BGSF(BGSF) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements This section presents BGSF, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with detailed notes on operations and accounting policies Unaudited Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Unaudited Consolidated Balance Sheets (in thousands) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total Assets | $170,552 | $178,517 | | Total Current Assets | $61,620 | $66,911 | | Total Liabilities | $86,999 | $92,981 | | Total Current Liabilities | $29,485 | $85,055 | | Total Stockholders' Equity | $83,553 | $85,536 | - Total current liabilities significantly decreased from $85,055k to $29,485k, primarily due to changes in the line of credit and long-term debt current portion[29] Unaudited Consolidated Statements of Operations This section details the company's financial performance, including revenues, gross profit, operating income, and net loss over specific periods Unaudited Consolidated Statements of Operations (in thousands, except per share) | Metric (in thousands, except per share) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :-------------------------------------- | :---------------------------------- | :--------------------------------- | | Revenues | $68,765 | $75,316 | | Gross Profit | $23,438 | $26,784 | | Operating Income (Loss) | $415 | $(20,730) | | Net Loss | $(792) | $(16,466) | | Basic Net Loss Per Share | $(0.07) | $(1.54) | | Diluted Net Loss Per Share | $(0.07) | $(1.54) | | Cash dividends declared per common share | $0.15 | $0.15 | - Operating income significantly improved from a loss of $(20,730)k in 2023 to an income of $415k in 2024, primarily due to the absence of impairment losses in the current period[58] Unaudited Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the company's stockholders' equity, reflecting impacts from net loss, dividends, and share-based compensation Unaudited Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | December 31, 2023 | March 31, 2024 | | :------------------------------ | :---------------- | :------------- | | Stockholders' equity, beginning | $85,536 | $85,536 | | Share-based compensation | — | $235 | | Cash dividend declared | — | $(1,639) | | Net loss | — | $(792) | | Stockholders' equity, ending | $85,536 | $83,553 | - Total stockholders' equity decreased from $85,536k at December 31, 2023, to $83,553k at March 31, 2024, primarily due to cash dividends declared and net loss, partially offset by share-based compensation and ESPP share issuances[59] Unaudited Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Unaudited Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :-------------------------------- | :---------------------------------- | :--------------------------------- | | Net cash provided by operating activities | $7,381 | $3,939 | | Net cash used in investing activities | $(494) | $(745) | | Net cash used in financing activities | $(6,837) | $(3,124) | | Net change in cash and cash equivalents | $50 | $70 | - Net cash provided by operating activities increased by $3.4 million year-over-year, while net cash used in financing activities more than doubled, primarily due to net payments under the line of credit[35] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements NOTE 1 - NATURE OF OPERATIONS This note describes BGSF, Inc.'s business, service offerings, segment structure, and key operational factors including seasonality and macroeconomic impacts - BGSF, Inc. provides consulting, managed services, and professional workforce solutions across IT, Finance & Accounting, Managed Solutions, and Property Management segments, primarily within the U.S[36][37][178][179] - The Professional segment offers nearshore and offshore solutions in Colombia and India, strengthened by the acquisition of Arroyo Consulting on April 24, 2023[38][63][109] - The company experiences seasonal fluctuations, with Property Management demand typically increasing in Q2 and Q3, while Q1 can be affected by adverse weather and increased payroll taxes[64][132] - Ongoing macroeconomic uncertainty and interest rates continue to adversely impact market conditions, potentially reducing demand for workforce solutions and lengthening client decision cycles[39][176][200] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the critical accounting policies and estimates used in preparing the consolidated financial statements, including revenue recognition and asset valuation - The consolidated financial statements are prepared in accordance with GAAP, requiring management to make significant estimates and assumptions regarding allowances for credit losses, intangible assets, lease liabilities, contingent consideration, and income taxes[43][202] - Revenue is recognized on a gross basis as a principal, reflecting the company's risk in identifying and hiring talent, selecting talent, establishing pricing, and bearing the risk for unpaid services[2][54][100] - Goodwill is reviewed annually for impairment, and intangible assets with finite