UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
þ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 24, 201729, 2019
or |
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¨☐ | 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
BG STAFFING, INC. INC.
(exact name of registrant as specified in its charter)
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| |
Delaware | 26-0656684 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5850 Granite Parkway, Suite 730
Plano, Texas75024
(972) (972) 692-2400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | |
Large accelerated filer | ¨ | | Accelerated filerFiler | þ |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨☑ |
| | | Emerging growth company | þ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ
Securities registered pursuant to Section 12(b) of the Act:
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| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | BGSF | NYSE American |
The number of shares outstanding of the registrant’s common stock as of October 30, 2017November 5, 2019 was 8,759,376.10,242,114.
TABLE OF CONTENTS
Forward-Looking Statements
This Quarterly Report on Form-10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including, but not limited to, statements regarding:
future financial performance and growth targets or expectations;
market and industry trends and developments; and
the benefits of our completed and future merger, acquisition and disposition transactions.
You can identify these and other forward-looking statements by the use of words such as "aim," "potential," “may,” “could,” “can,” “would,” “might,” “likely,” “will,” “expect,” “intend,” “plan,” “budget,” “scheduled,” “estimate,” “anticipate,” “believe,” “forecast,” “committed,” “future” or “continue” or the negative thereof or similar variations.
These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and our current expectations, forecasts and assumptions and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include:
the availability of workers’field talents’ compensation insurance coverage at commercially reasonable terms;
the availability of qualified temporary workers;field talent;
compliance with federal, state and local labor and employment laws and regulations and changes in such laws and regulations;
the ability to compete with new competitors and competitors with superior marketing and financial resources;
management team changes;
the favorable resolution of current or future litigation;
the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;
the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;
adverse changes in the economic conditions of the industries or markets that we serve;
disturbances in world financial, credit, and stock markets;
unanticipated changes in regulations affecting the company’s business;
a decline in consumer confidence and discretionary spending;
the general performance of the U.S. and global economies;
continued or escalated conflict in the Middle East;East or elsewhere; and
other risks referenced from time to time in our past and future filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended December 25, 2016.30, 2018.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we do not undertake any obligation to update or release any revisions to these forward-looking statements to reflect any events or circumstances, whether as a result of new information, future events, changes in assumptions or otherwise, after the date hereof.
Where You Can Find Other Information
Our website is www.bgstaffing.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we file with or furnish to the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. These reports and other information, including exhibits filed or furnished therewith, are also available at the SEC’s website at www.sec.gov. You may also obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED BALANCE SHEETS
| | | | September 24, 2017 | | December 25, 2016 | | September 29, 2019 | | December 30, 2018 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets | Current assets | | |
| | |
| Current assets | | |
| | |
|
| Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2017 and 2016) | | $ | 40,618,312 |
| | $ | 33,328,900 |
| Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018) | | $ | 40,399,213 |
| | $ | 37,606,721 |
|
| Prepaid expenses | | 529,469 |
| | 950,696 |
| Prepaid expenses | | 1,709,978 |
| | 984,219 |
|
| Other current assets | | 98,261 |
| | 154,673 |
| Other current assets | | 38,933 |
| | 22,733 |
|
| | Total current assets | | 41,246,042 |
| | 34,434,269 |
| | Total current assets | | 42,148,124 |
| | 38,613,673 |
|
| | | | | | | | |
Property and equipment, net | Property and equipment, net | | 1,700,470 |
| | 1,910,858 |
| Property and equipment, net | | 3,099,489 |
| | 2,556,992 |
|
| | | | | | | | | | |
Other assets | Other assets | | |
| | |
| Other assets | | |
| | |
|
| Deposits | | 2,799,813 |
| | 2,657,517 |
| Deposits | | 3,700,754 |
| | 3,209,419 |
|
| Deferred income taxes, net | | 9,916,170 |
| | 9,512,455 |
| Deferred income taxes, net | | 4,408,099 |
| | 4,870,997 |
|
| Intangible assets, net | | 38,803,342 |
| | 23,514,376 |
| Right-of-use asset - operating leases | | 4,113,793 |
| | — |
|
| Goodwill | | 17,826,199 |
| | 9,184,659 |
| Intangible assets, net | | 30,539,442 |
| | 33,034,173 |
|
| | Total other assets | | 69,345,524 |
| | 44,869,007 |
| Goodwill | | 17,983,549 |
| | 17,983,549 |
|
| Total assets | | $ | 112,292,036 |
| | $ | 81,214,134 |
| | Total other assets | | 60,745,637 |
| | 59,098,138 |
|
| | | | | Total assets | | $ | 105,993,250 |
| | $ | 100,268,803 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current liabilities | Current liabilities | | |
| | |
| Current liabilities | | |
| | |
|
| Long-term debt, current portion (net of deferred finance fees of $142,090 and $-0- for 2017 and 2016, respectively) | | $ | 2,614,160 |
| | $ | — |
| Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively) | | $ | — |
| | $ | 4,242,580 |
|
| Accrued interest | | 308,979 |
| | 100,868 |
| Accrued interest | | 203,620 |
| | 308,547 |
|
| Accounts payable | | 1,946,662 |
| | 951,672 |
| Accounts payable | | 140,541 |
| | 146,257 |
|
| Accrued payroll and expenses | | 12,566,637 |
| | 9,668,475 |
| Accrued payroll and expenses | | 11,992,541 |
| | 10,411,374 |
|
| Accrued workers’ compensation | | 281,237 |
| | 754,556 |
| Accrued workers’ compensation | | 447,650 |
| | 530,980 |
|
| Contingent consideration, current portion | | 5,535,068 |
| | 3,580,561 |
| Contingent consideration, current portion | | — |
| | 2,363,512 |
|
| Other current liabilities | | 317,294 |
| | — |
| Lease liability, current portion | | 1,271,711 |
| | — |
|
| Income taxes payable | | 437,337 |
| | 193,264 |
| Income taxes payable | | 279,607 |
| | 55,841 |
|
| | Total current liabilities | | 24,007,374 |
| | 15,249,396 |
| | Total current liabilities | | 14,335,670 |
| | 18,059,091 |
|
| | | | | | | | |
Line of credit (net of deferred finance fees of $791,699 and $264,520 for 2017 and 2016, respectively) | | 19,598,722 |
| | 23,618,194 |
| |
Long-term debt, less current portion (net of deferred finance fees of $277,750 and $-0- for 2017 and 2016, respectively) | | 21,466,000 |
| | — |
| |
Contingent consideration, less current portion | | 4,891,847 |
| | 1,586,324 |
| |
Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively) | | Line of credit (net of deferred finance fees of $357,528 and $571,782 for 2019 and 2018, respectively) | | 20,196,123 |
| | 10,078,507 |
|
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively) | | Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively) | | — |
| | 5,767,650 |
|
Lease liability, less current portion | | Lease liability, less current portion | | 3,875,349 |
| | — |
|
Other long-term liabilities | Other long-term liabilities | | 219,061 |
| | 271,766 |
| Other long-term liabilities | | — |
| | 661,542 |
|
| Total liabilities | | 70,183,004 |
| | 40,725,680 |
| Total liabilities | | 38,407,142 |
| | 34,566,790 |
|
| | | | | | | | |
Commitments and contingencies | Commitments and contingencies | |
|
| |
|
| Commitments and contingencies | |
|
| |
|
|
| | | | | | | | |
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding | Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding | | — |
| | — |
| Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding | | — |
| | — |
|
Common stock, $0.01 par value per share; 19,500,000 shares authorized,8,759,376 and 8,668,485 shares issued and outstanding for 2017 and 2016, respectively | | 87,594 |
| | 86,685 |
| |
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively | | Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,242,114 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively | | 75,103 |
| | 78,246 |
|
Additional paid in capital | Additional paid in capital | | 37,585,052 |
| | 36,142,688 |
| Additional paid in capital | | 58,416,884 |
| | 57,624,379 |
|
Retained earnings | Retained earnings | | 4,436,386 |
| | 4,259,081 |
| Retained earnings | | 9,094,121 |
| | 7,999,388 |
|
| Total stockholders’ equity | | 42,109,032 |
| | 40,488,454 |
| Total stockholders’ equity | | 67,586,108 |
| | 65,702,013 |
|
| Total liabilities and stockholders’ equity | | $ | 112,292,036 |
| | $ | 81,214,134 |
| Total liabilities and stockholders’ equity | | $ | 105,993,250 |
| | $ | 100,268,803 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen and Thirty-nine Week Periods Ended September 29, 2019 and September 30, 2018
