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 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 clients’ business operations. By leveraging AI, implementing process improvements, and recruiting talent in cost-effective geographies, Aeries aims 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. With a focus on digital enterprise enablement, these GCCs are designed to act as seamless extensions of the client organization, providing access to top-tier resources. This empowers clients to remain competitive and nimble, and to achieve their goals of enduring cost efficiencies, operational excellence, and value creation, without sacrificing functional control and flexibility.

Aeries’ advisory services involve the active participation of senior leadership, recommending strategies and best practices related to operating model design, consultation on various areas, market availability for resources with appropriate skillsets, regulatory compliance, optimization of tax structure, and more. Clients can customize the services based on options provided, and Aeries subsequently firms up the execution plan with the clients.

A key aspect of Aeries’ service is its focus on digital transformation. The company aims to leverage cutting-edge technologies, including AI, to drive innovation and streamline operations. Aeries’ technology services are designed to enhance decision-making, automate processes, and deliver significant business value. This approach through GCC set-up improves operational efficiencies, enabling Aeries to deliver digital transformation services that align with its clients’ growth strategies and support their competitiveness in an evolving digital landscape.

Aeries also uses its services to manage its clients’ organizational operations, including software development, IT, data analytics, cybersecurity, finance, HR, customer service and operations. Aeries hires appropriate talent and personnel on its payroll for deployment on client operations, working collaboratively with clients to select the appropriate candidates and create functional alignment with the clients’ organizations. While Aeries’ talent becomes an extension of its clients’ team, Aeries continues to provide them with the opportunity for promotion, recognition and career path progression, which it believes results in higher employee satisfaction and lower voluntary attrition rates.

As of June 30, 2024, Aeries had more than 30 clients spanning across industry segments, including companies in e-commerce, telecom, security, healthcare, engineering and others.

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. Within these regions, the company is focused on the private equity ecosystem and the mid-market enterprises. Companies are looking for service providers who have the experience, expertise and a transparent engagement model to lead them through the digital transformation journey, which Aeries’ model is purpose-built to provide.

Private Markets As private market investing evolves and the landscape of venture-backed and late-stage private growth companies transforms, Aeries’ service offerings will adapt accordingly, aligning with the shifting dynamics of potential investors and portfolio companies seeking its expertise. While periods of macroeconomic growth in the United States, particularly in private equity markets, typically foster an upsurge in overall investment activity, any economic slowdowns, downturns, or volatility in the broader market and private equity landscape could potentially dampen this growth momentum.

Macro-economic headwinds Aeries’ operational performance is influenced by prevailing economic conditions, including macroeconomic conditions, the overall inflationary climate, and business sentiment. During the three months ended June 30, 2024, there was persistent economic and geopolitical uncertainty in many markets around the world, including concerns over wage inflation, the potential of decelerating global economic growth, and increased volatility in foreign currency exchange rates. These factors have impacted and may continue to impact Aeries’ business operations.

Customer Retention and Early Termination of Long-Term Contracts Maintaining long-term customer relationships is important to Aeries’ business, as a significant portion of its revenue is derived from these contracts. Although Aeries has auto-renewal service agreements with clients, they may choose to terminate or not renew, in which case they must provide a notice period, typically ranging from 90 to 180 days, and pay a termination fee based on the commercial margin if termination occurs without cause. There is an increasing likelihood that clients may choose to terminate Aeries’ service agreements after the company has established and operated delivery centers for them, as it becomes more feasible and cost-efficient for them to take over. While the above-described contractual provisions provide some financial protection, the termination fee may not fully offset the long-term revenue loss, and replacing clients can be challenging due to the lengthy customer acquisition cycle. To mitigate this risk, Aeries focuses on maintaining strong relationships, expanding its customer base, diversifying service offerings, and delivering high-quality service to encourage renewals or alternative service arrangements when terminations occur.

Income Taxes Aeries is incorporated in the Cayman Islands and has operations in India, Mexico, Singapore and the United States. The company’s effective tax rate has historically varied and will continue to vary from year to year based on the tax rate in the jurisdiction of its organization, the geographical sources of its earnings and the tax rates in those countries, the tax relief and incentives available, the financing and tax planning strategies employed, changes in tax laws or the interpretation thereof, and movements in its tax reserves, if any.

Financing Costs Aeries regularly evaluates its variable and fixed-rate debt obligations. The company has historically used short and long-term debt to finance its working capital requirements, capital expenditures and other investments. In May 2023, Aeries amended its revolving credit facility, whereby the total borrowing capacity was increased to $3.8 million, with Kotak Mahindra Bank. The interest rate is equal to the 6 months Marginal Cost of Funds based Lending Rate (MCLR) plus a margin of 0.80% as of June 30, 2024 and March 31, 2024. Aeries also has an outstanding unsecured loan from a director of Aeries Technology Group Business Accelerators Pvt Ltd., Mr. Vaibhav Rao, amounting to $0.8 million at an interest rate of 10% per annum, and an outstanding four-year vehicle loan of $0.1 million at 10.75% per annum.

Results of Operations

Overview Aeries has one operating segment and presents and discusses revenues by customer location, as the company believes this disaggregation 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 following table shows the disaggregation of Aeries’ revenues by major customer location:

| | Three months Ended June 30 |

	2024	2023
North America	$15,507	$12,487
Asia Pacific and Other	$1,160	$3,843
Total revenue	$16,667	$16,330

Aeries’ revenues were primarily earned in U.S. dollars, while its costs were primarily incurred in Indian rupees, U.S. dollars and Mexican pesos. The company bears a substantial portion of the risk of inflation and fluctuations in currency exchange rates, and therefore its operating results could be negatively affected by adverse changes in inflation rates and foreign currency exchange rates.

