BGSF(BGSF) - 2023 Q3 - Quarterly Report

Forward-Looking Statements 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] - 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] Where You Can Find Other Information 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 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 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 | Metric | Sep 25, 2022 ($) | Dec 26, 2021 ($) | Change ($) | Change (%) | | :--------------------------- | :--------------- | :--------------- | :----------- | :--------- | | Total Assets | 149,264,141 | 148,293,966 | 970,175 | 0.65% | | Total Current Assets | 70,812,657 | 60,170,249 | 10,642,408 | 17.69% | | Cash and Cash Equivalents | — | 112,104 | (112,104) | -100.00% | | Accounts Receivable, net | 64,349,769 | 48,132,896 | 16,216,873 | 33.69% | | Total Current Liabilities | 23,786,163 | 28,383,700 | (4,597,537) | -16.20% | | Line of Credit | 27,004,467 | 12,587,591 | 14,416,876 | 114.53% | | Total Stockholders' Equity | 96,893,684 | 76,592,184 | 20,301,500 | 26.51% | Unaudited Consolidated Statements of Operations and Comprehensive Income | Metric (Thirteen Weeks) | Sep 25, 2022 ($) | 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 $17.3 million gain on the sale of discontinued operations[18] Unaudited Consolidated Statement of Changes in Stockholders' Equity | Metric (Thirty-nine Weeks) | Sep 25, 2022 ($) | 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 | 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] - 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] - 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 $14.3 million in Revolving Facility borrowings[184] Notes to Unaudited Consolidated Financial Statements NOTE 1 - NATURE OF OPERATIONS - BGSF, Inc. provides workforce solutions across IT, Cyber, Finance & Accounting, and Real Estate segments, primarily within the United States[30][33] - On March 21, 2022, the company completed the sale of its Light Industrial segment (InStaff), with its financial results now reflected as discontinued operations[31][32] - The Real Estate segment experiences seasonal fluctuations, with demand historically increasing in Q2 and peaking in Q3 due to increased multifamily unit turns[36] - The current inflationary environment and related interest rate impacts may negatively affect the company's business by reducing demand for workforce solutions, increasing early terminations, or diminishing projects[37] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The company's fiscal year is 52/53 weeks, with periods ending September 25, 2022, and December 26, 2021[41] - Significant estimates affecting financial statements include allowances for credit losses, goodwill, intangible assets, lease liability, contingent consideration obligations, and income taxes[42] - No single client partner accounted for more than 10% of accounts receivable or revenue from continuing operations[44] | Geographic Revenue Concentration (Continuing Operations) | Sep 25, 2022 | Sep 26, 2021 | | :------------------------------------------------------- | :----------- | :----------- | | Tennessee | 11% | 12% | | Texas | 23% | 23% | | Allowance for Credit Losses (Continuing Operations) | Sep 25, 2022 ($) | 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] NOTE 3 - ACQUISITIONS - 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] - The Momentum acquisition, assigned to the Professional segment, strengthens the company's operations in IT consultants and technology professionals, particularly for ERP systems[84] - As of September 25, 2022, $1.1 million of the contingent consideration for Momentum has been paid[83] NOTE 4 - DISCONTINUED OPERATIONS - On March 21, 2022, the company sold its Light Industrial segment (InStaff) for approximately $30.3 million cash, resulting in a $17.3 million gain on sale[90] - InStaff's financial results for periods prior to the sale have been reflected as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows[91] | InStaff Financials (Thirty-nine Weeks) | Sep 25, 2022 ($) | 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 - 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] | Undiscounted Annual Future Minimum Lease Payments | Sep 25, 2022 ($) | | :------------------------------------------------ | :--------------- | | 2022 | 495,580 | | 2023 | 1,554,046 | | 2024 | 1,019,244 | | 2025 | 270,793 | | Total Lease Payments | 3,339,663 | | Present Value of Lease Liabilities | 3,173,152 | NOTE 6 - INTANGIBLE ASSETS - Intangible assets with finite useful lives are amortized over their estimated useful lives, ranging from three to ten years[58] - No impairment indicators were identified for intangible assets or goodwill during Fiscal 2022 or Fiscal 2021[60][62] | Amortization Expense (Thirty-nine Weeks) | Sep 25, 2022 ($) | Sep 26, 2021 ($) | | :--------------------------------------- | :--------------- | :--------------- | | Acquisition intangibles | 1,642,550 | 1,820,350 | | Computer software | 860,510 | 531,140 | | Total Amortization Expense | 2,503,060 | 2,351,500 | | Total Expense (incl. SGA) | 2,619,523 | 2,407,960 | NOTE 7 - ACCRUED PAYROLL AND EXPENSES, OTHER LONG-TERM LIABILITIES, AND CONTINGENT CONSIDERATION | Accrued Payroll and Expenses (Continuing Operations) | Sep 25, 2022 ($) | 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] - Estimated future contingent consideration payments from continuing operations are $1.1 million, due in less than one year as of September 25, 2022[101] NOTE 8 - DEBT - The Credit Agreement, maturing July 16, 2024, provides for a Revolving Facility (temporarily increased to $60 million) and a Term Loan[102][103] - 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][108] - The company was in compliance with all debt covenants (maximum Leverage Ratio and minimum Fixed Charge Coverage Ratio) as of September 25, 2022[104] - The existing Term Loan balance was paid down on March 21, 2022, using proceeds from the sale of InStaff, which also cancelled a $25.0 million interest rate swap agreement[105][111] NOTE 9 - FAIR VALUE MEASUREMENTS - The fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[113] | Financial Instrument | Fair Value Hierarchy | Sep 25, 2022 ($) | 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] NOTE 10 - CONTINGENCIES - 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] - The company maintains various insurance policies (e.g., workers' compensation, general liability, professional liability) and indemnification agreements for its directors and officers[117] NOTE 11 – EQUITY - Authorized capital stock consists of 19,500,000 shares of common stock ($0.01 par value) and 500,000 shares of undesignated preferred stock ($0.01 par value)[120] - In Fiscal 2022, the company issued 25,749 restricted common shares to team members and non-team member directors