BGSF, Inc. — Fiscal 2021 Form 10-K
Reporting period: 52 weeks ended December 26, 2021. The company provides U.S. workforce solutions. Continuing operations comprise Real Estate staffing and Professional staffing; Light Industrial (InStaff) is reported as discontinued operations.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Continuing-operations revenue | $239.0 million | $207.1 million |
| Gross profit / gross margin | $80.9 million / 33.9% | $66.0 million / 31.9% |
| Operating income (loss) | $14.5 million | ($1.2 million) |
| Continuing-operations net income (loss) | $10.5 million | ($2.1 million) |
| Net income, including discontinued operations | $14.1 million | $1.4 million |
| Adjusted EBITDA from continuing operations | $16.7 million | $13.8 million |
| Continuing operating cash flow | $1.4 million | $19.7 million |
Real Estate revenue rose 33.8% to $92.0 million, reflecting 20.1% higher billed hours and an 11.0% increase in average bill rate. Professional revenue increased 6.2% to $147.0 million, aided by the Momentum acquisition and a full year of EdgeRock operations, partly offset by lower IT Infrastructure & Development revenue. Annual gross-margin improvement reflected stronger segment gross profits. SG&A rose 17.9% to $65.1 million, including higher compensation and acquisition-related costs.
In the fourth quarter, revenue was $67.7 million, gross profit $23.4 million, continuing-operations income $4.3 million, and net income $5.3 million. Compared with fourth-quarter 2020, revenue increased from $49.1 million and net income from $2.2 million.
Balance sheet, liquidity and capital
- Working capital from continuing operations was $25.9 million, versus $18.0 million at fiscal 2020 year-end. Cash was $112,000; accounts receivable were $48.1 million.
- Borrowings totaled approximately $39.6 million gross ($39.45 million net of deferred financing fees): $12.8 million on the revolving facility and $26.9 million of term debt. The revolving facility has a $35 million commitment and matures July 2024. The company was in compliance with its financial covenants at year-end.
- Continuing operating cash flow fell to $1.4 million, primarily due to a $15.2 million increase in accounts receivable and payments on accrued payroll and expenses. Continuing investing cash outflow was $7.0 million, including $3.8 million for Momentum and $3.2 million in capital expenditures.
- Fiscal 2021 dividends declared were $0.44 per share. In February 2022, the board declared a $0.15-per-share dividend, subject to the stated record and payment dates.
Material changes, outlook and risks
- Light Industrial sale: On February 28, 2022, BGSF agreed to sell substantially all InStaff assets to Jobandtalent for approximately $30.3 million at closing plus a conditional $2 million payment on the first anniversary. The company expected closing in first-quarter 2022; proceeds were expected to support investment in managed services and consulting, Real Estate expansion, acquisitions, debt reduction and general corporate purposes. InStaff generated $71.3 million of 2021 revenue and $3.7 million of after-tax income, and its results are presented as discontinued operations.
- COVID-19 and labor markets: Demand recovered in 2021 after pandemic-related disruption in 2020, but management cautioned that recovery may not persist. Economic weakness, new variants, client payment delays, and difficulty recruiting and retaining qualified talent could adversely affect revenue, margins and liquidity.
- Other key risks: Staffing agreements are generally terminable on little or no notice; competition and price pressure are intense; Texas and Tennessee accounted for 23% and 12% of continuing revenue, respectively. Payroll is generally paid weekly while client collections take 30–60 days, creating working-capital exposure. Workers’ compensation collateral, debt covenants, interest-rate exposure, employment claims, regulation and cybersecurity are additional risks.
- Unusual items: Fiscal 2021 included a $2.4 million gain on contingent consideration and a $2.1 million net CARES Act credit in SG&A; 2020 included $7.2 million of impairment losses. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for cash flow or GAAP earnings.
- No quantified forward-year revenue or earnings guidance is provided in the filing. Management said cash from operations and revolver availability were expected to meet normal working-capital needs for at least the next 12 months, while noting that growth opportunities could require additional financing.
Important facts for investors to verify
- Whether and when the InStaff sale closed, final proceeds after purchase-price adjustments, and actual use of proceeds.
- Whether the sharp decline in continuing operating cash flow and higher receivables reversed after year-end, including the collectability and timing of major client balances.
- Post-sale revenue, margins and cash generation in the continuing Real Estate and Professional businesses, particularly the trajectory of IT Infrastructure & Development.
- Debt repayment, revolver availability, covenant headroom and dividend capacity after the sale and under the credit agreement.
- Assumptions supporting Momentum’s acquired intangible assets and contingent consideration; the auditor identified their fair-value estimates as a critical audit matter. Audited financial statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.