BGSF, Inc. — Q1 2019 10-Q
Reporting period: Unaudited 13 weeks ended March 31, 2019, compared with the 13 weeks ended April 1, 2018. BGSF provides temporary staffing in Real Estate, Professional, and Light Industrial markets. Its business is seasonal; Real Estate demand typically peaks in Q3, Light Industrial demand in Q3 and Q4, and first-quarter service costs are affected by payroll-tax resets.
Financial results
| Metric | Q1 2019 | Prior-year period | Change |
|---|---|---|---|
| Revenue | $68.8 million | $66.9 million | Up 2.9% |
| Gross profit / margin | $18.4 million / 26.8% | $17.3 million / 25.9% | Gross profit up 6.5% |
| Operating income / margin | $3.6 million / 5.2% | $4.0 million / 6.0% | Down 11.1% |
| Net income | $2.50 million | $2.47 million | Up 1.2% |
| Diluted EPS | $0.24 | $0.27 | Down 11.1% |
| Adjusted EBITDA (non-GAAP) | $5.16 million | $5.47 million | Down 5.7% |
| Cash from operations | $5.38 million | $3.60 million | Up $1.79 million |
SG&A increased 13.7% to $13.6 million, outpacing revenue growth, while net interest expense fell 59.5% to $0.35 million. Gross margin improved, but higher SG&A contributed to lower operating income and Adjusted EBITDA. Diluted weighted-average shares rose to 10.4 million from 9.1 million, helping explain the decline in diluted EPS despite slightly higher net income. The effective tax rate was 22.8%, versus 22.1%.
Segments
- Real Estate: Revenue rose 6.3% to $19.2 million; segment operating income increased to $2.82 million from $2.61 million. Management cited geographic expansion, existing-office growth, and higher average bill rates.
- Professional: Revenue declined 1.6% to $30.6 million; operating income fell to $1.83 million from $2.27 million. Management cited lower average bill rates and higher segment expenses, partly offset by increased billed hours and gross margin.
- Light Industrial: Revenue increased 7.2% to $19.0 million; operating income increased to $1.20 million from $1.06 million, supported by higher billed hours, bill rates, and spreads.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were reported as zero at quarter-end. Operating cash flow of $5.38 million was offset principally by $3.07 million of dividends, $1.84 million of term-loan principal payments, and other financing activity.
- Current assets were $38.2 million and current liabilities $19.2 million. Accounts receivable was $35.7 million.
- At March 31, disclosed borrowings were approximately $10.5 million on the revolving facility and $8.3 million of long-term debt. The balance sheet reports $18.2 million of debt net of deferred financing fees. Debt balances declined from year-end; the company attributed lower interest expense in part to prior-year stock-offering proceeds used to repay debt.
- Operating lease liabilities totaled $5.0 million; the company adopted the lease accounting standard in Q1, recording right-of-use assets and lease liabilities without an impact on operating results.
- The company reported compliance with its credit agreement covenants. The revolving facility matures April 2022, is secured by substantially all company assets, and carries variable interest rates.
- The board declared a $0.30-per-share dividend for payment May 13, 2019. Management said operating cash flow and revolver availability should meet normal working-capital needs and planned branch expansion for at least 12 months, while noting that additional growth opportunities could require financing.
Outlook, risks, and other matters
The filing provides no numerical earnings or revenue guidance. Management’s liquidity outlook is subject to economic, competitive, and other factors. Key disclosed risks include availability and cost of qualified field talent and workers’ compensation coverage; labor and employment law compliance; economic weakness in served markets; competition; variable-rate debt; and the ability to integrate acquisitions and fund growth. Revenue concentration by state includes Texas (29%), Tennessee (16%), and Maryland (11%); no individual client partner exceeded 10% of revenue or receivables.
The company reported no material litigation, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and no subsequent events requiring adjustment or disclosure other than the April dividend declaration. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether higher SG&A and lower Professional-segment operating income persist, and whether margin gains in the other segments continue.
- Whether the improvement in operating cash flow is sustainable given staffing-related working-capital needs and zero reported cash.
- Revolver borrowing availability under its accounts-receivable borrowing base, variable-rate exposure, and continuing covenant compliance.
- Cash requirements for dividends, debt amortization, leases, and the approximately $2.4 million of contingent consideration due within one year.
- How seasonality and first-quarter payroll-tax resets affect results through the remainder of the year; Adjusted EBITDA is non-GAAP and should be considered alongside GAAP results and cash flows.