BGSF, Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Thirteen and twenty-six weeks ended June 26, 2022; comparisons are to periods ended June 27, 2021. BGSF provides workforce solutions through its continuing Real Estate and Professional segments. InStaff, its Light Industrial segment, was sold in March 2022 and is reported as discontinued operations.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue from continuing operations | $74.1 million | $57.4 million | $142.6 million | $107.1 million |
| Gross profit / margin | $25.1 million / 33.8% | $19.2 million / 33.5% | $48.5 million / 34.0% | $35.5 million / 33.1% |
| Operating income | $4.2 million | $3.3 million | $7.1 million | $3.4 million |
| Income from continuing operations | $3.2 million | $2.6 million | $5.2 million | $2.3 million |
| Net income, including discontinued operations | $3.2 million | $3.4 million | $19.0 million | $4.2 million |
| Adjusted EBITDA from continuing operations | $5.4 million | $3.2 million | $9.3 million | $4.5 million |
- Q2 revenue increased about 29%; first-half revenue increased about 33%. First-half diluted EPS was $1.82, including $1.65 per share from the InStaff sale gain; diluted EPS from continuing operations was $0.50.
- Q2 Real Estate revenue grew 41.3% and Professional revenue grew 21.9%. For the first half, the respective increases were 40.4% and 28.8%. Management attributed growth to higher billed hours and bill rates, with Professional growth notably supported by IT Consulting.
- As of June 26, cash was $44,512 and accounts receivable was $50.1 million. Working capital from continuing operations was $33.6 million.
- Revolving-credit borrowings were $17.7 million; no term-loan balance remained after the March repayment. The revolving facility has a $35 million commitment and matures July 2024. The company reported compliance with debt covenants.
- First-half continuing operating cash flow was positive $1.2 million, versus negative $2.4 million a year earlier. Consolidated operating cash flow, including discontinued operations, was negative $1.1 million. Investing cash flow was positive $26.7 million, substantially reflecting the InStaff sale; financing cash flow was negative $25.8 million, including $26.9 million of term-loan repayments and $3.1 million of dividends.
Material changes and unusual items
- BGSF sold substantially all InStaff assets on March 21, 2022, receiving approximately $30.3 million at closing, with another $2.0 million due one year after closing subject to working-capital adjustments. The sale generated a $17.3 million gain before related tax expense. InStaff generated $16.5 million revenue in the first half of 2022 before its sale; it had no Q2 2022 revenue.
- The sale proceeds were used in part to repay the $26.9 million term loan and reduce revolving-credit borrowings. Revolver borrowings nevertheless rose from $12.8 million at December 2021 to $17.7 million at June 2022.
- Q2 SG&A rose 22.3% to $19.9 million, principally due to compensation associated with higher gross profit; software expense also increased. First-half SG&A rose 25.5% to $39.6 million.
- Prior-year comparable results included a $1.2 million gain on contingent consideration, which did not recur in 2022. First-half reported net income is therefore materially affected by the 2022 disposal gain and should be distinguished from continuing-operations earnings.
Outlook, risks and other disclosures
- No quantified revenue or earnings guidance is provided. Management said cash from operations and borrowing availability were expected to cover normal working-capital needs for at least the next twelve months, including planned market expansion; additional growth opportunities could require financing.
- Management cited seasonality, with Real Estate demand historically strongest in Q3. It also warned that inflation and higher interest rates could reduce workforce demand, increase early terminations, diminish projects, and raise borrowing costs. COVID-19 effects remain uncertain.
- Other stated risks include availability of qualified field talent and workers’ compensation coverage, labor and employment regulation, client payment and credit risk, competition, acquisition integration, litigation, and indebtedness. A portion of borrowings carries variable rates.
- The company reported no change in legal-proceedings disclosures from its 2021 Form 10-K, and stated its disclosure controls were effective at a reasonable assurance level. The board declared a $0.15-per-share dividend payable August 22, 2022 to shareholders of record August 15, 2022.
Key facts for investors to verify
- Separate recurring results from the $17.3 million sale gain and confirm the final working-capital adjustment and collection of the deferred $2.0 million sale consideration.
- Review continuing and discontinued cash flows separately, including the reasons consolidated operating cash flow was negative despite positive continuing operating cash flow.
- Track accounts-receivable collections, working-capital needs, revolving-credit usage, variable interest costs, and covenant headroom.
- Assess whether growth in billed hours, bill rates, and segment margins can continue amid labor-market, inflation, economic, and seasonal risks.
- Consider dividends and expansion spending against cash generation and the company’s stated potential need for additional financing.