BGSF, Inc. — Q3 2015 Form 10-Q
Reporting period: 13 and 39 weeks ended September 27, 2015; comparisons are to the periods ended September 28, 2014. Unaudited results. BGSF provides temporary staffing in Commercial, Multifamily, and Professional Staffing.
Financial performance
| Metric | Q3 2015 | Q3 2014 | 39 weeks 2015 | 39 weeks 2014 |
|---|---|---|---|---|
| Revenue | $60.2m | $48.0m | $150.8m | $129.9m |
| Gross profit / margin | $13.9m / 23.0% | $10.0m / 20.8% | $33.1m / 21.9% | $26.2m / 20.1% |
| Operating income / margin | $4.9m / 8.1% | $2.7m / 5.6% | $8.4m / 5.6% | $4.2m / 3.2% |
| Net income (loss) | $2.2m | $0.4m | $3.8m | $(0.9)m |
| Diluted EPS | $0.29 | $0.06 | $0.53 | $(0.16) |
| Adjusted EBITDA | $6.2m | $3.9m | $12.4m | $8.9m |
Quarterly revenue rose about 25%, while gross margin increased 2.2 percentage points. Year-to-date revenue grew about 16%, and the company moved from a year-earlier net loss to a profit. Adjusted EBITDA is a non-GAAP measure; the filing cautions it is not a substitute for net income or operating cash flow.
Cash flow, debt, and liquidity
- Year-to-date operating cash flow was $5.9m, investing cash outflow was $9.3m, and financing cash inflow was $3.5m. Cash at period-end was only $64,832. Investing outflows included $8.8m for the D&W acquisition.
- At September 27, cash was $0.1m, accounts receivable $29.8m, current assets $30.9m, and current liabilities $15.8m. The current ratio was approximately 2.0.
- Debt comprised $9.75m drawn on the revolver and $15.0m of long-term debt, or $24.75m total. The company refinanced its prior facility in August with a $25m revolving facility, subject to an 85% eligible-receivables borrowing base, and $15m of senior subordinated term loans. Both are secured by company assets.
- The company reported compliance with its financial covenants at quarter-end and said operating cash flow plus revolver availability should meet normal working capital and planned branch-expansion needs for at least 12 months. It noted further growth initiatives could require additional financing.
- Year-to-date cash dividends paid were $4.6m; a further $0.25-per-share quarterly dividend was declared after quarter-end for payment November 20, 2015.
Material changes and management commentary
- Q3 Professional Staffing revenue grew about 48%, including approximately $6.0m contributed by D&W, acquired in February. Multifamily revenue grew about 21%, and Commercial grew about 12%. Management attributed broader gross-margin improvement to stronger Multifamily and Professional Staffing mix and spreads.
- On September 28, after the reporting date, BGSF acquired Vision Technology Services (VTS) for $10.0m cash plus earn-out consideration of up to $10.8m. VTS was assigned to Professional Staffing; purchase accounting was not yet complete. VTS reported $25.2m of revenue for the 39 weeks ended September 27, 2015.
- The new financing resulted in a $0.4m loss on extinguishment of debt in Q3. The company also recorded a noncash $0.1m put-option fair-value loss for the quarter; the 39-week period included a $0.1m fair-value gain.
- No quantified full-year guidance is provided. Management notes results are not necessarily indicative of a full year. Disclosed risks include availability of qualified workers and workers’ compensation coverage, labor-law compliance, economic conditions, competition, acquisition integration, and debt-service and financing needs. Texas represented 43% of year-to-date revenue; Rhode Island 19% and North Carolina 12%.
- The company said it knew of no pending legal proceeding expected to materially affect its financial position or results. It reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- VTS purchase accounting, earn-out exposure, financing, and post-acquisition performance.
- Revolver availability under the borrowing-base formula, covenant headroom, and the effect of variable interest rates.
- Whether receivables growth converts to cash: accounts receivable increased to $29.8m, while quarter-end cash remained minimal.
- Sustainability of margin gains and organic growth by segment, separately from acquired revenue.
- Dividend affordability alongside debt service, acquisitions, and planned expansion.