BG Staffing, Inc. — Q1 2015 Form 10-Q
Business context and period: The company provides temporary staffing through Commercial, Multifamily, and Professional Staffing segments. This unaudited report covers the 13 weeks ended March 29, 2015, compared with the 13 weeks ended March 30, 2014.
Financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $40.9 million | $39.0 million |
| Gross profit / margin | $8.3 million / 20.4% | $7.7 million / 19.8% |
| Operating income (loss) | $864,001 | $(142,964) |
| Net income (loss) | $164,236 | $(1.5) million |
| Diluted EPS | $0.02 | $(0.27) |
| Adjusted EBITDA (non-GAAP) | $2.3 million | $2.1 million |
| Cash from operations | $2.2 million | $2.8 million |
| Cash used in investing | $8.7 million | $46,000 |
| Cash from (used in) financing | $6.5 million | $(2.8) million |
The cash flow statement reports no cash at the beginning or end of either period and no net change in cash. At March 29, 2015, current assets were $25.1 million and current liabilities were $14.4 million. Total assets were $63.6 million and total liabilities were $47.0 million.
Debt, liquidity, and capital
- At quarter-end, the company had $13.3 million outstanding on its $20.0 million revolving facility, versus $4.9 million at December 28, 2014. The filing does not provide a clear figure for remaining borrowing availability under the borrowing-base limits.
- Long-term debt was $16.7 million, including $2.4 million current; total debt including the revolver was approximately $30.0 million. Term Loan B bears 11% interest; the revolver and Term Loan A have LIBOR-based rates.
- The company said it was in compliance with debt covenants. It reported that operating cash and borrowing 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.
- Q1 financing included $8.4 million of net revolver borrowings, primarily to fund the D&W acquisition, and $1.0 million in dividend payments.
Material changes and notable items
- Revenue grew 4.7% year over year. Multifamily revenue increased 23.8% to $7.8 million, supported by expansion outside Texas and growth in Texas. Commercial revenue was essentially flat at $18.6 million. Professional Staffing revenue increased 2.1% to $14.5 million; D&W contributed about $2.0 million, partly offset by lower revenue at American Partners and Extrinsic amid fewer IT projects.
- Gross margin rose to 20.4% from 19.8%, primarily due to higher Multifamily revenue, the company’s highest-margin segment. Multifamily gross margin increased to 34.7%; Professional Staffing margin declined to 21.4% from 22.1%.
- SG&A fell 3.1% to $6.3 million, principally reflecting lower stock-based compensation, partly offset by D&W transaction fees and selling expenses. Depreciation and amortization decreased 15.4%, partly because certain trade names were classified as indefinite-lived in 2014 and are no longer amortized.
- Net income improved from a loss in the prior-year quarter, which included a $987,000 loss on extinguishment of related-party debt. Interest expense also declined, reflecting repayment of related-party notes and lower average borrowings and rates.
- On February 23, 2015, the company acquired substantially all assets of D&W Talent for $8.5 million cash plus contingent consideration with a $2.0 million acquisition-date fair value, subject to a three-year performance measure. D&W was assigned to Professional Staffing. The company recorded approximately $271,000 of acquisition costs in SG&A.
- Q1 included a $21,000 noncash expense from remeasurement of the InStaff put-option liability. Goodwill was $7.8 million and intangible assets were $19.9 million at quarter-end; management reported no interim goodwill impairment trigger.
- After quarter-end, the board declared a $0.25-per-share dividend payable May 25, 2015. On May 4, the company issued 636,500 shares in a private placement for approximately $7.0 million gross proceeds, before about $420,000 of placement commissions.
Outlook, risks, and contingencies
No specific revenue or earnings guidance was provided. Management expressed confidence in liquidity for normal operations and planned expansion over the next 12 months, but said additional growth opportunities may require debt or equity financing. A 1-percentage-point increase in LIBOR was estimated to raise annual interest expense by approximately $0.6 million.
Key risks identified include access to qualified temporary workers and workers’ compensation insurance on reasonable terms; labor-law compliance and regulatory changes; competition and economic weakness in served markets; integration and realization of acquisition benefits; debt service, covenant compliance, and access to financing; and litigation. The company said it was not aware of pending legal proceedings expected to have a material effect. Future dividends are not assured and are subject to board discretion and debt restrictions. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Revolver borrowing-base availability, covenant headroom, and the effect of the scheduled reduction in leverage limits.
- D&W’s contribution to ongoing earnings and cash flow, performance-based contingent consideration, and the final working-capital purchase-price adjustment.
- Whether Multifamily growth and margins are sustainable, and whether Professional Staffing’s lower spreads and reduced IT-project activity persist.
- Cash conversion and working-capital needs given $2.2 million of operating cash flow, substantial receivables, and no reported cash balance at quarter-end.
- Effects of the post-quarter share issuance and dividend on share count, leverage, liquidity, and future distributions.