BGSF, Inc. — Q2 2021 Form 10-Q
Reporting period: Fiscal quarter and 26-week year-to-date period ended June 27, 2021; comparisons are to the periods ended June 28, 2020. BGSF provides workforce solutions through Real Estate, Professional, and Light Industrial segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | 26 weeks 2021 | 26 weeks 2020 |
|---|---|---|---|---|
| Revenue | $74.4 million | $62.6 million | $142.1 million | $136.7 million |
| Gross profit / margin | $21.8 million / 29.3% | $16.9 million / 27.0% | $40.6 million / 28.6% | $37.2 million / 27.2% |
| Operating income (loss) | $4.3 million | $(6.1) million | $5.5 million | $(3.4) million |
| Net income (loss) | $3.4 million | $(4.8) million | $4.2 million | $(3.3) million |
| Diluted EPS | $0.33 | $(0.47) | $0.40 | $(0.32) |
| Adjusted EBITDA | $4.8 million | $3.3 million | $7.7 million | $8.5 million |
Q2 revenue increased 18.8%, led by Real Estate (+80.1%) and Light Industrial (+19.9%); Professional revenue declined 1.3%. For the first half, revenue rose 4.0%, with Real Estate up 25.2% and Light Industrial up 9.7%, offset by a 7.8% decline in Professional. Company gross margin improved in both periods. YTD Adjusted EBITDA declined despite higher revenue and gross profit; Adjusted EBITDA is a non-GAAP measure.
Cash flow, balance sheet, and liquidity
- Operating cash flow for the first half was $1.7 million, versus $15.1 million a year earlier, primarily reflecting increased accounts receivable and comparison with deferred employer FICA accruals in 2020. Investing cash outflow was $4.9 million, including the Momentum acquisition and capital expenditures; financing cash inflow was $3.1 million. Cash and cash equivalents were zero at period-end.
- Working capital was $23.3 million, down from $25.4 million at December 27, 2020. Accounts receivable was $46.7 million.
- At June 27, total debt was approximately $40.1 million before deferred financing fees: $12.1 million drawn on the revolving facility and $28.0 million in term debt. The revolver has a $35 million commitment and matures July 2024. The company reported compliance with its debt covenants.
- Total assets were $139.3 million and stockholders’ equity was $68.1 million. The company reported $5.6 million of deferred employer FICA liabilities, with half due by December 31, 2021 and half by December 31, 2022.
Management stated that operating cash flow and borrowing availability were expected to fund normal working-capital needs for at least the next 12 months, while noting that future growth opportunities could require additional financing.
Material changes, outlook, and risks
- The February 2021 Momentum acquisition added approximately $0.8 million of Q2 revenue and $0.1 million of operating income; first-half contribution was approximately $1.2 million of revenue and $0.2 million of operating income. The deal included up to $2.2 million of performance-based contingent consideration.
- A $1.2 million gain from remeasurement of contingent consideration related to the 2019 LJK acquisition benefited Q2 and first-half operating income. The prior-year periods included $7.2 million of impairment losses on Professional-segment intangible assets.
- Management described continued COVID-19 uncertainty affecting client demand, staffing availability, project cancellations, and collections. It noted Real Estate recovery and increased logistics demand, but warned that renewed disruption, client payment delays, or inability to offset revenue declines with cost reductions could adversely affect results and liquidity.
- Other disclosed risks include qualified-worker availability, workers’ compensation coverage and cost, labor-law compliance, competition, acquisition integration, indebtedness, economic conditions, and variable interest rates. A $25 million interest-rate swap hedges part of the term loan through June 2023.
- No numerical earnings or revenue guidance was provided. The board declared a subsequent $0.12-per-share dividend, payable August 23, 2021 to shareholders of record August 16, 2021. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification points
- Assess whether the sharp Real Estate recovery and Light Industrial growth continued, and whether Professional demand stabilized.
- Monitor receivables, collections, operating cash flow, revolver usage, and repayment of deferred employer FICA.
- Separate recurring performance from the contingent-consideration gain, acquisition effects, and prior-year impairment charges; review the non-GAAP Adjusted EBITDA reconciliation.
- Track Momentum’s performance against its contingent-payment targets, the company’s acquisition integration, and compliance with debt covenants.
- Evaluate continuing COVID-19, staffing, workers’ compensation, and client-demand risks against management’s stated liquidity outlook.