BGSF, Inc. — FY2015 Form 10-K Summary
Business context and reporting period
BG Staffing, Inc. provides temporary staffing services in the United States through Commercial, Multifamily, and Professional segments. Its services include short-term and contract staffing, on-site workforce management, and permanent placement. This 10-K covers the 52 weeks ended December 27, 2015, and compares results with the 52 weeks ended December 28, 2014. The filing also reports fourth-quarter results; it is not a standalone quarterly filing.
The company operated 36 branch offices and 16 on-site locations in 16 states. Acquisitions of D&W Talent in February 2015 and Vision Technology Services (VTS) in September 2015 expanded the Professional segment.
Financial results and key metrics
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $217.5 million | $172.8 million |
| Gross profit / gross margin | $47.9 million / 22.0% | $34.5 million / 20.0% |
| Operating income / operating margin | $12.0 million / 5.5% | $5.8 million / 3.4% |
| Net income (loss) | $5.35 million | $(0.43) million |
| Diluted earnings (loss) per share | $0.73 | $(0.08) |
| Adjusted EBITDA (non-GAAP) | $17.9 million | $11.6 million |
| Net cash provided by operating activities | $11.8 million | $5.7 million |
Fourth-quarter 2015 revenue was $66.7 million, gross profit was $14.8 million, and net income was $1.51 million. Cash and cash equivalents were zero at year-end; reported operating cash flow was largely used for acquisitions and other investing and financing needs.
At December 27, 2015, working capital was $10.0 million, total assets were $84.4 million, and stockholders’ equity was $25.9 million. Total borrowings, net of financing fees, were $30.6 million, versus $21.6 million a year earlier. The company reported $16.2 million outstanding on its revolving facility and $15.1 million of subordinated debt. The filing reports no off-balance-sheet arrangements.
Changes versus the prior comparable period
- Revenue increased 25.9%; gross profit rose 38.8%, and operating income more than doubled. The company moved from a net loss in 2014 to net income in 2015.
- Commercial revenue increased 7.0% to $87.6 million; management cited higher Texas revenue and bill rates, partly offset by weaker billed hours in other locations, particularly Illinois and Wisconsin.
- Multifamily revenue increased 25.8% to $43.2 million, reflecting expansion outside Texas and higher billed hours and bill rates.
- Professional revenue increased 53.3% to $86.7 million. D&W and VTS contributed approximately $19.1 million and $9.2 million, respectively, during their included post-acquisition periods.
- Gross margin improved from 20.0% to 22.0%, with management attributing the improvement to higher revenue and a larger revenue mix from Multifamily and Professional. SG&A increased 26.2%, including acquisition-related costs, higher compensation, and a $1.7 million earn-out loss.
- Operating cash flow increased to $11.8 million, while investing cash outflow rose to $19.3 million, primarily from the D&W and VTS acquisitions. Financing included $7.0 million of net common-stock proceeds and $6.5 million of cash dividends.
Outlook, risks, contingencies, and unusual items
- Management said operating cash generation and borrowing availability were expected to cover normal working-capital needs and planned branch openings for at least the next 12 months. No numerical revenue or earnings guidance was provided. Additional growth opportunities could require debt or equity financing.
- The August 2015 financing replaced the prior credit arrangements with a $25 million receivables-based revolver, subject to an 85% eligible-receivables borrowing base, and $15 million of subordinated loans. Revolver pricing is variable; subordinated debt carries 10% cash interest plus 3% compounding deferred interest. The company reported covenant compliance at year-end, but debt agreements restrict dividends and other actions.
- Acquisition-related contingent consideration had a year-end carrying value of $11.0 million; estimated undiscounted future cash payments totaled $14.3 million, including $7.8 million estimated for fiscal 2016. Actual payments depend on acquired-business performance.
- Reported results included a $0.44 million loss on extinguishment of debt in 2015, compared with a $0.99 million loss on extinguishment of related-party debt in 2014. The 2015 change in fair value of the put option produced $0.18 million of income; the 2014 change produced $1.18 million of expense. These items affected period comparisons.
- Staffing demand is cyclical and seasonal; Commercial demand typically peaks in the fourth quarter, while Multifamily demand is stronger in the second and third quarters. Customers can generally terminate service agreements on little or no notice. Geographic exposure is concentrated, notably Texas at 41% of 2015 revenue and Rhode Island at 17%.
- Other key risks include intense price competition, working-capital demands from paying workers before customer collections, customer credit risk, workers’ compensation collateral and insurance availability, labor and employment regulation, and the ability to recruit qualified workers. No material litigation was reported, and management said outstanding ordinary-course matters were not expected to materially affect the financial statements.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor issued an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
Important facts for investors to verify
- How much of Professional segment growth and margin improvement is sustainable organically versus attributable to D&W and VTS, and whether the acquisitions meet their performance assumptions.
- Current revolver availability under the receivables borrowing base, covenant headroom, variable-rate exposure, and the capacity to fund payroll and other working-capital needs.
- The timing and amount of contingent-consideration payments, particularly the near-term estimated 2016 payments, and their effect on liquidity.
- Whether cash conversion remains adequate as accounts receivable grow, given zero year-end cash and the timing-driven working-capital movements in 2015.
- The sustainability of margins and dividends, including the effect of seasonality, regional concentration, customer termination rights, and debt-agreement restrictions.
- The treatment of the $17.9 million Adjusted EBITDA figure: it is a non-GAAP measure and does not reflect working-capital needs, capital expenditures, taxes, or debt service.