company has extensive related party transactions with entities controlled by Chairman Venu Raman Kumar and his family[501][502] - In FY2025, the company provided management consulting services totaling $2.86 million to affiliated entities Aark II Pte Ltd and TSLC Pte Ltd[507] - The company has an outstanding loan from Mr. Vaibhav Rao (son of the Chairman) with a balance of $0.81 million as of March 31, 2025[506] - The company holds investments in preference shares of affiliated entities Aeries Financial Technologies and Aeries Technology Products and Strategies with a combined carrying value of $1.83 million as of March 31, 2025[510][511] Financial Statements and Supplementary Data This section presents the independent auditor's report, consolidated financial statements, and detailed notes providing critical financial context Auditor's Report The auditor's report affirms fair financial statement presentation but includes a critical 'Going Concern Uncertainty' paragraph due to operating losses and working capital deficiency - Going Concern Uncertainty: The auditor's report explicitly includes a paragraph stating that conditions such as operating losses, working capital deficiency, and negative cash flows "raise substantial doubt about the Company's ability to continue as a going concern"[538] Consolidated Financial Statements FY2025 consolidated financial statements reveal a deteriorating position with an $11.1 million working capital deficit, a $21.6 million net loss, and low cash reserves Consolidated Balance Sheet Highlights (in thousands) | | As of March 31, 2025 | As of March 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,764 | $2,084 | | Total current assets | $21,327 | $32,836 | | Total current liabilities | $32,420 | $38,125 | | Working Capital (Deficit) | $(11,093) | $(5,289) | | Total assets | $39,833 | $49,407 | | Total liabilities | $45,937 | $50,587 | | Total shareholders' deficit | $(6,062) | $(1,914) | Consolidated Cash Flow Highlights (in thousands) | | Year Ended March 31, 2025 | Year Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,009) | $(4,299) | | Net cash used in investing activities | $(858) | $(1,740) | | Net cash provided by financing activities | $2,432 | $7,056 | | Cash at end of period | $2,764 | $2,084 | Notes to Consolidated Financial Statements Notes to financial statements detail going concern uncertainty, high customer concentration, the impact of a major contract non-renewal, and the valuation of significant liabilities like the FPA put option - Note 2 (Going Concern): Re-emphasizes the substantial doubt about continuing as a going concern, citing the net loss, working capital deficit, FPA liabilities, and customer non-renewal. Management's mitigation plan includes raising funds, restructuring liabilities, and cost-cutting[579][581] - Note 10 (Revenue): Customer concentration is high. For the year ended March 31, 2025, two customers accounted for 21% and 12% of total revenue, respectively[601] - Note 19 (Non-renewal of Customer Contract): A significant customer contract non-renewal is expected to reduce annual revenues by approximately $11.5 million. The company will receive a one-time buyout payment of approximately $3.0 million[753][754] - Note 20 (Fair Value Measurements): The Forward Purchase Agreement (FPA) put option liability was valued at $5.0 million as of March 31, 2025. This represents a significant potential cash or equity settlement obligation[757][758]