The following is a discussion of the Company's financial condition and results
of operations comparing the calendar years ended December 31, 2021 and
2020. This section should be read in conjunction with the Company's consolidated
financial statements and the notes thereto that are incorporated herein by
reference and the other financial information included herein and the notes
thereto.
OVERVIEW
The Company's primary business is fashion model management and complementary
business activities. The business of talent management firms, such as
Wilhelmina, depends heavily on the state of the advertising industry, as demand
for talent is driven by digital, mobile, print and television advertising
campaigns for consumer goods, e-commerce, and retail clients. Wilhelmina
believes it has strong brand recognition, which enables it to attract and retain
top agents and talent to service a broad universe of clients. In order to take
advantage of these opportunities and support its continued growth, the Company
will need to continue to successfully allocate resources and staffing in a way
that enhances its ability to respond to new opportunities. The Company continues
to focus on tightly managing costs, recruiting top agents, and scouting and
developing talent.
Although Wilhelmina has a large and diverse client base, it is not immune to
global economic conditions, such as the impact from the COVID-19 pandemic. The
Company closely monitors economic conditions, client spending, and other
industry factors and continually evaluates opportunities to increase the market
share of its existing boards and further expand its geographic reach. There can
be no assurance as to the effects on Wilhelmina of future economic
circumstances, technological developments, client spending patterns, client
creditworthiness and other developments and whether, or to what extent,
Wilhelmina's efforts to respond to them will be effective.
COVID-19 PANDEMIC
On March 11, 2020, the World Health Organization declared the outbreak of novel
coronavirus (COVID-19) as a pandemic, which spread rapidly throughout the United
States and the world. As the global impact of COVID-19 continues, Wilhelmina's
first priority has been to protect the health and safety of its employees and
talent. To help mitigate the spread of the virus and in response to health
advisories and governmental actions and regulations, the Company has modified
its business practices and has implemented health and safety measures that are
designed to protect employees and represented talent.
The Company's revenues are heavily dependent on the level of economic activity
in the United States and the United Kingdom, particularly in the fashion,
advertising and publishing industries, all of which have been negatively
impacted by the pandemic and may not recover as quickly as other sectors of the
economy. There have been mandates from federal, state, and local authorities
requiring forced closures of non-essential businesses. As a result, beginning in
March 2020, the Company saw a significant reduction in customer bookings,
resulting in a negative impact to revenue and earnings. While bookings remained
below pre-pandemic levels during 2021, bookings increased throughout the year.
In addition to reduced revenue, business operations have been adversely affected
by reductions in productivity, limitations on the ability of customers to make
timely payments, disruptions in talents' ability to travel to needed locations,
and supply chain disruptions impeding clothing or footwear wardrobe from
reaching destinations for photoshoots and other bookings. Many of the Company's
customers are large retail and fashion companies, some of which have had to
close stores in the United States and internationally due to the spread of
COVID-19. Some of these customers have filed for bankruptcy and others may be
unable to pay amounts already owed to the Company, resulting in increased future
bad debt expense. These customers also may not emerge from the pandemic with the
financial ability, or need, to purchase Wilhelmina's services to the extent that
they did in previous years. Some model talent have been quarantined far from the
major cities where Wilhelmina's offices are located, and also away from where
most modeling jobs take place. Many U.S. and international airlines have
decreased their flight schedules which, as economic activities resume and
clients increase booking requests, may make it difficult for talent to be
available when and where they are needed. The B.1.1.7 (Alpha), B.1.617.2
(Delta), and B.1.1.529 (Omicron) variants of the COVID-19 virus, which are
believed to spread easily and quickly, have resulted in increased local
restrictions and mandates in the cities in which the Company operates. While
these disruptions are currently expected to be temporary, there continues to be
uncertainty around the duration.
Although some clients have increased activity and bookings recently, rising
COVID-19 infection rates in cities where Wilhelmina operates could lead to a
slower economic recovery in those markets, and possible additional business
closings or local mandates that could slow the recovery in operations there.
Since Wilhelmina extends customary payment terms to its clients, even as
bookings resume, there is likely to be a lag in cash collections. In the
meantime, the Company continues to have significant employee, office rent, and
other expenses.
