BGSF, Inc. (BG Staffing, Inc.) — Q1 2020 Form 10-Q
Reporting period: Thirteen weeks ended March 29, 2020; comparison is the thirteen weeks ended March 31, 2019. The company provides workforce staffing in Real Estate, Professional, and Light Industrial markets. Results include eight weeks of EdgeRock operations following its February 3 acquisition.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $74.1 million | $68.8 million |
| Gross profit / margin | $20.3 million / 27.4% | $18.4 million / 26.8% |
| Operating income / margin | $2.7 million / 3.6% | $3.6 million / 5.2% |
| Net income | $1.5 million | $2.5 million |
| Diluted EPS | $0.14 | $0.24 |
| Operating cash flow | $6.6 million | $5.4 million |
| Capital expenditures | $1.0 million | $0.3 million |
Adjusted EBITDA was $5.3 million, versus $5.2 million. This is a non-GAAP measure and should be considered alongside GAAP results. The effective tax rate rose to 31.9% from 22.8%, largely reflecting nondeductible EdgeRock transaction costs and state taxes.
Segments and changes versus prior year
- Real Estate: Revenue increased 4.4% to $20.0 million, primarily from geographic expansion and higher bill rates.
- Professional: Revenue increased 18.8% to $36.3 million; LJK and EdgeRock contributed $6.9 million. The remainder of the Professional business declined $1.1 million.
- Light Industrial: Revenue declined 6.9% to $17.7 million, with billed hours down 11.3%.
- Consolidated gross margin improved, but SG&A rose 19.0% to $16.2 million, including $1.9 million of acquired-business expenses, $0.5 million of transaction fees, and $0.5 million of IT roadmap costs. Operating income and net income consequently declined.
Cash, debt, and liquidity
- At March 29, total assets were $138.1 million, current assets $45.6 million, and current liabilities $19.5 million. Cash and cash equivalents were reported as zero.
- Debt consisted of $21.0 million drawn on the revolving facility and $26.0 million of term debt, or approximately $47.0 million combined. The $35 million revolving facility and term loan are under a credit agreement maturing July 2024; debt is variable-rate and secured by substantially all company assets.
- The company was in compliance with its maximum leverage and minimum fixed-charge coverage covenants at quarter-end. On April 6, it borrowed a further $4.0 million on the term loan and used the proceeds to reduce revolving borrowings.
- Investing cash outflow was $22.7 million, principally the $21.7 million EdgeRock acquisition. Financing cash inflow was $16.1 million, including $18.5 million of term-loan proceeds; $3.1 million was paid in dividends.
Outlook, risks, and notable items
- Management reported that COVID-19 negatively affected demand, talent supply, and operations beginning in the final two weeks of March. April revenue was 26% below pre-pandemic levels: Real Estate down 54%, Light Industrial down 26%, and Professional down 11%. Management expected significant effects in Q2 and potentially beyond; the filing provides no specific full-year earnings or revenue guidance.
- Cost and liquidity actions included a hiring freeze, workforce reductions, delayed capital spending and IT initiatives, reduced travel, remote work, tighter liquidity forecasting, and deferral of the employer Social Security tax under the CARES Act. Management said operating costs were reduced or planned to be reduced by approximately 10% versus pre-COVID levels.
- On May 5, the board declared a $0.05-per-share dividend, payable May 27 to shareholders of record May 20. The filing also reports $0.30 per share declared in Q1.
- Management assessed COVID-19’s potential effect on goodwill and intangible assets and concluded no interim impairment test was required at the time. The ultimate pandemic impact, client payment behavior, and ability to offset revenue declines remain uncertain.
- Other risks include variable interest rates, customer credit and collection risk, staffing and labor-law requirements, acquisition integration, and the ability to maintain covenant compliance and liquidity. The filing reports no material change in legal proceedings and no material control issues.
Investor verification points
- Track post-quarter revenue trends by segment against the April declines and management’s cost-reduction actions.
- Review receivables, allowance for credit losses, client payment timing, and the effect of COVID-19 on working capital.
- Confirm debt balances, revolving availability, variable-rate exposure, and covenant headroom after the April borrowing.
- Assess whether acquisition contributions and integration costs support sustainable Professional segment growth and profitability.
- Monitor the dividend, deferred payroll-tax repayments, and any future goodwill or intangible-asset impairment assessment.