|
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | $ | 79,364,306 |
| | $ | 77,062,137 |
| | $ | 221,998,263 |
| | $ | 214,863,045 |
|
Cost of services | | 57,187,684 |
| | 55,689,112 |
| | 160,520,167 |
| | 156,987,810 |
|
| Gross profit | | 22,176,622 |
| | 21,373,025 |
| | 61,478,096 |
| | 57,875,235 |
|
Selling, general and administrative expenses | | 14,502,757 |
| | 14,022,464 |
| | 42,361,018 |
| | 38,530,315 |
|
Gain on contingent consideration | | — |
| | (988,303 | ) | | — |
| | (2,160,307 | ) |
Depreciation and amortization | | 1,196,753 |
| | 1,247,537 |
| | 3,632,500 |
| | 3,801,425 |
|
| Operating income | | 6,477,112 |
| | 7,091,327 |
| | 15,484,578 |
|
| 17,703,802 |
|
Loss on extinguishment of debt | | 540,705 |
| | — |
| | 540,705 |
| | — |
|
Interest expense, net | | 395,448 |
| | 661,683 |
| | 1,244,795 |
| | 2,274,575 |
|
| Income before income taxes | | 5,540,959 |
| | 6,429,644 |
| | 13,699,078 |
| | 15,429,227 |
|
Income tax expense | | 1,333,789 |
| | 1,368,258 |
| | 3,194,055 |
| | 2,732,386 |
|
| Net income | | $ | 4,207,170 |
| | $ | 5,061,386 |
| | $ | 10,505,023 |
| | $ | 12,696,841 |
|
| | | | | | | | | |
Net income per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | 0.41 |
| | $ | 0.50 |
| | $ | 1.03 |
| | $ | 1.36 |
|
| Diluted | | $ | 0.41 |
| | $ | 0.49 |
| | $ | 1.01 |
| | $ | 1.32 |
|
| | | | | | | | | |
Weighted-average shares outstanding: | | |
| | |
| | |
| | |
|
| Basic | | 10,239,126 |
| | 10,109,791 |
| | 10,233,725 |
| | 9,368,840 |
|
| Diluted | | 10,343,673 |
| | 10,342,559 |
| | 10,365,871 |
| | 9,638,616 |
|
| | | | | | | | | |
Cash dividends declared per common share | | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.90 |
| | $ | 0.85 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen and Thirty-nine Week Periods Ended September 24, 2017 and September 25, 2016
|
| | | | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | | 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | $ | 71,281,674 |
| | $ | 67,407,350 |
| | $ | 196,899,224 |
| | $ | 189,573,350 |
|
Cost of services | | 53,033,615 |
| | 50,975,462 |
| | 147,752,650 |
| | 144,610,307 |
|
| Gross profit | | 18,248,059 |
| | 16,431,888 |
| | 49,146,574 |
| | 44,963,043 |
|
Selling, general and administrative expenses | | 11,175,596 |
| | 10,291,746 |
| | 31,562,377 |
| | 28,668,466 |
|
Depreciation and amortization | | 1,436,279 |
| | 1,673,546 |
| | 4,672,755 |
| | 5,181,456 |
|
| Operating income | | 5,636,184 |
| | 4,466,596 |
| | 12,911,442 |
|
| 11,113,121 |
|
Loss on extinguishment of debt | | — |
| | — |
| | — |
| | (404,119 | ) |
Interest expense, net | | (883,668 | ) | | (701,968 | ) | | (2,279,652 | ) | | (3,278,182 | ) |
| Income before income taxes | | 4,752,516 |
| | 3,764,628 |
| | 10,631,790 |
| | 7,430,820 |
|
Income tax expense | | 1,615,653 |
| | 1,416,773 |
| | 3,908,570 |
| | 2,852,346 |
|
| Net income | | $ | 3,136,863 |
| | $ | 2,347,855 |
| | $ | 6,723,220 |
| | $ | 4,578,474 |
|
| | | | | | | | | |
Net income per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | 0.36 |
| | $ | 0.27 |
| | $ | 0.77 |
| | $ | 0.58 |
|
| Diluted | | $ | 0.35 |
| | $ | 0.26 |
| | $ | 0.75 |
| | $ | 0.56 |
|
| | | | | | | | | |
Weighted-average shares outstanding: | | |
| | |
| | |
| | |
|
| Basic | | 8,759,376 |
| | 8,658,061 |
| | 8,724,811 |
| | 7,920,000 |
|
| Diluted | | 9,077,147 |
| | 9,028,398 |
| | 9,019,878 |
| | 8,219,876 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Thirty-nine Week Period Ended September 24, 201730, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | |
| | Preferred Stock | | Shares | | Par Value | | Additional Paid in Capital | | Retained Earnings | | Total |
Stockholders’ equity, December 25, 2016 | | $ | — |
| | 8,668,485 |
| | $ | 86,685 |
| | $ | 36,142,688 |
| | $ | 4,259,081 |
| | $ | 40,488,454 |
|
Share-based compensation | | — |
| | — |
| | — |
| | 357,024 |
| | — |
| | 357,024 |
|
Issuance of shares, net of offering costs | | — |
| | 70,670 |
| | 707 |
| | 991,793 |
| | — |
| | 992,500 |
|
Exercise of common stock options | | — |
| | 20,221 |
| | 202 |
| | 93,547 |
| | — |
| | 93,749 |
|
Cash dividend declared ($0.25 per share) | | — |
| | — |
| | — |
| | — |
| | (6,545,915 | ) | | (6,545,915 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | 6,723,220 |
| | 6,723,220 |
|
Stockholders’ equity, September 24, 2017 | | $ | — |
| | 8,759,376 |
| | $ | 87,594 |
| | $ | 37,585,052 |
| | $ | 4,436,386 |
| | $ | 42,109,032 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | | | |
| | Preferred Stock | | Shares | | Par Value | | Treasury Stock Amount | | Additional Paid in Capital | | Retained Earnings | | Total |
Stockholders’ equity, December 31, 2017 | | $ | — |
| | 8,759,376 |
| | $ | 87,594 |
| | $ | — |
| | $ | 37,675,329 |
| | $ | 1,371,756 |
| | $ | 39,134,679 |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 67,029 |
| | — |
| | 67,029 |
|
Exercise of common stock options and warrants | | — |
| | 4,589 |
| | 46 |
| | — |
| | (7,546 | ) | | — |
| | (7,500 | ) |
Cash dividend declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,189,844 | ) | | (2,189,844 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,465,571 |
| | 2,465,571 |
|
Stockholders’ equity, April 1, 2018 | | — |
| | 8,763,965 |
| | 87,640 |
| | — |
| | 37,734,812 |
| | 1,647,483 |
| | 39,469,935 |
|
| | | | | | | | | | | | | | |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 47,807 |
| | — |
| | 47,807 |
|
Issuance of shares, net of offering costs | | — |
| | 1,293,750 |
| | 12,938 |
| | — |
| | 21,373,075 |
| | — |
| | 21,386,013 |
|
Exercise of common stock options and warrants | | — |
| | 31,314 |
| | 312 |
| | — |
| | 10,757 |
| | — |
| | 11,069 |
|
Option cancellation agreement | | — |
| | — |
| | — |
| | — |
| | (3,335,169 | ) | | — |
| | (3,335,169 | ) |
Cash dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,638,232 | ) | | (2,638,232 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 5,169,884 |
| | 5,169,884 |
|
Stockholders’ equity, July 1, 2018 | | — |
| | 10,089,029 |
| | 100,890 |
| | — |
| | 55,831,282 |
| | 4,179,135 |
| | 60,111,307 |
|
| | | | | | | | | | | | | | |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 758,350 |
| | — |
| | 758,350 |
|
Issuance of shares, net of offering costs | | — |
| | — |
| | — |
| | — |
| | (25,875 | ) | | — |
| | (25,875 | ) |
Issuance of restricted shares, net of 828 shares of treasury stock | | — |
| | 41,172 |
| | 412 |
| | (24,027 | ) | | (412 | ) | | — |
| | (24,027 | ) |
Exercise of common stock options and warrants | | — |
| | 27,676 |
| | 277 |
| | — |
| | (277 | ) | | — |
| | — |
|
Cash dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,026,709 | ) | | (3,026,709 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 5,061,386 |
| | 5,061,386 |
|
Stockholders’ equity, September 30, 2018 | | $ | — |
| | 10,157,877 |
| | $ | 101,579 |
| | $ | (24,027 | ) | | $ | 56,563,068 |
| | $ | 6,213,812 |
| | $ | 62,854,432 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Thirty-nine Week Period Ended September 29, 2019
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | | | |
| | Preferred Stock | | Shares | | Par Value | | Treasury Stock Amount | | Additional Paid in Capital | | Retained Earnings | | Total |
Stockholders’ equity, December 30, 2018 | | $ | — |
| | 10,227,247 |
| | $ | 102,273 |
| | $ | (24,027 | ) | | $ | 57,624,379 |
| | $ | 7,999,388 |
| | $ | 65,702,013 |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 320,084 |
| | — |
| | 320,084 |
|
Cancellation of restricted shares | | — |
| | (2,250 | ) | | (23 | ) | | — |
| | 23 |
| | — |
| | — |
|
Exercise of common stock options and warrants | | — |
| | 4,916 |
| | 49 |
| | — |
| | (49 | ) | | — |
| | — |
|
Change in accounting principal - operating leases | | — |
| | — |
| | — |
| | — |
| | — |
| | (200,607 | ) | | (200,607 | ) |
Cash dividend declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,068,847 | ) | | (3,068,847 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,496,024 |
| | 2,496,024 |
|
Stockholders’ equity, March 31, 2019 | | — |
| | 10,229,913 |
| | 102,299 |
| | (24,027 | ) | | 57,944,437 |
| | 7,225,958 |
| | 65,248,667 |
|
| | | | | | | | | | | | | | |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 186,629 |
| | — |
| | 186,629 |
|
Exercise of common stock options and warrants | | — |
| | 4,805 |
| | 48 |
| | — |
| | (48 | ) | | — |
| | — |
|
Cash dividend declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,068,974 | ) | | (3,068,974 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 3,801,829 |
| | 3,801,829 |
|
Stockholders’ equity, June 30, 2019 | | — |
| | 10,234,718 |
| | 102,347 |
| | (24,027 | ) | | 58,131,018 |
| | 7,958,813 |
| | 66,168,151 |
|
| | | | | | | | | | | | | | |
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 244,450 |
| | — |
| | 244,450 |
|
Exercise of common stock options and warrants, net | | — |
| | 7,396 |
| | 74 |
| | (3,291 | ) | | 41,416 |
| | — |
| | 38,199 |
|
Cash dividend declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (3,071,862 | ) | | (3,071,862 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 4,207,170 |
| | 4,207,170 |
|
Stockholders’ equity, September 29, 2019 | | $ | — |
| | 10,242,114 |
| | $ | 102,421 |
| | $ | (27,318 | ) | | $ | 58,416,884 |
| | $ | 9,094,121 |
| | $ | 67,586,108 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-nine Week Periods Ended September 24, 201729, 2019 and September 25, 201630, 2018
