Item 1. Financial Statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 30, 2018
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018)
|
|
$
|
38,411,622
|
|
|
$
|
37,606,721
|
|
|
Prepaid expenses
|
|
1,714,431
|
|
|
984,219
|
|
|
Other current assets
|
|
20,711
|
|
|
22,733
|
|
|
|
Total current assets
|
|
40,146,764
|
|
|
38,613,673
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
2,448,608
|
|
|
2,556,992
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
Deposits
|
|
3,701,713
|
|
|
3,209,419
|
|
|
Deferred income taxes, net
|
|
4,408,099
|
|
|
4,870,997
|
|
|
Right-of-use asset - operating leases
|
|
3,999,652
|
|
|
—
|
|
|
Intangible assets, net
|
|
31,350,775
|
|
|
33,034,173
|
|
|
Goodwill
|
|
17,983,549
|
|
|
17,983,549
|
|
|
|
Total other assets
|
|
61,443,788
|
|
|
59,098,138
|
|
|
Total assets
|
|
$
|
104,039,160
|
|
|
$
|
100,268,803
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively)
|
|
$
|
—
|
|
|
$
|
4,242,580
|
|
|
Accrued interest
|
|
164,979
|
|
|
308,547
|
|
|
Accounts payable
|
|
213,300
|
|
|
146,257
|
|
|
Accrued payroll and expenses
|
|
11,556,311
|
|
|
10,411,374
|
|
|
Accrued workers’ compensation
|
|
464,150
|
|
|
530,980
|
|
|
Contingent consideration, current portion
|
|
2,461,728
|
|
|
2,363,512
|
|
|
Lease liability, current portion
|
|
1,339,510
|
|
|
—
|
|
|
Income taxes payable
|
|
108,420
|
|
|
55,841
|
|
|
|
Total current liabilities
|
|
16,308,398
|
|
|
18,059,091
|
|
|
|
|
|
|
|
|
Line of credit (net of deferred finance fees of $557,602 and $571,782 for 2019 and 2018, respectively)
|
|
17,862,945
|
|
|
10,078,507
|
|
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively)
|
|
—
|
|
|
5,767,650
|
|
Lease liability, less current portion
|
|
3,699,666
|
|
|
—
|
|
Other long-term liabilities
|
|
—
|
|
|
661,542
|
|
|
Total liabilities
|
|
37,871,009
|
|
|
34,566,790
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
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|
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding
|
|
—
|
|
|
—
|
|
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,234,718 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 828 shares for 2019 and 2018
|
|
78,320
|
|
|
78,246
|
|
Additional paid in capital
|
|
58,131,018
|
|
|
57,624,379
|
|
Retained earnings
|
|
7,958,813
|
|
|
7,999,388
|
|
|
Total stockholders’ equity
|
|
66,168,151
|
|
|
65,702,013
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
104,039,160
|
|
|
$
|
100,268,803
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME
For the
Thirteen and Twenty-six
Week Periods Ended
June 30, 2019
and
July 1, 2018
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|
|
|
|
|
|
|
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|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues
|
|
$
|
73,857,890
|
|
|
$
|
70,945,438
|
|
|
$
|
142,633,957
|
|
|
$
|
137,800,908
|
|
Cost of services
|
|
52,995,056
|
|
|
51,753,159
|
|
|
103,332,482
|
|
|
101,298,698
|
|
|
Gross profit
|
|
20,862,834
|
|
|
19,192,279
|
|
|
39,301,475
|
|
|
36,502,210
|
|
Selling, general and administrative expenses
|
|
14,237,839
|
|
|
12,528,731
|
|
|
27,858,262
|
|
|
24,507,852
|
|
Gain on contingent consideration
|
|
—
|
|
|
(1,172,004
|
)
|
|
—
|
|
|
(1,172,004
|
)
|
Depreciation and amortization
|
|
1,204,237
|
|
|
1,258,381
|
|
|
2,435,746
|
|
|
2,553,887
|
|
|
Operating income
|
|
5,420,758
|
|
|
6,577,171
|
|
|
9,007,467
|
|
|
10,612,475
|
|
Interest expense, net
|
|
496,109
|
|
|
741,801
|
|
|
849,346
|
|
|
1,612,892
|
|
|
Income before income taxes
|
|
4,924,649
|
|
|
5,835,370
|
|
|
8,158,121
|
|
|
8,999,583
|
|
Income tax expense
|
|
1,122,820
|
|
|
665,486
|
|
|
1,860,267
|
|
|
1,364,128
|
|
|
Net income
|
|
$
|
3,801,829
|
|
|
$
|
5,169,884
|
|
|
$
|
6,297,854
|
|
|
$
|
7,635,455
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.37
|
|
|
$
|
0.56
|
|
|
$
|
0.62
|
|
|
$
|
0.85
|
|
|
Diluted
|
|
$
|
0.37
|
|
|
$
|
0.54
|
|
|
$
|
0.61
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
10,232,588
|
|
|
9,235,353
|
|
|
10,231,025
|
|
|
8,998,364
|
|
|
Diluted
|
|
10,362,038
|
|
|
9,538,545
|
|
|
10,380,195
|
|
|
9,301,370
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.60
|
|
|
$
|
0.55
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the
Twenty-six
Week Periods Ended
June 30, 2019
and
July 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Shares
|
|
Par
Value
|
|
Treasury Stock Amount
|
|
Additional Paid in Capital
|
|
Retained
Earnings
|
|
Total
|
Stockholders’ equity, December 31, 2017
|
|
$
|
—
|
|
|
8,759,376
|
|
|
$
|
87,594
|
|
|
$
|
—
|
|
|
$
|
37,675,329
|
|
|
$
|
1,371,756
|
|
|
$
|
39,134,679
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67,029
|
|
|
—
|
|
|
67,029
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
4,589
|
|
|
46
|
|
|
—
|
|
|
(7,546
|
)
|
|
—
|
|
|
(7,500
|
)
|
Cash dividend declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,189,844
|
)
|
|
(2,189,844
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,465,571
|
|
|
2,465,571
|
|
Stockholders’ equity, April 1, 2018
|
|
—
|
|
|
8,763,965
|
|
|
87,640
|
|
|
—
|
|
|
37,734,812
|
|
|
1,647,483
|
|
|
39,469,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,807
|
|
|
—
|
|
|
47,807
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
1,293,750
|
|
|
12,938
|
|
|
—
|
|
|
21,373,075
|
|
|
—
|
|
|
21,386,013
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
31,314
|
|
|
312
|
|
|
—
|
|
|
10,757
|
|
|
—
|
|
|
11,069
|
|
Option cancellation agreement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,335,169
|
)
|
|
—
|
|
|
(3,335,169
|
)
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,638,232
|
)
|
|
(2,638,232
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,169,884
|
|
|
5,169,884
|
|
Stockholders’ equity, July 1, 2018
|
|
$
|
—
|
|
|
10,089,029
|
|
|
$
|
100,890
|
|
|
$
|
—
|
|
|
$
|
55,831,282
|
|
|
$
|
4,179,135
|
|
|
$
|
60,111,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Shares
|
|
Par
Value
|
|
Treasury Stock Amount
|
|
Additional Paid in Capital
|
|
Retained
Earnings
|
|
Total
|
Stockholders’ equity, December 30, 2018
|
|
$
|
—
|
|
|
10,227,247
|
|
|
$
|
102,273
|
|
|
$
|
(24,027
|
)
|
|
$
|
57,624,379
|
|
|
$
|
7,999,388
|
|
|
$
|
65,702,013
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320,084
|
|
|
—
|
|
|
320,084
|
|
Cancellation of restricted shares
|
|
—
|
|
|
(2,250
|
)
|
|
(23
|
)
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