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Reduced outstanding accounts receivable available as collateral under the
Company's credit agreement with Amegy Bank have limited its access to additional
financing. Since the pandemic began, many stock markets, including Nasdaq
Capital Market where Wilhelmina's common stock is listed, have been volatile. A
decline in the Company's stock price would reduce its market capitalization and
could require additional goodwill or intangible asset impairment writedowns.
The Company has taken the following actions to address the impact of COVID-19,
in order to efficiently manage the business and maintain adequate liquidity and
maximum flexibility:
- In April 2020, obtained approximately $2.0 million in loans under the
Paycheck Protection Program (the "PPP") of the Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act") administered by the U.S.
Small Business Administration ("SBA"). In 2021, these loans were 100%
forgiven.
- Eliminated discretionary travel and entertainment expenses in 2020,
increasing in 2021 as business conditions improved
- Suspended share repurchases.
- Did not renew the leases on three New York City model apartments when
the terms ended in June and August, 2020.
- Did not renew the lease on the Company's New York City office when the
term ended in February 2021, and required all New York based staff to
work remotely.
- Suspended efforts to fill two highly compensated executive roles
- following the resignation of the Company's Chief Executive Officer and
- Vice President in early 2020.
Negotiated discounts with various vendors and service providers.
Effective July 1, 2020, implemented layoffs of approximately 36% of its
staff, including employees at each of the Company's five offices, and
effected temporary salary reductions for the remaining staff through June
2021.
If quarantines and limitations on non-essential work are re-implemented, or
persist for an extended period, the Company may need to implement additional
cost savings measures.
On December 27, 2020, the Consolidated Appropriations Act, 2021 ("CAA") was
signed into law. The CAA expanded eligibility for an employee retention payroll
tax credit for companies impacted by the pandemic with fewer than five hundred
employees and at least a twenty percent decline in gross receipts compared to
the same quarter in 2019, to encourage retention of employees. This payroll tax
credit was a refundable tax credit against certain employment taxes of up to $7
thousand per employee for eligible employers, equal to 70% of qualified wages
paid to employees during a quarter, capped at $10 thousand of qualified wages
per employee. For the year ended December 31, 2021, the Company recorded $1.3
million of Other Income for employee retention payroll tax credit. The Company
has also benefitted from the CAA guidance to treat expenses associated with
forgiven PPP loans as tax deductible.
BREXIT
On January 31, 2020, the United Kingdom ("UK") withdrew from the European Union
("EU"). Effective January 1, 2021, new visa requirements and other restrictions
limit the freedom of movement for British workers to travel to the EU for work,
which may impact the ability of the Company's London office to book modeling
photoshoots that take place in the European Union. It may also be more
difficult, in the future, for talent represented by Wilhelmina London, but based
in the EU, to travel to London and other parts of the UK for photoshoots and
campaign work. New immigration sponsorship or visa requirements could discourage
fashion brands and other clients from booking as frequently in London, which has
historically been an international fashion and modeling hub, and could impact
the revenue of the Company's London operations.
RESULTS OF OPERATIONS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 2021
COMPARED TO YEAR ENDED DECEMBER 31, 2020
In addition to net income, the key financial indicators that the Company reviews
to monitor its business are revenues, model costs, operating expenses and cash
flows.
The Company analyzes revenue by reviewing the mix of revenues generated by the
different boards, by geographic locations and from significant
clients. Wilhelmina's primary sources of revenue include service revenues from
the provision of model and talent services and licensing fees from third-party
agencies licensing the use of the "Wilhelmina" trademark. Service revenues are
primarily derived from talent fees and services charges paid by the client for
bookings directly negotiated by the Company, which are recognized as revenues
when earned and collectability is reasonably assured. Wilhelmina also receives
commissions paid on bookings by third-party agencies which are recognized as
revenues when earned and collectability is reasonably assured. See "Critical
Accounting Policies - Revenue Recognition."
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Wilhelmina provides professional services. Therefore, salary and service costs
represent the largest part of the Company's operating expenses. Salary and
service costs are comprised of payroll and related costs and travel, meals and
entertainment ("T&E") to deliver the Company's services and to enable new
business development activities.
