Financial Data and Key Metrics Changes - The company reported record revenues of $298 million for 2022, a 24.8% increase over 2021, with adjusted EBITDA and adjusted EPS up 45% and 47% respectively compared to the prior year [13][19] - Fourth quarter revenues increased by 14.2% to $77.3 million, with property management growing by 16.6% and professional services increasing by 8.9% on an organic basis [18][19] - The effective tax rate for Q4 was 33% for 2022, compared to 24.3% in the previous year [19][51] Business Line Data and Key Metrics Changes - Property management revenues grew by 31.6% year-over-year, while professional services increased by 19.7% organically [19] - Professional wage rates increased by 17%, and property management wage rates increased by 10% quarter-over-quarter [18] - Permanent placement revenues were up 13.5% year-over-year [19] Market Data and Key Metrics Changes - The company operates in 64 active markets in real estate and is targeting six new markets for the upcoming year [38] - The managed services division, bolstered by the acquisition of Horn Solutions, doubled in size, contributing $1.4 million in revenue for December [19][24] Company Strategy and Development Direction - The company plans to rebrand all businesses under the BGSF name by the end of Q2 2023 to enhance market presence and cross-selling opportunities [52][47] - A focus on IT modernization and strategic acquisitions is expected to drive growth and improve margins, with a specific emphasis on high-value consulting and managed services [15][36] - The company aims to leverage technology for territory mapping and market expansion in the real estate segment [34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth prospects in both real estate and professional consulting, citing pent-up demand in multifamily and a return to work in commercial sectors [57][58] - The company anticipates a strong year in 2023, supported by low unemployment rates and a focus on finding and training talent [58] - Management acknowledged challenges in Q4 due to increased SG&A expenses but remains confident in the long-term benefits of recent investments [50][91] Other Important Information - The company is transitioning to a new CFO, John Barnett, with Dan Hollenbach assisting in the transition [14][17] - The acquisition of Horn Solutions is seen as a strategic fit that enhances the company's consulting capabilities and market reach [24][70] Q&A Session Summary Question: How many offices did you end the year in, and what is the pace of openings anticipated? - The company has 64 active markets in real estate and is targeting six new markets next year [38] Question: Is the $4 million increase in SG&A going to be the new baseline going forward? - The $23 million figure may serve as a new baseline, but it includes some one-time transaction fees and catch-up expenses [39] Question: What are the cross-sell opportunities with Horn? - The teams are excited about the Horn acquisition, with immediate cross-selling initiatives already underway [42] Question: Is there still pent-up demand in the market? - There is still pent-up demand, particularly as companies return to the office [71][103] Question: How should we think about EBITDA margins in 2023? - Management expects to leverage investments made in 2022 to improve EBITDA margins moving forward [72]

[Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section outlines the inherent risks and uncertainties associated with forward-looking statements, which could cause actual results to differ materially from expectations - Forward-looking statements are based on current expectations and involve a number of risks and uncertainties that could cause actual results to differ materially[8](index=8&type=chunk) - Key risk factors include the availability of qualified field talent, compliance with labor laws, competition, impact of outstanding indebtedness, ability to integrate acquisitions, economic conditions, and inflationary pressures[8](index=8&type=chunk) [Where You Can Find Other Information](index=3&type=section&id=Where%20You%20Can%20Find%20Other%20Information) Information regarding SEC filings, including annual and quarterly reports, is available on the company's and the SEC's websites - SEC filings (Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K) are available for download, free of charge, on the company's website (www.bgsf.com) and the SEC's website (www.sec.gov)[10](index=10&type=chunk) [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, along with management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations and comprehensive income, statements of changes in stockholders' equity, statements of cash flows, and detailed notes to these financial statements for BGSF, Inc. and its subsidiaries [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) | Metric | Sep 25, 2022 ($) | Dec 26, 2021 ($) | Change ($) | Change (%) | | :--------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Total Assets | 149,264,141 | 148,293,966 | 970,175 | 0.65% | | Total Current Assets | 70,812,657 | 60,170,249 | 10,642,408 | 17.69% | | Cash and Cash Equivalents | — | 112,104 | (112,104) | -100.00% | | Accounts Receivable, net | 64,349,769 | 48,132,896 | 16,216,873 | 33.69% | | Total Current Liabilities | 23,786,163 | 28,383,700 | (4,597,537) | -16.20% | | Line of Credit | 27,004,467 | 12,587,591 | 14,416,876 | 114.53% | | Total Stockholders' Equity | 96,893,684 | 76,592,184 | 20,301,500 | 26.51% | [Unaudited Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) | Metric (Thirteen Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :---------------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Revenues | 78,507,873 | 64,184,810 | 14,323,063 | 22.32% | | Gross Profit | 27,999,845 | 22,046,886 | 5,952,959 | 27.00% | | Operating Income | 6,468,522 | 5,031,625 | 1,436,897 | 28.56% | | Net Income | 4,652,473 | 4,643,609 | 8,864 | 0.19% | | Basic EPS | 0.44 | 0.45 | (0.01) | -2.22% | | Diluted EPS | 0.44 | 0.45 | (0.01) | -2.22% | | Cash Dividends Declared per Share | 0.15 | 0.12 | 0.03 | 25.00% | | Metric (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :---------------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Revenues | 221,139,315 | 171,332,726 | 49,806,589 | 29.07% | | Gross Profit | 76,490,069 | 57,509,078 | 18,980,991 | 32.99% | | Operating Income | 13,523,346 | 8,414,825 | 5,108,521 | 60.71% | | Net Income | 23,628,670 | 8,798,244 | 14,830,426 | 168.56% | | Basic EPS | 2.26 | 0.85 | 1.41 | 165.88% | | Diluted EPS | 2.25 | 0.85 | 1.40 | 164.71% | | Cash Dividends Declared per Share | 0.45 | 0.32 | 0.13 | 40.63% | - Net income for the thirty-nine week period ended September 25, 2022, significantly increased by **$14.8 million (168.56%)** primarily due to a **$17.3 million gain** on the sale of discontinued operations[18](index=18&type=chunk) [Unaudited Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Unaudited%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) | Metric (Thirty-nine Weeks) | Sep 25, 2022 ($) | Dec 26, 2021 ($) | Change ($) | Change (%) | | :---------------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Total Stockholders' Equity (start) | 76,592,184 | 65,457,752 | 11,134,432 | 17.01% | | Net Income | 23,628,670 | 8,798,244 | 14,830,426 | 168.56% | | Share-based Compensation | 864,903 | 841,587 | 23,316 | 2.77% | | Cash Dividend Declared | (4,711,973) | (3,316,114) | (1,395,859) | 42.10% | | Total Stockholders' Equity (end) | 96,893,684 | 72,030,726 | 24,862,958 | 34.52% | [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :-------------------------------------------------------- | :--------------- | :--------------- | :------------ | :--------- | | Net Cash (Used in) Provided by Operating Activities | (7,830,829) | 2,354,870 | (10,185,699) | -432.54% | | Net Cash Provided by (Used in) Investing Activities | 25,607,043 | (5,341,231) | 30,948,274 | 579.42% | | Net Cash (Used in) Provided by Financing Activities | (17,888,318) | 2,986,361 | (20,874,679) | -698.94% | | Net Change in Cash and Cash Equivalents | (112,104) | — | (112,104) | -100.00% | - Net cash used in continuing operating activities increased by **$2.8 million** to **$5.6 million** in Fiscal 2022, primarily due to higher accounts receivable and payments of deferred employer FICA for the CARES Act[180](index=180&type=chunk) - Investing activities provided **$25.6 million** in cash in Fiscal 2022, mainly from the **$30.3 million sale of InStaff**, offsetting **$4.7 million** in capital expenditures[182](index=182&type=chunk) - Financing activities used **$17.9 million** in Fiscal 2022, driven by **$26.9 million** in Term Loan paydowns and **$4.7 million** in cash dividends, partially offset by **$14.3 million** in Revolving Facility borrowings[184](index=184&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [NOTE 1 - NATURE OF OPERATIONS](index=11&type=section&id=NOTE%201%20-%20NATURE%20OF%20OPERATIONS) - BGSF, Inc. provides workforce solutions across IT, Cyber, Finance & Accounting, and Real Estate segments, primarily within the United States[30](index=30&type=chunk)[33](index=33&type=chunk) - On March 21, 2022, the company completed the sale of its Light Industrial segment (InStaff), with its financial results now reflected as discontinued operations[31](index=31&type=chunk)[32](index=32&type=chunk) - The Real Estate segment experiences seasonal fluctuations, with demand historically increasing in **Q2** and peaking in **Q3** due to increased multifamily unit turns[36](index=36&type=chunk) - The current inflationary environment and related interest rate impacts may negatively affect the company's business by reducing demand for workforce solutions, increasing early terminations, or diminishing projects[37](index=37&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The company's fiscal year is **52/53 weeks**, with periods ending **September 25, 2022**, and **December 26, 2021**[41](index=41&type=chunk) - Significant estimates affecting financial statements include allowances for credit losses, goodwill, intangible assets, lease liability, contingent consideration obligations, and income taxes[42](index=42&type=chunk) - No single client partner accounted for more than **10%** of accounts receivable or revenue from continuing operations[44](index=44&type=chunk) | Geographic Revenue Concentration (Continuing Operations) | Sep 25, 2022 | Sep 26, 2021 | | :------------------------------------------------------- | :----------- | :----------- | | Tennessee | 11% | 12% | | Texas | 23% | 23% | | Allowance for Credit Losses (Continuing Operations) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | | :-------------------------------------------------- | :--------------- | :--------------- | | Beginning balance | 448,622 | 521,001 | | Provision for credit losses, net | 215,958 | 246,048 | | Amounts written off, net | (215,958) | (217,130) | | Ending balance | 448,622 | 521,001 | | Income Tax Expense (Continuing Operations) | Thirteen Weeks Sep 25, 2022 | Thirteen Weeks Sep 26, 2021 | Thirty-nine Weeks Sep 25, 2022 | Thirty-nine Weeks Sep 26, 2021 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | | Effective Tax Rate | 23.6% | 19.4% | 24.5% | 17.9% | - The company adopted **ASU 2020-04** and **ASU 2021-01 (Reference Rate Reform)** in the third quarter of Fiscal 2022, which did not have a material impact on the consolidated financial statements[82](index=82&type=chunk) [NOTE 3 - ACQUISITIONS](index=17&type=section&id=NOTE%203%20-%20ACQUISITIONS) - On February 8, 2021, the company acquired substantially all assets and assumed certain liabilities of Momentum Solutionz for **$3.8 million cash**, with contingent consideration of up to **$2.2 million**[83](index=83&type=chunk) - The Momentum acquisition, assigned to the Professional segment, strengthens the company's operations in IT consultants and technology professionals, particularly for ERP systems[84](index=84&type=chunk) - As of September 25, 2022, **$1.1 million** of the contingent consideration for Momentum has been paid[83](index=83&type=chunk) [NOTE 4 - DISCONTINUED OPERATIONS](index=19&type=section&id=NOTE%204%20-%20DISCONTINUED%20OPERATIONS) - On March 21, 2022, the company sold its Light Industrial segment (InStaff) for approximately **$30.3 million cash**, resulting in a **$17.3 million gain on sale**[90](index=90&type=chunk) - InStaff's financial results for periods prior to the sale have been reflected as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows[91](index=91&type=chunk) | InStaff Financials (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | | :------------------------------------- | :--------------- | :--------------- | | Revenue | 16,465 | 53,122 | | Gross Profit | 2,321 | 7,755 | | Income from discontinued operations | 1,235 | 3,331 | | InStaff Assets & Liabilities (Dec 26, 2021) | Amount ($) | | :------------------------------------------ | :----------- | | Total assets classified as discontinued | 14,411,380 | | Total liabilities classified as discontinued| 1,452,451 | [NOTE 5 - LEASES](index=20&type=section&id=NOTE%205%20-%20LEASES) - The weighted average remaining lease term for operating leases was **2.1 years** and the weighted average discount rate was **5.0%** as of September 25, 2022[95](index=95&type=chunk) | Undiscounted Annual Future Minimum Lease Payments | Sep 25, 2022 ($) | | :------------------------------------------------ | :--------------- | | 2022 | 495,580 | | 2023 | 1,554,046 | | 2024 | 1,019,244 | | 2025 | 270,793 | | Total Lease Payments | 3,339,663 | | Present Value of Lease Liabilities | 3,173,152 | [NOTE 6 - INTANGIBLE ASSETS](index=20&type=section&id=NOTE%206%20-%20INTANGIBLE%20ASSETS) - Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from **three to ten years**[58](index=58&type=chunk) - No impairment indicators were identified for intangible assets or goodwill during Fiscal 2022 or Fiscal 2021[60](index=60&type=chunk)[62](index=62&type=chunk) | Amortization Expense (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | | :--------------------------------------- | :--------------- | :--------------- | | Acquisition intangibles | 1,642,550 | 1,820,350 | | Computer software | 860,510 | 531,140 | | Total Amortization Expense | 2,503,060 | 2,351,500 | | Total Expense (incl. SGA) | 2,619,523 | 2,407,960 | [NOTE 7 - ACCRUED PAYROLL AND EXPENSES, OTHER LONG-TERM LIABILITIES, AND CONTINGENT CONSIDERATION](index=21&type=section&id=NOTE%207%20-%20ACCRUED%20PAYROLL%20AND%20EXPENSES%2C%20OTHER%20LONG-TERM%20LIABILITIES%2C%20AND%20CONTINGENT%20CONSIDERATION) | Accrued Payroll and Expenses (Continuing Operations) | Sep 25, 2022 ($) | Dec 26, 2021 ($) | | :--------------------------------------------------- | :--------------- | :--------------- | | Field talent payroll | 7,347,128 | 6,042,340 | | Accrued bonuses and commissions | 4,518,828 | 4,522,720 | | Other | 3,252,050 | 4,277,930 | | Total Accrued Payroll and Expenses | 16,557,575 | 16,153,920 | - Other current liabilities include **$3.5 million** of deferred employer FICA from the CARES Act, with the remaining half