BGSF, Inc. — FY2020 Form 10-K
Business context and reporting period. BGSF provides U.S. workforce solutions through Real Estate, Professional, and Light Industrial segments. This filing reports the 52 weeks ended December 27, 2020; it is an annual report, not a stand-alone fourth-quarter filing. The company acquired EdgeRock in February 2020 and acquired Momentum Solutionz after year-end, in February 2021.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $277.9 million | $294.3 million |
| Gross profit / margin | $76.2 million / 27.4% | $80.7 million / 27.4% |
| Operating income / margin | $3.5 million / 1.3% | $19.7 million / 6.7% |
| Net income | $1.4 million | $13.2 million |
| Diluted earnings per share | $0.14 | $1.28 |
| Adjusted EBITDA | $18.7 million | $26.6 million |
| Cash from operating activities | $22.3 million | $18.0 million |
| Working capital at year-end | $25.4 million | $27.0 million |
| Borrowings, net of deferred financing fees | $34.6 million | $27.5 million |
Year-end cash and cash equivalents were zero. Total assets were $130.3 million, total liabilities $64.8 million, and stockholders’ equity $65.5 million. The company had a $35 million revolving credit facility and a term loan; it reported compliance with credit agreement covenants at year-end. A $25 million interest-rate swap hedged part of the term loan’s variable-rate exposure.
Material changes versus prior year
- Revenue fell 5.6%, while net income declined about 89%. Operating income was pressured by higher selling, general and administrative expenses and $7.2 million of intangible-asset impairment charges.
- Real Estate revenue declined 28.7% to $68.8 million, reflecting COVID-19-related demand reductions and a 31.7% drop in billed hours.
- Professional revenue increased 12.2% to $138.4 million, principally due to LJK and EdgeRock; the acquired businesses contributed $36.1 million of revenue, while the remaining Professional group declined.
- Light Industrial revenue declined 5.1% to $70.8 million, primarily due to lower billed hours.
- Cash from operations increased by $4.3 million, but investing cash outflow rose to $24.1 million, including $22.0 million for acquisitions. Dividends declared declined to $0.50 per share from $1.20.
Outlook, risks, and unusual items
- Management said COVID-19 continued to reduce demand across segments through project terminations or reductions, hiring freezes, and disruption at client locations. It expected the pandemic and related uncertainty to continue negatively affecting results and financial condition. No quantified earnings or revenue guidance is provided.
- In the second quarter, BGSF recorded $7.2 million of impairment charges in the Professional segment’s finance and accounting group: $3.7 million for a trade name and $3.5 million for a client-partner list. No goodwill impairment was recorded.
- Management cited risks including economic downturns, client payment delays or defaults, short-notice contract cancellations, competition and pricing pressure, recruiting and retaining talent, acquisition integration, debt and covenant requirements, workers’ compensation collateral, and cybersecurity and regulatory exposures.
- The company reported $7.2 million of deferred employer FICA under the CARES Act, with half due by December 31, 2021 and half by December 31, 2022. Contractual obligations also included $34.9 million of debt, $2.5 million of contingent consideration, and $7.5 million of operating lease payments.
- A material weakness identified in 2020 related to controls over goodwill and intangible impairment assessments. Management said it had remediated the weakness; the auditor gave an unqualified opinion on internal controls, but its assessment excluded acquired EdgeRock. The financial-statement audit opinion was also unqualified.
- Subsequent events included the Momentum Solutionz acquisition for $3.8 million cash, with up to $2.2 million contingent consideration, and a declared $0.10-per-share dividend.
Important facts for investors to verify
- Whether demand and billed hours recover in Real Estate and Light Industrial, and whether Professional growth persists excluding acquisitions.
- Cash generation, receivable collections, and available revolving-credit capacity, given weekly payroll obligations and the absence of year-end cash.
- Debt levels, covenant headroom, scheduled repayments, and the impact of variable interest rates despite the swap.
- Whether the impairment-control remediation remains effective and whether EdgeRock controls are integrated; EdgeRock represented 12.5% of FY2020 revenue and was excluded from the internal-control assessment.
- Acquisition performance, contingent consideration, and the impact of Momentum Solutionz on leverage and results.
- Dividend sustainability and compliance with restrictions in the credit agreement.