BGSF, Inc. — Q3 2021 Form 10-Q
Business context and period: BGSF provides workforce solutions across Real Estate, Professional, and Light Industrial segments. This filing covers the 13 and 39 weeks ended September 26, 2021; comparisons are to the periods ended September 27, 2020. Fiscal 2021 includes 34 weeks of Momentum operations, acquired in February 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Revenue | $82.4M | $71.5M | $224.5M | $208.2M |
| Gross profit / margin | $24.7M / 30.0% | $19.7M / 27.6% | $65.3M / 29.1% | $56.9M / 27.3% |
| Operating income / margin | $6.2M / 7.5% | $3.6M / 5.1% | $11.7M / 5.2% | $0.2M / 0.1% |
| Net income (loss) | $4.6M | $2.6M | $8.8M | $(0.8)M |
| Diluted EPS | $0.45 | $0.25 | $0.85 | $(0.07) |
| Adjusted EBITDA* | $7.0M | $5.5M | $14.6M | $14.0M |
Cash flow: Operating cash flow was $2.4M for the first 39 weeks, versus $18.3M a year earlier. Investing used $5.3M, including $3.8M for Momentum and $1.6M of capital expenditures; financing provided $3.0M. Cash and cash equivalents were reported as zero at both period-end dates.
Liquidity and debt: Working capital was $29.3M, up from $25.4M at December 27, 2020. At September 26, principal outstanding was $13.6M on the revolving facility and $27.4M of term debt, approximately $41.1M combined, compared with approximately $34.9M at year-end. The revolving facility has a $35M commitment and matures July 2024. The company reported compliance with debt covenants. A $25M interest-rate swap hedges term-loan exposure through June 2023.
Other metrics: Total assets were $144.1M and total liabilities $72.1M. The company declared dividends of $0.12 per share in Q3 and $0.32 per share year to date; a further $0.12 dividend was declared November 3, payable November 22, 2021.
Material changes and segment trends
- Quarterly revenue rose approximately 15.1%; year-to-date revenue increased approximately 7.8%. Quarterly growth came mainly from Real Estate and Professional.
- Q3 Real Estate revenue increased 29.4%, reflecting higher billed hours and bill rates; Professional revenue increased 15.7%, including $1.1M from Momentum; Light Industrial revenue decreased 0.8% as lower hours offset higher rates.
- For the 39 weeks, Real Estate revenue grew 26.8%, Professional revenue was nearly flat, and Light Industrial revenue increased 5.8%.
- Gross margin improved in both comparisons, while SG&A increased 24.3% in Q3 and 16.8% year to date, principally from compensation and higher activity.
- Year-to-date 2020 results included $7.2M of impairment losses in Professional; no impairment loss was recorded in 2021. The 2021 results also included contingent-consideration gains of $1.2M for Q3 and $2.4M year to date, related to the 2019 LJK acquisition.
Outlook, risks, and unusual items
- No specific financial guidance was provided. Management said operating cash flow and revolving-credit availability should meet normal working-capital needs for at least 12 months, while noting that additional growth opportunities could require financing.
- Management said COVID-19 continues to affect client demand, labor supply, and operations; its duration and effects remain uncertain. Seasonality also affects demand, with Real Estate typically strongest in Q3 and Light Industrial demand peaking in Q4.
- Key risks include availability and cost of qualified field talent and workers’ compensation coverage, employment-law compliance, COVID-19 and broader economic conditions, acquisition integration, debt and interest rates, and litigation. Variable-rate borrowings create exposure to rate increases.
- The company deferred approximately $7.0M of employer FICA taxes under the CARES Act; half was due by December 31, 2021 and half by December 31, 2022. The filing reported no change in legal proceedings from its 2020 Form 10-K and no material subsequent events other than the dividend declaration.
- Management reported disclosure controls were effective at a reasonable assurance level and no material changes to internal control over financial reporting during the quarter.
*Adjusted EBITDA is a non-GAAP measure; the company cautions that it is not a substitute for GAAP results or operating cash flow.
Most important facts for investors to verify
- Whether the increase in accounts receivable and the decline in operating cash flow reverse as collections progress; receivables reached $54.1M from $41.5M at year-end.
- Debt balances, borrowing availability under the $35M revolver, covenant headroom, and the effect of interest-rate changes.
- How much reported earnings growth reflects recurring operations versus the $2.4M year-to-date contingent-consideration gain and the prior-year impairment charge.
- Whether Real Estate and Professional growth, staffing levels, and gross-margin improvements are sustainable amid COVID-19, labor-market, and seasonal pressures.
- The timing and cash impact of deferred FICA payments, contingent acquisition consideration, and dividends.