Business context and reporting period
TeamStaff, Inc. (the registrant identified in this filing; its operating subsidiary was DLH Solutions, Inc.) reported its fiscal first quarter ended December 31, 2011. The company focused on federal government healthcare, logistics and technical services, and staff augmentation. It said it planned to seek shareholder approval on February 16, 2012 to change the parent company’s name to DLH Holdings Corp.
Financial performance and position
Amounts below are in millions of dollars except per-share data. The quarter is compared with the three months ended December 31, 2010.
| Metric | Q1 2012 | Prior-year quarter |
|---|---|---|
| Revenue | $11.495 | $10.575 |
| Gross profit / margin | $1.567 / 13.6% | $1.318 / 12.5% |
| Operating loss | $(0.210) | $(0.275) |
| Net loss | $(0.389) | $(0.337) |
| Loss per share, basic and diluted | $(0.06) | $(0.07) |
| Adjusted EBITDA (non-GAAP) | $(0.016) | $(0.179) |
| Operating cash flow | $(1.325) | $(1.985) |
Revenue increased 8.7%, primarily from new awards. Gross profit rose 18.9%; management attributed the margin improvement to better project management on major contracts. G&A increased 12.2% to $1.754 million, reflecting new-contract startup costs, stock grants, and higher business-development activity. Higher interest, financing-cost amortization, and a $56,000 fair-value charge on financial instruments contributed to the larger net loss.
Cash declined $286,000 to $477,000. Operating cash use reflected a $1.311 million increase in receivables, which management linked to slower collections around year-end. Investing cash use was $34,000, and financing provided $1.073 million, mainly from $1.092 million of net revolver advances. At December 31, current assets were $13.597 million and current liabilities $17.283 million, a working-capital deficit of approximately $3.7 million. Shareholders’ equity was $5.335 million.
Debt, liquidity, and material changes
Revolver borrowings were $1.832 million, with $438,000 of stated unused availability under a facility capped at $3 million and limited by eligible receivables. The facility was secured by company assets, carried a stated 5.2% interest rate at quarter-end, and included financial and operating covenants and termination/default provisions. Notes payable were $711,000, primarily related to a settlement with former acquisition sellers. The company also had $350,000 of convertible debentures bearing 10% interest at quarter-end, due in fiscal 2014, plus $238,000 of financial instruments recorded at fair value.
Management said cash, available borrowing, expected operating cash flow and collections, contested or non-cash-settled obligations, and cost reductions were expected to support operations for 12 months from the financial-statement date. That assessment was conditional: delays in collections, reduced borrowing availability, or other shortfalls could materially impair liquidity and might require spending cuts, extended supplier terms, asset sales, curtailed programs, or additional financing. New equity or convertible financing could dilute shareholders.
Outlook, risks, contingencies, and unusual items
- Federal contract concentration: All revenue came from federal agencies, with substantial dependence on the Department of Veterans Affairs (DVA). Work began November 1, 2011 under a DVA blanket purchase agreement with a stated potential maximum value of approximately $145 million through October 31, 2016. The value depends on task orders and is not assured. The award renews or expands work representing about 45% of fiscal 2011 revenue; additional DVA contracts representing nearly another 50% had order coverage into fiscal 2012, but extensions were uncertain.
- Retrospective billings: Approximately $9.3 million of DVA receivables for prior-period wage-rate adjustments remained unbilled at December 31, 2011; associated accrued employee compensation and benefits were approximately $8.7 million. Management expected billing and collection in fiscal 2012, but timing and approval were uncertain. The company was also negotiating possible additional indirect costs and fees estimated at $0.4–$0.6 million, with no assurance of recovery.
- Payroll-tax claims: The company recorded approximately $1.3 million for unresolved IRS payroll-tax matters, including about $500,000 of estimated penalties and interest. No payments were made in fiscal 2011 or the quarter; management intended to seek a payment plan, but resolution and any additional charges were uncertain and could affect liquidity.
- Seller settlement guarantee: The remaining recorded obligation was $711,000; the maximum remaining contingent liability could reach $750,000. Any reduction depends partly on the sellers’ proceeds from reselling shares.
- Other risks and unusual items: Non-renewal of major contracts could adversely affect operations and goodwill; goodwill was $8.595 million and no impairment was recorded at December 31, 2011. A $2.6 million non-cash impairment of the TeamStaff trademark was recorded in fiscal 2011 following the rebranding decision, not in this quarter. The company reported no material changes to previously disclosed risk factors and no litigation believed likely to have a material adverse effect. Management reported disclosure controls were effective at a reasonable-assurance level.
No specific financial guidance was provided. Management cited federal healthcare and selected government-service markets as potential growth opportunities, while noting award delays and budgetary and procurement uncertainty.
Important facts for investors to verify
- Whether the DVA orders and contract extensions materialize, and how much of the stated $145 million potential award is actually funded.
- Timing and collectability of the $9.3 million retrospective DVA receivable, related accrued compensation, and any additional fees.
- Liquidity headroom, eligible-receivables borrowing availability, covenant compliance, and the lender’s termination/default rights.
- Resolution and cash-payment timing of the IRS payroll-tax matter and seller-settlement guarantee.
- Whether the company’s conditional 12-month liquidity assumptions hold, given low cash, operating cash outflow, and the working-capital deficit.