Analysis of Consolidated Statements of Operations
For the Years Ended December 31, 2021 and 2020
(in thousands) 2021 2020 % Change
Service revenues 16,069 11,692 37.4 %
License fees 33 26 26.9 %
TOTAL REVENUES 16,102 11,718 37.4 %
Salaries and service costs 8,644 9,142 (5.4% )
Office and general expenses 2,973 3,608 (17.6% )
Amortization and depreciation 855 1,249 (31.5% )
Cybersecurity incident expenses 575 - 100.0 %
Goodwill impairment - 800 (100.0% )
Corporate overhead 897 888 1.0 %
OPERATING INCOME (LOSS) 2,158 (3,969 ) 154.4 %
OPERATING MARGIN 13.4 % (33.9% )
Foreign exchange loss (gain) 80 (16 ) 600.0 %
Gain on forgiveness of loan (1,994 ) - 100.0 %
Employee retention payroll tax credit (1,320 ) - 100.0 %
Interest expense 51 86 (40.7% )
INCOME (LOSS) BEFORE INCOME TAXES 5,341 (4,039 ) 232.2 %
Current income tax expense (224 ) (178 ) 25.8 %
Deferred tax expense (599 ) (724 ) (17.3% )
Effective tax rate 15.4 % (22.3% )
NET INCOME (LOSS) 4,518 (4,941 ) 191.4 %
Service Revenues
The Company's service revenues fluctuate in response to its clients' willingness
to spend on advertising and the Company's ability to have the desired talent
available. The increase of 37.4% for the year ended December 31, 2021, when
compared to the year ended December 31, 2020, was primarily due to increased
bookings as the cities where Wilhelmina operates reopened and business activity
increased as COVID-19 vaccination rates rose.
License Fees
License fees include franchise revenues from independently owned model agencies
that use the Wilhelmina trademark and various services provided by the Company.
License fees increased by 26.9% for the year ended December 31, 2021, when
compared to the year ended December 31, 2020, primarily due to the timing of
income from licensing agreements.
Salaries and Service Costs
Salaries and service costs consist of payroll related costs and T&E required to
deliver the Company's services to its clients and talents. The 5.4% decrease in
salaries and service costs for the year ended December 31, 2021, when compared
to the year ended December 31, 2020, was primarily due to employee layoffs in
July 2020, temporary reductions in staff salaries, and the closure of the hair
and makeup artist division in the second half of 2020, partially offset by new
employee hires in 2021.
Office and General Expenses
Office and general expenses consist of office and equipment rents, advertising
and promotion, insurance expenses, administration and technology cost. During
the year ended December 31, 2021, office and general expenses decreased 17.6%
when compared to the year ended December 31, 2020, primarily due to reduced rent
expense, computer expense, utilities, and other office expenses, partially
offset by an increase in legal expenses.
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Amortization and Depreciation
Amortization and depreciation expense is incurred with respect to certain
assets, including computer hardware, software, office equipment, furniture and
certain finance lease assets. Amortization and depreciation expense decreased by
31.5% for the year ended December 31, 2021 compared to the year ended December
31, 2020, primarily due to reduced depreciation of assets that became fully
amortized in 2020. Fixed asset purchases (mostly related to technology and
computer equipment) totaled approximately $19 thousand in 2021 and $0.2 million
in 2020.
Goodwill Impairment
No goodwill impairment charges were incurred during 2021. In March 2020, the
Company determined that declines in revenue, COVID-19 impacts on its retail
clients, and declines in its stock price had triggered the requirement for
goodwill impairment testing. The results of the impairment test indicated that
the carrying value of goodwill exceeded its estimated fair value. As a result,
during March 2020, the Company recorded an impairment charge of $0.8 million
related to its goodwill. Further declines in the Company's stock price could
result in additional goodwill impairment charges.
Cybersecurity Incident Expenses
In November 2021, the Company determined that it had recently been the victim of
criminal fraud known to law enforcement authorities as "business e-mail
compromise fraud" which involved employee e-mail impersonation and fraudulent
payment requests targeting the finance department of a division of the Company.
The fraud resulted in unauthorized transfers of funds aggregating approximately
$0.7 million, as well as approximately $10 thousand of professional service fees
to address the fraud. The Company recovered $0.2 million in February 2022, which
is included in accounts receivable on the Company's balance sheet as of December
31, 2021. As a result, the Company recorded a charge of $0.6 million in the
fourth quarter of 2021 within operating expenses on the consolidated statements
of operations.