due by **December 31, 2022**[100](index=100&type=chunk) - Estimated future contingent consideration payments from continuing operations are **$1.1 million**, due in less than one year as of September 25, 2022[101](index=101&type=chunk) [NOTE 8 - DEBT](index=21&type=section&id=NOTE%208%20-%20DEBT) - The Credit Agreement, maturing **July 16, 2024**, provides for a Revolving Facility (temporarily increased to **$60 million**) and a Term Loan[102](index=102&type=chunk)[103](index=103&type=chunk) - As of September 25, 2022, **$27.1 million** was outstanding on the revolving facilities, with the interest rate component changed from LIBOR to SOFR on **August 18, 2022**[103](index=103&type=chunk)[108](index=108&type=chunk) - The company was in compliance with all debt covenants (maximum Leverage Ratio and minimum Fixed Charge Coverage Ratio) as of September 25, 2022[104](index=104&type=chunk) - The existing Term Loan balance was paid down on **March 21, 2022**, using proceeds from the sale of InStaff, which also cancelled a **$25.0 million** interest rate swap agreement[105](index=105&type=chunk)[111](index=111&type=chunk) [NOTE 9 - FAIR VALUE MEASUREMENTS](index=22&type=section&id=NOTE%209%20-%20FAIR%20VALUE%20MEASUREMENTS) - The fair value hierarchy categorizes inputs into **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[113](index=113&type=chunk) | Financial Instrument | Fair Value Hierarchy | Sep 25, 2022 ($) | Dec 26, 2021 ($) | | :---------------------------- | :------------------- | :--------------- | :--------------- | | Interest rate swap | Level 2 | — | 58,331 | | Contingent consideration, net | Level 3 | 1,059,606 | 2,063,500 | - Changes in **Level 3** fair value measurements for contingent consideration primarily relate to **$1.1 million** in payments on the Momentum acquisition[115](index=115&type=chunk) [NOTE 10 - CONTINGENCIES](index=23&type=section&id=NOTE%2010%20-%20CONTINGENCIES) - The company establishes a liability for legal proceedings and claims when it is probable that a liability has been incurred and the amount can be reasonably estimated[116](index=116&type=chunk) - The company maintains various insurance policies (e.g., workers' compensation, general liability, professional liability) and indemnification agreements for its directors and officers[117](index=117&type=chunk) [NOTE 11 – EQUITY](index=24&type=section&id=NOTE%2011%20%E2%80%93%20EQUITY) - Authorized capital stock consists of **19,500,000 shares** of common stock (**$0.01 par value**) and **500,000 shares** of undesignated preferred stock (**$0.01 par value**)[120](index=120&type=chunk) - In Fiscal 2022, the company issued **25,749 restricted common shares** to team members and non-team member directors under the **2013 Long-Term Incentive Plan**, subject to a **three-year service condition**[121](index=121&type=chunk) [NOTE 12 – SHARE-BASED COMPENSATION](index=24&type=section&id=NOTE%2012%20%E2%80%93%20SHARE-BASED%20COMPENSATION) | Share-Based Compensation (Continuing Operations) | Thirty-nine Weeks Sep 25, 2022 ($) | Thirty-nine Weeks Sep 26, 2021 ($) | | :----------------------------------------------- | :--------------------------------- | :--------------------------------- | | Stock Options Expense | 600,000 | 500,000 | | Restricted Stock Expense | 300,000 | 400,000 | - Unamortized share-based compensation expense for stock options amounted to **$1.1 million** as of September 25, 2022, expected to be recognized over the next **3.0 years**[122](index=122&type=chunk) - Unamortized share-based compensation expense for restricted stock amounted to **$0.6 million** as of September 25, 2022, expected to be recognized over the next **2.0 years**[125](index=125&type=chunk) | Stock Options Activity (Sep 25, 2022) | Number of Shares | Weighted Average Exercise Price ($) | | :------------------------------------ | :--------------- | :---------------------------------- | | Outstanding at Dec 26, 2021 | 695,329 | 16.91 | | Granted | 164,000 | 12.87 | | Exercised | (1,000) | 9.72 | | Forfeited / Canceled | (36,650) | 17.65 | | Outstanding at Sep 25, 2022 | 821,679 | 16.08 | [NOTE 13 - TEAM MEMBER BENEFIT PLAN](index=25&type=section&id=NOTE%2013%20-%20TEAM%20MEMBER%20BENEFIT%20PLAN) - The company provides a **401(k) Plan** and matches participants' contributions **100%** up to the first **3%** and **50%** of the next **2%** of compensation[126](index=126&type=chunk) - Company contributions from continuing operations to the **401(k) Plan** were **$1.2 million** for the thirty-nine week period ended September 25, 2022[126](index=126&type=chunk) [NOTE 14 - BUSINESS SEGMENTS](index=25&type=section&id=NOTE%2014%20-%20BUSINESS%20SEGMENTS) | Revenue by Segment (Thirteen Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :---------------------------------- | :--------------- | :--------------- | :---------- | :--------- | | Real Estate | 33,240,955 | 24,788,784 | 8,452,171 | 34.10% | | Professional | 45,266,918 | 39,396,026 | 5,870,892 | 14.90% | | Total | 78,507,873 | 64,184,810 | 14,323,063 | 22.32% | | Operating Income by Segment (Thirteen Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :------------------------------------------- | :--------------- | :--------------- | :---------- | :--------- | | Real Estate | 6,147,887 | 4,369,878 | 1,778,009 | 40.69% | | Professional | 5,171,686 | 3,399,330 | 1,772,356 | 52.14% | | Total | 6,468,522 | 5,031,625 | 1,436,897 | 28.56% | | Revenue by Segment (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :------------------------------------- | :--------------- | :--------------- | :---------- | :--------- | | Real Estate | 89,136,818 | 64,613,630 | 24,523,188 | 38.00% | | Professional | 132,002,497 | 106,719,090 | 25,283,407 | 23.70% | | Total | 221,139,315 | 171,332,720 | 49,806,595 | 29.07% | | Operating Income by Segment (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | Change ($) | Change (%) | | :---------------------------------------------- | :--------------- | :--------------- | :---------- | :--------- | | Real Estate | 15,000,048 | 9,795,540 | 5,204,508 | 53.13% | | Professional | 12,458,120 | 7,476,680 | 4,981,440 | 66.63% | | Total | 13,523,346 | 8,414,820 | 5,108,526 | 60.71% | | Total Assets by Segment (Sep 25, 2022) | Amount ($) | | :------------------------------------- | :----------- | | Real Estate | 29,102,070 | | Professional | 97,665,361 | | Home office | 22,496,710 | | Discontinued operations (Dec 26, 2021) | 14,411,380 | | Total | 149,264,141 | [NOTE 15 - SUBSEQUENT EVENT](index=26&type=section&id=NOTE%2015%20-%20SUBSEQUENT%20EVENT) - On **November 2, 2022**, the board of directors declared a cash dividend of **$0.15 per common share**, payable on **November 21, 2022**[132](index=132&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, discussing key performance drivers, segment-specific trends, liquidity, capital resources, and critical accounting policies. It highlights the impact of the InStaff sale and ongoing economic conditions [Overview](index=27&type=section&id=Overview) This overview introduces BGSF as a national provider of workforce solutions, highlighting the strategic divestiture of its Light Industrial segment and recent adjustments to its Revolving Facility - BGSF is a leading national provider of professional workforce solutions in IT, Cyber, Finance & Accounting, and Real Estate segments, operating across **46 states and D.C.**[136](index=136&type=chunk) - The company completed the strategic sale of its Light Industrial segment (InStaff) on **March 21, 2022**, for approximately **$30.3 million**, with an additional **$2 million** deferred consideration[137](index=137&type=chunk) - The InStaff sale represents a strategic shift in the business, with its results presented as discontinued operations[138](index=138&type=chunk) - The Revolving Facility was temporarily increased to **$60 million** on **August 18, 2022**, and the interest rate component changed from LIBOR to SOFR[142](index=142&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section provides a summary of the company's financial performance for the thirteen and thirty-nine week fiscal periods, detailing key revenue, gross profit, operating income, and net income figures | Metric (Thirteen Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :---------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Revenues | 78,508 | 64,185 | 14,323 | 22.32% | | Gross Profit | 28,000 | 22,047 | 5,953 | 27.00% | | Operating Income | 6,468 | 5,032 | 1,436 | 28.54% | | Net Income | 4,652 | 4,644 | 8 | 0.17% | | Metric (Thirty-nine Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :---------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Revenues | 221,139 | 171,333 | 49,806 | 29.07% | | Gross Profit | 76,490 | 57,509 | 18,981 | 32.99% | | Operating Income | 13,523 | 8,415 | 5,108 | 60.70% | | Net Income | 23,629 | 8,798 | 14,831 | 168.57% | [Thirteen Week Fiscal Period Ended September 25, 2022 Compared with September 26, 2021](index=29&type=section&id=Thirteen%20Week%20Fiscal%20Period%20Ended%20September%2025%2C%202022%20Compared%20with%20September%2026%2C%202021) | Segment Revenue (Thirteen Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Real Estate | 33,241 | 24,789 | 8,452 | 34.1% | | Professional | 45,267 | 39,396 | 5,871 | 14.9% | - Real Estate revenue increased by **34.1%** due to a **19.2% increase** in billed hours and a **12.5% increase** in average bill rate[147](index=147&type=chunk) - Professional revenue increased by **14.9%**, primarily due to a **$5.1 million increase** in IT division revenues and a **22.8% increase** in average bill rate, offset by a **6.4% decrease** in billed hours[148](index=148&type=chunk) | Gross Profit Percentage (Thirteen Weeks) | Sep 25, 2022 | Sep 26, 2021 | | :--------------------------------------- | :----------- | :----------- | | Real Estate | 40.8% | 38.4% | | Professional | 31.9% | 31.8% | | Company Gross Profit | 35.7% | 34.3% | | SGA Expenses (Thirteen Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :---------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Total SGA Expenses | 20,386 | 17,054 | 3,332 | 19.5% | | SGA as % of Revenue | 26.0% | 26.6% | (0.6)% | | - Interest expense, net decreased primarily due to the pay down of the existing Term Loan balance, partially offset by a higher average balance on the Revolving Facility[154](index=154&type=chunk) - Income tax expense increased by approximately **$0.5 million (61.3%)** primarily due to increased net income before taxes and a higher effective tax rate in Fiscal 2022[155](index=155&type=chunk) [Thirty-nine Week Fiscal Period Ended September 25, 2022 Compared with September 26, 2021](index=30&type=section&id=Thirty-nine%20Week%20Fiscal%20Period%20Ended%20September%2025%2C%202022%20Compared%20with%20September%2026%2C%202021) | Segment Revenue (Thirty-nine Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :---------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Real Estate | 89,137 | 64,614 | 24,523 | 38.0% | | Professional | 132,002 | 106,719 | 25,283 | 23.7% | - Real Estate revenue increased by **38.0%** due to a **23.8% increase** in billed hours and an **11.4% increase** in average bill rate[155](index=155&type=chunk) - Professional revenue increased by **23.7%**, primarily due to a **$19.6 million increase** in IT revenues, an **11.9% increase** in billed hours, and a **10.5% increase** in average bill rate[157](index=157&type=chunk) | Gross Profit Percentage (Thirty-nine Weeks) | Sep 25, 2022 | Sep 26, 2021 | | :------------------------------------------ | :----------- | :----------- | | Real Estate | 39.4% | 37.5% | | Professional | 31.4% | 31.2% | | Company Gross Profit | 34.6% | 33.6% | | SGA Expenses (Thirty-nine Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | Change ($K) | Change (%) | | :------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Total SGA Expenses | 60,001 | 48,626 | 11,375 | 23.4% | | SGA as % of Revenue | 27.1% | 28.4% | (1.3)% | | - Interest expense, net decreased by approximately **$0.3 million (30.0%)** primarily due to the pay down of the existing Term Loan balance, partially offset by a higher average balance on the Revolving Facility[165](index=165&type=chunk) - Income tax expense increased by approximately **$1.6 million (120.3%)** primarily due to increased net income before taxes and a higher effective tax rate in Fiscal 2022, with cash paid for taxes increasing by **$4.3 million** due to the InStaff sale[166](index=166&type=chunk) [Use of Non-GAAP Financial Measures](index=33&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) This section explains the company's use of Adjusted EBITDA as a non-GAAP financial measure to supplement GAAP performance indicators and aid in management's operational assessment - Adjusted EBITDA is a non-GAAP measure used to provide a supplemental view of operating performance, facilitate period-to-period comparisons, and aid management in planning and compensation evaluation[168](index=168&type=chunk) - Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization expense, intangible impairment losses, transaction fees, and certain non-cash expenses (e.g., gain on contingent consideration, share-based compensation)[169](index=169&type=chunk) - Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, GAAP measures such as net income or cash flow from continuing operating activities[170](index=170&type=chunk) | Adjusted EBITDA (Continuing Operations) | Thirteen Weeks Sep 25, 2022 ($K) | Thirteen Weeks Sep 26, 2021 ($K) | Thirty-nine Weeks Sep 25, 2022 ($K) | Thirty-nine Weeks Sep 26, 2021 ($K) | Trailing Twelve Months Sep 25, 2022 ($K) | | :-------------------------------------- | :------------------------------- | :------------------------------- | :---------------------------------- | :---------------------------------- | :--------------------------------------- | | Adjusted EBITDA | 8,031 | 5,400 | 17,360 | 9,880 | 22,450 | | Adjusted EBITDA % of Revenue | 10.2% | 8.4% | 7.9% | 5.8% | 7.8% | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity sources, working capital requirements, and cash flow activities from operating, investing, and financing, including the impact of the InStaff sale and debt management - Primary sources of liquidity are cash generated from operations and borrowings under the Revolving Facility[175](index=175&type=chunk) - Working capital requirements are primarily driven by field talent payments, tax payments, and client partner accounts receivable receipts, increasing substantially in periods of growth[174](index=174&type=chunk) | Cash Flow Summary (Thirty-nine Weeks) | Sep 25, 2022 ($K) | Sep 26, 2021 ($K) | | :-------------------------------------------------------- | :---------------- | :---------------- | | Net cash provided by (used in) continuing operating activities | (5,557) | (2,720) | | Net cash provided by (used in) continuing investing activities | 25,633 | (5,307) | | Net cash provided by (used in) continuing financing activities | (17,888) | 2,986 | - Net cash used in continuing operating activities was **$5.6 million** in Fiscal 2022, an increase