BGSF, Inc. — Q3 2017 Form 10-Q
Reporting period: Unaudited results for the 13 weeks ended September 24, 2017, compared with the 13 weeks ended September 25, 2016; year-to-date figures cover 39 weeks. BGSF provides temporary staffing in Multifamily, Professional, and Commercial markets across 26 states.
Financial performance
| Metric | 13 weeks 2017 | 13 weeks 2016 | 39 weeks 2017 | 39 weeks 2016 |
|---|---|---|---|---|
| Revenue | $71.3M | $67.4M | $196.9M | $189.6M |
| Gross profit / margin | $18.2M / 25.6% | $16.4M / 24.4% | $49.1M / 25.0% | $45.0M / 23.7% |
| Operating income / margin | $5.6M / 7.9% | $4.5M / 6.6% | $12.9M / 6.6% | $11.1M / 5.9% |
| Net income | $3.1M | $2.3M | $6.7M | $4.6M |
| Diluted EPS | $0.35 | $0.26 | $0.75 | $0.56 |
| Adjusted EBITDA | $7.2M | $6.3M | $17.9M | $16.5M |
- Quarterly revenue rose about 5.7% and net income about 33.6%; year-to-date revenue rose about 3.9% and net income about 46.8%.
- Year-to-date operating cash flow was $12.0M, versus $7.1M. Investing used $25.4M, primarily for acquisitions; financing provided $13.4M. Cash and cash equivalents were reported as zero at period-end.
- At September 24, total assets were $112.3M and stockholders’ equity $42.1M. Current assets of $41.2M exceeded current liabilities of $24.0M; accounts receivable was $40.6M.
- Debt outstanding was approximately $44.9M before deferred financing fees: $20.4M on the revolver and $24.5M of term debt. The company also reported $10.4M of contingent consideration liabilities. It was in compliance with credit covenants.
Changes and business drivers
- Quarterly segment revenue: Multifamily $21.8M, up 15.2%; Professional $31.7M, up 22.9%; Commercial $17.8M, down 21.6%. Year-to-date, Multifamily and Professional grew 18.1% and 13.5%, respectively, while Commercial declined 17.6%.
- Management attributed growth mainly to Zycron, acquired in April 2017, and Multifamily expansion. Zycron contributed $9.0M of quarterly and $17.6M of year-to-date revenue. Commercial weakness reflected lower billed hours.
- Gross margin improved as Multifamily and Professional made up a larger share of revenue. Year-to-date interest expense declined 30.4%, mainly reflecting repayment of prior 13% subordinated debt, partly offset by acquisition-related borrowing.
- Total assets increased from $81.2M at December 25, 2016, alongside acquisitions and increased goodwill and intangible assets.
Outlook, risks, and notable items
- No specific financial guidance was provided. Management said operating cash flow and borrowing availability were expected to meet normal working-capital needs and planned branch expansion for at least the next 12 months; additional growth opportunities could require financing.
- Seasonality affects results: Multifamily demand is typically highest in Q3, while Commercial demand generally peaks in Q4 and is weaker in Q1.
- Acquisitions: Zycron was purchased for initial cash consideration of $18.5M plus stock, holdback, and contingent consideration; Smart Resources and Accountable Search were acquired in September for $6.0M initial cash consideration plus contingent consideration of up to $2.0M. Purchase allocations and working-capital adjustments remained preliminary or in process.
- Key risks include worker availability and workers’ compensation insurance costs, labor-law compliance, economic and customer demand changes, acquisition integration, debt service, variable interest rates, and litigation. The company reported no material litigation and no material change to previously disclosed risk factors.
- The board declared a $0.25-per-share dividend after quarter-end, payable November 7, 2017. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm acquisition-related revenue, profitability, purchase accounting, contingent payments, and integration progress—especially given preliminary valuations and working-capital true-ups.
- Review revolver borrowing-base availability, debt amortization and covenant headroom, variable-rate exposure, and ability to sustain dividends while funding growth.
- Assess whether Commercial segment declines continue and whether Multifamily and Professional growth and margins offset them.
- Track receivables, worker-payroll funding needs, operating cash flow, and cash conversion; reported period-end cash was zero.
- Evaluate the company’s non-GAAP Adjusted EBITDA alongside GAAP earnings and cash flows; the filing cautions that it is not a liquidity measure or a substitute for net income.