Loan Forgiveness and Employee Retention Credit
During 2021, the Company recorded a $2.0 million gain on forgiveness of its PPP
loans obtained in 2020 and a $1.3 million employee retention payroll tax credit,
both of which were the result of governmental actions to mitigate the economic
impacts of the COVID-19 pandemic. Management does not presently expect similar
benefits to be available during 2022 and subsequent periods.
Corporate Overhead
Corporate overhead expenses include director and executive officer compensation,
legal, audit and professional fees, corporate office rent, and travel. Corporate
overhead increased by 1.0% for the year ended December 31, 2021, when compared
to the year ended December 31, 2020, primarily due to the timing of expenses
incurred for the Company's audit fees.
Operating Income and Operating Margin
Operating income was $2.2 million and operating margin was 13.4% for the year
ended December 31, 2021, compared to operating loss of $4.0 million and negative
operating margin of 33.9% for the year ended December 31, 2020. These
improvements were primarily the result of increased total revenue and lower
operating expenses, partially offset by cybersecurity incident expenses.
Foreign Currency Loss
The Company realized a loss of $80 thousand from foreign currency exchange
during the year ended December 31, 2021, compared to gain of $16 thousand from
foreign currency exchange during the year ended December 31, 2020. Foreign
currency gain and loss is due to fluctuations in currencies from Great Britain,
Europe, and Latin America.
Interest Expense
Interest expense for the years ended December 31, 2021 and December 31, 2020 was
primarily attributable to accrued interest on term loans drawn during 2016 and
2018 and on finance leases. Interest expense decreased in 2021 due to the
repayment of the balance on the Amegy term loan in August 2021. See, "Liquidity
and Capital Resources."
Income before Income Taxes
Income before income taxes of $5.3 million for the year ended December 31, 2021,
compared to a loss of $4.0 million for the year ended December 31, 2020. The
pre-tax income in 2021 was primarily due to operating income, the gain on
forgiveness of PPP loans, and employee retention payroll tax credits. The loss
in 2020 was primarily due to operating losses and goodwill impairment expense.
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Income Taxes
Generally, the Company's combined effective tax rate is high relative to
reported net income as a result of certain valuation allowances on deferred tax
assets, amortization expense, foreign taxes, and corporate overhead not being
deductible and income being attributable to certain states in which it operates.
The Company operates in three states, which have relatively high tax rates:
California, New York, and Florida. In addition, foreign taxes in the United
Kingdom related to our London office are not deductible for U.S. federal taxes.
The 15.4% effective tax rate during 2021 was lower than typical years due
primarily to the non-taxability of the gain on forgiveness of the PPP loan and
the benefit of the employee retention payroll tax credit.
The Company had income tax of $0.8 million for the year ended December 31, 2021,
compared to $0.9 million for the year ended December 31, 2020. The Company
reported income tax expense for 2020 despite a pre-tax loss due primarily to a
$1.5 million valuation allowance recorded against deferred tax assets. The
valuation allowance was the result of management's assessment as of December 31,
2020 that the benefit of the Company's deferred tax assets would not be realized
primarily due to the impact of the COVID-19 pandemic on its business. Income tax
expense for 2020 was also impacted by foreign taxes in the United Kingdom
related to the Company's London office that are not deductible for U.S. income
tax purposes. In addition, the $0.8 million goodwill impairment recorded in 2020
resulted in only a $0.1 million tax benefit due to certain tax differences.
Net Income
The Company had net income of $4.5 million for the year ended December 31, 2021,
compared to net loss of $4.9 million for the year ended December 31, 2020,
primarily due to the increase in operating income, gain on forgiveness of PPP
loans, and employee retention payroll tax credits. As a result of the
non-recurring nature of each of the cybersecurity incident, the PPP loan
forgiveness and the employee retention payroll tax credit, management does not
believe 2021 net income is necessarily indicative of future operating results.
Liquidity and Capital Resources
The Company's cash balance increased to $10.3 million at December 31, 2021 from
$5.6 million at December 31, 2020. The cash balance increased primarily as a
result of $5.5 million net cash provided by operating activities partially
offset by $0.8 million cash used in financing activities, and the $35 thousand
adverse effect of exchange rate on cash flow.