Comparison of the Three Months Ended June 30, 2024 and June 30, 2023

	Three months Ended June 30
	2024	2023	$ Change	% Change
Revenues, net	$16,667	$16,330	$337	2%
Cost of Revenue	$12,657	$11,883	$774	7%
Gross Profit	$4,010	$4,447	$(437)	(10)%
Gross Profit Margin	24%	27%
Selling, general & administrative expenses	$20,430	$3,670	$16,760	457%
Total operating expenses	$20,430	$3,670	$16,760	457%
Income from operations	$(16,420)	$777	$(17,197)	(2,213)%
Net income / (loss)	$(15,317)	$494	$(15,811)	(3,201)%
Net income / (loss) attributable to the shareholders of Aeries Technology, Inc.	$(14,821)	$421	$(15,242)	(3,620)%

Revenue, net For the three months ended June 30, 2024, Aeries’ revenue increased by $0.3 million or 2%, to $16.7 million from $16.3 million for the three months ended June 30, 2023. The company experienced revenue growth of $3.3 million primarily due to the addition of new clients, which was offset by a $2.9 million decrease in revenue due to the ramp-down in existing client engagements and the completion and closure of certain consulting projects.

Cost of Revenue For the three months ended June 30, 2024, Aeries’ cost of revenue increased by $0.8 million or 7%, to $12.7 million from $11.9 million for the three months ended June 30, 2023. The primary drivers of the increase included a $1.6 million increase in employee compensation and benefits, reflecting an expansion in client-serving headcount to support revenue growth, offset by a $0.9 million decrease in cost related to fees to external consultants.

Gross Profit and Gross Profit Margin For the three months ended June 30, 2024, Aeries’ gross profit decreased by $0.4 million or 10%, compared to the three months ended June 30, 2023. The lower gross profit was primarily due to flat revenue showing a $0.3 million increase, against an increase of $0.8 million in cost of revenue mainly due to the increased compensation costs and benefits, offset by a decrease in cost related to fees to external consultants. Aeries’ gross profit margin decreased by 300 basis points, primarily attributed to a decrease in business from the project-based consulting business, which typically yields higher margins due to billing being based on fixed hourly rates.

Selling, general and administrative expenses Selling, general and administrative expenses (SG&A) increased by $16.8 million, or 457% to $20.4 million for the three months ended June 30, 2024, compared to $3.7 million for the three months ended June 30, 2023. This significant increase was primarily driven by a $11.4 million increase in stock-based compensation related expense, a $1.5 million increase in legal and professional charges related to the Business Combination, and a $1 million provision for expected credit loss on customer receivables. Additionally, employee compensation and benefits increased by $2.8 million due to the expansion of operations, which required increased hiring, resulting in increased personnel related costs, and travel expenses.

Total Other Income (expense), net Total other income / (expense), net was $0.01 million for the three months ended June 30, 2024 compared to total other expense, net of $(0.07) million for the three months ended June 30, 2023, a $0.08 million or 118% change.

Income tax expenses / (benefit) Income tax expense / (benefit) for the three months ended June 30, 2024, was $(1.1) million, a $1.3 million or 600% decrease compared to provision of income taxes of $0.2 million for the three months ended June 30, 2023. The decrease was primarily due to significant increase in recognition of deferred tax benefit on losses in certain subsidiaries having a lower jurisdictional tax rates along with a reduction in taxable income resulting in lower current tax.

Non-GAAP Financial Measures

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

The following table provides a reconciliation from net income (US GAAP measure) to Adjusted EBITDA and Adjusted EBITDA margin (Non-GAAP measures) for the three months ended June 30, 2024, and 2023:

| | Three Months Ended June 30 |

	2024	2023
Net income	$(15,317)	$494
Adjusted EBITDA	$401	$2,902
Adjusted EBITDA Margin	2.4%	17.8%

Liquidity and Capital Resources

As of June 30, 2024, Aeries had $4.2 million in cash and cash equivalents, and the company also generated overall positive cash flows totaling $2.1 million for the three months ended June 30, 2024. Management expects to have sufficient cash from operations, cash reserves and debt capacity for the next 12 months and for the foreseeable future to finance its operations, growth and expansion plans.

The company has historically financed its operations and expansions with cash generated from operations, the revolving credit facility from Kotak Mahindra Bank, and loans from related parties. Aeries may also attempt to raise additional funds through public or private debt or equity financing, and is in ongoing negotiations with relevant parties to potentially restructure the current liabilities into equity or long-term liabilities.

Cash Flow for the Three Months ended June 30, 2024, and 2023

	Three Months Ended June 30
	2024	2023	$ Change
Net cash (used in) / provided by operating activities	$(1,720)	$101	$(1,821)
Net cash used in investing activities	$(608)	$(566)	$(42)
Net cash provided by financing activities	$4,385	$1,006	$3,379
Cash at the end of period	$4,197	$1,664	$2,533

The decrease of $1.8 million in net cash used in operating activities for the three months ended June 30, 2024 was primarily due to a decrease in net income by $15.8 million, partially offset by an increase in adjustments by $11.1 million mainly pertaining to stock-based compensation, and an increase due to better working capital management by $2.9 million.

Net cash used in investing activities during the three months ended June 30, 2024 was $0.6 million, primarily for the purchase of property and equipment and the issuance of loans to affiliates, offset by loan repayments received from affiliates.

Net cash provided by financing activities during the three months ended June 30, 2024 was $4.4 million, primarily from proceeds of the PIPE transaction of $4.7 million, and proceeds from long-term debt, offset by the repayment of short-term debt, payment of insurance financing liability, and payment of finance lease obligation.