| | | | 2017 | | 2016 | | 2019 | | 2018 |
Cash flows from operating activities | Cash flows from operating activities | | |
| | |
| Cash flows from operating activities | | |
| | |
|
| Net income | | $ | 6,723,220 |
| | $ | 4,578,474 |
| Net income | | $ | 10,505,023 |
| | $ | 12,696,841 |
|
| | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
| | Depreciation | | 428,155 |
| | 355,833 |
| | Depreciation | | 608,119 |
| | 545,751 |
|
| | Amortization | | 4,244,600 |
| | 4,825,623 |
| | Amortization | | 3,024,381 |
| | 3,255,674 |
|
| | Loss on disposal of property and equipment | | 17,373 |
| | 10,192 |
| | Loss on disposal of property and equipment | | 6,954 |
| | 15,554 |
|
| | Loss on extinguishment of debt, net | | — |
| | 404,119 |
| | Loss on extinguishment of debt, net | | 540,705 |
| | — |
|
| | Contingent consideration adjustment | | — |
| | 24,642 |
| | Contingent consideration adjustment | | — |
| | (2,160,307 | ) |
| | Amortization of deferred financing fees | | 168,797 |
| | 80,049 |
| | Amortization of deferred financing fees | | 154,127 |
| | 382,025 |
|
| | Amortization of debt discounts | | — |
| | 32,355 |
| | Interest expense on contingent consideration payable | | 110,903 |
| | 515,932 |
|
| | Interest expense on contingent consideration payable | | 907,340 |
| | 1,449,316 |
| | Provision for doubtful accounts | | 6,065 |
| | 39,389 |
|
| | Provision for doubtful accounts | | 88,000 |
| | 209,528 |
| | Share-based compensation | | 751,163 |
| | 873,186 |
|
| | Share-based compensation | | 357,024 |
| | 252,972 |
| | Deferred income taxes | | 462,898 |
| | 1,085,142 |
|
| | Deferred income taxes | | (403,715 | ) | | (1,101,702 | ) | | Net changes in operating assets and liabilities, net of effects of acquisitions: | | |
| | |
|
| | Net changes in operating assets and liabilities, net of effects of acquisitions: | | |
| | |
| | Accounts receivable | | (2,798,557 | ) | | (3,022,783 | ) |
| | Accounts receivable | | (1,803,486 | ) | | (3,362,087 | ) | | Prepaid expenses | | (725,759 | ) | | (391,795 | ) |
| | Prepaid expenses | | 519,859 |
| | 285,304 |
| | Other current assets | | (16,200 | ) | | (565,821 | ) |
| | Other current assets | | 72,150 |
| | 30,547 |
| | Deposits | | (491,333 | ) | | (287,636 | ) |
| | Deposits | | (137,726 | ) | | (321,925 | ) | | Accrued interest | | (104,927 | ) | | 18,190 |
|
| | Accrued interest | | 208,111 |
| | (291,954 | ) | | Accounts payable | | (5,716 | ) | | (1,648,529 | ) |
| | Accounts payable | | (518,921 | ) | | (324,372 | ) | | Accrued payroll and expenses | | 1,830,278 |
| | 180,308 |
|
| | Accrued payroll and expenses | | 1,252,864 |
| | 1,024,696 |
| | Accrued workers’ compensation | | (83,330 | ) | | (161,956 | ) |
| | Accrued workers’ compensation | | (473,319 | ) | | (56,101 | ) | | Other current liabilities | | — |
| | (87,552 | ) |
| | Other current liabilities | | 120,569 |
| | (945,382 | ) | | Income taxes payable | | 223,766 |
| | 217,437 |
|
| | Income taxes payable | | 244,072 |
| | (7,159 | ) | | Operating leases | | (33,612 | ) | | — |
|
| | Other long-term liabilities | | (52,703 | ) | | (41,398 | ) | | Other long-term liabilities | | — |
| | (118,062 | ) |
| | Net cash provided by operating activities | | 11,962,264 |
| | 7,111,570 |
| | Net cash provided by operating activities | | 13,964,948 |
| | 11,380,988 |
|
| | | | | | | | |
Cash flows from investing activities | Cash flows from investing activities | | |
| | |
| Cash flows from investing activities | | |
| | |
|
| Business acquired, net of cash received | | (24,500,000 | ) | | — |
| Capital expenditures | | (1,534,016 | ) | | (681,333 | ) |
| Capital expenditures | | (895,989 | ) | | (618,157 | ) | | Net cash used in investing activities | | (1,534,016 | ) | | (681,333 | ) |
| Proceeds from the sale of property and equipment | | 1,500 |
| | 7,587 |
| |
| | Net cash used in investing activities | | (25,394,489 | ) | | (610,570 | ) | |
| | | | 2017 | | 2016 | | 2019 | | 2018 |
| | | | | | | | |
Cash flows from financing activities | Cash flows from financing activities | | |
| | |
| Cash flows from financing activities | | |
| | |
|
| Net (payments) borrowings under line of credit | | (3,492,293 | ) | | 3,041,612 |
| Net borrowings (payments) under line of credit | | 9,891,079 |
| | (7,670,117 | ) |
| Proceeds from issuance of long-term debt | | 25,000,000 |
| | — |
| Principal payments on long-term debt | | (10,121,000 | ) | | (12,847,750 | ) |
| Principal payments on long-term debt | | (500,000 | ) | | (15,281,657 | ) | Payments of dividends | | (9,209,683 | ) | | (7,854,785 | ) |
| Payments of dividends | | (6,545,915 | ) | | (5,863,801 | ) | Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises | | 38,199 |
| | 21,339,680 |
|
| Net proceeds from issuance of common stock | | 86,249 |
| | 15,254,406 |
| Option cancellation agreement | | — |
| | (3,335,169 | ) |
| Contingent consideration paid | | — |
| | (3,498,197 | ) | Contingent consideration paid | | (2,672,000 | ) | | (327,996 | ) |
| Deferred financing costs | | (1,115,816 | ) | | (153,363 | ) | Deferred financing costs | | (357,527 | ) | | (3,518 | ) |
| | Net cash provided by (used in) financing activities | | 13,432,225 |
| | (6,501,000 | ) | | Net cash used in financing activities | | (12,430,932 | ) | | (10,699,655 | ) |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | | — |
| | — |
| Net change in cash and cash equivalents | | — |
| | — |
|
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | | — |
| | — |
| Cash and cash equivalents, beginning of period | | — |
| | — |
|
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | — |
| | $ | — |
| Cash and cash equivalents, end of period | $ | — |
| | $ | — |
|
| | | | | | | | |
Supplemental cash flow information: | Supplemental cash flow information: | | |
| | |
| Supplemental cash flow information: | | |
| | |
|
| Cash paid for interest | | $ | 930,811 |
| | $ | 2,221,430 |
| Cash paid for interest | | $ | 1,003,190 |
| | $ | 1,396,182 |
|
| Cash paid for taxes, net of refunds | | $ | 4,058,353 |
| | $ | 3,961,226 |
| Cash paid for taxes, net of refunds | | $ | 2,462,325 |
| | $ | 1,378,890 |
|
Non-cash transactions: | | Non-cash transactions: | | |
| | |
|
| | Leasehold improvements funded by landlord incentives | | $ | — |
| | $ | 366,202 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
BG Staffing, Inc. is a national provider of temporary staffing services that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP, and BG Finance and Accounting, Inc. (“BGFA”), BG California IT Staffing, Inc., BG California Multifamily Staffing, Inc., and BG California Finance & Accounting Staffing, Inc. (collectively, the “Company”), primarily within the United States of America in three3 industry segments: Multifamily,Real Estate, Professional, and Commercial. We now have 63 branch offices and 15 on-site locations located across 26 states.Light Industrial.
The MultifamilyReal Estate segment provides front office and maintenance temporary workersfield talent to various apartment communities and commercial buildings, in 2330 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled temporary workersfield talent on a nationwide basis for information technology ("IT") and finance and accounting customerclient partner projects.
The CommercialLight Industrial segment provides temporary workersfield talent primarily to logistics, distribution, and call center customersclient partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our customers’client partners’ business. Demand for our MultifamilyReal Estate staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our CommercialLight Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter. Demand for our Commercial staffing services is lower during the first quarter in part due to customer shutdowns andincreases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months.months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the applicable rules and regulations of the SEC. The information furnished herein reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year or any other future period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, management of the Company believes, to the best of theirits knowledge, that the disclosures herein are adequate to make the information presented not misleading. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying consolidated financial statements through the date the financial statements were issued. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December 25, 2016,30, 2018, included in its Annual Report on Form 10-K.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
Fiscal Periods
The Company has a 52/53 week fiscal year. Fiscal periods for the consolidated financial statements included herein are as of September 24, 201729, 2019 and December 25, 2016,30, 2018, and include the thirteen and thirty-nine week periods ended September 24, 201729, 2019 and September 25, 2016. The thirty-nine weeks ended September 24, 2017 and September 25, 2016 are30, 2018, referred to herein as Fiscal 20172019 and 2016,2018, respectively.
Reclassifications
Certain reclassifications have been made to the 20162018 financial statements to conform with the 20172019 presentation.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include goodwill, intangible assets and contingent consideration obligations related to acquisitions. Additionally, the valuation of share basedshare-based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.
