BGSF, Inc. (BG Staffing, Inc.) — Q1 2014 Form 10-Q
Reporting period: Thirteen weeks ended March 30, 2014; comparison period ended March 31, 2013. The company provides temporary staffing in Light Industrial, Multifamily and IT Staffing. Results are unaudited.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $39.04 million | $24.78 million |
| Gross profit / margin | $7.71 million / 19.8% | $4.87 million / 19.6% |
| Operating income (loss) | ($0.14 million) | $0.11 million |
| Net loss | ($1.53 million) | ($0.57 million) |
| Operating cash flow | $2.85 million | ($0.24 million) |
| Capital expenditures | $0.05 million | $0.05 million |
| Adjusted EBITDA (non-GAAP) | $2.12 million | $1.39 million |
Revenue grew about 57.5% year over year. SG&A rose 75.4% to $6.51 million, including $0.8 million of stock-based compensation and about $0.2 million of public-company costs. Depreciation and amortization was $1.35 million. The quarter included a $0.99 million loss on extinguishment of related-party debt and $0.80 million of net interest expense. The $0.38 million income-tax benefit partly offset the pretax loss.
Segment revenue: Light Industrial $18.55 million (prior $8.26 million); Multifamily $6.31 million (prior $4.12 million); IT Staffing $14.17 million (prior $12.40 million). Light Industrial’s increase primarily reflects the May 2013 InStaff acquisition; Multifamily growth reflected higher rates, volume and branch expansion; IT growth was primarily organic, with contributions from prior acquisitions.
Balance sheet at March 30, 2014: Assets were $56.38 million, current assets $23.37 million, current liabilities $16.39 million, and stockholders’ equity $7.39 million. Cash was reported as zero. Accounts receivable was $21.61 million. Debt comprised a $13.2 million revolving balance and $18.875 million of term debt, or $32.075 million in total; the filing reports $2.25 million of current term debt. The company generated operating cash and used financing cash to reduce borrowings and make debt and contingent-consideration payments.
The company said April 28’s credit-facility amendment increased borrowing availability at quarter-end from $2.3 million to $3.7 million. It reported covenant compliance. The balance sheet indicates working capital of approximately $6.98 million, but no cash on hand.
Material changes and financing
- On January 29, 2014, the company refinanced related-party subordinated loans, repaying approximately $14.6 million of principal using a new Fifth Third facility. The refinancing expanded the revolver commitment to $20 million, established Term Loan A of approximately $11.3 million and added $8 million of Term Loan B.
- Term Loan B carries 11% interest and a compounding deferred fee; the revolver and Term Loan A have LIBOR-based rates. The facility matures January 29, 2018 and is secured by company assets.
- The refinancing produced the $0.99 million extinguishment loss. The prior related-party loans accrued interest at 14%.
- InStaff contributed approximately $12.1 million of Q1 2014 revenue. The acquisition closed in May 2013 for $9.0 million cash plus contingent consideration; acquisition-related intangible amortization contributed to higher depreciation and amortization.
- The company converted to C-corporation tax status in November 2013 and began public-company reporting. Q1 2014 stock-based compensation was approximately $0.91 million, including stock awards and warrants.
Outlook, risks and contingencies
No specific revenue or earnings guidance is provided. Management stated that operating cash flow and available borrowing capacity should cover normal working capital needs and planned branch openings for at least the next 12 months, while noting that additional financing may be needed for further growth opportunities. Planned capital expenditures for the fiscal year were approximately $0.1–$0.2 million, excluding acquisitions. The company does not intend to pay cash dividends.
Key risks include staffing-worker availability and workers’ compensation insurance costs; labor and employment regulation; competition and economic conditions; acquisition integration and performance; litigation; and the ability to generate sufficient revenue and profit while servicing debt. A one-percentage-point rise in LIBOR was estimated to increase annual interest expense by approximately $0.9 million. Debt covenants include minimum debt-service coverage and Adjusted EBITDA requirements, leverage limits and a $0.5 million annual capital-expenditure cap. Management reported no material pending legal proceedings and no off-balance-sheet arrangements. It reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor verification priorities
- Assess whether revenue and operating cash flow growth are sustainable, separating InStaff’s acquired contribution from organic growth.
- Verify available revolver capacity, borrowing-base terms, covenant headroom and the refinancing’s total interest and fee burden.
- Track whether segment margins, particularly Light Industrial’s, hold up as the business scales and whether corporate costs decline relative to revenue.
- Review the $0.99 million refinancing loss, stock-based compensation and contingent-consideration obligations when assessing recurring earnings and cash needs.
- Reconcile a filing inconsistency: the segment note reports December 29, 2013 total assets of $37.73 million, while the consolidated balance sheet reports $58.62 million.