of **$2.8 million** compared to Fiscal 2021, primarily due to higher accounts receivable and payments of deferred employer FICA[180](index=180&type=chunk) - Investing activities provided **$25.6 million** in Fiscal 2022, mainly from the **$30.3 million sale of InStaff**, offsetting **$4.7 million** in capital expenditures[182](index=182&type=chunk) - Financing activities used **$17.9 million** in Fiscal 2022, including **$26.9 million** in Term Loan paydowns and **$4.7 million** in cash dividends, partially offset by **$14.4 million** in Revolving Facility borrowings[184](index=184&type=chunk) - The Revolving Facility was temporarily increased to **$60 million** on **August 18, 2022**, as a precautionary measure during a company-wide system implementation[187](index=187&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the significant accounting policies and estimates that require management judgment, emphasizing potential impacts from economic uncertainties on financial statements - The preparation of consolidated financial statements in accordance with GAAP requires management to make assumptions and estimates, particularly for allowances for credit losses, goodwill, intangible assets, lease liability, contingent consideration, and income taxes[191](index=191&type=chunk) - Economic uncertainty, inflation, and interest rate impacts may necessitate future changes to accounting policy judgments and estimates, which could result in meaningful impacts to financial statements[195](index=195&type=chunk)[196](index=196&type=chunk) [Revenue Recognition](index=37&type=section&id=Revenue%20Recognition) This section describes the company's policies for recognizing revenue from workforce solutions, contingent placements, and retained searches, including the criteria for acting as a principal - Revenues are recognized when promised workforce solutions are delivered to client partners, in an amount that reflects the consideration the company expects to be entitled to[197](index=197&type=chunk) - The company records revenue on a gross basis as a principal, bearing the risk of identifying and hiring qualified field talent, setting prices and duties, and for services not fully paid by client partners[198](index=198&type=chunk) - Revenue types include workforce solution revenues (field talent), contingent placement revenues (contingency resolved), and retained search placement revenues (contractual amount for services completed)[199](index=199&type=chunk)[200](index=200&type=chunk) - Allowances are established for placement candidates who do not remain with client partners through the guarantee period (generally **90 days**) based on historical experience[201](index=201&type=chunk) [Recent Accounting Pronouncements](index=38&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for a detailed discussion of recent accounting pronouncements and their potential effects on the consolidated financial statements - For a discussion of recent accounting pronouncements and their potential effect, refer to **Note 2** in the Notes to the Unaudited Consolidated Financial Statements[204](index=204&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily related to interest rates and inflation. Its Revolving Facility has variable interest rates, making it susceptible to future interest rate increases. The company has moderated inflation impacts by adjusting its pricing model - The company's primary market risk exposures relate to interest rate and inflation risks[204](index=204&type=chunk) - The Revolving Facility is priced at variable interest rates, meaning future interest rate increases could adversely impact future earnings and cash flows[205](index=205&type=chunk) - The company has been able to moderate the negative impacts of an inflationary market by adjusting its pricing model[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 25, 2022. No material changes in internal control over financial reporting were identified, despite remote work arrangements. Management acknowledges inherent limitations in control systems - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of **September 25, 2022**[206](index=206&type=chunk) - No material changes in internal control over financial reporting were identified for the fiscal quarter ended **September 25, 2022**, despite most team members working remotely[207](index=207&type=chunk) - Management acknowledges that control systems, no matter how well designed, can provide only reasonable, not absolute, assurance that objectives will be met due to inherent limitations[208](index=208&type=chunk) [PART II—OTHER INFORMATION](index=39&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, and a list of exhibits [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) There are no changes from the legal proceedings information provided in the Annual Report on Form 10-K for the fiscal year ended December 26, 2021 - No change from the information provided in **ITEM 3. LEGAL PROCEEDINGS** included in the Annual Report on Form 10-K for the fiscal year ended **December 26, 2021**[210](index=210&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Investors are urged to carefully consider the risks outlined in this Quarterly Report and the Annual Report on Form 10-K for the fiscal year ended December 26, 2021, as these factors could materially and adversely affect the company's operations or financial condition - Investors are urged to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended **December 26, 2021**, as these could materially and adversely affect operations or financial condition[211](index=211&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report - None[212](index=212&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report - None[212](index=212&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[212](index=212&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No other information to report - None[212](index=212&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with this Quarterly Report on Form 10-Q, including various agreements, corporate documents, and certifications - The section lists exhibits filed or furnished with the Quarterly Report on Form 10-Q, including asset purchase agreements, corporate documents, and certifications[214](index=214&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) The report is formally signed by the President and Chief Executive Officer and the Chief Financial Officer and Secretary - The report is signed by **Beth Garvey**, President and Chief Executive Officer, and **Dan Hollenbach**, Chief Financial Officer and Secretary, on **November 2, 2022**[216](index=216&type=chunk)[217](index=217&type=chunk)

PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements for Q2 2022 reflect significant changes due to the Light Industrial segment sale, including decreased assets, substantial revenue growth, a $17.3 million gain, and debt elimination [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) As of June 26, 2022, total assets decreased to $136.0 million and total liabilities to $42.7 million, primarily due to discontinued operations and debt paydown, leading to increased stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 26, 2022 | December 26, 2021 | | :--- | :--- | :--- | | **Total current assets** | $56,718 | $60,170 | | **Total assets** | **$135,966** | **$148,294** | | **Total current liabilities** | $23,139 | $28,384 | | **Long-term debt** | $0 | $23,300 | | **Total liabilities** | **$42,682** | **$71,702** | | **Total stockholders' equity** | $93,284 | $76,592 | - Assets and liabilities of discontinued operations, which were **$14.4 million** and **$1.5 million** respectively at the end of 2021, were removed from the balance sheet following the sale of the Light Industrial segment in March 2022[13](index=13&type=chunk)[92](index=92&type=chunk) [Unaudited Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q2 2022 revenues from continuing operations increased 29.1% to $74.1 million, with 26-week net income reaching $19.0 million, primarily due to a $17.3 million gain on discontinued operations sale Q2 Performance Comparison (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | **Revenues** | $74,089 | $57,398 | | **Gross Profit** | $25,059 | $19,247 | | **Operating Income** | $4,239 | $3,307 | | **Income from Continuing Operations** | $3,184 | $2,596 | | **Net Income** | $3,176 | $3,443 | | **Diluted EPS (Continuing Ops)** | $0.30 | $0.25 | 26-Week Performance Comparison (in thousands, except per share data) | Metric | 26 Weeks 2022 | 26 Weeks 2021 | | :--- | :--- | :--- | | **Revenues** | $142,631 | $107,148 | | **Income from Continuing Operations** | $5,191 | $2,337 | | **Gain on sale of discontinued ops** | $17,266 | $0 | | **Net Income** | $18,976 | $4,155 | | **Diluted EPS (Total)** | $1.82 | $0.40 | - Cash dividends declared per common share increased to **$0.15** in Q2 2022 from **$0.10** in Q2 2021[17](index=17&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) For the first 26 weeks of 2022, cash from continuing operations improved to $1.2 million, investing activities provided $26.8 million from a business sale, and financing used $25.8 million for debt repayment and dividends Cash Flow Summary for 26-Week Periods (in thousands) | Activity | Ended June 26, 2022 | Ended June 27, 2021 | | :--- | :--- | :--- | | **Net cash from continuing operating activities** | $1,217 | $(2,366) | | **Net cash from continuing investing activities** | $26,775 | $(4,856) | | **Net cash from continuing financing activities** | $(25,760) | $3,145 | - The company received **$30.3 million** from the sale of its discontinued operations (InStaff)[23](index=23&type=chunk) - The company made principal payments on long-term debt of **$26.9 million**, effectively paying off its Term Loan[25](index=25&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Notes detail the company's two continuing segments after the March 2022 sale of the Light Industrial segment for $30.3 million, yielding a $17.3 million gain used to pay off the Term Loan, with a subsequent dividend declaration - On March 21, 2022, the company sold its Light Industrial segment (InStaff) for approximately **$30.3 million** in cash, plus **$2.0 million** in deferred consideration, resulting in a gain of **$17.3 million**[28](index=28&type=chunk)[89](index=89&type=chunk) - The company operates in two segments: Real Estate (providing office/maintenance talent to properties) and Professional (providing IT, finance, accounting, legal, and HR talent)[31](index=31&type=chunk)[32](index=32&type=chunk) - On March 21, 2022, the company used proceeds from the sale of the Light Industrial segment to pay down the entire balance of its existing Term Loan[103](index=103&type=chunk) - On August 3, 2022, the board declared a cash dividend of **$0.15** per share[131](index=131&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2022 performance to growth in Real Estate and Professional segments, with revenues up 29.1% to $74.1 million, highlighting the strategic InStaff segment sale and improved liquidity - The sale of the Light Industrial (InStaff) segment on March 21, 2022, for approximately **$30.3 million** is a key strategic shift, allowing the company to focus on its higher-margin Professional and Real Estate segments[136](index=136&type=chunk)[137](index=137&type=chunk) Adjusted EBITDA from Continuing Operations (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | **Thirteen Weeks** | $5,403 | $3,212 | | **Twenty-six Weeks** | $9,329 | $4,480 | - The company believes cash from operations and its Revolving Facility are sufficient to meet working capital needs for at least the next twelve months[172](index=172&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q2 2022 total revenue increased 29.1% to $74.1 million, driven by strong growth in Real Estate and Professional segments, leading to a 30.2% rise in gross profit and improved gross margin Q2 2022 vs Q2 2021 Revenue by Segment (in thousands) | Segment | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $29,980 | $21,212 | 41.3% | | Professional | $44,109 | $36,186 | 21.9% | | **Total** | **$74,089** | **$57,398** | **29.1%** | 26-Week 2022 vs 2021 Revenue by Segment (in thousands) | Segment | 26-Wk 2022 | 26-Wk 2021 | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $55,896 | $39,825 | 40.4% | | Professional | $86,735 | $67,323 | 28.8% | | **Total** | **$142,631** | **$107,148** | **33.1%** | - The increase in Real Estate revenue for Q2 was driven by a **27.6%** increase in billed hours and a **10.7%** increase in average bill rate[146](index=146&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and the Revolving Facility, with InStaff sale proceeds used to pay down the Term Loan, increasing working capital and ensuring sufficient liquidity for the next year - Primary sources of liquidity are cash from operations and a Revolving Facility maturing July 16, 2024[172](index=172&type=chunk) - In Fiscal 2022, the company paid down **$26.9 million** on its Term Loan, paid **$3.1 million** in dividends, and borrowed a net **$4.9 million** on its Revolving Facility[182](index=182&type=chunk) - On March 21, 2022, the company paid down the balance on the existing Term Loan and a portion of the Revolving Facility using proceeds from the sale of the Light Industrial segment[185](index=185&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rates and inflation, with variable-rate debt exposing it to rate increases, though inflationary impacts have been moderated through pricing adjustments - The company's primary market risk exposures are related to interest rate and inflation risks[215](index=215&type=chunk) - Future interest rate increases could adversely impact earnings and cash flows due to variable-rate debt under the Revolving Facility[215](index=215&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 26, 2022, the CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures are effective[216](index=216&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[217](index=217&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) No changes in legal proceedings have occurred since the Annual Report on Form 10-K for the fiscal year ended December 26, 2021 - No change from the information provided in the Annual Report on Form 10-K for the fiscal year ended December 26, 2021[220](index=220&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor highlights the potential negative impact of the current inflationary environment and related interest rate increases on demand for workforce solutions and financial performance - A new risk factor was added concerning the current inflationary environment and related interest rate impacts, which may reduce demand for workforce solutions and negatively affect business, financial condition, and results of operations[222](index=222&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 27, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number: 001-36704 BGSF, INC. (exact name of registrant as specified in its charter) Delaware 26-0656684 (State or other jurisdiction of i ...