Financial Instruments
The Company uses fair value measurements in areas that include, but are not limited to:to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of the bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with Texas CapitalBMO Harris Bank, National AssociationN.A. (“TCB”BMO”) that providesprovided for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Concentration of Credit Risk
Concentration of credit risk is limited due to the Company's diverse customerclient partner base and their dispersion across many different industries and geographic locations nationwide. No single customerclient partner accounted for more than 10% of the Company’s accounts receivable as of September 24, 201729, 2019 and December 25, 201630, 2018 or revenue for the thirty-nine week periods ended September 24, 201729, 2019 and September 25, 2016.30, 2018. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal 20172019 and the related percentage for Fiscal 20162018 was generated in the following areas:
|
| | | | | | |
| | Thirty-nine Weeks Ended |
| | September 29, 2019 | | September 30, 2018 |
Maryland | | 10 | % | | 11 | % |
Tennessee | | 16 | % | | 14 | % |
Texas | | 29 | % | | 29 | % |
|
| | | | | | |
| | Thirty-nine Weeks Ended |
| | September 24, 2017 | | September 25, 2016 |
Maryland | | 12 | % | | 13 | % |
Tennessee | | 11 | % | | 5 | % |
Texas | | 30 | % | | 32 | % |
Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.
Accounts Receivable
The Company extends credit to its customersclient partners in the normal course of business. Accounts receivable represents unpaid balances due from customers.client partners. The Company maintains an allowance for doubtful accounts for expected losses resulting from customers’client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual customersclient partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all reasonable means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for doubtful accounts are as follows:
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Beginning balance | | $ | 468,233 |
| | $ | 473,573 |
| | $ | 468,233 |
| | $ | 473,573 |
|
Provision for (recovery of) doubtful accounts, net | | 34,667 |
| | 21,514 |
| | 6,065 |
| | 39,389 |
|
Amounts written off, net | | (34,667 | ) | | (21,514 | ) | | (6,065 | ) | | (39,389 | ) |
Ending balance | | $ | 468,233 |
| | $ | 473,573 |
| | $ | 468,233 |
| | $ | 473,573 |
|
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Beginning balance | | $ | 473,573 |
| | $ | 449,823 |
| | $ | 473,573 |
| | $ | 446,548 |
|
Provision for doubtful accounts | | 75,772 |
| | 162,612 |
| | 88,000 |
| | 209,528 |
|
Amounts written off, net | | (75,772 | ) | | (162,612 | ) | | (88,000 | ) | | (206,253 | ) |
Ending balance | | $ | 473,573 |
| | $ | 449,823 |
| | $ | 473,573 |
| | $ | 449,823 |
|
Property and Equipment
Property and equipment are stated net of accumulated depreciation and amortization of $1,213,156$2.7 million and $1,301,295$2.1 million at September 24, 201729, 2019 and December 25, 2016,30, 2018, respectively. During the thirty-nine week periods ended September 24, 2017, the Company disposed of fully depreciated assets primarily not in use with an original cost of $426,066.
Deposits
The Company maintains guaranteed costs policies for workers' compensation coverage in the states in which it operates, withTexas, Washington, and Ohio and minimal loss retention coverage for employeesteam members and field talent in the commercial segment.Light Industrial segment and other non-Texas employees. Under these policies, the Company is required to maintain refundable deposits of $2,565,817$3.4 million and $2,476,201,$2.9 million, which are included in Deposits in the accompanying consolidated balance sheets as of September 24, 201729, 2019 and December 25, 2016,30, 2018, respectively.
Long-Lived Assets
The Company reviews its long-lived assets, primarily fixed assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal 20172019 or Fiscal 2018.
Leases
The Company leases all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and Fiscal 2016.certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.
Right of use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.
Intangible Assets
The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible asset is realized.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value.
The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.
The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Goodwill
Goodwill is not amortized, but instead is evaluated at the reporting unit level for impairment annually at the end of each fiscal year, or more frequently, if conditions indicate an earlier review is necessary. If the Company has determined that it is more likely than not that the fair value for one or more reporting units is greater than their carrying value, the Company may use a qualitative assessment for the annual impairment test.
Deferred Rent
The Company recognizes rental expense on a straight-line basis over the life of the agreement. Deferred rent is recognized as the difference between cash payments and rent expense, including any landlord incentives.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Paid-in-kind Interest
The Company recorded paid-in-kind interest on a monthly basis to accrued interest. The first month following a quarter, the paid-in-kind accrued interest is reclassed to the related debt principal if not paid.
Deferred Financing Fees
Deferred financing fees are amortized onusing the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.
Contingent Consideration
The Company hashad obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals arewere met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. Prior to Fiscal 2017, the calculation of the fair value of the expected future payments uses a discount rate that approximates the Company's weighted average cost of capital. For acquisitions beginning in Fiscal 2017, based on new valuation methodology, theThe fair value calculation of the expected future payments uses a discount rate that is commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.
Revenue Recognition
The Company derives its revenues from three3 segments: Multifamily,Real Estate, Professional, and Commercial.Light Industrial. The Company provides temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to customersclient partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalentthe related amounts of reimbursable expenses are included in cost of services.
The Company and its customers enter into agreements that outline the general terms and conditions of the staffing arrangement. Revenue is recognized as services are performed and associated costs have been incurred. The Company records revenue from services and the related direct costs on a gross basis in accordance with the accounting guidance on reporting revenue gross as a principal versus on a net basis as an agent.agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.
Temporary staffing revenues - OurField talent revenues are generated based on negotiated rates and invoiced on a per-hour basis. Accordingly, temporary staffing revenuesfrom contracts with client partners are recognized onin the hours workedamount to which the Company has a right to invoice, when the services are rendered by the Company’s temporary workers.field talent.
Permanent placement staffing revenues - Permanent placement staffing revenues are recognized when employment candidates start their permanent employment. The Company estimates the effect of permanent placement candidates who do not remain with its customersclient partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to customersclient partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Refer to Note 11 for disaggregated revenues by segment.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of September 29, 2019. There were no revenues recognized during the thirty-nine week period ended September 29, 2019 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during the thirty-nine week period ended September 29, 2019.
Share-Based Compensation
The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of diluted earnings per share.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:
|
| | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Weighted-average number of common shares outstanding: | | 10,239,126 |
| | 10,109,791 |
| | 10,233,725 |
| | 9,368,840 |
|
Effect of dilutive securities: | | | | | | | | |
| Stock options and restricted stock | | 69,684 |
| | 181,012 |
| | 90,853 |
| | 227,846 |
|
| Warrants | | 34,863 |
| | 51,756 |
| | 41,293 |
| | 41,930 |
|
Weighted-average number of diluted common shares outstanding | | 10,343,673 |
| | 10,342,559 |
| | 10,365,871 |
| | 9,638,616 |
|
| | | | | | | | | |
| Stock options and restricted stock | | 306,750 |
| | 175,000 |
| | 306,750 |
| | 175,000 |
|
| Warrants | | — |
| | — |
| | — |
| | — |
|
Antidilutive shares | | 306,750 |
| | 175,000 |
| | 306,750 |
| | 175,000 |
|
|
| | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Weighted-average number of common shares outstanding: | | 8,759,376 |
| | 8,658,061 |
| | 8,724,811 |
| | 7,920,000 |
|
Effect of dilutive securities: | | | | | | | | |
| Stock options | | 279,735 |
| | 323,313 |
| | 260,404 |
| | 263,915 |
|
| Warrants | | 38,036 |
| | 47,024 |
| | 34,663 |
| | 35,961 |
|
Weighted-average number of diluted common shares outstanding | | 9,077,147 |
| | 9,028,398 |
| | 9,019,878 |
| | 8,219,876 |
|
| | | | | | | | | |
| Stock options | | 178,000 |
| | 50,000 |
| | 178,000 |
| | 50,000 |
|
| Warrants | | 32,250 |
| | — |
| | 32,250 |
| | — |
|
Antidilutive shares | | 210,250 |
| | 50,000 |
| | 210,250 |
| | 50,000 |
|
Income Taxes
The current provision for income taxes represents estimated amounts payable or refundable oneffective tax returns filed or to be filedrates of 24.1% and 23.3% for the year. The Company recognizes any penalties when necessary as part of selling, generalthirteen and administrative expenses. Goodwill is deductiblethirty-nine week periods ended September 29, 2019, respectively, and 21.3% and 17.7% for the thirteen and thirty-nine week periods ended September 30, 2018, respectively, were primarily due to state taxes, the Work Opportunity Tax Credit, and the deductibility in Fiscal 2018 related to the Option Cancellation Agreement for tax purposes.
Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment.
When appropriate, we recordthe Company records a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we considerthe Company considers whether it is more likely
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.
The Company recognizes any penalties when necessary as part of Selling, general and administrative expenses. Goodwill is deductible for tax purposes.
The Company follows the guidance of Accounting Standards Codification ("ASC") Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.
Income tax expense attributable to income from operations for Fiscal 2017 differed from the amount computed by applying the U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes offset by a Work Opportunity Tax Credit.
Income tax expense attributable to income from operations for Fiscal 2016 differed from the amount computed by applying the U.S. federal income tax rate of 34% to income before income taxes primarily as a result of state taxes.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") ASU 2014-09, Revenue from Contracts with Customers. Since May 2014,June 2016, the FASB has issued additionalASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and amended authoritative guidance regarding revenue from contracts with customers in ordercertain other instruments that are not measured at fair value through net income, which applies to clarifytrade accounts receivable and improve the understandingcalculation of the implementation guidance. As amended, the new guidance requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchangeallowance for those goods or services.uncollectible accounts receivable. The new standard iswill become effective for the Company for annual and interim periods beginning after December 15, 2017.2019, with early adoption permitted. The Company is in the process ofcurrently evaluating the impact of adoption. Based on the progress to date, the Company does not believe the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from customers method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.