4,916
|
|
|
49
|
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
|
—
|
|
Change in accounting principal - operating leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200,607
|
)
|
|
(200,607
|
)
|
Cash dividend declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,068,847
|
)
|
|
(3,068,847
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,496,024
|
|
|
2,496,024
|
|
Stockholders’ equity, March 31, 2019
|
|
—
|
|
|
10,229,913
|
|
|
102,299
|
|
|
(24,027
|
)
|
|
57,944,437
|
|
|
7,225,958
|
|
|
65,248,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
186,629
|
|
|
—
|
|
|
186,629
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
4,805
|
|
|
48
|
|
|
—
|
|
|
(48
|
)
|
|
—
|
|
|
—
|
|
Cash dividend declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,068,974
|
)
|
|
(3,068,974
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,801,829
|
|
|
3,801,829
|
|
Stockholders’ equity, June 30, 2019
|
|
$
|
—
|
|
|
10,234,718
|
|
|
$
|
102,347
|
|
|
$
|
(24,027
|
)
|
|
$
|
58,131,018
|
|
|
$
|
7,958,813
|
|
|
$
|
66,168,151
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Twenty-six
Week Periods Ended
June 30, 2019
and
July 1, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,297,854
|
|
|
$
|
7,635,455
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
403,846
|
|
|
351,110
|
|
|
|
Amortization
|
|
2,031,900
|
|
|
2,202,777
|
|
|
|
Loss on disposal of property and equipment
|
|
4,895
|
|
|
—
|
|
|
|
Contingent consideration adjustment
|
|
—
|
|
|
(1,172,004
|
)
|
|
|
Amortization of deferred financing fees
|
|
124,949
|
|
|
308,041
|
|
|
|
Interest expense on contingent consideration payable
|
|
98,216
|
|
|
361,543
|
|
|
|
Provision for doubtful accounts
|
|
(28,602
|
)
|
|
17,875
|
|
|
|
Share-based compensation
|
|
506,713
|
|
|
114,836
|
|
|
|
Deferred income taxes
|
|
462,898
|
|
|
798,318
|
|
|
|
Net changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(776,299
|
)
|
|
(3,465,231
|
)
|
|
|
|
Prepaid expenses
|
|
(730,212
|
)
|
|
(624,113
|
)
|
|
|
|
Other current assets
|
|
2,022
|
|
|
(107,371
|
)
|
|
|
|
Deposits
|
|
(492,294
|
)
|
|
(214,303
|
)
|
|
|
|
Accrued interest
|
|
(143,568
|
)
|
|
(115,970
|
)
|
|
|
|
Accounts payable
|
|
67,043
|
|
|
(774,680
|
)
|
|
|
|
Accrued payroll and expenses
|
|
1,394,049
|
|
|
(134,139
|
)
|
|
|
|
Accrued workers’ compensation
|
|
(66,830
|
)
|
|
(161,752
|
)
|
|
|
|
Other current liabilities
|
|
—
|
|
|
(87,551
|
)
|
|
|
|
Income taxes payable
|
|
52,579
|
|
|
(781,031
|
)
|
|
|
|
Operating leases
|
|
—
|
|
|
(54,169
|
)
|
|
|
|
Other long-term liabilities
|
|
(46,844
|
)
|
|
—
|
|
|
|
Net cash provided by operating activities
|
|
9,162,315
|
|
|
4,097,641
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(673,752
|
)
|
|
(452,519
|
)
|
|
|
Net cash used in investing activities
|
|
(673,752
|
)
|
|
(452,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Net borrowings (payments) under line of credit
|
|
7,770,258
|
|
|
(4,020,190
|
)
|
|
Principal payments on long-term debt
|
|
(10,121,000
|
)
|
|
(12,847,750
|
)
|
|
Payments of dividends
|
|
(6,137,821
|
)
|
|
(4,828,076
|
)
|
|
Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises
|
|
—
|
|
|
21,389,582
|
|
|
Option cancellation agreement
|
|
—
|
|
|
(3,335,169
|
)
|
|
Deferred financing costs
|
|
—
|
|
|
(3,519
|
)
|
|
|
Net cash used in financing activities
|
|
(8,488,563
|
)
|
|
(3,645,122
|
)
|
Net change in cash and cash equivalents
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, beginning of period
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
767,080
|
|
|
$
|
1,163,830
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
1,309,192
|
|
|
$
|
1,325,147
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
Leasehold improvements funded by landlord incentives
|
|
$
|
—
|
|
|
$
|
214,222
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
BG Staffing, Inc. is a national provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP, BG Finance and Accounting, Inc., BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., and BG California Finance & Accounting Staffing, Inc. (collectively, the “Company”), primarily within the United States of America in
three
industry segments: Real Estate, Professional, and Light Industrial.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings, in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled field talent on a nationwide basis for
information technology ("IT")
and finance and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our client partners’ business. Demand for our Real Estate staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our Light Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of its knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended
December 30, 2018
, included in its Annual Report on Form 10-K.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
Fiscal Periods
The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of
June 30, 2019
and
December 30, 2018
, and include the
thirteen and twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
, referred to herein as Fiscal
2019
and
2018
, respectively.
Reclassifications
Certain reclassifications have been made to the
2018
financial statements to conform with the
2019
presentation.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include goodwill, intangible assets and contingent consideration obligations related to acquisitions. Additionally, the valuation of share-based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.
Financial Instruments
The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with Texas Capital Bank, National Association (“TCB”) that provided for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Concentration of Credit Risk
Concentration of credit risk is limited due to the Company's diverse client partner base and their dispersion across many different industries and geographic locations nationwide. No single client partner accounted for more than 10% of the Company’s accounts receivable as of
June 30, 2019
and
December 30, 2018
or revenue for the
twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal
2019
and the related percentage for Fiscal
2018
was generated in the following areas:
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
Maryland
|
|
11
|
%
|
|
11
|
%
|
Tennessee
|
|
16
|
%
|
|
14
|
%
|
Texas
|
|
30
|
%
|
|
29
|
%
|
Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.