lives are amortized over 3 to 10 years. Deferred tax assets are recognized for net operating loss and tax credit carryovers, with a valuation allowance recorded if future benefits are unlikely to be realized[3][51][74][81][106] - The company is evaluating the impact of new FASB ASUs 2023-09 (Income Taxes) and 2023-07 (Segment Reporting) on its financial statements and disclosures[83][108][208] NOTE 3 - ACQUISITIONS This note details the acquisition of Arroyo Consulting, including its financial impact and strategic rationale for enhancing IT resources - On April 24, 2023, BGSF acquired Arroyo Consulting for $6.8 million cash, plus contingent consideration up to $8.5 million based on performance over two years. The acquisition aims to strengthen nearshore and offshore IT resources[84][109][153] Arroyo Consulting Financial Impact (in thousands) | Metric (in thousands) | Thirteen Weeks Ended March 31, 2024 | | :-------------------- | :---------------------------------- | | Arroyo Consulting Revenue | $5,400 | | Arroyo Consulting Operating Income | $1,400 | | Amortization Expense on Acquisition Intangibles | $400 | - Acquisition-related costs of $0.6 million were expensed in selling, general and administrative expenses in Fiscal 2024 and Fiscal 2023[87] Pro Forma Financials (in thousands, except per share) | Pro Forma Metric (in thousands, except per share) | Thirteen Weeks Ended April 2, 2023 | | :------------------------------------------------ | :--------------------------------- | | Revenues | $80,491 | | Gross Profit | $28,501 | | Net Loss | $(15,641) | | Basic Loss Per Share | $(1.50) | | Diluted Loss Per Share | $(1.49) | NOTE 4 - OTHER CURRENT ASSETS This note provides a breakdown of other current assets, including receivables from the CARES Act, income tax, and the Arroyo Consulting seller Other Current Assets (in thousands) | Other Current Assets (in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------------- | :------------- | :---------------- | | CARES Act receivable | $2,188 | $2,188 | | Income tax receivable | $676 | $685 | | Receivable from seller of Arroyo Consulting, net | $3,344 | $3,843 | | Other | $442 | $456 | | Total | $6,650 | $7,172 | NOTE 5 - LEASES This note describes the company's operating lease arrangements for office space, including lease terms, discount rates, and future payment obligations - The company leases all its office space through operating leases, with a weighted average remaining lease term of 3.4 years and a weighted average discount rate of 6.6% as of March 31, 2024[71][89] Lease Information (in thousands) | Lease Information (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :------------------------------- | :---------------------------------- | :--------------------------------- | | Cash paid for operating leases | $588 | $584 | | Operating lease expense | $589 | $526 | Undiscounted Annual Future Minimum Lease Payments (in thousands) | Undiscounted Annual Future Minimum Lease Payments (in thousands) | March 31, 2024 | | :--------------------------------------------------------------- | :------------- | | 2024 (remaining) | $2,154 | | 2025 | $1,492 | | 2026 | $1,119 | | 2027 | $815 | | 2028 | $334 | | Thereafter | $55 | | Total lease payments | $5,969 | | Present value of lease liabilities | $5,325 | NOTE 6 - INTANGIBLE ASSETS This note details the company's intangible assets, their amortization, and any impairment considerations, highlighting changes from prior periods - Intangible assets with finite lives are amortized over estimated useful lives ranging from three to ten years. No impairment indicators were identified in Fiscal 2024, compared to a $22.5 million impairment in Fiscal 2023 due to rebranding[51][52][72] Amortization Expense (in thousands) | Amortization Expense (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :---------------------------------- | :---------------------------------- | :--------------------------------- | | Client partner lists | $1,495 | $1,306 | | Covenant not to compete | $82 | $57 | | Acquisition intangibles | $1,577 | $1,363 | | Computer software | $336 | $267 | | Total expense | $1,913 | $1,630 | - Amortization expense increased by $0.283 million (17.36%) year-over-year, primarily due to acquisition intangibles[91] NOTE 7 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION This note provides a breakdown of accrued payroll and expenses, along with details on contingent consideration liabilities Accrued Payroll and Expenses (in thousands) | Accrued Payroll and Expenses (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | Field talent payroll | $5,519 | $5,014 | | Field talent payroll related | $1,655 | $1,039 | | Accrued bonuses and commissions | $2,351 | $2,931 | | Other | $5,354 | $5,918 | | Total Accrued payroll and expenses | $14,879 | $14,902 | NOTE 8 - DEBT This note outlines the company's debt structure, including the amended credit agreement, revolving facility, term loan, and compliance with covenants - The Credit Agreement was amended and