BGSF, Inc. — Form 10-Q Summary
Business context and reporting period
BG Staffing, Inc. provides temporary staffing in Commercial, Multifamily, and Professional Staffing. This unaudited filing covers the 13 weeks ended June 28, 2015 (second quarter) and the 26 weeks ended June 28, 2015, compared with the periods ended June 29, 2014.
Financial performance and position
- Revenue: Second-quarter revenue was $49.8 million, up 16.2% year over year; first-half revenue was $90.7 million, up 10.8%.
- Profitability: Second-quarter gross profit was $10.9 million, with a 21.8% gross margin versus 19.8% a year earlier. Operating income was $2.7 million versus $1.6 million; net income was $1.46 million versus $0.25 million. Diluted EPS was $0.20 versus $0.04.
- First-half results: Gross profit was $19.2 million (21.2% margin) versus $16.2 million (19.8%). Operating income was $3.54 million versus $1.48 million, and net income was $1.63 million versus a net loss of $1.28 million. Diluted EPS was $0.23 versus a loss of $0.23.
- Cash flow: First-half operating cash flow was $3.88 million, compared with $2.75 million. Investing used $9.14 million, principally including $8.78 million for the D&W acquisition. Financing provided $5.26 million. The cash flow statement reports no change in cash and zero beginning and ending cash.
- Debt and liquidity: At June 28, total debt was $24.78 million, including $8.6 million drawn on a $20 million revolving facility; long-term debt was $16.18 million, including current maturities. The company said it was in compliance with debt covenants and expected operating cash flow and facility availability to cover normal working capital needs and planned branch openings for at least 12 months. The filing does not state the undrawn revolver availability as a clear value.
- Other balance-sheet figures: Current assets were $27.77 million and current liabilities were $19.19 million. Total assets were $65.59 million; stockholders’ equity was $22.41 million.
Material changes versus prior periods
- Professional Staffing revenue rose 34.9% in the quarter, primarily reflecting the D&W acquisition; D&W contributed about $5.7 million of quarterly revenue and $7.7 million for the first half. The acquisition closed February 23, 2015, for $8.5 million cash plus contingent consideration with an acquisition-date fair value of $2.04 million.
- Multifamily revenue rose 23.8% in the quarter, while Commercial revenue was essentially flat. Management attributed the stronger company gross margin mainly to Multifamily growth and mix, and to the D&W acquisition.
- First-half SG&A increased 8.2%, including higher selling costs and about $0.3 million in D&W transaction fees; stock-based compensation decreased about $0.8 million. First-half interest expense fell, partly reflecting repayment of related-party subordinated loans in January 2014.
- The company issued common shares in a May 2015 private placement for $7.00 million gross proceeds and paid $2.8 million in dividends during the first half. It declared dividends of $0.25 per share in May and another $0.25 per share in June, payable July 31.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided. Management stated that existing liquidity should meet normal operating needs and planned expansion for at least 12 months, while noting that further growth opportunities may require additional financing.
- Adjusted EBITDA, a non-GAAP measure, was $4.11 million for the quarter and $6.44 million for the first half, versus $2.92 million and $5.04 million, respectively. Management cautions that this measure is not a substitute for GAAP earnings or operating cash flow.
- Debt covenants include minimum debt-service coverage and Adjusted EBITDA requirements and limits on leverage and capital expenditures. The company reported compliance at quarter-end. A one-percentage-point increase in LIBOR would increase annual interest expense by approximately $0.4 million.
- Risks identified include workers’ compensation insurance availability and cost, availability of qualified staff, labor-law compliance, competition, litigation, economic conditions, integration of acquisitions, and the effect of indebtedness on financing flexibility. The company reported no pending legal proceeding expected to materially affect its financial position, results, or cash flow.
- The quarter’s income included a $0.19 million non-cash gain from the change in fair value of a put-option liability. The company also reports that trade names reclassified as indefinite-lived in 2014 reduced first-half 2015 amortization by approximately $0.40 million, or about $0.06 per share.
Important facts for investors to verify
- Reconcile the reported zero beginning and ending cash in the cash flow statement with the balance sheet and the company’s cash-management arrangements.
- Review revolver borrowing-base availability, covenant headroom, and the effect of scheduled debt maturities, particularly the 2018 maturity.
- Assess D&W’s contribution to organic growth and profitability separately from acquired revenue, and monitor contingent consideration of up to $3.5 million.
- Evaluate whether declared dividends and planned expansion remain supportable by cash generation, debt terms, and working-capital needs.
- Review assumptions underlying the Level 3 put-option valuation, acquisition-related intangible assets, and customer receivables allowance.