BGSF, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017 (53 weeks), compared with the 52-week fiscal year ended December 25, 2016. The filing was signed March 8, 2018. BGSF provides temporary staffing through Multifamily, Professional, and Commercial segments.
Financial performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $272.6 million | $253.9 million |
| Gross profit / margin | $68.4 million / 25.1% | $60.1 million / 23.7% |
| Operating income / margin | $17.8 million / 6.5% | $15.5 million / 6.1% |
| Net income / diluted EPS | $5.8 million / $0.65 | $6.9 million / $0.82 |
| Adjusted EBITDA | $24.5 million | $22.6 million |
| Cash from operating activities | $18.1 million | $9.5 million |
Revenue grew 7.4%, gross profit 13.9%, and operating income 14.3%; net income declined 15.0%. SG&A rose 17.3% to $44.3 million. The filing reports FY 2017 gross, operating, and net margins of 25.1%, 6.5%, and 2.1%, respectively. Adjusted EBITDA is a non-GAAP measure and should not be treated as cash flow or a substitute for net income.
By segment, revenue was $71.8 million in Multifamily (up 23.8%), $126.6 million in Professional (up 18.3%), and $74.2 million in Commercial (down 16.5%). Multifamily and Professional growth reflected expansion and acquisitions; Commercial’s decline primarily reflected fewer billed hours.
Balance sheet, debt, and liquidity
- At year-end, working capital was $16.3 million, compared with $19.2 million a year earlier; total assets were $104.6 million and stockholders’ equity was $39.1 million.
- Debt outstanding was approximately $45.3 million before deferred financing fees: $21.4 million on the revolver and $23.9 million of term debt. The balance-sheet carrying amount, net of fees, was $44.1 million.
- Operating cash flow of $18.1 million was more than offset by $25.6 million of investing outflows, primarily acquisition spending. Financing activities provided $7.6 million. Reported cash and cash equivalents were zero at year-end.
- The company reported compliance with credit covenants at December 31, 2017. Management said operating cash flow and revolving-credit availability should cover normal working-capital needs for at least 12 months, including planned branch openings.
Material changes, outlook, and risks
- BGSF acquired Zycron in April and Smart in September 2017. The acquisitions added $24.5 million of cash consideration, $1.0 million of stock consideration for Zycron, and contingent consideration. Acquired businesses contributed approximately $30.3 million of FY revenue in the reported period.
- The Tax Cuts and Jobs Act prompted a $3.3 million reduction in net deferred tax assets and a corresponding tax expense. FY income tax expense was $8.7 million, an effective rate of 59.7%, versus 38.4% in 2016. Fourth-quarter net loss was $874,786 despite pretax income of $3.9 million; the quarterly table does not separately identify the tax charge driving that loss.
- No quantified revenue or earnings guidance was provided. Management emphasized continued organic growth, geographic expansion, acquisitions, and investment in technology and processes.
- Key risks include economic cyclicality, intense price competition, customers’ ability to terminate contracts on little notice, recruiting and retaining temporary workers, customer payment delays, substantial payroll-related working-capital needs, workers’ compensation collateral and insurance availability, acquisition integration, and variable-rate debt and covenant constraints.
- Annual dividends were $1.00 per share. The credit agreement restricts dividends; a further $0.25-per-share dividend was declared for February 2018.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements; it did not opine on internal-control effectiveness. Management said it was not currently party to material litigation.
Important facts for investors to verify
- Review whether the acquired Zycron and Smart operations sustain growth and meet contingent-payment performance targets.
- Track Commercial-segment demand, billed hours, and the effect of its revenue decline on consolidated results.
- Assess debt repayment, revolver availability, covenant headroom, and the funding required for payroll and workers’ compensation collateral.
- Separate recurring operating performance from the $3.3 million tax remeasurement and other acquisition-related accounting effects; reconcile Adjusted EBITDA to GAAP results.
- Confirm the timing and amount of future dividends against credit-agreement limits and liquidity needs.