Accounts Receivable
The Company extends credit to its client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. The Company maintains an allowance for doubtful accounts for expected losses resulting from client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30, 2019
|
|
July 1, 2018
|
Beginning balance
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
Provision for (recovery of) doubtful accounts, net
|
|
24,855
|
|
|
(179,446
|
)
|
|
(28,602
|
)
|
|
17,875
|
|
Amounts (written off) collected, net
|
|
(24,855
|
)
|
|
179,446
|
|
|
28,602
|
|
|
(17,875
|
)
|
Ending balance
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
Property and Equipment
Property and equipment are stated net of accumulated depreciation and amortization of
$2.5 million
and
$2.1 million
at
June 30, 2019
and
December 30, 2018
, respectively.
Deposits
The Company maintains guaranteed costs policies for workers' compensation coverage in Texas, Washington, and Ohio and minimal loss retention coverage for team members and field talent in the Light Industrial segment and other non-Texas employees. Under these policies, the Company is required to maintain refundable deposits of
$3.4 million
and
$2.9 million
, which are included in Deposits in the accompanying consolidated balance sheets as of
June 30, 2019
and
December 30, 2018
, respectively.
Long-Lived Assets
The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal
2019
or Fiscal
2018
.
Leases
The Company leases all their office space through operating leases, which expire at various dates through
2025
. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from
3
to
10
years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of
12
months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.
Lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.
Intangible Assets
The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from
three
to
ten
years, based on a pattern in which the economic benefit of the respective intangible asset is realized.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value.
The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.
The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Goodwill
Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.
Deferred Financing Fees
Deferred financing fees are amortized using the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.
Contingent Consideration
The Company has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.
Revenue Recognition
The Company derives its revenues from
three
segments: Real Estate, Professional, and Light Industrial. The Company provides temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.
The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.
Temporary staffing revenues - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s field talent.
Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. The Company estimates the effect of permanent placement candidates who do not remain with its client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Refer to Note 12 for disaggregated revenues by segment.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of
June 30, 2019
. There were no revenues recognized during the
twenty-six
week period ended
June 30, 2019
related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during the
twenty-six
week period ended
June 30, 2019
.
Share-Based Compensation
The Company recognizes compensation expense in Selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of earnings per share.
The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30,
2019
|
|
July 1,
2018
|
Weighted-average number of common shares outstanding:
|
|
10,232,588
|
|
|
9,235,353
|
|
|
10,231,025
|
|
|
8,998,364
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
89,833
|
|
|
256,414
|
|
|
105,156
|
|
|
261,960
|
|
|
Warrants
|
|
39,617
|
|
|
46,778
|
|
|
44,014
|
|
|
41,046
|
|
Weighted-average number of diluted common shares outstanding
|
|
10,362,038
|
|
|
9,538,545
|
|
|
10,380,195
|
|
|
9,301,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
239,750
|
|
|
—
|
|
|
239,750
|
|
|
163,600
|
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Antidilutive shares
|
|
239,750
|
|
|
—
|
|
|
239,750
|
|
|
163,600
|
|
Income Taxes
The effective tax rates of
22.8%
for the
thirteen and twenty-six
week periods ended
June 30, 2019
and
11.4%
and
15.2%
for the
thirteen and twenty-six
week periods ended
July 1, 2018
, respectively, were primarily due to state taxes, the Work Opportunity Tax Credit, and the deductibility in Fiscal 2018 related to the Option Cancellation Agreement for tax purposes.
Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment.
When appropriate, the Company records a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognizes any penalties when necessary as part of Selling, general and administrative expenses. Goodwill is deductible for tax purposes.
The Company follows the guidance of Accounting Standards Codification ("ASC") Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 , which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new guidance is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.
NOTE 3 - LEASES
At
June 30, 2019
, the weighted average remaining lease term and weighted average discount rate for operating leases was
4.5 years
and
5.4%
, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the
thirteen
week period ended
June 30, 2019
, the Company's cash paid for operating leases was
$414,333
, and operating lease and short-term lease costs were
$371,293
and
$179,202
, respectively. For the
twenty-six
week period ended
June 30, 2019
, the Company's cash paid for operating leases was
$810,516
, and operating lease and short-term lease costs were
$738,714
and
$344,688
, respectively.
The undiscounted annual future minimum lease payments consist of the following at:
|
|
|
|
|
|
|
|
June 30,
2019
|
2019
|
|
$
|
802,002
|
|
2020
|
|
1,364,797
|
|
2021
|
|
1,310,006
|
|
2022
|
|
1,217,820
|
|
2023
|
|
837,275
|
|
Thereafter
|
|
625,335
|
|
Total lease payments
|
|
6,157,235
|
|
Interest
|
|
(1,118,059
|
)
|
Present value of lease liabilities
|
|
$
|
5,039,176
|
|
NOTE 4 - INTANGIBLE ASSETS
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets are stated net of accumulated amortization of
$42.3 million
and
$40.3 million
at
June 30, 2019
and
December 30, 2018
, respectively. Amortization expense for the fiscal years are comprised of following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30,
2019
|
|
July 1,
2018
|
Client partner lists
|
|
$
|
881,525
|
|
|
$
|
972,095
|
|
|
$
|
1,789,624
|
|
|
$
|
1,993,622
|
|
Covenant not to compete
|
|
42,250
|
|
|
58,350
|
|
|
84,500
|
|
|
124,750
|
|
Acquisition intangibles
|
|
923,775
|
|
|
1,030,445
|
|
|
1,874,124
|
|
|
2,118,372
|
|
Computer software
|
|
79,042
|
|
|
42,662
|
|
|
157,776
|
|
|
84,405
|
|
Total
|
|
$
|
1,002,817
|
|
|
$
|
1,073,107
|
|
|
$
|
2,031,900
|
|
|
$
|
2,202,777
|
|
NOTE 5 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION
Accrued payroll and expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 30,
2018
|
Field talent payroll
|
|
$
|
5,752,457
|
|
|
$
|
4,236,534
|
|
Field talent payroll related
|
|
1,717,498
|
|
|
1,402,926
|
|
Accrued bonuses and commissions
|
|
1,769,481
|
|
|
1,673,130
|
|
Other
|
|
2,316,875
|
|
|
3,098,784
|
|
Accrued payroll and expenses
|
|
$
|
11,556,311
|
|
|
$
|
10,411,374
|
|
The following is a schedule of future estimated contingent consideration payments to various parties as of
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Cash Payment
|
|
Discount
|
|
Net
|
Due in:
|
|
|
|
|
|
Less than one year
|
$
|
2,500,000
|
|
|
$
|
(38,272
|
)
|
|
$
|
2,461,728
|
|
NOTE 6 - DEBT
On July 16, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO Harris Bank, N.A. (“BMO”), as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount up to
$35 million
. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed
$30 million
. The Company may from time to time, with a maximum of
two
, request an increase in the aggregate Term Loan by
$40 million
, with minimum increases of
$10 million
. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.
