Business context and reporting period
BG Staffing, Inc. provides temporary staffing in Real Estate, Professional (IT and finance/accounting), and Light Industrial markets. This unaudited Form 10-Q covers the 13 and 39 weeks ended September 29, 2019; comparisons are with the periods ended September 30, 2018. Results are subject to seasonal demand and billing-day fluctuations.
Key financial results
| Metric | 13 weeks 2019 | 13 weeks 2018 | 39 weeks 2019 | 39 weeks 2018 |
|---|---|---|---|---|
| Revenue | $79.4 million | $77.1 million | $222.0 million | $214.9 million |
| Gross profit / margin | $22.2 million / 27.9% | $21.4 million / 27.7% | $61.5 million / 27.7% | $57.9 million / 26.9% |
| Operating income / margin | $6.5 million / 8.2% | $7.1 million / 9.2% | $15.5 million / 7.0% | $17.7 million / 8.2% |
| Net income | $4.2 million | $5.1 million | $10.5 million | $12.7 million |
| Diluted EPS | $0.41 | $0.49 | $1.01 | $1.32 |
| Adjusted EBITDA (non-GAAP) | $8.3 million | $8.2 million | $20.3 million | $20.7 million |
For the 39-week period, operating cash flow was $14.0 million versus $11.4 million; capital expenditures were $1.5 million versus $0.7 million. Financing cash outflow was $12.4 million, including $9.2 million of dividends and $2.7 million of contingent-consideration payments. Cash and cash equivalents were zero at period-end, as at the prior year-end.
At September 29, 2019, current assets were $42.1 million and current liabilities $14.3 million. The company reported $20.6 million outstanding on its revolving credit facility (net carrying amount $20.2 million); no term debt remained. Total liabilities were $38.4 million and stockholders’ equity $67.6 million. Accounts receivable totaled $40.4 million.
Material changes versus prior comparable periods
- Third-quarter revenue rose 3.0%; year-to-date revenue rose 3.3%. Gross margin improved year to date by 0.8 percentage points, but operating margin fell by 1.2 points and net income declined 17.3%.
- Real Estate revenue increased 11.1% in the quarter and 10.9% year to date, reflecting geographic expansion, higher billed hours and rates. Professional revenue increased 8.0% in the quarter and 3.3% year to date; IT growth was partly offset by weaker finance/accounting activity.
- Light Industrial revenue declined 13.9% in the quarter and 5.2% year to date, primarily on lower billed hours. Segment gross margins also weakened year to date in Light Industrial.
- Year-to-date SG&A rose 9.9% to $42.4 million, faster than revenue, including higher compensation, software and occupancy costs. Operating income declined despite higher gross profit.
- Interest expense declined year to date, but a $0.5 million loss on extinguishment of debt was recorded after refinancing. Prior-year results included $2.2 million of contingent-consideration gains, which did not recur.
Outlook, commentary, and risks
- Management stated that operating cash generation and available revolving-credit capacity are expected to meet normal working-capital needs and planned branch openings for at least the next 12 months. No specific revenue or earnings guidance was provided.
- A new BMO credit agreement entered July 16, 2019 matures July 16, 2024 and provides a $35 million revolving facility and up to $30 million in term-loan commitments. The company borrowed $20 million under the revolver to repay prior facilities. Debt is secured by substantially all company and subsidiary assets; financial covenants were met at quarter-end.
- Variable-rate borrowings expose the company to higher interest rates. Other disclosed risks include access to qualified field talent and workers’ compensation coverage, labor-law compliance, client demand and economic conditions, acquisition integration, and the ability to obtain financing for growth. Revenue concentration by state includes Texas at 29% year to date.
- The business is seasonal: Real Estate demand is typically strongest in the third quarter; Light Industrial demand typically peaks in the fourth quarter. Management reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls.
- The board declared a $0.30-per-share dividend on October 29, 2019, payable November 18 to shareholders of record November 11.
Important facts for investors to verify
- Whether weaker Light Industrial activity and Professional finance/accounting demand persist, and whether Real Estate growth continues.
- Cash conversion, receivables collection and working-capital needs, given zero reported cash and substantial receivables.
- Revolver availability, variable-rate exposure, and ongoing compliance with leverage and fixed-charge coverage covenants.
- Whether dividend payments and planned expansion remain supportable by operating cash flow and credit capacity.
- The effect of higher SG&A and the nonrecurrence of prior-period contingent-consideration gains on future earnings.