BG Staffing, Inc. — Q2 2017 Form 10-Q
Reporting period: 13 and 26 weeks ended June 25, 2017; unaudited. BG Staffing provides temporary staffing through Multifamily, Professional, and Commercial segments. It reported 62 branch offices and 20 on-site locations across 26 states.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $68.8 million | $62.6 million | $125.6 million | $122.2 million |
| Gross profit / margin | $17.2 million / 25.0% | $15.2 million / 24.3% | $30.9 million / 24.6% | $28.5 million / 23.4% |
| Operating income / margin | $4.6 million / 6.7% | $4.0 million / 6.4% | $7.3 million / 5.8% | $6.6 million / 5.4% |
| Net income | $2.3 million | $1.4 million | $3.6 million | $2.2 million |
| Diluted EPS | $0.25 | $0.17 | $0.40 | $0.28 |
| Adjusted EBITDA (non-GAAP) | $6.6 million | $5.8 million | $10.8 million | $10.3 million |
- Q2 revenue rose about 9.8%; first-half revenue rose 2.8%. Net income rose about 63% in Q2 and 61% in the first half.
- Q2 segment revenue: Multifamily $16.6 million (+19.1%), Professional $34.2 million (+25.0%), and Commercial $18.0 million (-15.6%). For the first half, the respective changes were +20.3%, +9.1%, and -15.5%.
- Management attributed growth chiefly to Zycron and Multifamily expansion. Zycron contributed approximately $8.7 million revenue and $0.7 million operating income after its April 3 acquisition. Commercial weakness reflected lower billed hours.
- Q2 interest expense fell to $0.84 million from $1.30 million; first-half interest expense fell to $1.40 million from $2.58 million, principally following repayment of 13% subordinated debt. The prior-year periods included a $0.40 million debt-extinguishment loss.
Cash flow, liquidity, and debt
- First-half operating cash flow was $6.8 million, versus $6.1 million a year earlier. Investing cash use was $19.3 million, including $18.5 million for Zycron and $0.8 million of capital expenditures. Financing provided $12.6 million; reported ending cash was $0.
- At June 25, current assets were $40.8 million and current liabilities $23.5 million. Accounts receivable was $39.9 million.
- Debt included $21.7 million drawn on the revolving facility and a $20.0 million term loan (about $41.7 million gross debt); balance-sheet carrying amounts are lower after deferred financing fees. The revolver commitment is $35 million, subject to an eligible-receivables borrowing base, and the term loan and revolver mature in 2022.
- The company reported compliance with credit covenants. Debt bears variable interest, secured by substantially all company and subsidiary assets. Management said operating cash flow and revolver availability should meet normal working-capital needs for at least 12 months.
- First-half cash dividends paid were $4.36 million ($0.25 per share declared). The board declared another $0.25-per-share dividend on July 19, payable August 7, 2017.
Outlook, risks, and other items
- No numerical revenue or earnings guidance was provided. Management noted possible additional financing needs if it pursues further growth opportunities.
- Business is seasonal: Multifamily demand typically strengthens in Q2 and peaks in Q3; Commercial demand generally rises in Q3 and peaks in Q4. Results also vary with billing days and customer activity.
- Key risks include worker availability and workers’ compensation insurance costs, employment-law compliance, competition, integration and realization of acquisition benefits, economic conditions, litigation, and outstanding debt. Variable rates expose earnings and cash flows to rate increases.
- Contingent consideration was $8.34 million at quarter-end, including $5.32 million classified current; payments depend on acquisition performance and estimates use unobservable assumptions. No material litigation was reported, and the filing states there were no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was identified. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- How much of Professional growth and profitability is attributable to Zycron, and whether the acquired business meets its performance targets.
- Whether Commercial’s decline in billed hours continues, and whether Multifamily’s seasonal expansion sustains growth and margins.
- Revolver availability under the borrowing-base formula, debt amortization and variable-rate exposure, and headroom under increasingly restrictive leverage covenants.
- Cash conversion as receivables and payroll obligations change, alongside dividend payments and acquisition-related contingent consideration.
- Adjusted EBITDA is a non-GAAP measure; review its reconciliation and do not treat it as a substitute for operating cash flow or debt-service capacity.