The Credit Agreement contains customary affirmative covenants as well as negative covenants restricting the ability of the Company and its subsidiaries to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) make restricted distributions; (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business. In addition, the Company may not permit the Leverage Ratio, as of the last day of any fiscal quarter subject to a Covenant Holiday adjustment period for an approved Covenant Holiday Acquisition (as such terms are defined in the Credit Agreement) to be greater than the following:
3.00
to 1.0 (July 16, 2019 to June 30, 2021),
2.75
to 1.0 (July 1, 2021 to June 30, 2022),
2.50
to 1.0 (from and after July 1, 2022). Moreover, the
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Company may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) on a consolidated basis to be less than
1.20
to 1.00.
The Company borrowed
$20 million
under the Revolving Facility to pay off existing indebtedness of the Company under the Amended Credit Agreement (as defined below) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. The Company recognized a loss on extinguishment of debt of approximately
$0.5 million
in the third fiscal quarter of 2019 related to the unamortized deferred finance fees.
In April 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of
$55.0 million
. The Amended Credit Agreement provided for a revolving credit facility (the “Revolving Facility with TCB”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which was
85%
of eligible accounts receivable, and
$35.0 million
and also provided for a term loan (the “Term Loan with TCB”) in the amount of
$20.0 million
with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement.
The Revolving Facility with TCB and Term Loan with TCB bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms were defined in the Amended Credit Agreement). All interest and commitment fees were paid quarterly. Additionally, the Company paid an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement were secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.
The Amended Credit Agreement contained customary affirmative and negative covenants. The Company was subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. The Company was in compliance with these covenants as of
June 30, 2019
.
Line of Credit
At
June 30, 2019
and
December 30, 2018
,
$18.4 million
and
$10.7 million
, respectively, was outstanding on the Revolving Facility with TCB. Average daily balance for the
thirteen
week periods ended
June 30, 2019
and
July 1, 2018
was
$14.9 million
and
$17.0 million
, respectively. Average daily balance for the
twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
was
$12.5 million
and
$19.0 million
, respectively.
Borrowings under the Revolving Facility with TCB consisted of and bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 30,
2018
|
Base Rate
|
|
$
|
18,420,547
|
|
6.50
|
%
|
|
$
|
650,289
|
|
6.50
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
5,000,000
|
|
5.16
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
5,000,000
|
|
5.16
|
%
|
Total
|
|
$
|
18,420,547
|
|
|
|
$
|
10,650,289
|
|
|
Long-Term Debt
Long-term debt consists of and bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 30,
2018
|
Base Rate
|
|
$
|
—
|
|
—
|
%
|
|
$
|
1,121,000
|
|
6.50
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
6,500,000
|
|
5.41
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
2,500,000
|
|
5.41
|
%
|
Long-term debt
|
|
$
|
—
|
|
|
|
$
|
10,121,000
|
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - FAIR VALUE MEASUREMENTS
The accounting standard for fair value measurements defines fair value, and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;
Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and
Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recorded at Fair Value
|
|
Financial Statement Classification
|
|
Fair Value
Hierarchy
|
|
June 30,
2019
|
|
December 30,
2018
|
Contingent consideration, net
|
|
Contingent consideration, net - current and long-term
|
|
Level 3
|
|
$
|
2,461,728
|
|
|
$
|
2,363,512
|
|
The changes in the Level 3 fair value measurements from
December 30, 2018
to
June 30, 2019
relates to the
$0.1 million
in accretion. The key inputs in determining the fair value of the contingent consideration as of
June 30, 2019
and
December 30, 2018
include management's estimates of future sales volumes and EBITDA.
NOTE 8 - CONTINGENCIES
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.
The Company is not currently a party to any material litigation; however, in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability. Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.
NOTE 9 – EQUITY
Authorized capital stock consists of
19,500,000
shares of common stock, par value
$0.01
per share and
500,000
shares of undesignated preferred stock, par value
$0.01
per share.
In May 2018, the Company issued and sold
1,293,750
shares of common stock,
$0.01
par value per share for an aggregate purchase price (before deducting underwriting discounts and commissions and estimated offering expenses) of
$23.3 million
in cash. The public offering price was
$18.00
per share and the Company incurred
$1.9 million
in offering costs. Proceeds were used to pay off existing indebtedness of the Company under the Amended Credit Agreement and cancel outstanding stock options held by the Company's former President and Chief Executive Officer, as described in Note 10 below.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SHARE-BASED COMPENSATION
Stock Options and Restricted Stock
On May 31, 2018, the Company entered into a stock option cancellation agreement (the "Option Cancellation Agreement") with the Company's former President and Chief Executive Officer, pursuant to which the Company agreed to pay
$18.00
per share of common stock underlying stock options less the exercise price per share thereof for a total paid
$3.3 million
in exchange for the cancellation of
284,888
stock options granted under the 2013 Plan.
For the
thirteen
week periods ended
June 30, 2019
and
July 1, 2018
, the Company recognized
$0.2 million
and
$0.1 million
of compensation expense related to stock awards, respectively. For the
twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
, the Company recognized
$0.5 million
and
$0.1 million
of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of
June 30, 2019
amounted to
$2.0 million
which is expected to be recognized over the next
2.9
years.
A summary of stock option and restricted stock activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Life
|
|
Total Intrinsic Value of Awards
(in thousands)
|
Awards outstanding at December 30, 2018
|
526,985
|
|
|
$
|
16.49
|
|
|
7.7
|
|
$
|
2,932
|
|
Granted
|
68,750
|
|
|
$
|
26.44
|
|
|
|
|
|
Exercised
|
(22,240
|
)
|
|
$
|
12.75
|
|
|
|
|
|
Forfeited / Canceled
|
(33,700
|
)
|
|
$
|
14.03
|
|
|
|
|
|
Awards outstanding at June 30, 2019
|
539,795
|
|
|
$
|
18.06
|
|
|
7.6
|
|
$
|
2,127
|
|
|
|
|
|
|
|
|
|
Awards exercisable at December 30, 2018
|
238,085
|
|
|
$
|
13.96
|
|
|
7.2
|
|
$
|
1,684
|
|
Awards exercisable at June 30, 2019
|
253,595
|
|
|
$
|
14.80
|
|
|
6.9
|
|
$
|
1,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested outstanding at December 30, 2018
|
|
288,900
|
|
|
$
|
8.34
|
|
Nonvested outstanding at June 30, 2019
|
|
286,200
|
|
|
$
|
9.12
|
|
For the
twenty-six
week period ended
June 30, 2019
, the Company issued
9,298
shares of common stock upon the cashless exercise of
22,240
stock options.
Included in awards outstanding are
27,000
shares of restricted stock issued in August 2018, at a grant date price per share of
$28.61
. For the
thirteen and twenty-six
week period ended
June 30, 2019
, the Company recognized
$0.1 million
of compensation expense related to restricted stock.