Net cash provided by operating activities of $5.5 million was primarily the
result of net income and increases in amounts due to models, deferred revenue,
and accounts payable and accrued liabilities, partially offset by increases in
accounts receivable and the noncash gain on forgiveness of PPP loans. The $19
thousand cash used in investing activities was attributable to purchases of
property and equipment, including software and computer equipment. The $0.8
million of cash used in financing activities was primarily attributable to
principal payments on the Company's Amegy Bank term loans and payments on
finance leases.
The Company's primary liquidity needs are for working capital associated with
performing services under its client contracts. Generally, the Company incurs
significant operating expenses with payment terms shorter than its average
collections on billings. The COVID-19 pandemic had an impact on the Company's
cash flows during 2021, primarily due to reduced bookings and modeling jobs
compared to pre-pandemic periods. The Company has taken actions to address the
impact of COVID-19 by reducing expenses and has the ability to implement more
significant cost savings measures if the adverse effects of the pandemic persist
for an extended period. Based on budgeted cash flow information, management
believes that the Company has sufficient liquidity to meet its projected
operational expenses and capital expenditure requirements for the next twelve
months and beyond.
Amegy Bank Credit Agreement
The Company has a credit agreement with Amegy Bank which originally provided a
$4.0 million revolving line of credit and up to a $3.0 million term loan which
could be drawn through October 24, 2016. Amounts outstanding under the term loan
reduced the availability under the revolving line of credit. The revolving line
of credit is subject to a borrowing base derived from 80% of eligible accounts
receivable (as defined) and the Company's minimum net worth covenant. The
revolving line of credit bears interest at prime plus 0.50% payable monthly. The
Company previously had a $0.2 million irrevocable standby letter of credit
outstanding under the revolving line of credit which terminated June 9, 2021,
and had no letters of credit outstanding at December 31, 2021. The Company had
borrowing capacity of $3.0 million at December 31, 2021. The revolving line of
credit expires October 24, 2022.
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On August 16, 2016, the Company drew $2.7 million of the term loan and used the
proceeds to fund the purchase of shares of its common stock in a private
transaction. The term loan bore interest at 4.5% per annum and was payable in
monthly payments of interest only until November, 2016, followed by 47 equal
monthly payments of principal and interest computed on a 60-month amortization
schedule. A final $0.6 million payment of principal and interest was paid on
October 28, 2020.
On July 16, 2018, the Company amended its credit agreement with Amegy Bank to
provide for an additional term loan of up to $1.0 million that could be drawn by
the Company through July 12, 2019, for the purpose of repurchases of its common
stock. The additional term loan was evidenced by a promissory note bearing
interest at 5.15% per annum and was payable in monthly installments of interest
only through July 12, 2019, followed by 47 equal payments of principal and
interest computed on a 60-month amortization schedule.
On August 1, 2018, the Company drew $0.7 million of the additional term loan and
used the proceeds to fund the purchase of 100,000 shares of its common stock in
a private transaction. On December 12, 2018, the Company drew $0.3 million of
the additional term loan and used the proceeds to partially fund a purchase of
50,000 shares of its common stock in a private transaction. On August 31, 2021,
the Company prepaid, without penalty, the $0.6 million remaining balance of the
additional term loan. As of December 31, 2021, there was no outstanding balance
on the term loan.