restated on March 12, 2024, extending its maturity to March 12, 2028. It provides for a Revolving Facility up to $40 million and a Term Loan commitment[142][195] Borrowings Under Revolving Facilities (in thousands) | Borrowings Under Revolving Facilities (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------------------------------- | :------------- | :---------------- | | Total Outstanding | $20,000 | $24,874 | - The company had a $4.4 million convertible unsecured promissory note due to the seller of Horn Solutions, with a 6% annual interest rate, convertible at $17.12 per share, maturing December 12, 2024[122][144] - BGSF was in compliance with all affirmative and negative covenants of the Restated Agreement as of March 31, 2024[142][195] NOTE 9 - FAIR VALUE MEASUREMENTS This note explains the company's fair value measurements for financial instruments, categorizing them by hierarchy levels and detailing valuation inputs - The company uses a fair value hierarchy (Level 1, 2, and 3) for financial instruments. Contingent consideration is measured using Level 3 unobservable inputs, including discount rates of approximately 7% and management's estimates of future sales and EBITDA[123][144] Amounts Recorded at Fair Value (in thousands) | Amounts Recorded at Fair Value (in thousands) | Financial Statement Classification | Fair Value Hierarchy | March 31, 2024 | December 31, 2023 | | :-------------------------------------------- | :--------------------------------- | :------------------- | :------------- | :---------------- | | Convertible note | Convertible note | Level 2 | $4,368 | $4,368 | | Contingent consideration | Contingent consideration - current and long-term | Level 3 | $8,275 | $8,320 | NOTE 10 - CONTINGENCIES This note discusses the company's involvement in legal matters and its approach to establishing liabilities for probable and estimable losses - BGSF is involved in legal matters arising from its normal course of business and establishes liabilities when a loss is probable and estimable. The company maintains various insurance policies, including workers' compensation, general liability, professional liability, and D&O liability[124][146] NOTE 11 – EQUITY This note details the company's authorized capital stock, including common and preferred shares, and their par values - 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)[147] NOTE 12 – SHARE-BASED COMPENSATION This note provides information on share-based compensation expense, unamortized amounts, and activity related to stock options and restricted stock awards - The company recognized $0.1 million in share-based compensation expense for stock options and restricted stock awards for the thirteen weeks ended March 31, 2024, down from $0.2 million in the prior year[126][149] - Unamortized share-based compensation expense as of March 31, 2024, amounted to $0.7 million for stock options (expected over 2.4 years) and $0.6 million for restricted stock (expected over 1.7 years)[126][149] Stock Option Activity | Stock Option Activity | Number of Shares | Weighted Average Exercise Price Per Share | | :-------------------- | :--------------- | :---------------------------------------- | | Outstanding at Dec 31, 2023 | 922,310 | $15.30 | | Exercised | (16,298) | $6.25 | | Outstanding at Mar 31, 2024 | 906,012 | $15.47 | | Exercisable at Mar 31, 2024 | 649,957 | $17.11 | NOTE 13 - TEAM MEMBER BENEFIT PLAN This note details the company's contributions to its 401(k) Plan, including matching percentages for participant contributions - The company contributed $0.5 million to its 401(k) Plan for both the thirteen-week periods ended March 31, 2024, and April 2, 2023, matching participants' contributions 100% up to the first 3% and 50% of the next 2% of compensation[127][150] NOTE 14 - BUSINESS SEGMENTS This note presents financial performance data by business segment, including revenue, operating income, and total assets for Property Management and Professional divisions Segment Performance (in thousands) | Segment Performance (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :--------------------------------- | :---------------------------------- | :--------------------------------- | | Revenue: | | | | Property Management | $24,547 | $28,405 | | Professional | $44,218 | $46,911 | | Total Revenue | $68,765 | $75,316 | | Operating Income (Loss): | | | | Property Management | $3,402 | $4,690 | | Professional (without impairment) | $1,673 | $2,627 | | Professional (impairment losses) | — | $(22,545) |\ | Home office | $(4,660) | $(5,502) | | Total Operating Income (Loss) | $415 | $(20,730) | | Total Assets: | | | | Property Management | $25,396 | $29,884 | | Professional | $120,312 | $122,751 | | Home office | $24,844 | $25,882 | | Total Assets | $170,552 | $178,517 | - Total revenue decreased by 8.7% year-over-year, with Property Management revenue declining by 13.6% and Professional revenue by 5.7%, despite a $5.4 million contribution from Arroyo Consulting[128][134][181] - Total operating income