Warrant Activity
For the
thirteen and twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
, the Company did not recognize compensation cost related to warrants. There was
no
unamortized stock compensation expense to be recognized as of
June 30, 2019
.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A summary of warrant activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Life
|
|
Total Intrinsic Value of Options
(in thousands)
|
Warrants outstanding at December 30, 2018
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
Exercised
|
(1,020
|
)
|
|
$
|
14.86
|
|
|
|
|
|
Warrants outstanding at June 30, 2019
|
92,196
|
|
|
$
|
13.84
|
|
|
1.3
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December 30, 2018
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
Warrants exercisable at June 30, 2019
|
92,196
|
|
|
$
|
13.84
|
|
|
1.3
|
|
$
|
325
|
|
There were no nonvested warrants outstanding at
June 30, 2019
and
December 30, 2018
.
For the
twenty-six
week period ended
June 30, 2019
, the Company issued
423
shares of common stock upon the cashless exercise of
1,020
warrants.
The intrinsic value in the tables above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.
NOTE 11 - TEAM MEMBER BENEFIT PLAN
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time team members. The 401(k) Plan allows team members to make contributions subject to applicable statutory limitations. The Company matches team member contributions
100%
up to the first
3%
and
50%
of the next
2%
of a team member’s compensation. The Company contributed
$0.3 million
and
$0.3 million
to the 401(k) Plan for the
thirteen
week periods ended
June 30, 2019
and
July 1, 2018
, respectively. The Company contributed
$0.6 million
and
$0.5 million
to the 401(k) Plan for the
twenty-six
week periods ended
June 30, 2019
and
July 1, 2018
, respectively.
NOTE 12 - BUSINESS SEGMENTS
The Company operates within
three
industry segments: Real Estate, Professional, and Light Industrial.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled field talent on a nationwide basis for IT and finance and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce.
Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, deferred tax assets, and other assets.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30,
2019
|
|
July 1,
2018
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
24,396,782
|
|
|
$
|
21,298,452
|
|
|
$
|
43,572,565
|
|
|
$
|
39,332,814
|
|
Professional
|
|
31,321,332
|
|
|
30,132,365
|
|
|
61,915,000
|
|
|
61,222,121
|
|
Light Industrial
|
|
18,139,776
|
|
|
19,514,621
|
|
|
37,146,392
|
|
|
37,245,973
|
|
Total
|
|
$
|
73,857,890
|
|
|
$
|
70,945,438
|
|
|
$
|
142,633,957
|
|
|
$
|
137,800,908
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
45,420
|
|
|
$
|
41,755
|
|
|
$
|
89,533
|
|
|
$
|
81,037
|
|
Professional
|
|
84,469
|
|
|
64,434
|
|
|
168,951
|
|
|
116,464
|
|
Light Industrial
|
|
24,589
|
|
|
26,574
|
|
|
50,011
|
|
|
52,926
|
|
Corporate
|
|
46,942
|
|
|
52,511
|
|
|
95,351
|
|
|
100,683
|
|
Total
|
|
$
|
201,420
|
|
|
$
|
185,274
|
|
|
$
|
403,846
|
|
|
$
|
351,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
|
|
$
|
996,539
|
|
|
$
|
1,024,715
|
|
|
$
|
2,019,344
|
|
|
$
|
2,084,862
|
|
Light Industrial
|
|
—
|
|
|
44,101
|
|
|
—
|
|
|
110,251
|
|
Corporate
|
|
6,278
|
|
|
4,291
|
|
|
12,556
|
|
|
7,664
|
|
Total
|
|
$
|
1,002,817
|
|
|
$
|
1,073,107
|
|
|
$
|
2,031,900
|
|
|
$
|
2,202,777
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
4,121,208
|
|
|
$
|
3,721,201
|
|
|
$
|
6,940,920
|
|
|
$
|
6,327,578
|
|
Professional
|
|
2,212,221
|
|
|
2,089,205
|
|
|
4,045,781
|
|
|
4,355,860
|
|
Light Industrial
|
|
1,137,627
|
|
|
1,331,922
|
|
|
2,340,616
|
|
|
2,387,978
|
|
Corporate - selling
|
|
(135,553
|
)
|
|
(154,642
|
)
|
|
(267,981
|
)
|
|
(328,590
|
)
|
Corporate - general and administrative
|
|
(1,914,745
|
)
|
|
(410,515
|
)
|
|
(4,051,869
|
)
|
|
(2,130,351
|
)
|
Total
|
|
$
|
5,420,758
|
|
|
$
|
6,577,171
|
|
|
$
|
9,007,467
|
|
|
$
|
10,612,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
29,218
|
|
|
$
|
68,148
|
|
|
$
|
39,879
|
|
|
$
|
77,309
|
|
Professional
|
|
68,211
|
|
|
186,495
|
|
|
396,859
|
|
|
261,755
|
|
Light Industrial
|
|
5,476
|
|
|
43,972
|
|
|
7,631
|
|
|
43,972
|
|
Corporate
|
|
229,383
|
|
|
—
|
|
|
229,383
|
|
|
69,483
|
|
Total
|
|
$
|
332,288
|
|
|
$
|
298,615
|
|
|
$
|
673,752
|
|
|
$
|
452,519
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 30,
2018
|
Total Assets:
|
|
|
|
|
|
|
Real Estate
|
|
$
|
17,100,959
|
|
|
$
|
12,647,505
|
|
Professional
|
|
62,562,973
|
|
|
62,403,104
|
|
Light Industrial
|
|
17,939,782
|
|
|
18,992,392
|
|
Corporate
|
|
6,435,446
|
|
|
6,225,802
|
|
Total
|
|
$
|
104,039,160
|
|
|
$
|
100,268,803
|
|
NOTE 13 - SUBSEQUENT EVENTS
Debt
On July 16, 2019, the Company entered into a Credit Agreement maturing July 16, 2024 with BMO Harris Bank, N.A., as lead administrative agent, lender, letters of credit issuer, and swing line lender (See Note 6).
Dividend
On
July 31, 2019
, the Company's board of directors declared a cash dividend in the amount of
$0.30
per share of common stock to be paid on
August 19, 2019
to all shareholders of record as of the close of business on
August 12, 2019
.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto and our Annual Report on Form 10-K for the fiscal year ended
December 30, 2018
. Comparative segment revenues and related financial information are discussed herein and are presented in Note 12 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended
December 30, 2018
, for a description of important factors that could cause actual results to differ from expected results.
Overview
We are a leading national provider of temporary staffing services and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in
June 2010
, and substantially all of the assets of JNA Staffing, Inc. in
December 2010
, Extrinsic, LLC in
December 2011
, American Partners, Inc. in
December 2012
, InStaff Holding Corporation and InStaff Personnel, LLC in
June 2013
, D&W Talent, LLC in
March 2015
, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC in
October 2015
, Zycron, Inc. in
April 2017
, and Smart Resources, Inc. and Accountable Search, LLC in
September 2017
. We operate within three industry segments: Real Estate, Professional, and Light Industrial. We provide services to client partners primarily within the United States of America.
