BGSF(BGSF) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements 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 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][92] Unaudited Consolidated Statements of Operations and Comprehensive Income 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] Unaudited Consolidated Statements of Cash Flows 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] - The company made principal payments on long-term debt of $26.9 million, effectively paying off its Term Loan[25] Notes to Unaudited Consolidated Financial Statements 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][89] - 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][32] - 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] - On August 3, 2022, the board declared a cash dividend of $0.15 per share[131] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][137] 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] Results of Operations 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] Liquidity and Capital Resources 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] - 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - Future interest rate increases could adversely impact earnings and cash flows due to variable-rate debt under the Revolving Facility[215] Controls and Procedures 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] - 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] PART II - OTHER INFORMATION Legal Proceedings 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] Risk Factors 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]