| --- | --- | |-------|---------------------------------------------------------------------------------------| | | UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________ | | | FORM 10-K | | | _______________ | (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 26, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to BGS ...

[Filing Information](index=1&type=section&id=Filing%20Information) [General Information](index=1&type=section&id=General%20Information) This section provides basic identifying information for the quarterly report, including registrant details, jurisdiction, principal offices, SEC compliance, and common stock trading symbol and shares outstanding - Registrant: BGSF, INC., incorporated in Delaware, with principal executive offices at 5850 Granite Parkway, Suite 730, Plano, Texas 75024[2](index=2&type=chunk) - The company is an **Accelerated Filer** and not a shell company[2](index=2&type=chunk)[3](index=3&type=chunk) Common Stock Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock | BGSF | NYSE | | Shares Outstanding (as of Nov 3, 2021) | **10,403,869** | [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, detailing inherent risks and uncertainties that could cause actual results to differ materially from projections, including various operational and economic factors - Forward-looking statements relate to expectations for future events, financial performance, growth targets, market trends, and benefits of mergers/acquisitions[6](index=6&type=chunk) - Statements are based on current information and involve risks and uncertainties, meaning actual results may differ materially[8](index=8&type=chunk) - Key risk factors include availability of field talent, compliance with labor laws, competition, management changes, litigation, indebtedness, ability to integrate acquisitions, impact of COVID-19, adverse economic conditions, and market disturbances[8](index=8&type=chunk) [Where You Can Find Other Information](index=3&type=section&id=Where%20You%20Can%20Find%20Other%20Information) This section directs readers to the company's website (www.bgsf.com) and the SEC's website (www.sec.gov) for access to its public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K - Company's website (www.bgsf.com) provides free downloads of SEC filings[10](index=10&type=chunk) - SEC filings are also available on the SEC's website (www.sec.gov)[10](index=10&type=chunk) [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This item presents the unaudited consolidated financial statements of BGSF, Inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with integral notes [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights | ASSETS/LIABILITIES/EQUITY | September 26, 2021 | December 27, 2020 | | :-------------------------- | :----------------- | :------------------ | | Total current assets | $55,913,756 | $43,648,766 | | Total assets | $144,100,656 | $130,278,268 |\n| Total current liabilities | $26,633,782 | $18,264,244 | | Total liabilities | $72,069,930 | $64,820,516 | | Total stockholders' equity | $72,030,726 | $65,457,752 | - Total assets increased by **$13.8 million** (**10.6%**) from December 27, 2020, to September 26, 2021[13](index=13&type=chunk) - Total liabilities increased by **$7.2 million** (**11.2%**) and total stockholders' equity increased by **$6.6 million** (**10.0%**) over the same period[13](index=13&type=chunk) [Unaudited Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Consolidated Statements of Operations Highlights (Thirteen Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | | :---------------------- | :----------- | :----------- | | Revenues | $82,352,022 | $71,518,691 | | Gross profit | $24,666,872 | $19,711,926 | | Operating income | $6,195,740 | $3,648,068 | | Net income | $4,643,609 | $2,565,563 | | Basic EPS | $0.45 | $0.25 | | Diluted EPS | $0.45 | $0.25 | Consolidated Statements of Operations Highlights (Thirty-nine Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | | :---------------------- | :----------- | :----------- |\n| Revenues | $224,455,249 | $208,192,454 |\n| Gross profit | $65,264,417 | $56,892,800 |\n| Operating income | $11,745,389 | $220,698 |\n| Net income (loss) | $8,798,244 | $(764,840) |\n| Basic EPS | $0.85 | $(0.07) |\n| Diluted EPS | $0.85 | $(0.07) | - For the **thirteen weeks** ended September 26, 2021, revenues increased by **15.1%** and net income increased by **81.0%** year-over-year[14](index=14&type=chunk) - For the **thirty-nine weeks** ended September 26, 2021, revenues increased by **7.8%** and the company swung from a net loss to a net income year-over-year[14](index=14&type=chunk) [Unaudited Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' Equity Changes (Thirty-nine Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | | :----------------------------------- | :----------- | :----------- | | Stockholders' equity, beginning of period | $65,457,752 | $68,456,990 | | Net income (loss) | $8,798,244 | $(764,840) | | Cash dividend declared | $(3,316,114) | $(3,092,771) |\n| Share-based compensation | $885,715 | $630,557 | | Stockholders' equity, end of period | $72,030,726 | $64,034,756 | - Total stockholders' equity increased from **$65.46 million** at December 27, 2020, to **$72.03 million** at September 26, 2021[19](index=19&type=chunk) - Cash dividends declared per common share were **$0.32** for the **thirty-nine weeks** ended September 26, 2021, compared to **$0.40** for the same period in 2020[14](index=14&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Cash Flow Highlights (Thirty-nine Weeks Ended) | Activity | Sep 26, 2021 | Sep 27, 2020 | | :------------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $2,354,870 | $18,288,054 | | Net cash used in investing activities | $(5,341,231) | $(23,617,868)|\n| Net cash provided by financing activities | $2,986,361 | $5,329,814 | - Net cash provided by operating activities significantly decreased by **$15.9 million** in Fiscal **2021** compared to Fiscal **2020**, primarily due to increased accounts receivable and payments on accrued payroll[22](index=22&type=chunk)[184](index=184&type=chunk) - Net cash used in investing activities decreased by **$18.3 million**, mainly due to lower cash paid for business acquisitions in Fiscal **2021** (**$3.8M** for Momentum) compared to Fiscal **2020** (**$21.7M** for EdgeRock)[22](index=22&type=chunk)[186](index=186&type=chunk) - Net cash provided by financing activities decreased by **$2.3 million**, driven by changes in line of credit borrowings/payments and dividend payments[22](index=22&type=chunk)[188](index=188&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [NOTE 1 - NATURE OF OPERATIONS](index=9&type=section&id=NOTE%201%20-%20NATURE%20OF%20OPERATIONS) - BGSF, Inc. is a national provider of workforce solutions operating in **three** segments: Real Estate, Professional, and Light Industrial[23](index=23&type=chunk)[24](index=24&type=chunk) - Real Estate segment provides office and maintenance talent to apartment communities and commercial buildings in **34 states** and **D.C.** (BG Multifamily, BG Talent)[25](index=25&type=chunk) - Professional segment provides IT, finance, accounting, legal, and HR talent nationwide (IT Consulting, IT Infrastructure & Development, Finance and Accounting divisions)[26](index=26&type=chunk) - Light Industrial segment provides flexible workforce to manufacturing, distribution, logistics, and call centers in **7 states** (InStaff)[27](index=27&type=chunk) - The company experiences seasonal fluctuations, with Real Estate demand peaking in **Q3** and Light Industrial in **Q4**. COVID-19 has significantly impacted normal seasonal demand and operations[28](index=28&type=chunk)[29](index=29&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Consolidated financial statements are prepared in accordance with GAAP, reflecting normal recurring adjustments[30](index=30&type=chunk) - Key management estimates include allowances for credit losses, goodwill, intangible assets, lease liability, contingent consideration, and income taxes, with increased uncertainty due to COVID-19[34](index=34&type=chunk)[35](index=35&type=chunk) - No single client partner accounted for more than **10%** of accounts receivable or revenue for the **thirty-nine week** periods ended September 26, 2021, and September 27, 2020[39](index=39&type=chunk) Geographic Revenue Concentration (Fiscal 2021 vs. Fiscal 2020) | State | Thirty-nine Weeks Ended Sep 26, 2021 | Thirty-nine Weeks Ended Sep 27, 2020 | | :-------- | :----------------------------------- | :----------------------------------- | | Tennessee | **11 %** | **14 %** | | Texas | **28 %** | **23 %** | - Allowance for credit losses increased from **$492,087** (Dec 27, 2020) to **$521,001** (Sep 26, 2021) for the **thirty-nine week** period[42](index=42&type=chunk) - The company capitalizes direct costs for internal-use software and reviews long-lived assets for impairment, with no impairments in Fiscal **2021** or **2020**[45](index=45&type=chunk)[46](index=46&type=chunk) - Revenue is recognized on a gross basis as a principal when services are delivered, based on the right to invoice for workforce solutions or when contingencies are resolved for placements[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - Effective tax rates were **19.4%** (**13 weeks**) and **17.9%** (**39 weeks**) for Fiscal **2021**, primarily due to state taxes and Work Opportunity Tax Credit[68](index=68&type=chunk) - The company is evaluating the impact of ASU **2020-04** and ASU **2021-01** (Reference Rate Reform) but does not expect a material impact[73](index=73&type=chunk) [NOTE 3 - ACQUISITIONS](index=16&type=section&id=NOTE%203%20-%20ACQUISITIONS) - On February **3**, **2020**, BGSF acquired **100%** of EdgeRock Technology Holdings, Inc. for **$21.7 million** cash, strengthening its Professional segment in specialized IT consultants and expanding geographic operations[74](index=74&type=chunk)[75](index=75&type=chunk) - EdgeRock contributed **$9.2 million** in revenue and **$0.5 million** in operating income for the **thirteen weeks** ended Sep **27**, **2020**, and **$25.4 million** in revenue and **$1.1 million** in operating income for the **thirty-nine weeks** ended Sep **27**, **2020**[76](index=76&type=chunk) - On February **8**, **2021**, BGSF acquired substantially all assets of Momentum Solutionz for **$3.8 million** cash, plus contingent consideration up to **$2.2 million**, further strengthening its Professional segment in IT consulting and managed workforce solutions for ERP systems[78](index=78&type=chunk)[80](index=80&type=chunk) - Momentum contributed **$1.1 million** in revenue and **$0.3 million** in operating income for the **thirteen weeks** ended Sep **26**, **2021**, and **$2.3 million** in revenue and **$0.5 million** in operating income for the **thirty-nine weeks** ended Sep **26**, **2021**[81](index=81&type=chunk) Momentum Acquisition Preliminary Allocation (Feb 8, 2021) | Asset/Liability | Amount | | :-------------------------- | :---------- | | Accounts receivable | $345,121 | | Intangible assets | $3,347,970 | | Goodwill | $2,078,613 | | Liabilities assumed | $(73,708) | | Total net assets acquired | $5,706,723 | | Cash consideration | $3,780,000 | | Fair value of contingent consideration | $1,926,723 | - Pro forma revenues for the **thirty-nine weeks** ended Sep **26**, **2021**, including both acquisitions, would have been **$224.69 million**, with net income of **$8.84 million**[84](index=84&type=chunk) [NOTE 4 - LEASES](index=18&type=section&id=NOTE%204%20-%20LEASES) - The company leases all office space through operating leases expiring through **2025**[47](index=47&type=chunk) - Weighted average remaining lease term was **2.9 years** at Sep **26**, **2021**, with a weighted average discount rate of **4.9%**[87](index=87&type=chunk) Operating Lease Cash Flows and Costs (Thirty-nine Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | | :---------------------- | :----------- | :----------- | | Cash paid for operating leases | $1,739,688 | $1,612,201 | | Operating lease costs | $1,565,289 | $1,536,718 | | Short-term lease costs | $108,514 | $308,543 | Undiscounted Annual Future Minimum Lease Payments (Sep 26, 2021) | Period | Amount | | :----------------- | :---------- | | Less than one year | $585,140 | | One to two years | $2,215,650 | | Two to three years | $1,660,910 | | Three to four years| $1,038,580 | | Four to five years | $311,370 | | Total lease payments | $5,811,670 | | Present value of lease liabilities | $5,426,800 | [NOTE 5 - INTANGIBLE ASSETS](index=19&type=section&id=NOTE%205%20-%20INTANGIBLE%20ASSETS) - Intangible assets are stated net of accumulated amortization of **$50.9 million** at Sep **26**, **2021**, up from **$48.5 million** at Dec **27**, **2020**[90](index=90&type=chunk) - During the **thirty-nine weeks** ended Sep **26**, **2021**, software assets of **$0.1 million** were added, and **$1.1 million** was reclassified from property and equipment for IT improvement[90](index=90&type=chunk) Amortization Expense (Thirty-nine Weeks Ended) | Category | Sep 26, 2021 | Sep 27, 2020 | | :---------------------- | :----------- | :----------- | | Client partner lists | $1,655,250 | $3,009,370 | | Covenant not to compete | $165,105 | $202,470 | | Acquisition intangibles | $1,820,355 | $3,211,840 | | Computer software | $531,147 | $264,560 | | Total amortization expense | $2,351,502 | $3,476,410 | - Total amortization expense decreased by **$1.1 million** for the **thirty-nine weeks** ended Sep **26**, **2021**, compared to the same period in **2020**[91](index=91&type=chunk) [NOTE 6 - ACCRUED PAYROLL AND EXPENSES, OTHER LONG-TERM LIABILITIES, AND CONTINGENT CONSIDERATION](index=19&type=section&id=NOTE%206%20-%20ACCRUED%20PAYROLL%20AND%20EXPENSES,%20OTHER%20LONG-TERM%20LIABILITIES,%20AND%20CONTINGENT%20CONSIDERATION) Accrued Payroll and Expenses (as of) | Category | Sep 26, 2021 | Dec 27, 2020 | | :------------------------ | :----------- | :----------- | | Field talent payroll | $6,844,894 | $5,574,440 | | Field talent payroll related | $1,645,870 | $1,036,130 | | Accrued bonuses and commissions | $2,984,227 | $1,884,870 | | Other | $4,040,686 | $2,952,950 | | Total accrued payroll and expenses | $15,515,677 | $11,448,400 | - Total accrued payroll and expenses increased by **$4.07 million** from December **27**, **2020**, to September **26**, **2021**[92](index=92&type=chunk) - Other current liabilities include **$3.5 million** of deferred employer FICA under the CARES Act, with payments due by December **31**, **2021**, and December **31**, **2022**[92](index=92&type=chunk) Future Estimated Contingent Consideration Payments (Sep 26, 2021) | Due in | Estimated Cash Payment | Discount | Net | | :----------------- | :--------------------- | :--------- | :---------- | | Less than one year | $1,110,000 | $(57,250) | $1,052,750 | | One to two years | $1,110,000 | $(140,943) | $969,050 | | Total | $2,220,000 | $(198,193) | $2,021,800 | [NOTE 7 - DEBT](index=20&type=section&id=NOTE%207%20-%20DEBT) - The company has a Credit Agreement (maturing July **16**, **2024**) with BMO, providing a **$35 million** revolving credit facility and a **$30 million** term loan[95](index=95&type=chunk) - The company was in compliance with all debt covenants (maximum Leverage Ratio and minimum Fixed Charge Coverage Ratio) as of September **26**, **2021**[96](index=96&type=chunk) - On February **8**, **2021**, **$3.8 million** was borrowed on the Revolving Facility for the Momentum acquisition[96](index=96&type=chunk) Line of Credit Outstanding (as of) | Metric | Sep 26, 2021 | Dec 27, 2020 | | :-------- | :----------- | :----------- | | Outstanding | $13,642,949 | $5,977,342 | | Average daily balance (13 weeks) | $12,300,000 | $9,200,000 | | Average daily balance (39 weeks) | $9,200,000 | $13,800,000 | Long-Term Debt Outstanding (as of) | Metric | Sep 26, 2021 | Dec 27, 2020 | | :-------- | :----------- | :----------- | | Total | $27,425,000 | $28,925,000 | - In April **2020**, the company entered into a **$25.0 million** pay-fixed/receive-floating interest rate swap agreement, effective June **3**, **2020**, as a cash flow hedge on the Term Loan, terminating June **1**, **2023**[101](index=101&type=chunk) [NOTE 8 - FAIR VALUE MEASUREMENTS](index=21&type=section&id=NOTE%208%20-%20FAIR%20VALUE%20MEASUREMENTS) - Fair value measurements are categorized into Level **1** (quoted prices in active markets), Level **2** (observable inputs other than Level **1**), and Level **3** (unobservable inputs)[103](index=103&type=chunk) Financial Assets and Liabilities Measured at Fair Value (as of) | Item | Financial Statement Classification | Fair Value Hierarchy | Sep 26, 2021 | Dec 27, 2020 | | :------------------------ | :--------------------------------- | :------------------- | :----------- | :----------- | | Interest rate swap | Other long-term liabilities | Level 2 | $54,613 | $122,870 | | Contingent consideration, net | Current and long-term contingent consideration | Level 3 | $2,021,807 | $2,287,920 | - Changes in Level **3** fair value measurements for contingent consideration include **$1.9 million** from the Momentum acquisition, **$0.2 million** in accretion, and remaining gains in earnings[105](index=105&type=chunk) [NOTE 9 - CONTINGENCIES](index=21&type=section&id=NOTE%209%20-%20CONTINGENCIES) - The company is involved in legal matters and proceedings in the normal course of business, establishing liabilities when probable and estimable[106](index=106&type=chunk) - The company maintains various insurance policies (workers' compensation, general liability, professional liability, etc.) and indemnifies directors and officers[107](index=107&type=chunk) - COVID-19 continues to adversely impact business, operations, and financial condition due to economic and labor market disruptions[108](index=108&type=chunk) [NOTE 10 – EQUITY](index=22&type=section&id=NOTE%2010%20%E2%80%93%20EQUITY) - Authorized capital stock consists of **19,500,000** shares of common stock (**$0.01** par value) and **500,000** shares of undesignated preferred stock (**$0.01** par value)[109](index=109&type=chunk) - Net restricted common stock of **23,172** shares was issued to non-employee directors in Fiscal **2021** under the **2013** Long-Term Incentive Plan, with a **three-year** service condition[110](index=110&type=chunk) [NOTE 11 – SHARE-BASED COMPENSATION](index=22&type=section&id=NOTE%2011%20%E2%80%93%20SHARE-BASED%20COMPENSATION) - Share-based compensation expense for stock options was **$0.5 million** (**39 weeks** ended Sep **26**, **2021**) and **$0.4 million** (**39 weeks** ended Sep **27**, **2020**)[111](index=111&type=chunk) - Unamortized share-based compensation expense for stock options was **$0.9 million** as of Sep **26**, **2021**, expected to be recognized over **2.7 years**[111](index=111&type=chunk) Stock Option Activity (Sep 26, 2021) | Metric | Number of Shares | Weighted Average Exercise Price Per Share | | :------------------------- | :--------------- | :---------------------------------------- | | Options outstanding at Dec 27, 2020 | 652,655 | $17.63 | | Granted | 116,374 | $11.57 | | Exercised | (1,000) | $9.72 | | Forfeited / Canceled | (20,150) | $17.56 | | Options outstanding at Sep 26, 2021 | 747,879 | $16.70 | - Share-based compensation expense for restricted stock awards was **$0.4 million** (**39 weeks** ended Sep **26**, **2021**) and **$0.2 million** (**39 weeks** ended Sep **27**, **2020**)[114](index=114&type=chunk) - Unamortized share-based compensation expense for restricted stock was **$0.6 million** as of Sep **26**, **2021**, expected to be recognized over **2.6 years**[114](index=114&type=chunk) Restricted Stock Activity (Sep 26, 2021) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :------------------------- | :--------------- | :------------------------------------- | | Restricted stock outstanding at Dec 27, 2020 | 25,218 | $16.0 | | Issued | 58,172 | $11.9 | | Vested | (26,048) | $17.5 | | Restricted stock outstanding at Sep 26, 2021 | 57,342 | $11.2 | - All **25,862** warrants outstanding at December **27**, **2020**, were forfeited by September **26**, **2021**, resulting in no unamortized compensation expense[117](index=117&type=chunk) - Under the **2020** Employee Stock Purchase Plan (ESPP), **14,758** shares of common stock were issued for the **thirty-nine week** period ended September **26**, **2021**[119](index=119&type=chunk) [NOTE 12 - TEAM MEMBER BENEFIT PLAN](index=24&type=section&id=NOTE%2012%20-%20TEAM%20MEMBER%20BENEFIT%20PLAN) - The company provides a **401(k)** Plan, matching **100%** up to the first **3%** and **50%** of the next **2%** of participant contributions[120](index=120&type=chunk) - Company contributions to the **401(k)** Plan were **$1.2 million** for the **thirty-nine weeks** ended Sep **26**, **2021**, up from **$1.0 million** for the same period in **2020**[120](index=120&type=chunk) [NOTE 13 - BUSINESS SEGMENTS](index=24&type=section&id=NOTE%2013%20-%20BUSINESS%20SEGMENTS) - The company operates in **three** segments: Real Estate, Professional, and Light Industrial[121](index=121&type=chunk) Revenue by Segment (Thirty-nine Weeks Ended) | Segment | Sep 26, 2021 | Sep 27, 2020 | | :--------------- | :----------- | :----------- | | Real Estate | $64,613,631 | $50,964,760 | | Professional | $106,719,095 | $107,035,080 |\n| Light Industrial | $53,122,523 | $50,192,600 | | Total | $224,455,249 | $208,192,450 | Operating Income by Segment (Thirty-nine Weeks Ended) | Segment | Sep 26, 2021 | Sep 27, 2020 | | :--------------- | :----------- | :----------- | | Real Estate | $9,795,540 | $7,159,430 | | Professional (without impairment) | $7,476,688 | $5,232,300 | | Professional (impairment losses) | — | $(7,239,510) |\n| Light Industrial | $3,330,564 | $3,240,340 | | Total Operating Income | $11,745,389 | $220,690 | - Real Estate revenue increased by **26.8%** and operating income increased by **36.8%** for the **thirty-nine weeks** ended Sep **26**, **2021**, compared to the prior year[122](index=122&type=chunk)[124](index=124&type=chunk) - Professional segment revenue slightly decreased by **0.3%** but operating income significantly improved due to the absence of impairment losses seen in **2020**[122](index=122&type=chunk)[124](index=124&type=chunk) - Light Industrial revenue increased by **5.8%** and operating income increased by **2.8%** for the **thirty-nine weeks** ended Sep **26**, **2021**[122](index=122&type=chunk)[124](index=124&type=chunk) [NOTE 14 - SUBSEQUENT EVENTS](index=27&type=section&id=NOTE%2014%20-%20SUBSEQUENT%20EVENTS) - On November **3**, **2021**, the board declared a cash dividend of **$0.12** per share, payable on November **22**, **2021**, to shareholders of record as of November **15**, **2021**[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and results, highlighting performance drivers, segment trends, acquisition and COVID-19 impacts, liquidity, Adjusted EBITDA reconciliation, and critical accounting policies [Overview](index=28&type=section&id=Overview) - BGSF is a national provider of professional workforce solutions, operating in Real Estate, Professional, and Light Industrial segments across **42 states** and **D.C.**, plus **11 on-site locations**[131](index=131&type=chunk) - The company has completed several acquisitions, including EdgeRock (**2020**) and Momentum (**2021**), to strengthen its Professional segment[131](index=131&type=chunk) - Business experiences seasonal fluctuations: Real Estate demand peaks in **Q3**, Light Industrial in **Q4**. **Q1** demand can be affected by weather and payroll tax resets[135](index=135&type=chunk) [Impact of COVID-19](index=28&type=section&id=Impact%20of%20COVID-19) - COVID-19 continues to impact consolidated operating results, candidate/field talent supply chain, and client partner demand across all segments[136](index=136&type=chunk) - Social distancing, changing operational status of client partners, and general business uncertainty are expected to continue affecting demand[136](index=136&type=chunk) - Real Estate segment was strongly affected by COVID-19 in **2020** and early **2021**, partly due to eviction moratoriums[139](index=139&type=chunk) - Management continues to monitor the situation and may alter business operations as required by authorities or for the best interests of stakeholders[140](index=140&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) [Thirteen Week Fiscal Period Ended September 26, 2021 Compared with September 27, 2020](index=29&type=section&id=Thirteen%20Week%20Fiscal%20Period%20Ended%20September%2026,%202021%20Compared%20with%20September%2027,%202020) Key Financials (Thirteen Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenues | $82,352,000 | $71,519,000 | $10,833,000| 15.1% | | Cost of services | $57,685,000 | $51,807,000 | $5,878,000 | 11.3% | | Gross profit | $24,667,000 | $19,712,000 | $4,955,000 | 25.1% | | Selling, general & administrative expenses | $18,489,000 | $14,869,000 | $3,620,000 | 24.3% | | Operating income | $6,195,000 | $3,648,000 | $2,547,000 | 69.8% | | Net income | $4,644,000 | $2,566,000 | $2,078,000 | 81.0% | - Real Estate revenues increased by **$5.6 million** (**29.4%**) due to a **16.0%** increase in billed hours and a **10.7%** increase in average bill rate[144](index=144&type=chunk) - Professional revenues increased by **$5.4 million** (**15.7%**), driven by a **21.2%** increase in billed hours, **$0.5 million** from permanent placements, and **$1.1 million** from the Momentum acquisition, partially offset by a **6.3%** decrease in average bill rate[145](index=145&type=chunk) - Light Industrial revenues slightly decreased by **$0.1 million** (**0.8%**) due to an **11.1%** decrease in billed hours, offset by an **11.5%** increase in average bill rate[146](index=146&type=chunk) - Overall gross profit increased by **$5.0 million** (**25.1%**), with gross profit margin improving from **27.6%** to **30.0%**, primarily due to higher contributions from the Professional and Real Estate segments[148](index=148&type=chunk) - Selling, general and administrative expenses increased by **$3.6 million** (**24.3%**), mainly due to higher compensation and **$0.1 million** from the Momentum acquisition[152](index=152&type=chunk) - The company recognized a **$1.2 million** gain on contingent consideration related to the **2019** LJK acquisition[152](index=152&type=chunk) [Thirty-nine Week Fiscal Period Ended September 26, 2021 Compared with September 27, 2020](index=31&type=section&id=Thirty-nine%20Week%20Fiscal%20Period%20Ended%20September%2026,%202021%20Compared%20with%20September%2027,%202020) Key Financials (Thirty-nine Weeks Ended) | Metric | Sep 26, 2021 | Sep 27, 2020 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenues | $224,455,000 | $208,192,000 | $16,263,000| 7.8% | | Cost of services | $159,191,000 | $151,299,000 | $7,892,000 | 5.2% | | Gross profit | $65,264,000 | $56,893,000 | $8,371,000 | 14.7% | | Selling, general & administrative expenses | $52,981,000 | $45,379,000 | $7,602,000 | 16.8% | | Operating income | $11,745,000 | $221,000 | $11,524,000| 5214.5% | | Net income (loss) | $8,798,000 | $(760,000) | $9,558,000 | N/A | - Real Estate revenues increased by **$13.6 million** (**26.8%**) due to a **15.0%** increase in billed hours and a **10.1%** increase in average bill rate[155](index=155&type=chunk) - Professional revenues slightly decreased by **$0.3 million** (**0.3%**), despite an **$8.3 million** contribution from the EdgeRock acquisition (full **39 weeks** in **2021** vs. **34 weeks** in **2020**), **$1.3 million** from permanent placements, and **$2.3 million** from the Momentum acquisition. This was offset by a decrease in billed hours and average bill rate[156](index=156&type=chunk) - Light Industrial revenues increased by **$2.9 million** (**5.8%**) primarily due to a **9.2%** increase in average bill rate, partially offset by a **3.1%** decrease in billed hours[157](index=157&type=chunk) - Overall gross profit increased by **$8.4 million** (**14.7%**), with gross profit margin improving from **27.3%** to **29.1%**, driven by higher contributions from the Professional and Real Estate segments[160](index=160&type=chunk) - Selling, general and administrative expenses increased by **$7.6 million** (**16.8%**), mainly due to higher compensation, **$1.5 million** from EdgeRock, and **$0.4 million** from Momentum[165](index=165&type=chunk) - The company recognized a **$2.4 million** gain on contingent consideration related to the **2019** LJK acquisition[166](index=166&type=chunk) - Depreciation and amortization decreased by **$1.2 million** (**28.8%**), primarily due to the Professional segment and a decrease related to **2020** impairment losses[167](index=167&type=chunk) - In Fiscal **2020**, the Professional segment recognized a **$3.7 million** trade name impairment loss and a **$3.5 million** client partner list impairment loss[168](index=168&type=chunk) - Interest expense, net, decreased by **$0.2 million** (**17.6%**) due to a lower average balance on the Revolving Facility, lower rates, and increased interest income[169](index=169&type=chunk) - Income tax expense increased by **$2.2 million** (**838.8%**) due to higher pre-tax income in **2021**, offset by a lower effective rate and higher Work Opportunity Tax Credit[170](index=170&type=chunk) [Use of Non-GAAP Financial Measures](index=34&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) - Adjusted EBITDA is presented as a supplemental non-GAAP measure to evaluate operating performance, facilitate period-to-period comparisons, and for internal planning and compensation programs[171](index=171&type=chunk) - Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization expense, intangible impairment losses, transaction fees, non-capital IT project costs, gain on contingent consideration, and share-based compensation expense[172](index=172&type=chunk) - Adjusted EBITDA for the **thirty-nine weeks** ended Sep **26**, **2021**, was **$14.63 million**, up from **$14.04 million** in the prior year[176](index=176&type=chunk) - Adjusted EBITDA for the trailing **twelve months** ended Sep **26**, **2021**, was **$19.28 million**[176](index=176&type=chunk) - Limitations of Adjusted EBITDA include not reflecting cash expenditures, working capital changes, income tax payments, or debt service requirements[173](index=173&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash from operations and borrowings under the **$35 million** Revolving Facility with BMO, maturing July **16**, **2024**[178](index=178&type=chunk) - Primary uses of cash include field talent/team member payments, payroll liabilities, operating expenses, capital expenditures, interest, taxes, dividends, contingent consideration, and debt payments[178](index=178&type=chunk) - Working capital increased from **$25.38 million** at Dec **27**, **2020**, to **$29.28 million** at Sep **26**, **2021**[182](index=182&type=chunk) - Net cash provided by operating activities decreased by **$15.9 million** to **$2.4 million** for Fiscal **2021**, primarily due to increased accounts receivable and payments on accrued payroll[184](index=184&type=chunk) - Net cash used in investing activities decreased to **$5.3 million** for Fiscal **2021**, mainly due to lower acquisition payments (**$3.8 million** for Momentum vs. **$21.7 million** for EdgeRock in prior year)[186](index=186&type=chunk) - Net cash provided by financing activities was **$3.0 million** for Fiscal **2021**, including **$7.7 million** borrowed on the Revolving Facility, **$3.3 million** in cash dividends, and **$1.5 million** in Term Loan payments[188](index=188&type=chunk) [Credit Agreements](index=37&type=section&id=Credit%20Agreements) - The Credit Agreement (July **16**, **2019**, maturing July **16**, **2024**) includes a **$35 million** Revolving Facility and a **$30 million** Term Loan[190](index=190&type=chunk) - Obligations are secured by a first priority security interest in substantially all tangible and intangible property[190](index=190&type=chunk) - The agreement contains customary affirmative and negative covenants, including limitations on cash dividends, and requires compliance with maximum Leverage Ratio and minimum Fixed Charge Coverage Ratio[191](index=191&type=chunk) - A **$25.0 million** pay-fixed/receive-floating interest rate swap, effective June **3**, **2020**, acts as a cash flow hedge on the Term Loan, terminating June **1**, **2023**[192](index=192&type=chunk) - On February **8**, **2021**, **$3.8 million** was borrowed on the Revolving Facility for the Momentum acquisition[193](index=193&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) - A standby letter of credit arrangement, entered in March **2020** for the EdgeRock acquisition, protects a lessor against lease payment default[194](index=194&type=chunk) - As of September **26**, **2021**, the maximum financial exposure from this letter of credit was **$0.1 million**, considered usage against the Revolving Facility[194](index=194&type=chunk) [Critical Accounting Policies and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Consolidated financial statements are prepared in accordance with GAAP, requiring management to make assumptions and estimates about future events[195](index=195&type=chunk) - Management regularly reviews accounting policies, estimates, assumptions, and judgments, acknowledging that actual results may differ materially from estimates[195](index=195&type=chunk) - Significant accounting policies are detailed in Note **2** of the financial statements[195](index=195&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note **2** in the Notes to the Unaudited Consolidated Financial Statements for a discussion of recent accounting pronouncements and their potential effect[195](index=195&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate risk from variable-rate debt, which could negatively impact future earnings and cash flows - The company's primary market risk exposure is interest rate risk[196](index=196&type=chunk) - A portion of the Revolving Facility and Term Loan are priced at variable interest rates[196](index=196&type=chunk) - Future interest rate increases could adversely impact future earnings and cash flows[196](index=196&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded the company's disclosure controls and procedures were effective as of September 26, 2021, with no material changes in internal control over financial reporting identified, despite inherent limitations - CEO and CFO concluded that disclosure controls and procedures were effective as of September **26**, **2021**, at a reasonable assurance level[197](index=197&type=chunk) - No material changes in internal control over financial reporting were identified for the quarter ended September **26**, **2021**, despite remote work due to COVID-19[198](index=198&type=chunk) - Control systems provide only reasonable, not absolute, assurance and can be subject to errors, fraud, collusion, or management override[199](index=199&type=chunk) [PART II—OTHER INFORMATION](index=38&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there has been no change from the information provided regarding legal proceedings in the company's Annual Report on Form 10-K for the fiscal year ended December 27, 2020 - No change from legal proceedings information in the Annual Report on Form **10-K** for fiscal year ended December **27**, **2020**[201](index=201&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section advises readers to carefully consider the risks outlined in this Quarterly Report on Form 10-Q, as well as those disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 27, 2020, as these factors could materially and adversely affect the company's results of operations or financial condition - Readers should consider risks in this **10-Q** and the **2020** Form **10-K**, as they could materially affect operations or financial condition[202](index=202&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[203](index=203&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report for the period - None to report[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Not applicable[203](index=203&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report for the period - None to report[203](index=203&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, encompassing various agreements, corporate documents, certifications, and financial information - Includes Securities Purchase Agreement for EdgeRock acquisition and Asset Purchase Agreement for Momentum acquisition[205](index=205&type=chunk) - Includes certifications from CEO and CFO pursuant to Sarbanes-Oxley Act[205](index=205&type=chunk) - Financial information is formatted in Inline XBRL[205](index=205&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) [Signatures](index=41&type=section&id=Signatures) This section contains the signatures of the President and Chief Executive Officer and the Chief Financial Officer and Secretary, certifying the report on behalf of BGSF, INC - Report signed by Beth Garvey, President and CEO, and Dan Hollenbach, CFO and Secretary, on November **3**, **2021**[208](index=208&type=chunk)[209](index=209&type=chunk)

Revenue Performance - Revenues for the thirteen weeks ended June 27, 2021, were $74.392 million, an increase of approximately $11.786 million (18.8%) compared to $62.606 million for the same period in 2020[141]. - Total revenues increased to $142.1 million, a 3.3% increase from $136.7 million in the previous year[158]. - Real Estate segment revenues increased by approximately $9.4 million (80.1%), driven by a 63.5% increase in billed hours and a 10.2% increase in average bill rate[144]. - Professional segment revenues decreased by approximately $0.4 million (1.3%), primarily due to a 4.1% decrease in billed hours and a 1.1% decrease in average bill rate[145]. - Light Industrial segment revenues increased by approximately $2.8 million (19.9%), attributed to an 11.2% increase in billed hours and a 7.8% increase in average bill rate[146]. - Real Estate revenues increased approximately $8.0 million (25.2%) primarily due to recovery effects from the COVID-19 pandemic, with a 14.4% increase in billed and a 9.8% increase in average bill rate[159]. - Professional revenues decreased approximately $5.7 million (7.8%) due to a 11.7% decrease in billed hours, partially offset by contributions from acquisitions[160]. - Light Industrial revenues increased approximately $3.1 million (9.7%) primarily due to increased demand in the logistics market, with an 8.3% increase in average bill rate[161]. Profitability - Gross profit for the thirteen weeks ended June 27, 2021, was $21.783 million, representing a 28.9% increase compared to $16.905 million for the same period in 2020[149]. - The overall gross profit margin improved to 29.3% from 27.0%, primarily due to higher gross profits in the Professional segment and increased contributions from the Real Estate segment[149]. - Operating income for the thirteen weeks ended June 27, 2021, was $4.318 million, compared to a loss of $6.085 million for the same period in 2020[141]. - Net income for the thirteen weeks ended June 27, 2021, was $3.443 million, compared to a net loss of $4.829 million for the same period in 2020[141]. - Real Estate gross profit increased approximately $3.4 million (76.6%) due to increased revenue and an 8.8% increase in average spread[150]. - Professional gross profit increased approximately $1.0 million (9.3%) primarily from an increase in permanent placements and the 2021 Momentum acquisition, despite a 1.3% decrease in average spread[151]. - Light Industrial gross profit increased approximately $0.5 million (24.4%) in line with increased revenue and an 11.5% increase in average spread[152]. - Adjusted EBITDA for the thirteen weeks ended June 27, 2021, was $4.8 million, compared to $3.3 million for the same period in 2020, representing a 45.5% increase[177]. - Net income for the thirteen weeks ended June 27, 2021, was $3.4 million, a significant improvement from a net loss of $4.8 million in the same period of 2020[177]. - Operating income for the trailing twelve months ended June 27, 2021, was $12.5 million, compared to a loss of $3.4 million for the trailing twelve months ended June 28, 2020[177]. Expenses and Financial Management - Selling, general and administrative expenses increased approximately $3.5 million (24.2%) primarily due to additional compensation from increased revenues[153]. - Depreciation and amortization charges decreased approximately $0.6 million (38.3%) primarily due to changes in the Professional segment[155]. - Interest expense, net decreased approximately $0.3 million (32.8%) primarily due to lower average balance on the Revolving Facility and increased interest income[170]. Cash Flow and Capital Management - Cash provided by operating activities for Fiscal 2021 was $1.7 million, a decrease of $13.4 million compared to $15.1 million in Fiscal 2020[185]. - Cash used in investing activities in Fiscal 2021 included $3.8 million for the Momentum acquisition and $1.1 million for capital expenditures[187]. - The company borrowed $6.1 million on its Revolving Facility in Fiscal 2021 to meet increased working capital needs and fund the Momentum acquisition[189]. - Working capital as of June 27, 2021, was $23.3 million, a decrease from $25.4 million as of December 27, 2020[183]. - The company has a Revolving Facility with a maximum borrowing capacity of $35 million, maturing on July 16, 2024[191]. - The company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as per its Credit Agreement[192]. - The company is monitoring liquidity closely, particularly payments from client partners, amid ongoing uncertainty related to COVID-19[181]. Operational Impact of COVID-19 - The company continues to monitor the impact of COVID-19 on its operations and has implemented cost containment measures to mitigate financial impacts[135]. - The company operates across 42 states and D.C., with a focus on expanding its workforce solutions in the Real Estate, Professional, and Light Industrial segments[130].

