BGSF, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. BG Staffing, Inc. provides temporary staffing services through Multifamily, Professional, and Commercial segments. This unaudited filing covers the 13 and 26 weeks ended June 26, 2016, compared with the corresponding periods ended June 28, 2015. Growth comparisons reflect, in part, the 2015 acquisitions of D&W Talent and Vision Technology Services (VTS).
Financial performance
| Metric | 13 weeks ended June 26, 2016 | 13 weeks ended June 28, 2015 | 26 weeks ended June 26, 2016 | 26 weeks ended June 28, 2015 |
|---|---|---|---|---|
| Revenue | $62.6 million | $49.8 million | $122.2 million | $90.7 million |
| Gross profit / margin | $15.2 million / 24.3% | $10.9 million / 21.8% | $28.5 million / 23.4% | $19.2 million / 21.2% |
| Operating income | $4.0 million | $2.7 million | $6.6 million | $3.5 million |
| Net income | $1.4 million | $1.5 million | $2.2 million | $1.6 million |
| Diluted EPS | $0.17 | $0.20 | $0.28 | $0.23 |
| Adjusted EBITDA (non-GAAP) | $5.8 million | $4.1 million | $10.3 million | $6.2 million |
Cash flow and liquidity. First-half operating cash flow was $6.1 million, up from $3.9 million; investing cash outflow was $0.4 million, versus $9.1 million in 2015, which included acquisition spending. Financing cash outflow was $5.7 million. The statements report no cash at period-end. Current assets were $32.3 million and current liabilities $18.9 million, or approximately $13.5 million of working capital.
Debt and obligations. At June 26, the company had $17.8 million outstanding under its revolving facility, with a $25 million commitment subject to an accounts-receivable borrowing base. It used proceeds from a June equity offering to repay its $15 million senior subordinated term debt; the repayment resulted in a $0.4 million extinguishment loss and a 2% repayment fee. Contingent consideration totaled $8.6 million, including $3.9 million current. The company reported compliance with debt covenants.
Changes versus the prior comparable periods
- Revenue increased 25.8% in Q2 and 34.7% in the first half. Q2 segment revenue growth was led by Multifamily (+41.5%) and Professional (+36.1%); Commercial grew 7.5%. First-half increases were 39.6%, 59.1%, and 10.6%, respectively. Professional growth included VTS and D&W acquisition contributions.
- Gross margin expanded by 2.5 percentage points in Q2 and 2.2 points year to date. Management attributed improvement principally to segment mix, acquisition contributions, and higher spreads.
- Q2 net income declined despite higher revenue and operating income, as interest expense increased to $1.3 million from $0.6 million. First-half net income rose to $2.2 million from $1.6 million, while interest expense increased to $2.6 million from $1.1 million.
- SG&A rose 37.7% in Q2 and 38.9% for the first half, reflecting acquisitions, increased commissions and bonuses, and growth-related costs. Depreciation and amortization also increased, mainly from acquired Professional-segment intangibles.
Outlook, risks, and other notable items
- No numerical earnings or revenue guidance is provided. Management said operating cash generation and revolving-facility availability should cover normal working-capital needs and planned branch openings for at least 12 months; additional growth opportunities could require financing.
- In June, the company issued 1,191,246 shares at $14 per share, raising $16.7 million gross and $15.2 million net after offering costs. The shares represented approximately 16.1% of pre-offering shares, diluting existing holders.
- The board declared a subsequent $0.25-per-share dividend, payable August 15, 2016, to shareholders of record August 8.
- Key risks include availability and cost of qualified temporary workers and workers’ compensation insurance, labor-law compliance, competition, economic conditions, acquisition integration, debt servicing, and variable interest rates. Texas represented 31% of first-half revenue; no single customer represented more than 10%.
- The company reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls. Management identified no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of revenue and profit growth reflects organic performance versus the D&W and VTS acquisitions, and how Professional-segment billed hours and rates are trending.
- Actual revolver availability under the borrowing-base formula, future debt-service capacity, and the cash cost and timing of the $8.6 million contingent-consideration obligations.
- Whether improved gross margins can be sustained while SG&A and interest expense remain elevated.
- The impact of the equity issuance and recurring dividends on per-share returns and liquidity.
- Whether staffing, insurance, geographic, and economic risks or acquisition-related assumptions materially change after the reporting date.