significantly improved from a loss of $(20,730)k in 2023 to an income of $415k in 2024, primarily due to the absence of impairment losses in the Professional segment[128] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, non-GAAP measures, liquidity, and critical accounting policies for the reporting period Overview This section provides an overview of BGSF's business, recent acquisitions, debt restructuring, and seasonal operational factors - BGSF provides consulting, managed services, and professional workforce solutions across IT, Finance & Accounting, Managed Solutions, and Property Management, operating primarily in the U.S. through its Property Management and Professional segments[154][178][179] - The company acquired Arroyo Consulting on April 24, 2023, to enhance its nearshore and offshore IT and software development capabilities[109][153] - The Credit Agreement was amended and restated on March 12, 2024, extending its maturity to March 12, 2028, and establishing a revolving credit facility and term loan commitment[131][195] - The business experiences seasonal fluctuations, with Property Management demand typically increasing in the second and third quarters, and the first quarter being affected by weather conditions and increased payroll taxes[132] Results of Operations This section analyzes the company's financial performance, detailing changes in revenues, gross profit, operating income, and expenses Results of Operations (in thousands) | Metric (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | % Change | | :-------------------- | :---------------------------------- | :--------------------------------- | :------- | | Revenues | $68,765 | $75,316 | (8.7)% | | Cost of services | $45,327 | $48,532 | (6.6)% | | Gross profit | $23,438 | $26,784 | (12.5)% | | Selling, general and administrative expenses | $21,016 | $23,212 | (9.5)% | | Operating income (loss) | $415 | $(20,730) | 102.0% | | Net loss | $(792) | $(16,466) | 95.2% | - Property Management revenues decreased by 13.6% due to a decrease in billed hours. Professional revenues decreased by 5.7%, with a $5.4 million contribution from Arroyo Consulting offset by an $8.1 million (17.2%) decline in the core IT and Finance & Accounting divisions[134][181] - Gross profit decreased by 12.5%, and the gross profit margin declined from 35.6% to 34.1%, with both segments contributing to the decrease. Professional gross profit decreased by 8.7%, despite Arroyo Consulting's $1.7 million contribution[158][159][182] - Selling, general and administrative expenses decreased by $2.2 million (9.5%), excluding a $0.6 million impact from the Arroyo Consulting acquisition. Bad debt expense increased significantly by 691% to $625k[137][183] - Operating income improved significantly from a loss of $(20,730)k to an income of $415k, primarily due to the absence of $22.5 million in impairment losses recorded in the prior year[155] Use of Non-GAAP Financial Measures This section explains the company's use of Adjusted EBITDA as a non-GAAP financial measure to provide additional insight into operating performance - Adjusted EBITDA, a non-GAAP measure, is used to provide a supplemental view of operating performance by excluding interest, taxes, depreciation, amortization, impairment losses, transaction fees, and share-based compensation[162][186] Adjusted EBITDA (in thousands) | Adjusted EBITDA (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :----------------------------- | :---------------------------------- | :--------------------------------- | | Net loss | $(792) | $(16,466) | | Adjusted EBITDA | $2,673 | $4,252 | | Adjusted EBITDA Margin (% of revenue) | 3.9% | 5.6% | - Adjusted EBITDA decreased from $4,252k in 2023 to $2,673k in 2024, with the Adjusted EBITDA Margin declining from 5.6% to 3.9%[164][188] - Adjusted EBITDA has limitations as an analytical tool, as it does not reflect cash expenditures, working capital changes, tax payments, or debt service requirements[187] Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flow activities, and working capital position - Primary liquidity sources are cash from operations and borrowings under the amended and restated credit agreement with BMO, which includes a $40 million revolving credit facility maturing March 12, 2028[165][195] Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Thirteen Weeks Ended March 31, 2024 | Thirteen Weeks Ended April 2, 2023 | | :------------------------------- | :---------------------------------- | :--------------------------------- | | Operating activities | $7,381 | $3,939 | | Investing activities | $(494) | $(745) | | Financing activities | $(6,837) | $(3,124) | | Net change in cash and cash equivalents | $50 | $70 | - Net cash provided by operating activities increased to $7.4 million in Fiscal 2024, up from $3.9 million in Fiscal 2023, primarily due to less payments on accrued payroll and expenses and reduced prepaid expenses[191] - Net cash used in financing activities increased to $(6.8) million in Fiscal 