On March 26, 2020, the Company entered into a Thirteenth Amendment to Credit
Agreement (the "Thirteenth Amendment") with Amegy Bank. The Thirteenth Amendment
amended the minimum net worth covenant to require the Company to maintain
tangible net worth (as defined therein) of $4.0 million, determined on a
quarterly basis. Under the Thirteenth Amendment, Amegy Bank also waived an
existing default caused by the Company's failure to satisfy the previously
required $20.0 million minimum net worth covenant as of December 31, 2019. On
May 12, 2020, the Company entered into a Fourteenth Amendment to Credit
Agreement (the "Fourteenth Amendment") with Amegy Bank. The Fourteenth Amendment
amended the line of credit to reduce the maximum borrowing capacity to $3.0
million. Under the Fourteenth Amendment, Amegy Bank also waived an existing
default caused by the Company's failure to satisfy both the minimum fixed charge
coverage ratio through March 31, 2020 and the minimum tangible net worth as of
March 31, 2020. The Company obtained waivers from Amegy Bank of its failures to
satisfy the fixed charge coverage ratio, the minimum tangible net worth, and the
borrowing base for the quarters ended June 30, 2020 and September 30, 2020. On
November 10, 2020, the Company entered into a Fifteenth Amendment to Credit
Agreement (the "Fifteenth Amendment") with Amegy Bank. The Fifteenth Amendment
waived the minimum tangible net worth covenant until December 31, 2021, after
which a minimum tangible net worth of $1.5 million will be required. The
Fifteenth Amendment also revised the calculation of the fixed charge coverage
ratio such that it was tested at December 31, 2020 based on the preceding six
month period, tested at March 31, 2021 based on the preceding nine month period,
and tested at June 30, 2021 and subsequent periods using a twelve month rolling
period. The Company was in compliance with its bank covenants as of December 31,
2021.
Paycheck Protection Program Loans
On April 15, 2020, Wilhelmina International, Ltd. (the "Borrower"), a
wholly-owned subsidiary of the Company, executed a Business Loan Agreement and a
Promissory Note each dated April 13, 2020 (collectively, the "Sub PPP Loan
Documents"), with respect to a loan in the amount of $1.8 million (the "Sub PPP
Loan") from Amegy Bank. The Sub PPP Loan was obtained pursuant to the PPP. The
Sub PPP Loan originally matured on April 13, 2022 and bore interest at a rate of
1.00% per annum. As allowed under the Paycheck Protection Flexibility Act, the
Sub PPP Loan was extended to mature on April 13, 2025. On March 27, 2021, the
Company received notice from the SBA that the Sub PPP loan, including $17
thousand accrued interest, had been fully forgiven, resulting in $1.9 million of
gain on forgiveness of loan recorded within other (income) expenses during the
quarter ended March 31, 2021.
On April 18, 2020, the Company executed a Business Loan Agreement and a
Promissory Note each dated April 17, 2020 (collectively, the "Parent PPP Loan
Documents"), with respect to a loan in the amount of $128 thousand (the "Parent
PPP Loan") from Amegy Bank. The Parent PPP Loan was also obtained pursuant to
the PPP. The Parent PPP Loan originally matured on April 17, 2022 and bore
interest at a rate of 1.00% per annum. As allowed under the Paycheck Protection
Flexibility Act, the Parent PPP Loan was extended to mature on April 17, 2025.
On April 3, 2021, the Company received notice from the SBA that the Parent PPP
Loan, including $1 thousand accrued interest, had been fully forgiven, resulting
in $0.1 million of gain on forgiveness of loan recorded within other (income)
expense during the quarter ended June 30, 2021. Under the PPP, the SBA reserves
the right to audit any PPP loan forgiveness application for a period of six
years from the date of loan forgiveness.
Critical Accounting Policies and Estimates
The consolidated financial statements of the Company are prepared in accordance
with generally accepted accounting practices in the United States of America
("U.S. GAAP"). The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, costs, and expenses and related disclosures.
We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. In many instances, we
could have reasonably used different accounting estimates, and in other
instances, changes in the accounting estimates are reasonably likely to occur
from period to period. Accordingly, actual results could differ significantly
from the estimates made by our management. To the extent that there are material
differences between these estimates and actual results, our future financial
statement presentation, financial condition, results of operations and cash
flows may be affected.
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The following items require significant estimation or judgement. For additional
information about our accounting policies, refer to "Note 2, Summary of
Significant Accounting Policies" in the audited consolidated financial
statements included herewith.
Revenue Recognition
The Company has adopted the requirements of Accounting Standards Update ("ASU")
No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606"). ASC
606 establishes a principle for recognizing revenue upon the transfer of
promised goods or services to customers, in an amount that reflects the expected
consideration received in exchange for those goods or services.
Our revenues are derived primarily from fashion model bookings, and
representation of social media influencers and actors for commercials, film, and
television. Our performance obligations are primarily satisfied at a point in
time when the talent has completed the contractual requirements.