We operate in 79 branch offices and 15 on-site locations providing services in 42 states.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings, in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled field talent on a nationwide basis for information technology ("IT") and finance and accounting client partner projects.
The Light Industrial segment provides field talent primarily to logistics, distribution, and call center client partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our client partners’ business. Demand for our Real Estate staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our Light Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
|
(dollars in thousands)
|
Revenues
|
|
$
|
73,858
|
|
|
$
|
70,945
|
|
|
$
|
142,634
|
|
|
$
|
137,801
|
|
Cost of services
|
|
52,995
|
|
|
51,753
|
|
|
103,332
|
|
|
101,299
|
|
|
Gross profit
|
|
20,863
|
|
|
19,192
|
|
|
39,302
|
|
|
36,502
|
|
Selling, general and administrative expenses
|
|
14,238
|
|
|
12,529
|
|
|
27,859
|
|
|
24,508
|
|
Gain on contingent consideration
|
|
—
|
|
|
(1,172
|
)
|
|
—
|
|
|
(1,172
|
)
|
Depreciation and amortization
|
|
1,204
|
|
|
1,258
|
|
|
2,436
|
|
|
2,554
|
|
|
Operating income
|
|
5,421
|
|
|
6,577
|
|
|
9,007
|
|
|
10,612
|
|
Interest expense, net
|
|
496
|
|
|
742
|
|
|
849
|
|
|
1,613
|
|
|
Income before income tax
|
|
4,925
|
|
|
5,835
|
|
|
8,158
|
|
|
8,999
|
|
Income tax expense
|
|
1,123
|
|
|
665
|
|
|
1,860
|
|
|
1,364
|
|
|
Net income
|
|
$
|
3,802
|
|
|
$
|
5,170
|
|
|
$
|
6,298
|
|
|
$
|
7,635
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of services
|
|
71.8
|
%
|
|
72.9
|
%
|
|
72.4
|
%
|
|
73.5
|
%
|
|
Gross profit
|
|
28.2
|
%
|
|
27.1
|
%
|
|
27.6
|
%
|
|
26.5
|
%
|
Selling, general and administrative expenses
|
|
19.3
|
%
|
|
17.7
|
%
|
|
19.5
|
%
|
|
17.8
|
%
|
Gain on contingent consideration
|
|
—
|
%
|
|
(1.7
|
)%
|
|
—
|
%
|
|
(0.9
|
)%
|
Depreciation and amortization
|
|
1.6
|
%
|
|
1.8
|
%
|
|
1.7
|
%
|
|
1.9
|
%
|
|
Operating income
|
|
7.3
|
%
|
|
9.3
|
%
|
|
6.3
|
%
|
|
7.7
|
%
|
Interest expense, net
|
|
0.7
|
%
|
|
1.0
|
%
|
|
0.6
|
%
|
|
1.2
|
%
|
|
Income before income tax
|
|
6.7
|
%
|
|
8.2
|
%
|
|
5.7
|
%
|
|
6.5
|
%
|
Income tax expense
|
|
1.5
|
%
|
|
0.9
|
%
|
|
1.3
|
%
|
|
1.0
|
%
|
|
Net income
|
|
5.1
|
%
|
|
7.3
|
%
|
|
4.4
|
%
|
|
5.5
|
%
|
Thirteen
Week Fiscal Period Ended
June 30, 2019
("Fiscal
2019
") Compared with
Thirteen
Week Fiscal Period Ended
July 1, 2018
("Fiscal
2018
")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
Thirteen Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
|
(dollars in thousands)
|
Revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
24,397
|
|
|
33.0
|
%
|
|
$
|
21,298
|
|
|
30.0
|
%
|
|
Professional
|
|
31,321
|
|
|
42.4
|
%
|
|
30,132
|
|
|
42.5
|
%
|
|
Light Industrial
|
|
18,140
|
|
|
24.6
|
%
|
|
19,515
|
|
|
27.5
|
%
|
|
Total Revenues
|
|
$
|
73,858
|
|
|
100.0
|
%
|
|
$
|
70,945
|
|
|
100.0
|
%
|
Real Estate Revenues
:
Real Estate revenues
in
creased approximately
$3.1 million
(
14.6%
), due to our continued geographic expansion plan and growth in existing offices. The
in
crease was due to an
7.2%
in
crease in billed hours and a
6.4%
in
crease in average bill rate. Revenue from new offices provided approximately
$1.0 million
of the
in
crease. Revenues from the commercial buildings group contributed
$0.4 million
of the increase.
Professional Revenues
:
Professional revenues
in
creased approximately
$1.2 million
(
3.9%
). The IT group
in
creased
$1.3 million
and the finance and accounting group
de
creased
$0.1 million
primarily due to a
de
crease of
$0.3 million
in revenues from a single client partner. The overall
in
crease was due a
5.8%
in
crease in average bill rate and a
n in
crease in permanent placements of
$0.5 million
, which was partially offset by a
3.6%
de
crease in billed hours.
Light Industrial Revenues
:
Light Industrial revenues
de
creased approximately
$1.4 million
(
7.0%
). The overall revenue
de
crease was due to a
9.1%
de
crease in billed hours, which was offset by an
2.2%
in
crease in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
|
(dollars in thousands)
|
Gross Profit by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
9,386
|
|
|
45.0
|
%
|
|
$
|
8,120
|
|
|
42.3
|
%
|
|
Professional
|
|
8,787
|
|
|
42.1
|
%
|
|
8,074
|
|
|
42.1
|
%
|
|
Light Industrial
|
|
2,690
|
|
|
12.9
|
%
|
|
2,998
|
|
|
15.6
|
%
|
|
Total Gross Profit
|
|
$
|
20,863
|
|
|
100.0
|
%
|
|
$
|
19,192
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
Gross Profit Percentage by segment:
|
|
|
|
|
|
|
|
Real Estate
|
|
38.5
|
%
|
|
38.1
|
%
|
|
Professional
|
|
28.1
|
%
|
|
26.8
|
%
|
|
Light Industrial
|
|
14.8
|
%
|
|
15.4
|
%
|
|
Company Gross Profit
|
|
28.2
|
%
|
|
27.1
|
%
|
Overall, our gross profit has
in
creased approximately
$1.7 million
(
8.7%
). As a percentage of revenue, gross profit has
in
creased to
28.2%
from
27.1%
due to growth in our Real Estate and Professional segments.
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit:
Real Estate gross profit
in
creased approximately
$1.3 million
(
15.6%
) in line with the
in
crease in revenue. The
in
crease in gross profit was due primarily to
6.2%
in
crease in average spread.
Professional Gross Profit:
Professional gross profit
in
creased approximately
$0.7 million
(
8.8%
) due to a
6.6%
in
crease in average spread. The IT group
in
creased by
$0.3 million
with
$0.2 million
from permanent placements and the finance and accounting group
in
creased by
$0.4 million
primarily from permanent placements.
