BGSF(BGSF) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for BG Staffing, Inc. as of June 30, 2019, show asset growth and reduced net income Unaudited Consolidated Balance Sheets As of June 30, 2019, total assets increased to $104.0 million, liabilities rose, and stockholders' equity slightly increased Consolidated Balance Sheet Highlights (as of June 30, 2019 vs. Dec 30, 2018) | Metric | June 30, 2019 (USD) | Dec 30, 2018 (USD) | | :--- | :--- | :--- | | Total Current Assets | $40,146,764 | $38,613,673 | | Total Assets | $104,039,160 | $100,268,803 | | Total Current Liabilities | $16,308,398 | $18,059,091 | | Total Liabilities | $37,871,009 | $34,566,790 | | Total Stockholders' Equity | $66,168,151 | $65,702,013 | - The company adopted a new lease accounting standard, resulting in the recognition of a Right-of-use asset of $4.0 million and corresponding lease liabilities (current and long-term) totaling $5.0 million as of June 30, 2019[11][12] Unaudited Consolidated Statements of Income Revenues increased for both periods, but net income decreased, reflecting lower profitability Income Statement Summary (Thirteen Weeks Ended) | Metric | Q2 2019 (USD) | Q2 2018 (USD) | | :--- | :--- | :--- | | Revenues | $73,857,890 | $70,945,438 | | Gross Profit | $20,862,834 | $19,192,279 | | Operating Income | $5,420,758 | $6,577,171 | | Net Income | $3,801,829 | $5,169,884 | | Diluted EPS | $0.37 | $0.54 | Income Statement Summary (Twenty-six Weeks Ended) | Metric | H1 2019 (USD) | H1 2018 (USD) | | :--- | :--- | :--- | | Revenues | $142,633,957 | $137,800,908 | | Gross Profit | $39,301,475 | $36,502,210 | | Operating Income | $9,007,467 | $10,612,475 | | Net Income | $6,297,854 | $7,635,455 | | Diluted EPS | $0.61 | $0.82 | Unaudited Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity increased to $66.2 million by June 30, 2019, driven by net income, offset by dividends - For the twenty-six weeks ended June 30, 2019, total cash dividends declared amounted to $6,137,821 ($0.60 per share)[16][14] Unaudited Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $9.2 million in H1 2019, primarily funding dividends and debt Cash Flow Summary (Twenty-six Weeks Ended) | Cash Flow Activity | H1 2019 (USD) | H1 2018 (USD) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $9,162,315 | $4,097,641 | | Net Cash used in Investing Activities | ($673,752) | ($452,519) | | Net Cash used in Financing Activities | ($8,488,563) | ($3,645,122) | - Financing activities in H1 2019 included $7.8 million in net borrowings under the line of credit, $10.1 million in principal payments on long-term debt, and $6.1 million in dividend payments[19] Notes to Unaudited Consolidated Financial Statements Notes detail operations, accounting policies, segments, a new credit agreement, and share-based compensation - The company operates in three segments: Real Estate (staffing for apartment communities), Professional (IT, finance, and accounting staffing), and Light Industrial (logistics and distribution staffing)[21][22][23] - Subsequent to the quarter end, on July 16, 2019, the company entered into a new five-year Credit Agreement with BMO Harris Bank, providing for a $35 million revolving credit facility and a $30 million term loan[69][100] - On July 31, 2019, the board of directors declared a quarterly cash dividend of $0.30 per share[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, revenue growth, expenses, liquidity, capital resources, and Adjusted EBITDA Overview The company is a national temporary staffing provider across three segments, experiencing seasonality in Q3 and Q4 - The company operates in 79 branch offices and 15 on-site locations, providing services across 42 states[104] - Business is seasonal: Real Estate demand is highest in Q3 due to summer apartment turnover, while Light Industrial demand peaks in Q4 for holiday help[107][24] Results of Operations Q2 2019 revenues grew 4.1% to $73.9 million, led by Real Estate, with gross profit margin improving despite higher SG&A expenses Q2 2019 vs Q2 2018 Revenue by Segment (in thousands) | Segment | Q2 2019 (USD Thousands) | Q2 2018 (USD Thousands) | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $24,397 | $21,298 | 14.6% | | Professional | $31,321 | $30,132 | 3.9% | | Light Industrial | $18,140 | $19,515 | (7.0)% | | Total Revenues | $73,858 | $70,945 | 4.1% | H1 2019 vs H1 2018 Revenue by Segment (in thousands) | Segment | H1 2019 (USD Thousands) | H1 2018 (USD Thousands) | % Change | | :--- | :--- | :--- | :--- | | Real Estate | $43,573 | $39,333 | 10.8% | | Professional | $61,915 | $61,222 | 1.1% | | Light Industrial | $37,146 | $37,246 | (0.3)% | | Total Revenues | $142,634 | $137,801 | 3.5% | - Selling, general and administrative (SG&A) expenses increased 13.6% in Q2 2019 and 13.7% in H1 2019, primarily due to costs associated with revenue growth and geographic expansion, including increased headcount, commissions, and bonuses[120][132] Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2019 (USD Thousands) | Q2 2018 (USD Thousands) | H1 2019 (USD Thousands) | H1 2018 (USD Thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $3,802 | $5,170 | $6,298 | $7,635 | | Adjusted EBITDA | $6,848 | $6,979 | $12,008 | $12,446 | Liquidity and Capital Resources Primary liquidity sources are operations and a new credit facility, deemed sufficient for working capital needs for the next year - Primary sources of liquidity are cash from operations and a new revolving credit facility with BMO Harris Bank that matures in July 2024[142] - The new credit agreement provides for a $35 million revolving facility and a $30 million term loan, with an option to increase the term loan by an additional $40 million[150] - Net cash from operating activities increased to $9.2 million in H1 2019, up from $4.1 million in H1 2018, mainly due to favorable changes in accounts receivable and accrued payroll[146] Critical Accounting Policies and Estimates Significant accounting policies are detailed in the financial statement notes and the 2018 Annual Report on Form 10-K - The company's critical accounting policies have not changed and are discussed in its Annual Report on Form 10-K for the fiscal year ended December 30, 2018[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable-rate debt, potentially impacting future earnings and cash flows - The company is exposed to market risk primarily from interest rate changes, as its Revolving Facility and Term Loan have variable interest rates[157] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - Based on an evaluation as of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[158][159] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[160] PART II - OTHER INFORMATION Item 1. Legal Proceedings No changes to legal proceedings information since the 2018 Annual Report on Form 10-K - No change from the information provided in the Annual Report on Form 10-K for the fiscal year ended December 30, 2018[164] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2018 Annual Report on Form 10-K - There have been no material changes from the risk factors as previously disclosed in the 2018 Form 10-K[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None[166] Item 6. Exhibits Exhibits filed with the Quarterly Report on Form 10-Q include CEO/CFO certifications and XBRL data files - Exhibits filed with the report include CEO/CFO certifications (31.1, 31.2, 32.1) and XBRL interactive data files[168]