Revenue Performance - Total revenues for the thirteen weeks ended March 28, 2021, were $67.712 million, a decrease of approximately $6.355 million (8.6%) compared to $74.067 million for the same period in 2020[130]. - Real Estate segment revenues decreased by approximately $1.4 million (7.1%) due to a 14.3% decrease in billed hours, partially offset by an 8.9% increase in average bill rate[134]. - Professional segment revenues decreased by approximately $5.2 million (14.3%), primarily due to a 19.7% decrease in billed hours, despite a contribution of $3.7 million from the EdgeRock acquisition[135]. - Light Industrial segment revenues increased by approximately $0.3 million (1.5%) due to increased demand in the logistics market, with an 8.5% increase in average bill rate[136]. - Total revenue for the period was $16,723,000, representing a 3.2% increase from $16,202,000 in the previous year[145]. Profitability - Gross profit for the thirteen weeks ended March 28, 2021, was $18.815 million, a decrease of approximately $1.460 million (7.2%) compared to $20.275 million in the same period in 2020[139]. - The gross profit margin increased to 27.8% from 27.4%, primarily due to higher gross profits in the Professional segment[139]. - Adjusted EBITDA for the period was $2,886,000, a decrease of 45.2% compared to $5,266,000 in the prior year[151]. - Net income for the period was $712,000, down from $1,499,000, reflecting a 52.5% decrease[151]. Expenses and Financial Management - Selling, general and administrative expenses increased by approximately $0.5 million (3.2%), primarily due to the EdgeRock and Momentum acquisitions[143]. - Interest expense decreased by approximately $0.1 million (17.4%) due to lower average balance on the Revolving Facility and lower rates[146]. - Income tax expense decreased by approximately $0.6 million (79.7%) primarily due to lower pre-tax income and non-deductible transaction fees[146]. - Cash provided by operating activities was $1,911,000, a decrease of $4.7 million compared to $6,640,000 in the previous year[159]. - Cash used in investing activities was $4,328,000, primarily for the Momentum acquisition and capital expenditures[157]. Capital Structure and Financing - The company borrowed $3.8 million on the Revolving Facility to fund the Momentum acquisition[163]. - Working capital as of March 28, 2021, was $19,189,000, down from $25,380,000 in the previous year[157]. - The company plans to open new branches throughout the next year, which may require additional debt or equity financing[156]. - The company entered into a standby letter of credit arrangement in March 2020, with a maximum financial exposure of $0.1 million as of March 28, 2021[168]. Operational Context - The company continues to monitor the impact of COVID-19 on its operations and may take further actions as required by authorities[129]. - The company operates across 42 states and D.C., with a focus on three segments: Real Estate, Professional, and Light Industrial[120]. - The company has completed multiple acquisitions to expand its workforce solutions capabilities, including EdgeRock in February 2020 and Momentum in February 2021[120]. Accounting and Risk Management - The consolidated financial statements are prepared in accordance with GAAP, with significant accounting policies reviewed regularly to ensure fair presentation[169]. - The company is exposed to interest rate risk due to a portion of its Revolving Facility and Term Loan being priced at variable interest rates[170].

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for BG Staffing, Inc. as of September 27, 2020, highlighting a year-to-date net loss of $764,840, a significant decrease from a net income of $10.5 million in the prior year, primarily driven by a $7.2 million impairment loss, with total assets growing to $129.1 million and operating cash flow increasing to $18.3 million [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) As of September 27, 2020, total assets increased to $129.1 million from $115.6 million at year-end 2019, driven by goodwill and intangible assets from acquisitions, while total liabilities rose to $65.1 million from $47.1 million due to increased long-term debt, and total stockholders' equity decreased to $64.0 million from $68.5 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 27, 2020 | Dec 29, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$129,102** | **$115,586** | | Total current assets | $42,780 | $40,737 | | Goodwill | $31,350 | $25,195 | | Intangible assets, net | $35,437 | $33,808 | | **Total Liabilities** | **$65,067** | **$47,129** | | Total current liabilities | $17,840 | $13,707 | | Long-term debt, less current portion | $26,863 | $7,125 | | **Total Stockholders' Equity** | **$64,035** | **$68,457** | [Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) For the third quarter of 2020, revenues decreased to $71.5 million from $79.4 million year-over-year, resulting in a net income of $2.6 million, down from $4.2 million, while for the thirty-nine weeks ended September 27, 2020, revenues fell to $208.2 million from $222.0 million, leading to a net loss of $764,840, a sharp contrast to the $10.5 million net income in the prior year, largely due to a $7.2 million impairment loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$71,519** | **$79,364** | **$208,192** | **$221,998** | | Gross Profit | $19,712 | $22,177 | $56,893 | $61,478 | | Operating Income | $3,648 | $6,477 | $221 | $15,485 | | Impairment Losses | $0 | $0 | $7,240 | $0 | | **Net Income (Loss)** | **$2,566** | **$4,207** | **($765)** | **$10,505** | | Diluted EPS | $0.25 | $0.41 | ($0.07) | $1.01 | - Cash dividends declared per common share were **$0.05** for Q3 2020 and **$0.40** for YTD 2020, compared to **$0.30** and **$0.90** for the respective periods in 2019[14](index=14&type=chunk) [Unaudited Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased from $68.5 million at the end of 2019 to $64.0 million as of September 27, 2020, primarily driven by $4.1 million in cash dividends declared and a net loss, partially offset by share-based compensation - For the thirty-nine weeks ended September 27, 2020, total stockholders' equity decreased by approximately **$4.4 million**, with key activities including a net loss of **$765 thousand**, cash dividends declared of **$4.1 million**, and share-based compensation of **$0.6 million**[19](index=19&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) For the thirty-nine weeks ended September 27, 2020, net cash provided by operating activities increased to $18.3 million from $14.0 million in the prior year, while net cash used in investing activities was $23.6 million, primarily for the EdgeRock acquisition, and net cash provided by financing activities was $5.3 million, reflecting debt proceeds offset by repayments and dividends Cash Flow Summary (YTD, in thousands) | Activity | Sep 27, 2020 | Sep 29, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$18,288** | **$13,965** | | Net cash used in investing activities | ($23,618) | ($1,534) | | Net cash provided by (used in) financing activities | $5,330 | ($12,431) | - Investing activities in 2020 were dominated by **$21.7 million** used for a business acquisition (EdgeRock), compared to none in the 2019 period[21](index=21&type=chunk) - Financing activities in 2020 included **$22.5 million** in proceeds from long-term debt, while net payments on the line of credit were **$12.3 million**, contrasting with 2019 which saw net borrowings of **$9.9 million** on the line of credit and principal payments of **$10.1 million** on long-term debt[23](index=23&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail the company's operations across three segments: Real Estate, Professional, and Light Industrial, highlighting the acquisition of EdgeRock Technology for $21.7 million, a $7.2 million impairment loss on intangible assets in the Professional segment, the deferral of $5.0 million in employer FICA taxes under the CARES Act, and a subsequent $0.10 per share dividend declaration in November 2020 - The company operates in three segments: Real Estate, Professional, and Light Industrial, with business being seasonal, typically increasing in Q2/Q3 for Real Estate and Q3/Q4 for Light Industrial, though COVID-19 has significantly affected normal seasonal demand[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - On February 3, 2020, the company acquired **100%** of EdgeRock Technology for **$21.7 million** in cash, funded by its credit facility, as part of the Professional segment[76](index=76&type=chunk)[77](index=77&type=chunk) - During the second quarter of 2020, the company recognized a **$3.7 million** trade name impairment loss and a **$3.5 million** client partner list impairment loss within the Professional segment due to changes in long-term projections[87](index=87&type=chunk) - The company deferred **$5.0 million** of employer FICA taxes under the CARES Act, with payments due in 2021 and 2022[88](index=88&type=chunk) YTD 2020 Revenue and Operating Income by Segment (in thousands) | Segment | Revenue YTD 2020 | Revenue YTD 2019 | Operating Income (Loss) YTD 2020 | Operating Income YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Real Estate | $50,965 | $73,043 | $7,159 | $12,465 | | Professional | $107,035 | $93,421 | ($2,007) | $6,190 | | Light Industrial | $50,193 | $55,534 | $3,240 | $3,515 | - On November 4, 2020, the board declared a cash dividend of **$0.10 per share**, payable on November 23, 2020[116](index=116&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of the COVID-19 pandemic, which has caused revenue declines across most business lines, partially offset by acquisitions in the Professional segment, leading to a 9.9% YoY revenue fall in Q3 2020 to $71.5 million and a 6.2% decrease for the first nine months to $208.2 million, resulting in a net loss of $0.8 million primarily due to a $7.2 million intangible asset impairment, while Adjusted EBITDA for the trailing twelve months was $20.3 million and liquidity remains sufficient [Impact of COVID-19](index=26&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic has materially and adversely impacted the business, leading to reduced demand, project terminations, and hiring freezes, prompting the company to implement cost containment and liquidity actions, with management expecting continued negative effects on revenue and financial results due to ongoing uncertainty - The company's business, operations, and financial condition have been and may continue to be materially and adversely impacted by COVID-19[126](index=126&type=chunk)[195](index=195&type=chunk) - Impacts include reduced demand for services, early project terminations, hiring freezes, and a shift to remote work, all contributing to a decline in revenues[126](index=126&type=chunk)[196](index=196&type=chunk) - The company took cost containment and liquidity actions starting in March 2020 to mitigate the financial impact[125](index=125&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) For Q3 2020, revenues decreased 9.9% year-over-year, driven by a 35.0% decline in the Real Estate segment due to COVID-19, partially offset by an 8.0% increase in the Professional segment from acquisitions, while for the nine months ended September 2020, revenues decreased 6.2% year-over-year, with the YTD period including a $7.2 million impairment loss in the Professional segment, leading to an operating income of only $0.2 million compared to $15.5 million in the prior year period Q3 2020 vs Q3 2019 Revenue by Segment (in thousands) | Segment | Q3 2020 Revenue | Q3 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $19,156 | $29,470 | (35.0%) | | Professional | $34,042 | $31,506 | 8.0% | | Light Industrial | $18,321 | $18,388 | (0.4%) | | **Total** | **$71,519** | **$79,364** | **(9.9%)** | - The Professional segment's Q3 revenue increase was primarily driven by **$9.5 million** from the LJK and EdgeRock acquisitions[134](index=134&type=chunk) YTD 2020 vs YTD 2019 Revenue by Segment (in thousands) | Segment | YTD 2020 Revenue | YTD 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $50,965 | $73,043 | (30.2%) | | Professional | $107,035 | $93,421 | 14.6% | | Light Industrial | $50,192 | $55,534 | (9.6%) | | **Total** | **$208,192** | **$221,998** | **(6.2%)** | - The Professional segment's YTD revenue increase was primarily driven by **$26.2 million** from the LJK and EdgeRock acquisitions[146](index=146&type=chunk) - A **$7.2 million** impairment loss was recognized in the Professional segment during the thirty-nine week period ended Sep 27, 2020, related to a trade name (**$3.7 million**) and a client partner list (**$3.5 million**)[156](index=156&type=chunk) [Use of Non-GAAP Financial Measures](index=32&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) The company uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance, reporting $5.5 million for Q3 2020 (down from $8.3 million in Q3 2019), $14.0 million for the thirty-nine weeks ended September 27, 2020 (compared to $20.3 million in the prior-year period), and a trailing twelve-month Adjusted EBITDA of $20.3 million Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | TTM Ended Sep 27, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $2,566 | $4,207 | ($765) | $10,505 | $1,977 | | Interest expense, net | $360 | $395 | $1,245 | $1,245 | $1,569 | | Income tax expense (benefit) | $723 | $1,334 | ($260) | $3,194 | $851 | | Depreciation & amortization | $1,271 | $1,197 | $4,130 | $3,633 | $5,318 | | Impairment losses | $0 | $0 | $7,240 | $0 | $7,240 | | Other adjustments* | $585 | $622 | $2,452 | $1,204 | $3,345 | | **Adjusted EBITDA** | **$5,505** | **$8,296** | **$14,042** | **$20,332** | **$20,300** | - *Other adjustments include contingent consideration, share-based compensation, transaction fees, and IT roadmap expenses[164](index=164&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash from operations and its revolving credit facility with BMO, with cash from operations strong at $18.3 