In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” which provides more specific guidance related to how companies account for cloud computing costs. In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements” to clarify guidance, correct errors and make minor improvements to the Accounting Standards Codification (“ASC”) which amends ASC 350-40 to clarify that after ASU 2015-05 is adopted, companies are required to record an intangible asset for the license acquired in a software licensing arrangement. The asset for the software license is required to be recognized and measured at cost. The Company adopted both ASUs on a prospective basis in the second quarter of fiscal 2017 which did not have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The new standard was effective for the Company beginning with the first quarter of 2017. The Company adopted this ASU on a prospective basis which had no impact on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new standardguidance is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.
In May 2017,August 2018, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting which provides clarification on when modification accounting should be used for changes2018-13, Fair Value Measurement: Disclosure Framework - Changes to the terms or conditions of a share-based payment award.Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective for the Company beginning with the first quarter 2018.after December 15, 2019. Early adoption is permitted. The Company does not anticipateis currently evaluating the adoption of ASU 2017-09impact this change will have a material impact on the Company'sits consolidated financial condition or results of operations.statements and disclosures.
NOTE 3 - ACQUISITIONSLEASES
Zycron, Inc.At September 29, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 5.6%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For the thirteen week period ended September 29, 2019, the Company's cash paid for operating leases was $405,332, and operating lease and short-term lease costs were $399,828 and $187,934, respectively. For the thirty-nine week period ended September 29, 2019, the Company's cash paid for operating leases was $1,215,848, and operating lease and short-term lease costs were $1,138,542 and $532,621, respectively.
On April 3, 2017, the Company acquired substantially allThe undiscounted annual future minimum lease payments consist of the assets and assumed certain liabilities of Zycron, Inc. (“Zycron”) for an initial cash consideration paid of $18.5 million and issued $1.0 million (70,670 shares privately placed) of the Company's common stock at closing. An additional $0.5 million was held back as partial security for post-closing purchase price adjustments and indemnification obligations. The purchase agreement further provides for contingent consideration of up to $3.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that is currently in progress.
The net assets acquired were assigned to the Professional segment. The acquisition of Zycron allows the Company to strengthen and expand its IT operations throughout the southeastern U.S. region and selected markets across the country with talent and project management services.
at:
14 |
| | | | |
| | September 29, 2019 |
2019 | | $ | 1,614,555 |
|
2020 | | 1,409,909 |
|
2021 | | 1,390,554 |
|
2022 | | 1,120,340 |
|
2023 | | 657,095 |
|
Thereafter | | 301,203 |
|
Total lease payments | | 6,493,656 |
|
Interest | | (1,346,596 | ) |
Present value of lease liabilities | | $ | 5,147,060 |
|
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The 2016 consolidated statement of operations does not include any operating results of Zycron. 13 and 25 weeks of Zycron operations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $9.0 million and $17.6 million, respectively, of revenue and and $0.9 million and $1.6 million, respectively, of operating income. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:
|
| | | | |
Accounts receivable | | $ | 4,345,312 |
|
Prepaid expenses and other assets | | 82,122 |
|
Property and equipment | | 128,431 |
|
Intangible assets | | 13,818,474 |
|
Goodwill | | 6,901,101 |
|
Liabilities assumed | | (2,983,222 | ) |
Total net assets acquired | | $ | 22,292,218 |
|
| | |
Cash | | $ | 18,500,000 |
|
Hold back | | 500,000 |
|
Common stock | | 1,000,000 |
|
Working capital adjustment | | (299,835 | ) |
Fair value of contingent consideration | | 2,592,053 |
|
Total fair value of consideration transferred for acquired business | | $ | 22,292,218 |
|
|
| | | | | | |
| | Estimated Fair Value | | Estimated Useful Lives |
Covenants not to compete | | $ | 475,000 |
| | 5 years |
Trade name | | 5,006,000 |
| | Indefinite |
Customer list | | 8,337,474 |
| | 10 years |
Total | | $ | 13,818,474 |
| | |
Smart Resources, Inc.
On September 18, 2017, the Company acquired substantially all of the assets and assumed certain liabilities of Smart Resources, Inc. and Accountable Search, LLC (collectively, "Smart") for an initial cash consideration paid of $6.0 million. The purchase agreement provides for contingent consideration of up to $2.0 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital under a process that will begin approximately 90 days after the closing date.
The net assets acquired were assigned to the Professional segment. The acquisition of Smart allows the Company to strengthen and expand its finance and accounting operations in the Chicago market with temporary and direct hire services.
The 2016 consolidated statement of income does not include any operating results of Smart. One (1) week of Smartoperations are included in the thirteen and thirty-nine week periods ended September 24, 2017, which is approximately $0.2 million of revenue and $-0- of operating income. The preliminary purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows:
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | |
Accounts receivable | | $ | 1,228,614 |
|
Prepaid expenses and other assets | | 36,816 |
|
Property and equipment | | 40,626 |
|
Intangible assets | | 4,927,045 |
|
Goodwill | | 1,740,439 |
|
Liabilities assumed | | (216,343 | ) |
Total net assets acquired | | $ | 7,757,197 |
|
| | |
Cash | | $ | 6,000,000 |
|
Working capital adjustment | | (3,440 | ) |
Fair value of contingent consideration | | 1,760,637 |
|
Total fair value of consideration transferred for acquired business | | $ | 7,757,197 |
|
|
| | | | | | |
| | Estimated Fair Value | | Estimated Useful Lives |
Covenants not to compete | | $ | 20,000 |
| | 5 years |
Customer list | | 4,907,045 |
| | 10 years |
Total | | $ | 4,927,045 |
| | |
Supplemental Unaudited Pro Forma Information
The Company estimates that the revenues and net income for the periods below that would have been reported if the Zycron and Smart acquisitions had taken place on the first day of the Company's 2016 fiscal year would be as follows (dollars in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
Revenues | | $ | 73,782 |
| | $ | 80,519 |
| | $ | 214,659 |
| | $ | 228,577 |
|
Gross profit | | $ | 19,196 |
| | $ | 18,428 |
| | $ | 54,391 |
| | $ | 54,034 |
|
Net income | | $ | 3,203 |
| | $ | 2,933 |
| | $ | 6,992 |
| | $ | 5,270 |
|
Income per share: | | | | | | | | |
Basic | | $ | 0.37 |
| | $ | 0.34 |
| | $ | 0.80 |
| | $ | 0.67 |
|
Diluted | | $ | 0.35 |
| | $ | 0.32 |
| | $ | 0.78 |
| | $ | 0.64 |
|
Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Revolving Facility at a rate of 4.5% and tax expense of the pro forma adjustments at an effective tax rate of approximately 36.8% for Fiscal 2017 and 38.4% for Fiscal 2016. The pro forma information presented includes adjustments that will have a continuing impact on the operations that management considers non-recurring in assessing Zycron and Smart's historical performances.
Amounts set forth above are not necessarily indicative of the results that would have been attained had the Zycron and Smart acquisitions taken place on the first day of the Company’s 2016 fiscal year or of the results that may be achieved by the combined enterprise in the future.
NOTE 4 - INTANGIBLE ASSETS
Intangible assets are stated net of accumulated amortization of $34,501,414$43.3 million and $30,205,434$40.3 million at September 24, 201729, 2019 and December 25, 2016,30, 2018, respectively. During the thirty-nine week periods ended September 24, 2017, the Company added $440,668 and reclassified $347,379 of software assets from property and equipment. Total amortizationAmortization expense for the thirteen week periods ended September 24, 2017 and September 25, 2016 was $1,291,925 and $1,548,914, respectively. Total amortization expense for the thirty-nine week periods ended September 24, 2017 and September 25, 2016 was $4,244,600 and $4,825,623, respectively.
fiscal years are comprised of following:
16 |
| | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Client partner lists | | $ | 881,525 |
| | $ | 944,093 |
| | $ | 2,671,149 |
| | $ | 2,937,716 |
|
Covenant not to compete | | 39,936 |
| | 42,250 |
| | 124,436 |
| | 167,000 |
|
Acquisition intangibles | | 921,461 |
| | 986,343 |
| | 2,795,585 |
| | 3,104,716 |
|
Computer software - amortization expense | | 71,019 |
| | 66,553 |
| | 228,796 |
| | 150,958 |
|
Amortization expense | | 992,480 |
| | 1,052,896 |
| | 3,024,381 |
| | 3,255,674 |
|
Computer software - selling, general and administrative expense | | 19,490 |
| | — |
| | 44,382 |
| | — |
|
Total expense | | $ | 1,011,970 |
| | $ | 1,052,896 |
| | $ | 3,068,763 |
| | $ | 3,255,674 |
|
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ACCRUED PAYROLL AND EXPENSES AND CONTINGENT CONSIDERATION
Accrued payroll and expenses consist of the following at:
|
| | | | | | | | |
|
| September 29, 2019 |
| December 30, 2018 |
Field talent payroll |
| $ | 6,074,655 |
|
| $ | 4,236,534 |
|
Field talent payroll related |
| 1,618,702 |
|
| 1,402,926 |
|
Accrued bonuses and commissions |
| 2,012,793 |
|
| 1,673,130 |
|
Other |
| 2,286,391 |
|
| 3,098,784 |
|
Accrued payroll and expenses |
| $ | 11,992,541 |
|
| $ | 10,411,374 |
|
|
| | | | | | | | |
|
| September 24, 2017 |
| December 25, 2016 |
Temporary worker payroll |
| $ | 6,672,200 |
|
| $ | 5,547,161 |
|
Temporary worker payroll related |
| 2,570,505 |
|
| 2,033,602 |
|
Accrued bonuses and commissions |
| 1,181,071 |
|
| 892,742 |
|
Other |
| 2,142,861 |
|
| 1,194,970 |
|
|
| $ | 12,566,637 |
|
| $ | 9,668,475 |
|
The following is a schedule of future estimated contingent consideration payments to various parties as of September 24, 2017:
|
| | | | | | | | | | | |
| Estimated Cash Payment | | Discount | | Net |
Due in: | | | | | |
Less than one year | $ | 5,750,000 |
| | $ | (214,932 | ) | | $ | 5,535,068 |
|
One to two years | 3,250,000 |
| | (727,741 | ) | | 2,522,259 |
|
Two to three years | 2,500,000 |
| | (130,412 | ) | | 2,369,588 |
|
Contingent consideration | $ | 11,500,000 |
| | $ | (1,073,085 | ) | | $ | 10,426,915 |
|
As of September 24, 2017, the Zycron hold back balance of $158,072, included in other current liabilities, was a partial security for post-closing purchase price adjustments and indemnification obligations and also contained the working capital adjustment and other amounts paid or received on behalf of the either party to the acquisition.