2024, primarily due to $4.9 million in reductions to the Revolving Facility and $1.6 million in cash dividends[172][192] - On May 8, 2024, the Board of Directors indefinitely suspended its quarterly cash dividend, commencing with the dividend that would have been declared and paid in May 2024[190] Working Capital (in thousands) | Working Capital (in thousands) | March 31, 2024 | December 31, 2023 | | :----------------------------- | :------------- | :---------------- | | Working capital | $32,135 | $(18,144) | Off-Balance Sheet Arrangements This section describes the company's off-balance sheet arrangements, specifically a standby letter of credit - The company has a standby letter of credit arrangement for $0.1 million, expiring February 12, 2028, related to the EdgeRock acquisition, which is considered usage against the Revolving Facility[93][174] Critical Accounting Policies and Estimates This section outlines the significant accounting policies and estimates that require management judgment and could materially impact financial results - The preparation of consolidated financial statements requires management to make assumptions and estimates about future events, which could result in material differences from actual results due to economic uncertainty[1][175] - The current inflationary environment and rising interest rates may negatively impact labor markets, reducing demand for workforce solutions, increasing early terminations, or diminishing projects, potentially increasing borrowing costs[176][200] - Significant estimates include allowances for credit losses, intangible assets, lease liabilities, contingent consideration obligations, and income taxes[43] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily related to interest rates and inflation, and how these factors could impact its financial performance - BGSF is exposed to market risks from interest rate and inflation fluctuations. While inflation impacts have been moderated by adjusting the pricing model, variable interest rates on the Revolving Facility and Term Loan pose a risk to future earnings and cash flows[209][210] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and internal control over financial reporting, including management's conclusions on their effectiveness and inherent limitations - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024[212][223] - No material changes in internal control over financial reporting were identified for the quarter ended March 31, 2024, and remote work has not materially affected these controls[213][224] - Control systems, by their inherent limitations, can only provide reasonable assurance and may not prevent or detect all errors or fraud due to resource constraints, human error, collusion, or management override[214] PART II—OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings This section states that there have been no changes to the legal proceedings information since the last annual report - No change from the legal proceedings information provided in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[226] Item 1A. Risk Factors This section highlights the risks associated with the company's ongoing evaluation of strategic alternatives, emphasizing potential costs, complexities, and uncertainties that could impact stock price and business relationships - The company's strategic alternatives review process, initiated on May 8, 2024, may be costly, time-consuming, and complex, with no assurance of a definitive course of action or successful completion on attractive terms[216][228] - Speculation regarding strategic alternatives and perceived uncertainties could cause significant stock price fluctuations or materially impact relationships with stockholders, employees, customers, and suppliers[217][228] - Even if a transaction is consummated, there is a risk of failing to realize anticipated benefits, experiencing longer-than-expected realization times, or encountering integration difficulties[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - None[229] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - None[218] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Not applicable[230] Item 5. Other Information This section provides information on trading plans by directors and officers - No director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2024[219] Item 6. Exhibits This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including key agreements and certifications - Exhibits include the Amended and Restated Credit Agreement, Certificate of Incorporation, Bylaws, Common Stock Certificate, and certifications from the CEO and CFO[231] - The financial information from the Quarterly Report is formatted in Inline XBRL (Extensible Business Reporting Language)[220][231] SIGNATURES This section contains the required signatures for the Quarterly Report on Form 10-Q - The report was signed by Beth Garvey, President and Chief Executive Officer, and John Barnett, Chief Financial Officer and Secretary, on May 8, 2024[221][222][233]