BGSF, Inc. — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended December 30, 2018 (52 weeks); comparison year ended December 31, 2017 (53 weeks). The filing also reports unaudited fourth-quarter results. BGSF provides U.S. temporary staffing in Real Estate, Professional, and Light Industrial segments.
Financial performance
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Revenue | $286.9 million | $272.6 million | +5.2% reported; +7% on a 52-week comparable basis |
| Gross profit / margin | $76.6 million / 26.7% | $68.4 million / 25.1% | Gross profit +12.0%; margin +1.6 percentage points |
| Operating income / margin | $24.3 million / 8.5% | $17.8 million / 6.5% | +36.6% |
| Net income | $17.5 million | $5.8 million | +200%; diluted EPS $1.79 vs. $0.65 |
| Adjusted EBITDA | $27.1 million | $24.7 million | +9.6% |
| Operating cash flow | $18.4 million | $18.1 million | +$0.4 million |
| Net cash used in investing | $0.9 million | $25.6 million | FY2017 included $24.5 million for acquisitions |
| Net cash used in financing | $17.5 million | Net cash provided $7.6 million | Included debt repayment and dividends |
Fourth-quarter revenue was $72.0 million, gross profit $18.7 million, pretax income $6.0 million, and net income $4.9 million (diluted EPS $0.47). In fourth-quarter 2017, revenue was $75.7 million and the company reported a net loss of $0.9 million.
Balance sheet and liquidity: At year-end, working capital was $20.6 million, total assets $100.3 million, and stockholders’ equity $65.7 million. Net outstanding borrowings were $20.1 million, down from $44.1 million a year earlier; this comprised approximately $10.7 million under the revolver and $10.1 million of long-term debt before deferred financing fees. Cash and cash equivalents are reported as zero. Management said operating cash flow and revolving-facility availability should meet normal working-capital needs for at least 12 months. The company was in compliance with credit covenants.
Cash dividends declared were $1.15 per share for 2018, totaling $10.9 million. A further $0.30-per-share dividend was declared in February 2019. The credit agreement restricts dividend payments.
Changes and segment performance
- Real Estate: Revenue grew 21.0% to $86.9 million, driven by geographic expansion and existing-office growth; billed hours rose 14.0% and average bill rates 5.3%. Segment operating income increased to $14.8 million from $11.6 million.
- Professional: Revenue fell 5.8% to $119.3 million. IT revenue declined, including lower average bill rates, partly offset by higher billed hours and acquisition contributions. Segment operating income decreased to $8.0 million from $8.5 million.
- Light Industrial: Revenue increased 8.8% to $80.7 million, supported by higher billed hours and average bill rates. Segment operating income increased to $5.6 million from $4.3 million.
- Company-wide margin improvement reflected higher gross profit percentages in all three segments. Reported FY2017 included 53 weeks; management’s comparable 52-week measure shows FY2018 revenue up 7% and gross profit up 14%.
Outlook, commentary, and key risks
- No numerical revenue or earnings guidance is provided. Management expects existing liquidity to support ordinary working-capital needs and planned branch openings over the next 12 months, while noting additional growth opportunities could require financing.
- Management’s growth strategy combines organic expansion, investment in technology and processes, and potential acquisitions. No acquisitions were completed in FY2018.
- Net income benefited from lower tax expense: the FY2017 effective rate included a $3.3 million deferred-tax remeasurement related to the Tax Cuts and Jobs Act; FY2018 effective tax rate was 18.0%, versus 59.7% in FY2017. The comparison is therefore affected by the prior-year tax item.
- In May 2018, BGSF raised $23.3 million gross through a common-stock offering (about $22.2 million net). Proceeds helped reduce debt and fund a $3.3 million payment to cancel former CEO L. Allen Baker’s in-the-money options. The offering increased shares outstanding and diluted existing holders.
- CEO Beth Garvey took office in October 2018; former CEO Baker became board chairman. The filing reports no material litigation and no goodwill impairment in 2018. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
- Principal risks include economic cyclicality and client cancellations on short notice; competition and pricing pressure; geographic concentration (Texas 29%, Tennessee 14%, Maryland 11% of 2018 revenue); payroll funding and customer collection timing; workers’ compensation insurance and collateral needs; variable-rate debt; covenant and dividend restrictions; staffing and employment-law claims; and acquisition integration or impairment risk.
Important facts for investors to verify
- Confirm the reported zero cash balance and available borrowing capacity under the receivables-based revolving facility, given weekly payroll obligations and customer payment terms of roughly 30–60 days.
- Review the quality and sustainability of FY2018 earnings growth, including tax-rate effects, acquisition-related items, contingent-consideration adjustments, and the non-GAAP Adjusted EBITDA reconciliation.
- Assess the Professional segment’s revenue decline and average bill-rate pressure, alongside growth in Real Estate and Light Industrial.
- Check debt amortization, variable interest exposure, covenant headroom, and the credit agreement’s limits on dividends and additional borrowing.
- Evaluate the impact of the 2018 equity issuance and option cancellation on share count, per-share results, and capital allocation.