BGSF, Inc. — Q1 2021 Form 10-Q
Business context and period. BGSF provides workforce solutions in Real Estate, Professional, and Light Industrial markets. This unaudited report covers the 13 weeks ended March 28, 2021; comparison is with the 13 weeks ended March 29, 2020. Results remain affected by COVID-19 and normal seasonality.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $67.7 million | $74.1 million |
| Gross profit / margin | $18.8 million / 27.8% | $20.3 million / 27.4% |
| Operating income / margin | $1.2 million / 1.8% | $2.7 million / 3.6% |
| Net income / diluted EPS | $0.7 million / $0.07 | $1.5 million / $0.14 |
| Adjusted EBITDA | $2.9 million | $5.3 million |
| Operating cash flow | $1.9 million | $6.6 million |
Revenue fell 8.6%; net income declined 52.5%. Gross margin improved 0.4 percentage points, but operating margin fell 1.8 points as SG&A increased 3.2% and revenue declined. Net interest expense was $0.4 million, down from $0.5 million. The effective tax rate was 16.8%, compared with 31.9%.
- Revenue by segment: Real Estate $18.6 million, down 7.1%; Professional $31.1 million, down 14.3%; Light Industrial $18.0 million, up 1.5%.
- Management attributed declines principally to pandemic-related lower demand and fewer billed hours. Professional also benefited from additional EdgeRock contribution and the Momentum acquisition; Light Industrial gained from logistics demand.
- Company gross profit fell 7.2%, though margin improved mainly on stronger Professional gross margin. Adjusted EBITDA, a non-GAAP measure, fell to $2.9 million from $5.3 million.
Balance sheet, liquidity and cash flows
- At March 28, 2021, total assets were $136.9 million and stockholders’ equity was $65.4 million. Working capital was $19.2 million, versus $25.4 million at year-end 2020.
- Cash and cash equivalents were zero at both period ends. Operating cash flow of $1.9 million was offset by $4.3 million investing outflows, including the $3.8 million Momentum purchase and $0.5 million capital expenditures. Financing provided $2.4 million; net cash change was zero.
- Debt carrying amounts included $9.6 million on the revolving line and $28.6 million of term debt, or approximately $38.1 million combined. The revolving facility has a $35 million commitment and matures July 2024. The company reported compliance with debt covenants.
- Contingent consideration was $4.3 million, including $2.3 million current. The company also had $7.0 million in deferred employer FICA obligations under the CARES Act, with half due by December 2021 and half by December 2022.
Material developments, outlook and risks
- On February 8, 2021, BGSF acquired substantially all of Momentum Solutionz for $3.8 million cash plus contingent consideration of up to $2.2 million. The acquisition contributed approximately $0.2 million of revenue for eight weeks in the quarter. Acquisition-related costs were $0.1 million.
- Management said operating cash flow and borrowing availability should meet normal working-capital needs for at least 12 months, including planned branch openings. It may seek additional financing for further growth opportunities. No specific earnings or revenue guidance was provided.
- Management expects COVID-19 to continue affecting demand, client operations, collections, and financial results. Risks include reduced projects and hiring, client payment delays, availability of qualified workers and workers’ compensation coverage, economic conditions, acquisition integration, labor-law compliance, litigation, and variable interest rates. The company uses an interest-rate swap on $25 million notional of term debt, effective through June 2023.
- The board declared a $0.10 per-share dividend on May 3, 2021, payable May 24 to shareholders of record May 17. The filing reports no change in legal proceedings from the 2020 Form 10-K.
Investor verification priorities
- Track billed hours, client demand, and margin trends by segment, particularly Professional and Real Estate, as pandemic effects and seasonality evolve.
- Assess receivable collections and liquidity given zero cash, lower operating cash flow, and reliance on revolving credit.
- Monitor debt covenant headroom, variable-rate exposure, and scheduled principal payments.
- Verify Momentum’s performance against acquisition assumptions and the estimated contingent consideration payments.
- Confirm the timing and cash impact of deferred employer FICA, dividends, and any further acquisition or expansion spending.