Business Context and Reporting Period
Company: TeamStaff, Inc. (Note: Request metadata listed "DLH Holdings Corp.", but the filing text identifies the registrant as TeamStaff, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2009
Business Overview: TeamStaff provides contract and permanent medical, logistical, information technology, and administrative staffing services primarily to U.S. government entities, including the Department of Veterans Affairs (DVA) and the Department of Defense. Operations are conducted through its subsidiary, TeamStaff Government Solutions (TeamStaff GS).
Strategic Shift: The Company sold substantially all operating assets of its TeamStaff Rx subsidiary (travel nurse staffing) to Advantage RN, LLC on January 4, 2010. Results for TeamStaff Rx are reported as discontinued operations.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Total Revenue | $46.0 million | $58.5 million |
| Operating Revenue (Continuing Ops) | $46.0 million | $47.7 million |
| Gross Profit | $7.0 million (15.2% margin) | $8.9 million (15.3% margin) |
| Income from Operations | $0.4 million | $2.9 million |
| Net Income (Loss) | ($4.4 million) | $1.1 million |
| Loss from Discontinued Operations | ($4.7 million) | ($2.0 million) |
| Cash and Cash Equivalents | $3.0 million | $5.2 million |
| Working Capital | $0.9 million | $5.2 million |
| Debt Outstanding | $0 | $0 |
| Available Credit Facility | $1.7 million (net of reserves) | $1.8 million (net of reserves) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 21.4% to $46.0 million. This includes the removal of $10.8 million in non-recurring retroactive billings recognized in 2008 related to DVA wage determination adjustments. Operating revenue from continuing operations decreased 3.6% due to reduced overtime and net headcount reductions at government facilities.
- Profitability: Net income swung from a $1.1 million profit in 2008 to a $4.4 million loss in 2009. The loss was driven primarily by a $4.7 million loss from discontinued operations (TeamStaff Rx), which included a $2.3 million impairment charge on intangible assets.
- Operating Expenses: Selling, general, and administrative (SG&A) expenses increased 9.7% to $6.5 million, attributed to new business development costs, marketing, and legal settlement expenses.
- Liquidity: Net cash used in operating activities was $2.1 million in 2009, compared to $4.6 million provided in 2008. This shift was driven by the loss from discontinued operations and a $1.1 million payment to the IRS regarding payroll tax contingencies.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management anticipates strong demand in fiscal 2010 due to government funding for veterans' services. The Company is expanding its reach within the Department of Defense and other agencies via GSA e-Buy portals. A new Enterprise Resource Planning (ERP) system is scheduled for implementation in early 2010 to support larger government contracts.
Unusual Items
- Discontinued Operations: The sale of TeamStaff Rx resulted in a $2.3 million impairment charge and an estimated $0.3 million loss on disposal of assets (unfunded lease payments).
- Retroactive Billings: $9.3 million in unbilled receivables related to 2008 DVA wage adjustments remains outstanding. Management expects collection in fiscal 2010 and is negotiating additional gross profit adjustments estimated between $0.4 million and $0.6 million.
Risks and Contingencies
- Customer Concentration: 98% of revenue is derived from U.S. Government customers. Four DVA facilities accounted for 77% of consolidated revenue in 2009. Contract renewals are not guaranteed.
- Debt Covenant Compliance: The Company was not in compliance with the debt service coverage ratio covenant as of September 30, 2009. The lender (Sovereign Bank) waived this non-compliance in January 2010 but reserved rights for future periods. Future violations could trigger debt acceleration.
- Stock Listing: The Company received a deficiency letter from Nasdaq regarding the minimum $1.00 bid price requirement. It has 180 days (until June 15, 2010) to regain compliance or face delisting.
- Legal Proceedings: An ongoing DOJ investigation into procurement practices at DVA facilities (related to a 2005 acquisition) has incurred approximately $1.7 million in cumulative legal costs. The Company intends to offset these costs against a promissory note owed to the former owners of the acquired entity.
- Executive Departure: The CEO, Rick J. Filippelli, announced his resignation effective end of January 2010. A search committee is active, but no successor has been appointed.
Investor Verification Checklist
- Contract Renewals: Verify the status of the six-month extension for DVA pharmacy distribution facilities and the likelihood of winning new solicitations expected in early 2010.
- Debt Covenant Status: Confirm ongoing compliance with the debt service coverage ratio covenant with Sovereign Bank to avoid acceleration of the $2.0 million credit facility.
- Receivables Collection: Monitor the collection of the $9.3 million unbilled receivable from the DVA and the outcome of negotiations for additional gross profit adjustments.
- Stock Listing Compliance: Track the stock price to ensure it meets the $1.00 minimum bid price requirement for at least 10 consecutive trading days within the 180-day grace period.
- CEO Succession: Confirm the appointment of a new Chief Executive Officer to ensure continuity of management.
- Discontinued Operations: Review the final accounting for the TeamStaff Rx sale, including the realization of the $75,000 escrow holdback and the $125,000 rent subsidy payments.