Business Context and Reporting Period
Company: BG Staffing, Inc. (formerly LTN Staffing, LLC)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Thirteen and thirty-nine weeks ended September 29, 2013.
Business Overview: The Company provides temporary staffing services across three segments: Light Industrial (manufacturing), Multi-family (apartment communities), and IT Staffing. The Company operates in the United States. On November 3, 2013, the Company completed a reorganization and converted from a partnership to a C corporation. Financial statements reflect the historical operations of LTN Staffing, LLC prior to this conversion.
Key Financial Metrics
| Metric | 13 Weeks Ended Sept 29, 2013 |
39 Weeks Ended Sept 29, 2013 |
39 Weeks Ended Sept 23, 2012 |
|---|---|---|---|
| Revenues | $47,865,934 | $107,882,236 | $55,837,883 |
| Gross Profit | $9,072,813 | $20,569,926 | $11,499,394 |
| Gross Margin | 19.0% | 19.1% | 20.6% |
| Operating Income | $2,572,136 | $3,761,292 | $700,274 |
| Net Income (Loss) | $1,417,893 | $1,096,685 | $(957,077) |
| Pro Forma Net Income (C-Corp) | $841,112 | $605,676 | $(578,705) |
| Cash from Operations | N/A | $686,929 | $1,141,300 |
| Total Debt (Current + Long-Term) | N/A | $31,969,241 | N/A |
| Working Capital | $8,960,993 | N/A | N/A |
Note: Total Debt includes $12.1M line of credit, $5.4M term loan, and $15.4M subordinated loans.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 132% year-over-year for the 13-week period and 93% for the 39-week period. This growth is primarily driven by the acquisition of InStaff (Light Industrial) in May 2013 and American Partners, Inc. (IT Staffing) in December 2012.
- Profitability: The Company returned to profitability, reporting net income of $1.42M for the quarter compared to a net loss of $0.31M in the prior year quarter. Operating income improved significantly to $2.57M from $0.24M.
- Segment Performance:
- Light Industrial: Revenue up 124% (13 weeks) due to InStaff acquisition.
- IT Staffing: Revenue up 305% (13 weeks) due to API acquisition.
- Multi-family: Revenue up 34% (13 weeks) due to new branch openings and higher bill rates.
- Margin Compression: Gross margin decreased slightly from 21.1% to 19.0% (13 weeks) due to a shift in revenue mix toward lower-margin segments (Light Industrial and IT) and increased statutory costs (unemployment/worker's comp).
- Debt Levels: Total debt increased significantly to fund acquisitions. The Company drew an additional $6.2M on its line of credit and issued $6M in new subordinated loans.
Guidance, Outlook, Risks, and Unusual Items
- Corporate Reorganization: The Company converted to a C corporation on November 3, 2013. Pro forma tax data is provided to reflect this change, showing a higher effective tax rate than the historical partnership structure.
- Liquidity: The Company has approximately $5.2 million in borrowing availability under its senior credit facility. Management believes cash from operations and available credit are sufficient for the next 12 months.
- Debt Covenants: The Company is in compliance with minimum debt service and senior funded indebtedness to EBITDA covenants. However, subordinated loans require mandatory principal prepayments if specific excess cash flow thresholds are met.
- Key Risks:
- Market Risk: Exposure to floating interest rates on the senior credit facility (LIBOR + margin).
- Insurance: Dependence on workers' compensation insurance availability and pricing.
- Competition: Highly competitive industry with low barriers to entry.
- Stock Liquidity: No active public market currently exists; stock may trade on OTC markets with limited liquidity.
- Unusual Items: Significant cash outflows for investing activities ($10.3M) were driven by the InStaff acquisition ($9.0M) and contingent consideration payments ($1.0M).
Investor Verification Checklist
- Debt Service Capacity: Verify the Company's ability to service $32M in total debt, including the 14% interest rate on subordinated loans and mandatory prepayment triggers.
- Acquisition Integration: Assess the integration progress of InStaff and API and whether projected synergies are being realized.
- Margin Trends: Monitor gross margin trends, specifically the impact of rising statutory costs (unemployment/worker's comp) in the Light Industrial segment.
- Working Capital: Review the significant increase in Accounts Receivable ($25M vs $12.6M prior year) and the associated allowance for doubtful accounts.
- Stock Liquidity: Confirm the status of market making arrangements for the common stock, as no active public market currently exists.