Light Industrial Gross Profit:
Light Industrial gross profit
de
creased approximately
$0.3 million
(
10.3%
) in line with
de
creased revenue which was offset by a
1.1%
in
crease in average spread.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses
in
creased approximately
$1.7 million
(
13.6%
) primarily related to various costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
$
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Compensation and related
|
|
$
|
10,674
|
|
|
$
|
9,614
|
|
|
$
|
1,060
|
|
|
11
|
%
|
Advertising and recruitment
|
|
637
|
|
|
627
|
|
|
10
|
|
|
2
|
%
|
Occupancy and office operations
|
|
989
|
|
|
944
|
|
|
45
|
|
|
5
|
%
|
Client engagement
|
|
412
|
|
|
350
|
|
|
62
|
|
|
18
|
%
|
Software
|
|
506
|
|
|
294
|
|
|
212
|
|
|
72
|
%
|
Professional fees
|
|
293
|
|
|
252
|
|
|
41
|
|
|
16
|
%
|
Public company related costs
|
|
188
|
|
|
132
|
|
|
56
|
|
|
42
|
%
|
Bad debt
|
|
25
|
|
|
(179
|
)
|
|
204
|
|
|
114
|
%
|
Share-based compensation
|
|
187
|
|
|
48
|
|
|
139
|
|
|
290
|
%
|
Transaction fees
|
|
36
|
|
|
268
|
|
|
(232
|
)
|
|
(87
|
)%
|
Other
|
|
291
|
|
|
179
|
|
|
112
|
|
|
63
|
%
|
|
|
$
|
14,238
|
|
|
$
|
12,529
|
|
|
$
|
1,709
|
|
|
14
|
%
|
Depreciation and Amortization:
Depreciation and amortization charges
de
creased approximately
$0.1 million
(
4.3%
). The
de
crease in depreciation and amortization is primarily due to fully amortized intangible assets in the Light Industrial segment related to the 2013 InStaff acquisition and in the Professional segment related to the 2015 D&W acquisition.
Interest Expense, net:
Interest expense, net
de
creased
$0.2 million
(
33.2%
) primarily due to the May 2018 offering of common stock which proceeds were used to pay down on the existing indebtedness of the Company.
Income Taxes:
Income tax
expense
in
creased
$0.5 million
(
68.9%
) primarily due to the 2018 Option Cancellation Agreement (see Note 10) to the unaudited consolidated financial statements included herein that was deductible for tax purposes and reduced the 2018 effective rate.
Twenty-six
Week Fiscal Period Ended
June 30, 2019
("Fiscal
2019
") Compared with
Twenty-six
Week Fiscal Period Ended
July 1, 2018
("Fiscal
2018
")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
Twenty-six Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
|
(dollars in thousands)
|
Revenues by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
43,573
|
|
|
30.6
|
%
|
|
$
|
39,333
|
|
|
28.6
|
%
|
|
Professional
|
|
61,915
|
|
|
43.4
|
%
|
|
61,222
|
|
|
44.4
|
%
|
|
Light Industrial
|
|
37,146
|
|
|
26.0
|
%
|
|
37,246
|
|
|
27.0
|
%
|
|
Total Revenues
|
|
$
|
142,634
|
|
|
100.0
|
%
|
|
$
|
137,801
|
|
|
100.0
|
%
|
Real Estate Revenues
:
Real Estate revenues
in
creased approximately
$4.3 million
(
10.8%
) due to our continued geographic expansion plan and continued growth in existing offices. The
in
crease was due to a
4.0%
in
crease in billed hours and a
6.1%
in
crease in average bill rate. Revenue from new offices provided approximately
$1.7 million
of the
in
crease. Revenues from the commercial buildings group contributed
$0.8 million
of the
in
crease.
Professional Revenues
:
Professional revenues
in
creased approximately
$0.7 million
(
1.1%
). The IT group
in
creased
$0.8 million
, which was partially offset by the finance and accounting group
de
crease of
$0.1 million
even with the decrease of
$1.1 million
in revenues from a client partner. The overall
in
crease was due to a
n in
crease of
2.5%
in average bill rate and a
n in
crease in permanent placements of
$0.6 million
that was offset by a
1.5%
de
crease in billed hours.
Light Industrial Revenues
:
Light Industrial revenues
de
creased approximately
$0.1 million
(
0.3%
). The
de
crease was due to a
3.6%
de
crease in billed hours that was offset by a
3.5%
in
crease in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
|
(dollars in thousands)
|
Gross Profit by segment:
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
16,773
|
|
|
42.7
|
%
|
|
$
|
15,000
|
|
|
41.1
|
%
|
|
Professional
|
|
17,070
|
|
|
43.4
|
%
|
|
15,946
|
|
|
43.7
|
%
|
|
Light Industrial
|
|
5,459
|
|
|
13.9
|
%
|
|
5,556
|
|
|
15.2
|
%
|
|
Total Gross Profit
|
|
$
|
39,302
|
|
|
100.0
|
%
|
|
$
|
36,502
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
|
June 30,
2019
|
|
July 1,
2018
|
Gross Profit Percentage by segment:
|
|
|
|
|
|
|
|
Real Estate
|
|
38.5
|
%
|
|
38.1
|
%
|
|
Professional
|
|
27.6
|
%
|
|
26.0
|
%
|
|
Light Industrial
|
|
14.7
|
%
|
|
14.9
|
%
|
|
Company Gross Profit
|
|
27.6
|
%
|
|
26.5
|
%
|
Overall, our gross profit has
in
creased approximately
$2.8 million
(
7.7%
) due primarily to our Real Estate segment of
$1.8 million
and our Professional segment of
$1.1 million
. As a percentage of revenue, gross profit has
in
creased to
27.6%
from
26.5%
primarily due to higher gross profits across our Real Estate and Professional segments.
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit:
Real Estate gross profit
in
creased approximately
$1.8 million
(
11.8%
) consistent with the
in
crease in revenue. The
in
crease in gross profit was due primarily to
6.2%
in
crease in average spread.
Professional Gross Profit:
Professional gross profit
in
creased approximately
$1.1 million
(
7.0%
) due to
5.0%
in
crease in average spread. The IT group
in
creased
$0.5 million
with
$0.1 million
from permanent placements and the finance and accounting group
in
creased
$0.6 million
with
$0.5 million
from permanent placements.