under the 2013 Long-Term Incentive Plan, subject to a three-year service condition[121] NOTE 12 – SHARE-BASED COMPENSATION | Share-Based Compensation (Continuing Operations) | Thirty-nine Weeks Sep 25, 2022 ($) | 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] - Unamortized share-based compensation expense for restricted stock amounted to $0.6 million as of September 25, 2022, expected to be recognized over the next 2.0 years[125] | Stock Options Activity (Sep 25, 2022) | Number of Shares | Weighted Average Exercise Price ($) | | :------------------------------------ | :--------------- | :---------------------------------- | | 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 - 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] - Company contributions from continuing operations to the 401(k) Plan were $1.2 million for the thirty-nine week period ended September 25, 2022[126] NOTE 14 - BUSINESS SEGMENTS | Revenue by Segment (Thirteen Weeks) | Sep 25, 2022 ($) | 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 - On November 2, 2022, the board of directors declared a cash dividend of $0.15 per common share, payable on November 21, 2022[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - The InStaff sale represents a strategic shift in the business, with its results presented as discontinued operations[138] - The Revolving Facility was temporarily increased to $60 million on August 18, 2022, and the interest rate component changed from LIBOR to SOFR[142] Results of Operations This section provides a summary of the company's financial performance for the thirteen and thirty-nine week fiscal periods, detailing key revenue, gross profit, operating income, and net income figures | Metric (Thirteen Weeks) | Sep 25, 2022 ($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 ($K) | Change (%) | | :---------------------------------- | :---------------- | :---------------- | :---------- | :--------- | | Revenues | 221,139 | 171,333 | 49,806 | 29.07% | | Gross Profit | 76,490 | 57,509 | 18,981 | 32.99% | | Operating Income | 13,523 | 8,415 | 5,108 | 60.70% | | Net Income | 23,629 | 8,798 | 14,831 | 168.57% | Thirteen Week Fiscal Period Ended September 25, 2022 Compared with September 26, 2021 | Segment Revenue (Thirteen Weeks) | Sep 25, 2022 ($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] - Professional revenue increased by 14.9%, primarily due to a $5.1 million increase in IT division revenues and a 22.8% increase in average bill rate, offset by a 6.4% decrease in billed hours[148] | Gross Profit Percentage (Thirteen Weeks) | Sep 25, 2022 | Sep 26, 2021 | | :--------------------------------------- | :----------- | :----------- | | Real Estate | 40.8% | 38.4% | | Professional | 31.9% | 31.8% | | Company Gross Profit | 35.7% | 34.3% | | SGA Expenses (Thirteen Weeks) | Sep 25, 2022 ($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] - Income tax expense increased by approximately $0.5 million (61.3%) primarily due to increased net income before taxes and a higher effective tax rate in Fiscal 2022[155] Thirty-nine Week Fiscal Period Ended September 25, 2022 Compared with September 26, 2021 | Segment Revenue (Thirty-nine Weeks) | Sep 25, 2022 ($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] - Professional revenue increased by 23.7%, primarily due to a $19.6 million increase in IT revenues, an 11.9% increase in billed hours, and a 10.5% increase in average bill rate[157] | Gross Profit Percentage (Thirty-nine Weeks) | Sep 25, 2022 | Sep 26, 2021 | | :------------------------------------------ | :----------- | :----------- | | Real Estate | 39.4% | 37.5% | | Professional | 31.4% | 31.2% | | Company Gross Profit | 34.6% | 33.6% | | SGA Expenses (Thirty-nine Weeks) | Sep 25, 2022 ($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] - 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 $4.3 million due to the InStaff sale[166] Use of Non-GAAP Financial Measures This section explains the company's use of Adjusted EBITDA as a non-GAAP financial measure to supplement GAAP performance indicators and aid in management's operational assessment - Adjusted EBITDA is a non-GAAP measure used to provide a supplemental view of operating performance, facilitate period-to-period comparisons, and aid management in planning and compensation evaluation[168] - Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization expense, intangible impairment losses, transaction fees, and certain non-cash expenses (e.g., gain on contingent consideration, share-based compensation)[169] - Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, GAAP measures such as net income or cash flow from continuing operating activities[170] | Adjusted EBITDA (Continuing Operations) | Thirteen Weeks Sep 25, 2022 ($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 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] - 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] | 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] - 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] - 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] - The Revolving Facility was temporarily increased to $60 million on August 18, 2022, as a precautionary measure during a company-wide system implementation[187] Critical Accounting Policies and Estimates 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] - 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][196] Revenue Recognition 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] - 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] - Revenue types include workforce solution revenues (field talent), contingent placement revenues (contingency resolved), and retained search placement revenues (contractual amount for services completed)[199][200] - 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] Recent Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - The Revolving Facility is priced at variable interest rates, meaning future interest rate increases could adversely impact future earnings and cash flows[205] - The company has been able to moderate the negative impacts of an inflationary market by adjusting its pricing model[204] Item 4. Controls and Procedures 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] - 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] - 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] PART II—OTHER INFORMATION 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 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - None[212] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report - None[212] Item 4. Mine Safety Disclosures Not applicable - Not applicable[212] Item 5. Other Information No other information to report - None[212] Item 6. Exhibits 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] 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][217]