million for the first nine months of 2020, and $21.7 million used for the EdgeRock acquisition funded by its Term Loan, leading management to believe liquidity is sufficient for at least the next twelve months while continuing to monitor the impact of COVID-19 - Primary liquidity sources are cash from operations and the BMO revolving credit facility, which matures in July 2024[167](index=167&type=chunk) - Net cash from operating activities increased to **$18.3 million** in YTD 2020 from **$14.0 million** in YTD 2019[172](index=172&type=chunk) - In February 2020, the company borrowed **$18.5 million** on its Term Loan to fund the EdgeRock acquisition and borrowed the remaining **$4.0 million** in April 2020[92](index=92&type=chunk) - In April 2020, the company entered into a **$25.0 million** notional interest rate swap to hedge against floating interest rate risk on its Term Loan[179](index=179&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations, as a portion of its Revolving Facility and Term Loan carry variable interest rates, meaning an increase in interest rates could adversely affect future earnings and cash flows - The company's main market risk is interest rate risk due to variable-rate debt under its Revolving Facility and Term Loan[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that as of September 27, 2020, the company's disclosure controls and procedures were not effective due to a previously identified material weakness in internal control over financial reporting related to the quantitative assessment of impairment for goodwill and intangible assets, with remediation steps underway including retaining external experts and enhancing management review controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 27, 2020[185](index=185&type=chunk) - The ineffectiveness is due to a material weakness in internal control related to the technical aspects of GAAP for testing goodwill and other intangible assets for impairment[186](index=186&type=chunk) - Remediation steps include retaining external experts, enhancing management review controls, and providing training, though the timeline for completion is not yet estimated[189](index=189&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) There have been no changes from the information provided in the company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019 - No change from the information provided in the Annual Report on Form 10-K for the fiscal year ended December 29, 2019[193](index=193&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The primary risk factor highlighted is the ongoing and unpredictable material adverse impact of the COVID-19 pandemic on the company's business, operations, and financial results, which has led to reduced demand, project reductions, and hiring freezes, contributing to a decline in revenues - The company's business, results of operations, and financial condition have been and may continue to be adversely impacted in material respects by the COVID-19 pandemic[195](index=195&type=chunk)[196](index=196&type=chunk) - Specific impacts include reduced demand for workforce solutions, early terminations or reductions in projects, hiring freezes, and potential client inability to pay for services, all of which have contributed to a decline in revenues[196](index=196&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None - None[197](index=197&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including acquisition agreements, corporate governance documents, and CEO/CFO certifications as required by the Sarbanes-Oxley Act - Key exhibits filed include the Asset Purchase Agreement for L.J. Kushner & Associates and the Securities Purchase Agreement for EdgeRock Technology Holdings[201](index=201&type=chunk) - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[201](index=201&type=chunk)

Part I - Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company reported a $3.3 million net loss for the 26 weeks ended June 28, 2020, driven by a $7.2 million impairment and COVID-19 impacts, despite growth from the $21.7 million EdgeRock acquisition [Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (Unaudited) | Account | June 28, 2020 ($) | December 29, 2019 ($) | | :--- | :--- | :--- | | **Total Assets** | **$126,955,730** | **$115,586,044** | | Goodwill | $31,372,990 | $25,194,639 | | Intangible assets, net | $36,441,098 | $33,807,973 | | **Total Liabilities** | **$65,232,996** | **$47,129,054** | | Long-term debt | $29,675,000 | $7,500,000 | | **Total Stockholders' Equity** | **$61,722,734** | **$68,456,990** | - The increase in assets and liabilities is primarily due to the acquisition of **EdgeRock**, which added **goodwill**, **intangible assets**, and was financed through increased **long-term debt**[12](index=12&type=chunk)[13](index=13&type=chunk)[75](index=75&type=chunk) [Consolidated Statements of Operations](index=7&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Statement of Operations Highlights (Unaudited, in thousands) | Metric | Q2 2020 ($ thousands) | Q2 2019 ($ thousands) | 26 Weeks 2020 ($ thousands) | 26 Weeks 2019 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$62,606** | **$73,858** | **$136,674** | **$142,634** | | Gross Profit | $16,905 | $20,863 | $37,181 | $39,301 | | Impairment Losses | $7,240 | $0 | $7,240 | $0 | | Operating (Loss) Income | $(6,085) | $5,421 | $(3,427) | $9,007 | | **Net (Loss) Income** | **$(4,829)** | **$3,802** | **$(3,330)** | **$6,298** | | Diluted EPS | $(0.47) | $0.37 | $(0.32) | $0.61 | - A significant **$7.2 million impairment loss** was recognized in Q2 2020, leading to a substantial **net loss** for both the quarter and the half-year, compared to profits in the prior year[15](index=15&type=chunk)[53](index=53&type=chunk) - Cash dividends declared per common share were reduced to **$0.05** in Q2 2020 from **$0.30** in Q2 2019[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Cash Flow Summary (Unaudited, for the 26 weeks ended, in thousands) | Activity | June 28, 2020 ($ thousands) | June 30, 2019 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,102 | $9,162 | | Net cash used in investing activities | $(23,577) | $(674) | | Net cash provided by (used in) financing activities | $8,476 | $(8,489) | - Cash used in investing activities surged to **$23.6 million** due to the **$21.7 million** cash payment for the **EdgeRock acquisition**[23](index=23&type=chunk)[75](index=75&type=chunk) - Financing activities provided **$8.5 million** in cash, primarily from **$22.5 million** in new **long-term debt**, which was used for the acquisition and to pay down the line of credit[24](index=24&type=chunk)[92](index=92&type=chunk) [Notes to Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Notes detail the company's three segments, the significant impact of COVID-19, the $21.7 million EdgeRock acquisition, a $7.2 million impairment charge, and subsequent debt and dividend actions - The company operates in three segments: **Real Estate**, **Professional**, and **Light Industrial**. The **Professional** segment was expanded through the acquisitions of **L.J. Kushner** and **EdgeRock Technology**[26](index=26&type=chunk)[28](index=28&type=chunk)[114](index=114&type=chunk) - On February 3, 2020, the company acquired **EdgeRock** for **$21.7 million** in cash, funded by its credit facility. The acquisition contributed approximately **$16.3 million** in revenue and **$0.6 million** in operating income in the first twenty-six weeks of 2020[75](index=75&type=chunk)[77](index=77&type=chunk) - Due to revised long-term projections impacted by market conditions, the company recognized a **$7.2 million impairment loss** in the Professional segment during Q2 2020, comprising a **$3.7 million trade name impairment** and a **$3.5 million client partner list impairment**[53](index=53&type=chunk)[87](index=87&type=chunk) - Subsequent to the quarter end, on August 4, 2020, the board declared a cash dividend of **$0.05 per share**[117](index=117&type=chunk) [Management's Discussion and Analysis (MD&A)](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the Q2 revenue decline to COVID-19 impacts on Real Estate and Light Industrial segments, offset by Professional segment growth from acquisitions, while a $7.2 million impairment charge led to an operating loss and Adjusted EBITDA decline [Overview and COVID-19 Impact](index=31&type=section&id=Overview%20and%20COVID-19%20Impact) - The company operates **89 branch offices** and **12 on-site locations** across **44 states and D.C.**, providing workforce solutions in **Real Estate**, **Professional**, and **Light Industrial** segments[120](index=120&type=chunk) - The COVID-19 pandemic has had a **negative impact** on operating results, including **reduced demand** for services, **hiring freezes**, and **early project terminations**. The company has implemented **cost containment** and **liquidity actions** in response[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q2 2020 revenues declined 15.2% to $62.6 million, resulting in a $4.8 million net loss due to a $7.2 million impairment and segment declines, despite Professional segment growth Q2 2020 vs Q2 2019 Revenue by Segment (in thousands) | Segment | Q2 2020 Revenue ($ thousands) | Q2 2019 Revenue ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $11,780 | $24,397 | (51.7)% | | Professional | $36,649 | $31,321 | 17.0% | | Light Industrial | $14,177 | $18,140 | (21.8)% | | **Total** | **$62,606** | **$73,858** | **(15.2)%** | - The increase in **Professional segment revenue** was primarily driven by the **LJK** and **EdgeRock acquisitions**, which contributed **$9.8 million** of new revenue in Q2 2020[133](index=133&type=chunk) 26 Weeks 2020 vs 26 Weeks 2019 Revenue by Segment (in thousands) | Segment | 26 Weeks 2020 Revenue ($ thousands) | 26 Weeks 2019 Revenue ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $31,808 | $43,573 | (27.0)% | | Professional | $72,994 | $61,915 | 17.9% | | Light Industrial | $31,872 | $37,146 | (14.2)% | | **Total** | **$136,674** | **$142,634** | **(4.2)%** | - A **$7.2 million impairment loss** was recognized in the **Professional segment** due to changes in long-term projections, significantly impacting profitability[142](index=142&type=chunk)[154](index=154&type=chunk) [Non-GAAP Measures: Adjusted EBITDA](index=41&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) - The company uses **Adjusted EBITDA**, a **non-GAAP measure**, to evaluate operating performance. It is defined as earnings before interest, taxes, depreciation, amortization, impairment losses, transaction fees, IT roadmap costs, and share-based compensation[156](index=156&type=chunk)[157](index=157&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2020 ($ thousands) | Q2 2019 ($ thousands) | 26 Weeks 2020 ($ thousands) | 26 Weeks 2019 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | $(4,830) | $3,802 | $(3,331) | $6,298 | | Adjustments | $8,102 | $3,074 | $11,869 | $5,738 | | **Adjusted EBITDA** | **$3,272** | **$6,876** | **$8,538** | **$12,036** | [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are **cash from operations** and borrowings under the **BMO credit facility**. The company believes these sources are **sufficient for working capital needs** for the next twelve months[163](index=163&type=chunk) - In H1 2020, the company borrowed **$22.5 million** on its **Term Loan** to fund the **EdgeRock acquisition**, reduced its **Revolving Facility** by **$10.1 million**, and paid **$3.6 million in dividends**[171](index=171&type=chunk) - In April 2020, the company entered into a **$25.0 million interest rate swap agreement** to **hedge the floating interest rate** on its Term Loan, effective June 3, 2020[175](index=175&type=chunk) [Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable-rate debt, mitigated by an interest rate swap agreement - The company is exposed to **interest rate risk** because portions of its debt are priced at **variable rates**. Future rate increases could **adversely impact earnings and cash flows**[178](index=178&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective as of June 28, 2020, due to a material weakness in goodwill and intangible asset impairment assessment, with remediation efforts underway - Management identified a **material weakness** in **internal control over financial reporting** related to the **quantitative assessment of impairment** for **goodwill and intangible assets**[181](index=181&type=chunk) - The CEO and CFO concluded that due to this material weakness, the company's **disclosure controls and procedures** were **not effective** as of June 28, 2020[180](index=180&type=chunk) - **Remediation steps** are underway, including **recruiting additional personnel**, **retaining external experts**, and **enhancing management review controls**[183](index=183&type=chunk) Part II - Other Information [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company highlights significant and ongoing risks from the COVID-19 pandemic, including reduced demand, client payment issues, and economic disruptions, which adversely impact operations - The company's business and financial results have been, and may continue to be, **materially and adversely impacted** by the **COVID-19 pandemic**[189](index=189&type=chunk) - Specific impacts include **reduced demand** for services, **early project terminations**, **hiring freezes**, and potential **client payment defaults or deferrals**, which could **materially impact liquidity**[190](index=190&type=chunk) [Other Part II Items](index=48&type=section&id=Other%20Part%20II%20Items) No material changes were reported for Legal Proceedings, Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, or Other Information - Item 1, Legal Proceedings: **No change** from the Annual Report on Form 10-K for the fiscal year ended December 29, 2019[187](index=187&type=chunk) - Items 2, 3, 5: The company reported **'None'** for Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, and Other Information[191](index=191&type=chunk)