NOTE 6 - DEBT
TheOn July 16, 2019, the Company hadentered into a credit agreementCredit Agreement (the “Credit Agreement”), maturing July 16, 2024, with TCB providingBMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a Revolving Facility, maturing August 21, 2019,revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount equalup to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million. The Company may from time to time, with a maximum of 2, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.
The Credit Agreement contains customary affirmative covenants and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of September 29, 2019.
The Company borrowed $20 million under the Revolving Facility to pay off existing indebtedness of the Company under the Amended Credit Agreement (as defined below) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. The Company recognized a loss on extinguishment of debt of approximately $0.5 million related to the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million.unamortized deferred finance fees.
In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement providesprovided for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”Facility with TCB”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which iswas 85% of eligible accounts receivable, and TCB’s commitment of $35.0 million and also provides provided
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
for a term loan maturing April 3, 2022 (the “Term Loan”Loan with TCB”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement provides for the Company to increase the commitment with a $20.0 million accordion feature.
The Company borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquisition on April 3, 2017. Proceeds from the foregoing loan arrangements were used to pay off existing indebtedness of the Company on the revolving credit facility under the Credit Agreement, dated as of August 21, 2015, as amended, with TCB. The Company borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.
The Revolving Facility with TCB and Term Loan bearwith TCB bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms arewere defined in the Amended Credit Agreement). Swing Line Loans bear interest at the Base Rate plus the Applicable Margin. All interest and commitment fees are generallywere paid quarterly. Additionally, the Company paid an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement arewere secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the Credit Agreement including restricting the ability of the Company and its subsidiaries to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) pay dividends or make distributions (except for permitted distributions as defined in the agreements); (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of their business and the Company must comply with certain financial covenants. The Company may not permit the Leverage Ratio (as defined in the Amended Credit Agreement) to be greater than the following: 2.50 to 1.0 (April 3, 2017 to end of fiscal March 2018), 2.00 to 1.0 (March 31, 2018 to end of fiscal March 2019), 1.50 to 1.0 (March 31, 2019 to end of fiscal March 2020), 1.0 to 1.0 (From and after end of fiscal March, 2020). Moreover, the Company may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than 1.50 to 1.00, and may not permit the Dividend Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) to be less than (a) 1.10 to 1.00 for any four fiscal quarter period ending on or before September 30, 2017 or (b) 1.20 to 1.00 for any four fiscal quarter period thereafter. As of September 24, 2017, the Company was in compliance with these covenants.
Line of Credit
At September 24, 201729, 2019 and December 25, 2016, $20.430, 2018, $20.6 million and $23.9$10.7 million, respectively, was outstanding on the Revolving Facility with TCB. Borrowings underrevolving facilities. Average daily balance for the Revolving Facility bore interest equal to Base Rate or LIBOR plusthirteen week periods ended September 29, 2019 and September 30, 2018 was $21.0 million and $13.3 million, respectively. Average daily balance for the Applicable Margin (as such terms are defined in the Amended Credit Agreement or Credit Amendment, respectively). Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility.thirty-nine week periods ended September 29, 2019 and September 30, 2018 was $15.3 million and $17.1 million, respectively.
Borrowings under the Revolving Facilityrevolving facilities consisted of and bore interest at:
|
| | | | | | | | | | | | |
| | September 29, 2019 | | December 30, 2018 |
Base Rate | | $ | 2,053,651 |
| 5.50 | % | | $ | 650,289 |
| 6.50 | % |
LIBOR | | 8,500,000 |
| 3.67 | % | | 5,000,000 |
| 5.16 | % |
LIBOR | | 10,000,000 |
| 3.66 | % | | 5,000,000 |
| 5.16 | % |
Total | | $ | 20,553,651 |
| | | $ | 10,650,289 |
| |
|
| | | | | | | | | | | | |
| | September 24, 2017 | | December 25, 2016 |
Base Rate | | $ | 5,390,421 |
| 5.25 | % | | $ | 8,882,714 |
| 4.25 | % |
LIBOR | | 5,000,000 |
| 4.05 | % | | 5,000,000 |
| 3.95 | % |
LIBOR | | 5,000,000 |
| 4.06 | % | | 5,000,000 |
| 3.99 | % |
LIBOR | | 5,000,000 |
| 4.07 | % | | 5,000,000 |
| 4.16 | % |
Total | | $ | 20,390,421 |
| | | $ | 23,882,714 |
| |
Long-Term Debt
Long-term debt consists of and bore interest at:
|
| | | | | | | | | | | | |
| | September 29, 2019 | | December 30, 2018 |
Base Rate | | $ | — |
| — | % | | $ | 1,121,000 |
| 6.50 | % |
LIBOR | | — |
| — | % | | 6,500,000 |
| 5.41 | % |
LIBOR | | — |
| — | % | | 2,500,000 |
| 5.41 | % |
Long-term debt | | $ | — |
| | | $ | 10,121,000 |
| |
|
| | | | | | | | | | | | |
| | September 24, 2017 | | December 25, 2016 |
Base Rate | | $ | 700,000 |
| 5.25 | % | | $ | — |
| — | % |
LIBOR | | 6,500,000 |
| 4.30 | % | | — |
| — | % |
LIBOR | | 6,500,000 |
| 4.31 | % | | — |
| — | % |
LIBOR | | 6,000,000 |
| 4.32 | % | | — |
| — | % |
LIBOR | | 4,800,000 |
| 4.33 | % | | — |
| — | % |
Less current portion on long-term debt | | (2,756,250 | ) | | | — |
| |
Long-term debt, less current portion | | $ | 21,743,750 |
| | | $ | — |
| |
NOTE 7 - FAIR VALUE MEASUREMENTS
The accounting standard for fair value measurements defines fair value, and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established in the standard prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and
Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | |
Amounts Recorded at Fair Value | | Financial Statement Classification | | Fair Value Hierarchy | | September 24, 2017 | | December 25, 2016 |
Contingent consideration, net | | Contingent consideration, net - current and long-term | | Level 3 | | $ | 10,426,915 |
| | $ | 5,166,885 |
|
|
| | | | | | | | | | | | |
Amounts Recorded at Fair Value | | Financial Statement Classification | | Fair Value Hierarchy | | September 29, 2019 | | December 30, 2018 |
Contingent consideration, net | | Contingent consideration, net - current and long-term | | Level 3 | | $ | — |
| | $ | 2,363,512 |
|
The changes in the Level 3 fair value measurements from December 25, 201630, 2018 to September 24, 2017 relate29, 2019 relates to $4.4the $2.7 million in payments, which included $0.2 million in an extension of the Zycron acquisition covenant not to compete intangible asset, and Smart acquisitions and $0.9$0.1 million in accretion. The key inputs in determining the fair value of the contingent consideration as of September 24, 201729, 2019 and December 25, 2016 included discount rates of ranging from 8% and 22% as well as30, 2018 include management's estimates of future sales volumes and EBITDA.
NOTE 8 - CONTINGENCIES
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.
The Company is not currently a party to any material litigation; however, in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability.
Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.
NOTE 9 – EQUITY
Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share.
On April 3, 2017, the Company issued 70,670 shares of common stock, $0.01 par value per share, in a private placement for a value of $1 million at the closing of the Zycron acquisition. The Company incurred $7,500 in offering costs.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 109 – SHARE-BASED COMPENSATION
Stock Options and Restricted Stock
On May 16, 2017, the stockholders of the Company approved and made effective an amendment to the BG Staffing, Inc. 2013 Long-Term Incentive Plan to add an additional 250,000 shares of common stock available for issuance. The board of directors of the Company had previously approved the amendment subject to stockholder approval. A total of 900,000 shares of common stock were originally reserved for issuance, which brings the new total available for issuance to 1,150,000 shares of common stock.
For the thirteen week periods ended September 24, 201729, 2019 and September 25, 2016,30, 2018, the Company recognized $92,293$0.2 million and $111,134$0.8 million of compensation costexpense related to stock option awards, respectively. For the thirty-nine week periods ended September 24, 201729, 2019 and September 25, 2016,30, 2018, the Company recognized $357,024$0.8 million and $252,972$0.9 million of compensation costexpense related to stock option awards, respectively. Unamortized stockshare-based compensation expense as of September 24, 201729, 2019 amounted to $680,321,$2.0 million which is expected to be recognized over the next 2.63.0 years.