A contract's transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance obligation is
satisfied. The performance obligations for most of the Company's core modeling
bookings are satisfied on the day of the event, and the "day rate" total fee is
agreed in advance when the customer books the model for a particular date. For
contracts with multiple performance obligations, we allocate the contract's
transaction price to each performance obligation based on the estimated relative
standalone selling price.
We report service revenues on a net basis, which represents gross billings net
of amounts owed to talent, including taxes required to be withheld and remitted
directly to taxing authorities, commissions owed to other agencies, and related
costs such as those paid for photography. The Company typically enters into
contractual agreements with models under which the Company is obligated to pay
talent upon collection of fees from the customer.
Although service revenues are reported on a net basis, accounts receivable are
recorded at the amount of gross billings to customers, inclusive of model costs.
As a result, both accounts receivable and amounts due to models appear large
relative to total revenue.
Amounts billed that have not yet met the applicable revenue recognition criteria
are recorded as deferred revenue.
Share Based Compensation
Share-based compensation expense is estimated at the grant date based on the
award's fair value as calculated by the Black-Scholes option pricing model and
is recognized on a straight line basis as an expense over the requisite service
period, which is generally the vesting period. The determination of the fair
value of share-based awards on the date of grant using an option pricing model
is affected by our stock price as well as assumptions regarding a number of
complex and subjective variables. These variables include the estimated
volatility over the expected term of the awards, actual and projected employee
stock option exercise behaviors, risk-free interest rates, estimated forfeitures
and expected dividends.
Income Taxes
We are subject to income taxes in the United States, the United Kingdom, and
numerous local jurisdictions.
Deferred tax assets are recognized for unused tax losses, unused tax credits,
and deductible temporary differences to the extent that it is probable that
future taxable profits will be available against which they can be used. Unused
tax loss carry-forwards are reviewed at each reporting date and a valuation
allowance is established if it is doubtful we will generate sufficient future
taxable income to utilize the loss carry-forwards.
In determining the amount of current and deferred income tax, we take into
account whether additional taxes, interest, or penalties may be due. Although we
believe that we have adequately reserved for our income taxes, we can provide no
assurance that the final tax outcome will not be materially different. To the
extent that the final tax outcome is different than the amounts recorded, such
differences will affect the provision for income taxes in the period in which
such determination is made and could have a material impact on our financial
condition and operating results.
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Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are accounted for at net realizable value, do not bear
interest and are short-term in nature. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability to collect
on accounts receivable. Based on management's assessment, the Company provides
for estimated uncollectible amounts through a charge to earnings and a credit to
the allowance. Balances that remain outstanding after the Company has used
reasonable collection efforts are written off through a charge to the allowance
and a credit to accounts receivable. The Company generally does not require
collateral.
Although service revenues are reported on a basis net of model costs, accounts
receivable are recorded at the amount of gross billings to customers inclusive
of model costs. As a result, both accounts receivable and amounts due to models
appear large relative to total revenue.
Goodwill and Intangible Asset Impairment Testing
The Company performs impairment testing at least annually and more frequently if
events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds the
reporting unit's fair value. The Company sometimes utilizes an independent
valuation specialist to assist with the determination of fair value. In
accordance with ASU 2017-03, effective January 1, 2020, only a one-step
quantitative impairment test is performed, whereby a goodwill impairment loss
will be measured as the excess of a reporting unit's carrying amount over its
fair value. If the carrying amount of the reporting unit's goodwill exceeds its
fair value, an impairment loss is recognized for any excess of the carrying
amount of the reporting unit's goodwill.
Whenever events or circumstances change, entities have the option to first make
a qualitative evaluation about the likelihood of goodwill impairment. If
impairment is deemed more likely than not, management would perform the goodwill
impairment test. Otherwise, the goodwill impairment test is not required. In
assessing the qualitative factors, the Company assesses relevant events and
circumstances that may impact the fair value and the carrying amount of the
reporting unit. The identification of relevant events and circumstances and how
these may impact a reporting unit's fair value or carrying amount involve
significant judgments and assumptions. The judgment and assumptions include the
identification of macroeconomic conditions, industry and market considerations,
overall financial performance, Company specific events and share price trends,
an assessment of whether each relevant factor will impact the impairment test
positively or negatively, and the magnitude of any such impact.
© Edgar Online, source Glimpses
WILHELMINA INTERNATIONAL, INC. 
