BGSF, Inc. — Q1 2022 Form 10-Q
Reporting period: Thirteen weeks ended March 27, 2022, compared with the thirteen weeks ended March 28, 2021. BGSF provides workforce solutions. Following its March 21 sale of substantially all Light Industrial (InStaff) assets, continuing operations comprise Real Estate and Professional; InStaff is reported as discontinued operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Continuing-operations revenue | $68.5 million | $49.8 million |
| Gross profit / margin | $23.4 million / 34.2% | $16.2 million / 32.6% |
| Operating income / margin | $2.8 million / 4.1% | $0.1 million / 0.2% |
| Continuing-operations income (loss) | $2.0 million | $(0.2) million |
| Net income | $15.8 million | $0.7 million |
| Adjusted EBITDA from continuing operations | $3.9 million | $1.3 million |
| Cash from continuing operating activities | $(1.1) million | $(1.2) million |
Revenue rose 37.8%. Real Estate revenue increased 39.2% to $25.9 million, supported by 25.6% higher billed hours and a 9.6% higher average bill rate. Professional revenue increased 36.9% to $42.6 million, primarily reflecting IT Consulting growth, higher billed hours, and the additional weeks of Momentum operations in the comparison. Gross margin improved in both segments. SG&A increased 28.8% to $19.7 million, slower than revenue growth.
Net income includes a $17.3 million pretax gain on the InStaff sale; it is not representative of continuing operating earnings. InStaff contributed $1.2 million of operating income before tax in Q1 2022, compared with $1.2 million in Q1 2021, and its revenue is excluded from the continuing-operations revenue figures above.
Liquidity, debt, and capital
- Cash and cash equivalents were zero at March 27, 2022, down from $0.1 million at December 26, 2021. Working capital from continuing operations was $28.3 million, versus $25.9 million at year-end.
- Continuing operations used $1.1 million of operating cash. Investing activities provided $28.3 million, primarily from $30.3 million of InStaff sale proceeds, partly offset by $2.1 million of capital expenditures. Financing activities used $28.0 million, including repayment of $26.9 million of term debt and $1.6 million of dividends.
- The term loan was fully repaid. Revolver borrowings were $14.2 million gross at quarter-end, against a $35 million facility maturing July 2024. The facility is secured by substantially all company assets. The company reported compliance with its leverage and fixed-charge-coverage covenants.
- Total liabilities were $44.3 million, down from $71.7 million at year-end. Lease liabilities totaled $4.1 million. The company declared a subsequent $0.15-per-share dividend, payable May 24, 2022.
Material changes, outlook, and risks
- The InStaff sale is a strategic shift with a major effect on the company’s operations and future financial results. The agreement also provides for $2.0 million of deferred consideration one year after closing, subject to the agreement’s terms and adjustments. BGSF agreed to provide the buyer limited back-office services.
- Management said cash generated from operations and revolving-facility availability should fund normal working-capital needs for at least the next twelve months, including planned new-market investment. The filing gives no specific revenue, earnings, or margin guidance.
- Management cites seasonality: Real Estate demand generally rises in the second quarter and peaks in the third; winter weather may weigh on first-quarter demand, and payroll-tax resets typically increase first-quarter service costs. COVID-19 effects on demand, talent supply, and estimates remain uncertain.
- Key disclosed risks include availability of qualified workers and workers’ compensation coverage at reasonable terms; labor-law compliance; economic and client-demand weakness; competition; acquisition integration; outstanding debt and variable interest rates; and litigation. A $0.1 million standby letter of credit is outstanding. The company reported no material change in legal proceedings from its prior annual report.
Investor verification points
- Separate recurring continuing-operations performance from the one-time sale gain and discontinued InStaff results; confirm the sale’s final working-capital adjustments and receipt of deferred consideration.
- Track revenue, billed hours, bill rates/spreads, and gross margins in Real Estate and Professional after the Light Industrial exit.
- Assess cash conversion and working-capital needs, including the timing of client collections, payroll and tax obligations, and capital spending.
- Monitor revolver usage, variable-rate exposure, covenant headroom, and the company’s ability to maintain dividends while funding operations and growth.
- Evaluate ongoing COVID-19, labor availability, insurance, seasonal-demand, and economic risks; the filing provides no quantified earnings outlook.