A summary of stock option and restricted stock activity is presented as follows:
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life | | Total Intrinsic Value of Awards (in thousands) |
Awards outstanding at December 30, 2018 | 526,985 |
| | $ | 16.49 |
| | 7.7 | | $ | 2,932 |
|
Granted | 138,750 |
| | $ | 21.49 |
| | | | |
Exercised | (47,790 | ) | | $ | 10.19 |
| | | | |
Forfeited / Canceled | (34,700 | ) | | $ | 14.39 |
| | | | |
Awards outstanding at September 29, 2019 | 583,245 |
| | $ | 18.32 |
| | 7.8 | | $ | 2,109 |
|
| | | | | | | |
Awards exercisable at December 30, 2018 | 238,085 |
| | $ | 13.96 |
| | 7.2 | | $ | 1,684 |
|
Awards exercisable at September 29, 2019 | 295,045 |
| | $ | 16.37 |
| | 7.1 | | $ | 1,379 |
|
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life | | Total Intrinsic Value of Options (in thousands) |
Options outstanding at December 25, 2016 | 678,411 |
| | $ | 8.95 |
| | 7.8 | | $ | 4,511 |
|
Granted | 128,000 |
| | $ | 16.76 |
| | | | |
Exercised | (28,800 | ) | | $ | 7.71 |
| | | | |
Forfeited / Canceled | (12,200 | ) | | $ | 11.00 |
| | | | |
Options outstanding at September 24, 2017 | 765,411 |
| | $ | 10.27 |
| | 7.5 | | $ | 5,096 |
|
| | | | | | | |
Options exercisable at December 25, 2016 | 395,911 |
| | $ | 8.01 |
| | 7.6 | | $ | 2,965 |
|
Options exercisable at September 24, 2017 | 479,611 |
| | $ | 8.65 |
| | 7.0 | | $ | 3,963 |
|
|
| | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value |
Nonvested outstanding at December 30, 2018 | | 288,900 |
| | $ | 8.34 |
|
Nonvested outstanding at September 29, 2019 | | 288,200 |
| | $ | 7.73 |
|
|
| | | | | | | |
| | Number of Shares | | Weighted Average Grant Date Fair Value |
Nonvested outstanding at December 25, 2016 | | 282,500 |
| | $ | 2.57 |
|
Nonvested outstanding at September 24, 2017 | | 285,800 |
| | $ | 3.01 |
|
For the thirty-nine week periodsperiod ended September 24, 2017,29, 2019, the Company issued 5,22116,694 shares of common stock upon the cashless exercise of 9,40238,614 stock options.
Included in awards outstanding are 27,000 shares of restricted stock issued in August 2018, at a grant date price per share of $28.61. For the thirteen and thirty-nine week period ended September 29, 2019, the Company recognized $0.1 million and $0.2 million of compensation expense related to restricted stock, respectively.
Warrant Activity
For the thirteen and thirty-nine week periods ended September 24, 201729, 2019 and September 25, 2016,30, 2018, the Company did not recognize compensation cost related to warrants. There was no0 unamortized stock compensation expense to be recognized as of September 24, 2017.29, 2019.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A summary of warrant activity is presented as follows:
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life | | Total Intrinsic Value of Options (in thousands) |
Warrants outstanding at December 30, 2018 | 93,216 |
| | $ | 11.59 |
| | 1.3 | | $ | 805 |
|
Exercised | (1,020 | ) | | $ | 14.86 |
| | | | |
Warrants outstanding at September 29, 2019 | 92,196 |
| | $ | 11.56 |
| | 0.8 | | $ | 703 |
|
| | | | | | | |
Warrants exercisable at December 30, 2018 | 93,216 |
| | $ | 11.59 |
| | 1.3 | | $ | 805 |
|
Warrants exercisable at September 29, 2019 | 92,196 |
| | $ | 11.56 |
| | 0.8 | | $ | 703 |
|
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Life | | Total Intrinsic Value of Options (in thousands) |
Warrants outstanding at December 25, 2016 | 123,984 |
| | $ | 11.51 |
| | 2.8 | | $ | 532 |
|
Warrants outstanding at September 24, 2017 | 123,984 |
| | $ | 11.89 |
| | 2.6 | | $ | 494 |
|
| | | | | | | |
Warrants exercisable at December 25, 2016 | 91,734 |
| | $ | 9.65 |
| | 2.2 | | $ | 532 |
|
Warrants exercisable at September 24, 2017 | 123,984 |
| | $ | 11.89 |
| | 2.6 | | $ | 494 |
|
There were no nonvested warrants outstanding at September 29, 2019 and December 30, 2018. |
| | | | | | | |
| | Number of
Shares | | Weighted Average Grant Date Fair Value |
Nonvested outstanding at December 25, 2016 | | 32,250 |
| | $ | — |
|
Nonvested outstanding at September 24, 2017 | | — |
| | $ | — |
|
For the thirty-nine week period ended September 29, 2019, the Company issued 423 shares of common stock upon the cashless exercise of 1,020 warrants.
The intrinsic value in the tables above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.
NOTE 1110 - EMPLOYEETEAM MEMBER BENEFIT PLAN
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time employees.team members and field talent. The 401(k) Plan allows employeesparticipants to make contributions subject to applicable statutory limitations. The Company matches employeeparticipants contributions 100% up to the first 3% and 50% of the next 2% of an employee’sa team member or field talent’s compensation. The Company contributed $232,863$0.3 million and $217,103$0.3 million to the 401(k) Plan for the thirteen week periods ended September 24, 201729, 2019 and September 25, 2016,30, 2018, respectively. The Company contributed $657,623$0.9 million and $622,772$0.8 million to the 401(k) Plan for the thirty-nine week periods ended September 24, 201729, 2019 and September 25, 2016,30, 2018, respectively.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1211 - BUSINESS SEGMENTS
The Company operates within three3 industry segments: Multifamily,Real Estate, Professional, and Commercial.Light Industrial. The MultifamilyReal Estate segment provides front office and maintenance temporary workersfield talent to various apartment communities in 23 states,and commercial buildings via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. The Professional segment provides skilled temporary workersfield talent on a nationwide basis for IT and finance and accounting customerclient partner projects. The CommercialLight Industrial segment provides temporary workersfield talent primarily to logistics, distribution, and call center customersclient partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.workforce.
Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (corporate) expenses. Assets of corporate include cash, unallocated prepaid expenses, fixed assets, deferred tax assets, and other assets.
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results for the periods indicated:
| | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
|
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
| September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Revenue: |
| |
| | |
| | |
| | |
|
| |
| | |
| | |
| | |
|
Multifamily |
| $ | 21,758,642 |
| | $ | 18,889,265 |
| | $ | 51,436,393 |
| | $ | 43,556,297 |
| |
Real Estate | |
| $ | 29,470,693 |
| | $ | 26,531,283 |
| | $ | 73,043,258 |
| | $ | 65,864,097 |
|
Professional |
| 31,739,816 |
| | 25,821,676 |
| | 91,769,877 |
| | 80,828,787 |
|
| 31,506,017 |
| | 29,171,990 |
| | 93,421,017 |
| | 90,394,110 |
|
Commercial | | 17,783,216 |
| | 22,696,409 |
| | 53,692,954 |
| | 65,188,266 |
| |
Light Industrial | | | 18,387,596 |
| | 21,358,864 |
| | 55,533,988 |
| | 58,604,838 |
|
Total |
| $ | 71,281,674 |
| | $ | 67,407,350 |
| | $ | 196,899,224 |
| | $ | 189,573,350 |
|
| $ | 79,364,306 |
| | $ | 77,062,137 |
| | $ | 221,998,263 |
| | $ | 214,863,045 |
|
| | | | | | | | | | | | | | | | |
Depreciation: |
| |
| | |
| | |
| | |
|
| |
| | |
| | |
| | |
|
Multifamily |
| $ | 23,255 |
| | $ | 17,122 |
| | $ | 70,159 |
| | $ | 40,577 |
| |
Real Estate | |
| $ | 50,957 |
| | $ | 44,784 |
| | $ | 140,490 |
| | $ | 125,820 |
|
Professional |
| 44,261 |
| | 39,071 |
| | 129,968 |
| | 113,482 |
|
| 82,201 |
| | 74,488 |
| | 251,152 |
| | 190,952 |
|
Commercial | | 27,690 |
| | 23,018 |
| | 80,231 |
| | 68,447 |
| |
Light Industrial | | | 23,663 |
| | 23,446 |
| | 73,673 |
| | 76,372 |
|
Corporate |
| 49,148 |
| | 45,421 |
| | 147,797 |
| | 133,327 |
|
| 47,452 |
| | 51,923 |
| | 142,804 |
| | 152,607 |
|
Total |
| $ | 144,354 |
| | $ | 124,632 |
| | $ | 428,155 |
| | $ | 355,833 |
|
| $ | 204,273 |
| | $ | 194,641 |
| | $ | 608,119 |
| | $ | 545,751 |
|
| | Amortization: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Multifamily | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 62,848 |
| |
Professional | | 1,222,402 |
| | 1,454,293 |
| | 3,993,474 |
| | 4,399,296 |
| | $ | 986,274 |
| | $ | 1,047,510 |
| | $ | 3,005,618 |
| | $ | 3,132,372 |
|
Commercial | | 66,151 |
| | 94,621 |
| | 245,903 |
| | 363,479 |
| |
Light Industrial | | | — |
| | — |
| | — |
| | 110,251 |
|
Corporate | | 3,372 |
| | — |
| | 5,223 |
| | — |
| | 6,206 |
| | 5,386 |
| | 18,763 |
| | 13,051 |
|
Total | | $ | 1,291,925 |
| | $ | 1,548,914 |
| | $ | 4,244,600 |