Light Industrial Gross Profit:
Light Industrial gross profit
de
creased approximately
$0.1 million
(
1.7%
) consistent with the
de
crease in revenue which was offset by a
2.7%
in
crease in average spread.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses
in
creased approximately
$3.4 million
(
13.7%
) primarily related to various costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
$
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Compensation and related
|
|
$
|
20,954
|
|
|
$
|
18,628
|
|
|
$
|
2,326
|
|
|
12
|
%
|
Advertising and recruitment
|
|
1,171
|
|
|
1,068
|
|
|
103
|
|
|
10
|
%
|
Occupancy and office operations
|
|
1,957
|
|
|
1,876
|
|
|
81
|
|
|
4
|
%
|
Client engagement
|
|
777
|
|
|
650
|
|
|
127
|
|
|
20
|
%
|
Software
|
|
1,019
|
|
|
614
|
|
|
405
|
|
|
66
|
%
|
Professional fees
|
|
714
|
|
|
627
|
|
|
87
|
|
|
14
|
%
|
Public company related costs
|
|
352
|
|
|
253
|
|
|
99
|
|
|
39
|
%
|
Bad debt
|
|
(29
|
)
|
|
18
|
|
|
(47
|
)
|
|
(261
|
)%
|
Share-based compensation
|
|
507
|
|
|
115
|
|
|
392
|
|
|
341
|
%
|
Transaction fees
|
|
58
|
|
|
337
|
|
|
(279
|
)
|
|
(83
|
)%
|
Other
|
|
378
|
|
|
322
|
|
|
56
|
|
|
17
|
%
|
|
|
$
|
27,858
|
|
|
$
|
24,508
|
|
|
$
|
3,350
|
|
|
14
|
%
|
Depreciation and Amortization:
Depreciation and amortization charges
de
creased approximately
$0.1 million
(
4.6%
). The
de
crease in depreciation and amortization is primarily due to fully amortized intangible assets in the Light Industrial segment related to the 2013 InStaff acquisition and in the Professional segment related to the 2015 D&W acquisition.
Interest Expense, net:
Interest expense, net
de
creased
$0.8 million
(
47.4%
) primarily due to the May 2018 offering of common stock which proceeds were used to pay down on the existing indebtedness of the Company of
$0.4 million
and the
de
crease in contingent consideration discounts of
$0.3 million
.
Income Taxes:
Income tax
expense
in
creased primarily due to the 2018 Option Cancellation Agreement (see Note 10) to the unaudited consolidated financial statements included herein that was deductible for tax purposes and reduced the 2018 effective rate.
Use of Non-GAAP Financial Measures
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles ("non-GAAP"), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for our management. In addition, the financial covenants in our credit agreement are based on EBITDA as defined in the credit agreement.
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, and transaction fees and other non-cash expenses such as share-based compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. In addition, the financial covenants in our credit agreement are based on Adjusted EBITDA as defined in the credit agreement. Adjusted EBITDA should not be considered as an alternative to
net income
for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as
net income
. Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.
To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from
net income
, the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from
net income
to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect ongoing operating performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
(dollars in thousands)
|
Net income
|
|
$
|
3,802
|
|
|
$
|
5,170
|
|
|
$
|
6,298
|
|
|
$
|
7,635
|
|
Interest expense, net
|
|
496
|
|
|
742
|
|
|
849
|
|
|
1,613
|
|
Income tax expense
|
|
1,123
|
|
|
665
|
|
|
1,860
|
|
|
1,364
|
|
Operating income
|
|
5,421
|
|
|
6,577
|
|
|
9,007
|
|
|
10,612
|
|
Depreciation and amortization
|
|
1,204
|
|
|
1,258
|
|
|
2,436
|
|
|
2,554
|
|
Contingent consideration adjustment
|
|
—
|
|
|
(1,172
|
)
|
|
—
|
|
|
(1,172
|
)
|
Share-based compensation
|
|
187
|
|
|
48
|
|
|
507
|
|
|
115
|
|
Transaction fees
|
|
36
|
|
|
268
|
|
|
58
|
|
|
337
|
|
Adjusted EBITDA
|
|
$
|
6,848
|
|
|
$
|
6,979
|
|
|
$
|
12,008
|
|
|
$
|
12,446
|
|
Liquidity and Capital Resources
Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.
Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with BMO Harris Bank, N.A. ("BMO"), that provides for a revolving credit facility maturing July 16, 2024 (the “Revolving Facility”). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.
A summary of our operating, investing and financing activities are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended
|
|
|
June 30,
2019
|
|
July 1,
2018
|
|
|
(dollars in thousands)
|
Net cash provided by operating activities
|
|
$
|
9,162
|
|
|
$
|
4,098
|
|
Net cash used in investing activities
|
|
(674
|
)
|
|
(453
|
)
|
Net cash used in financing activities
|
|
(8,488
|
)
|
|
(3,645
|
)
|
Net change in cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating Activities
Cash provided by operating activities consists of
net income
adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense on contingent consideration payable, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses.
During Fiscal
2019
, net cash provided by operating activities was
$9.2 million
a
n in
crease of
$5.1 million
compared with
$4.1 million
for Fiscal
2018
. This
in
crease is primarily attributable to accounts receivable, accrued payroll and related expenses, accounts payable and income taxes payable.
Investing Activities
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
In Fiscal
2019
, we made capital expenditures of
$0.7 million
mainly related to software and computer equipment purchased in the ordinary course of business. In Fiscal
2018
, we made capital expenditures of
$0.5 million
mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends and contingent consideration paid.
For Fiscal
2019
, we paid
$6.1 million
in cash dividends on our common stock,
paid down
$10.1 million
on the term loan under the Amended Credit Agreement described below, and we
borrowed
$7.7 million
on our revolving line of credit. For Fiscal
2018
, we paid
$4.8 million
in cash dividends on our common stock, paid down
$12.8 million
on the term loan, and we
reduced
our revolving line of credit by
$4.0 million
, and paid
$3.3 million
for the Option Cancellation Agreement. We received net proceeds from issuance of common stock of
$21.4 million
and used the net proceeds mainly to reduce outstanding indebtedness under our revolving facility and term loan with TCB and to cancel outstanding options pursuant to the Option Cancellation Agreement.
Credit Agreements
On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO Harris Bank, N.A. (“BMO”), as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting us to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount not to exceed $30 million. We may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). We also pay an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.
The Credit Agreement contains customary affirmative covenants as well as negative covenants restricting our ability to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) make restricted distributions; (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business. In addition, we may not permit the Leverage Ratio, as of the last day of any fiscal quarter subject to a Covenant Holiday adjustment period for an approved Covenant Holiday Acquisition (as such terms are defined in the Credit Agreement) to be greater than the following: 3.00 to 1.0 (July 16, 2019 to June 30, 2021), 2.75 to 1.0 (July 1, 2021 to June 30, 2022), 2.50 to 1.0 (from and after July 1, 2022). Moreover, we may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) on a consolidated basis to be less than 1.20 to 1.00.
We borrowed $20 million under the Revolving Facility to pay off our existing indebtedness under the Amended Credit Agreement and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. We recognized loss on extinguishment of debt of approximately $0.5 million in the third fiscal quarter of 2019 related to the unamortized deferred finance fees.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Consolidated Financial Statements included in “Item 1. Financial Statements.” Please also refer to our Annual Report on Form 10-K for the fiscal year ended
December 30, 2018
for a more detailed discussion of our critical accounting policies.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
December 30, 2018
.