| | $ | 4,825,623 |
| | $ | 992,480 |
| | $ | 1,052,896 |
| | $ | 3,024,381 |
| | $ | 3,255,674 |
|
| | | | | | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | | | | | |
Multifamily | | $ | 4,020,995 |
| | $ | 3,331,981 |
| | $ | 8,524,536 |
| | $ | 6,859,318 |
| |
Real Estate | | | $ | 5,523,769 |
| | $ | 4,958,373 |
| | $ | 12,464,689 |
| | $ | 11,285,951 |
|
Professional | | 2,119,550 |
| | 1,163,674 |
| | 6,344,222 |
| | 4,737,610 |
| | 2,144,549 |
| | 2,143,426 |
| | 6,190,331 |
| | 6,499,285 |
|
Commercial | | 1,108,842 |
| | 1,364,353 |
| | 3,000,444 |
| | 4,070,037 |
| |
Light Industrial | | | 1,174,142 |
| | 1,560,895 |
| | 3,514,758 |
| | 3,948,874 |
|
Corporate - selling | | (119,097 | ) | | — |
| | (371,906 | ) | | — |
| | (131,389 | ) | | (212,877 | ) | | (399,370 | ) | | (541,467 | ) |
Corporate - general and administrative | | (1,494,106 | ) | | (1,393,412 | ) | | (4,585,854 | ) | | (4,553,844 | ) | | (2,233,959 | ) | | (2,346,793 | ) | | (6,285,830 | ) | | (5,649,148 | ) |
Corporate - gain on contingent consideration | | | — |
| | 988,303 |
| | — |
| | 2,160,307 |
|
Total | | $ | 5,636,184 |
| | $ | 4,466,596 |
| | $ | 12,911,442 |
| | $ | 11,113,121 |
| | $ | 6,477,112 |
| | $ | 7,091,327 |
| | $ | 15,484,578 |
| | $ | 17,703,802 |
|
| | | | | | | | | |
Capital expenditures: | | | | | | | | | |
Multifamily | | $ | 3,947 |
| | $ | 23,185 |
| | $ | 76,542 |
| | $ | 119,592 |
| |
Professional | | 52,987 |
| | 73,168 |
| | 501,928 |
| | 82,336 |
| |
Commercial | | 2,463 |
| | 19,908 |
| | 71,262 |
| | 60,229 |
| |
Corporate | | — |
| | 71,194 |
| | 246,257 |
| | 356,000 |
| |
Total | | $ | 59,397 |
| | $ | 187,455 |
| | $ | 895,989 |
| | $ | 618,157 |
| |
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | |
| September 24, 2017 |
| December 25, 2016 | | Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
Total Assets: |
| |
|
| |
| |
Multifamily |
| $ | 13,283,021 |
|
| $ | 9,320,335 |
| |
| | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
Capital expenditures: | | | | | | | | | |
Real Estate | | | $ | 204,442 |
| | $ | 37,681 |
| | $ | 244,321 |
| | $ | 114,990 |
|
Professional |
| 70,887,537 |
|
| 39,548,308 |
| | 77,809 |
| | 121,170 |
| | 474,668 |
| | 382,925 |
|
Commercial | | 17,359,515 |
| | 21,574,855 |
| |
Light Industrial | | | 76,103 |
| | 44,018 |
| | 83,734 |
| | 87,990 |
|
Corporate |
| 10,761,963 |
|
| 10,770,636 |
| | 501,910 |
| | 25,945 |
| | 731,293 |
| | 95,428 |
|
Total |
| $ | 112,292,036 |
|
| $ | 81,214,134 |
| | $ | 860,264 |
| | $ | 228,814 |
| | $ | 1,534,016 |
| | $ | 681,333 |
|
|
| | | | | | | | |
|
| September 29, 2019 |
| December 30, 2018 |
Total Assets: |
| |
|
| |
|
Real Estate |
| $ | 19,341,023 |
|
| $ | 12,647,505 |
|
Professional |
| 61,100,018 |
|
| 62,403,104 |
|
Light Industrial | | 18,765,095 |
| | 18,992,392 |
|
Corporate |
| 6,787,114 |
|
| 6,225,802 |
|
Total |
| $ | 105,993,250 |
|
| $ | 100,268,803 |
|
NOTE 1312 - SUBSEQUENT EVENTS
Dividend
On October 20, 2017,29, 2019, the Company's board of directors declared a cash dividend in the amount of $0.25$0.30 per share of common stock to be paid on November 7, 201718, 2019 to all shareholders of record as of the close of business on November 2, 2017.11, 2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto.thereto and our Annual Report on Form 10-K for the fiscal year ended December 30, 2018. Comparative segment revenues and related financial information are discussed herein and are presented in Note 1211 to our Unaudited Consolidated Financial Statements. See “Forward Looking Statements” on page 3 of this report and “Risk Factors” included in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 25, 2016,30, 2018, for a description of important factors that could cause actual results to differ from expected results.
Overview
We are a leading national provider of professional temporary staffing services and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, and substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff Holding Corporation and InStaff Personnel, LLC in June 2013, D&W Talent, LLC ("D&W") in March 2015, Vision Technology Services, Inc., Vision Technology Services, LLC, and VTS-VM, LLC (collectively, “VTS”) in October 2015, Zycron, Inc. in April 2017, and Smart Resources, Inc. and Accountable Search, LLC in September 2017. We operate within three industry segments: Multifamily,Real Estate, Professional, and Commercial.Light Industrial. We provide services to customersclient partners primarily within the United States of America. We now have 63operate in 78 branch offices and 1514 on-site locations located across 26providing services in 43 states.
The MultifamilyReal Estate segment provides front office and maintenance temporary workersfield talent to various apartment communities and commercial buildings, in 2330 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled temporary workersfield talent on a nationwide basis for information technology ("IT") and finance and accounting customerclient partner projects.
The CommercialLight Industrial segment provides temporary workersfield talent primarily to logistics, distribution, and call center customersclient partners needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our customers’client partners’ business. Demand for our MultifamilyReal Estate staffing services increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for our CommercialLight Industrial staffing services increases during the third quarter of the year and peaks in the fourth quarter. Demand for our Commercial staffing services is lower during the first quarter in part due to customer shutdowns andincreases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months.months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes.
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our unaudited consolidated financial statements.
| | | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| |
| September 24, 2017 |
| September 25, 2016 | | September 24, 2017 | | September 25, 2016 | |
| September 29, 2019 |
| September 30, 2018 | | September 29, 2019 | | September 30, 2018 |
| |
| (dollars in thousands) | |
| (dollars in thousands) |
Revenues | Revenues |
| $ | 71,282 |
| | $ | 67,407 |
| | $ | 196,899 |
| | $ | 189,573 |
| Revenues |
| $ | 79,364 |
| | $ | 77,062 |
| | $ | 221,998 |
| | $ | 214,863 |
|
Cost of services | Cost of services |
| 53,034 |
| | 50,975 |
| | 147,753 |
| | 144,610 |
| Cost of services |
| 57,188 |
| | 55,689 |
| | 160,520 |
| | 156,988 |
|
| Gross profit |
| 18,248 |
| | 16,432 |
| | 49,146 |
| | 44,963 |
| Gross profit |
| 22,176 |
| | 21,373 |
| | 61,478 |
| | 57,875 |
|
Selling, general and administrative expenses | Selling, general and administrative expenses |
| 11,175 |
| | 10,291 |
| | 31,561 |
| | 28,670 |
| Selling, general and administrative expenses |
| 14,502 |
| | 14,022 |
| | 42,360 |
| | 38,530 |
|
Gain on contingent consideration | | Gain on contingent consideration | | — |
| | (988 | ) | | — |
| | (2,160 | ) |
Depreciation and amortization | Depreciation and amortization |
| 1,436 |
| | 1,674 |
| | 4,673 |
| | 5,181 |
| Depreciation and amortization |
| 1,197 |
| | 1,248 |
| | 3,633 |
| | 3,801 |
|
| Operating income |
| 5,637 |
| | 4,467 |
| | 12,912 |
| | 11,112 |
| Operating income |
| 6,477 |
| | 7,091 |
| | 15,485 |
| | 17,704 |
|
Loss on extinguishment of debt | Loss on extinguishment of debt | | — |
| | — |
| | — |
| | (404 | ) | Loss on extinguishment of debt | | 541 |
| | — |
| | 541 |
| | — |
|
Interest expense, net | Interest expense, net |
| (884 | ) | | (702 | ) | | (2,280 | ) | | (3,278 | ) | Interest expense, net |
| 395 |
| | 662 |
| | 1,245 |
| | 2,275 |
|
| Income before income tax |
| 4,753 |
| | 3,765 |
| | 10,632 |
| | 7,430 |
| Income before income tax |
| 5,541 |
| | 6,429 |
| | 13,699 |
| | 15,429 |
|
Income tax expense | Income tax expense |
| 1,616 |
| | 1,417 |
| | 3,909 |
| | 2,852 |
| Income tax expense |
| 1,334 |
| | 1,368 |
| | 3,194 |
| | 2,732 |
|
| Net income |
| $ | 3,137 |
|
| $ | 2,348 |
| | $ | 6,723 |
| | $ | 4,578 |
| Net income |
| $ | 4,207 |
|
| $ | 5,061 |
| | $ | 10,505 |
| | $ | 12,697 |
|
| | | | | | | | | | | | | | | | |
Revenues | Revenues |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Revenues |
| 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of services | Cost of services |
| 74.4 | % | | 75.6 | % | | 75.0 | % | | 76.3 | % | Cost of services |
| 72.1 | % | | 72.3 | % | | 72.3 | % | | 73.1 | % |
| Gross profit |
| 25.6 | % | | 24.4 | % | | 25.0 | % | | 23.7 | % | Gross profit |
| 27.9 | % | | 27.7 | % | | 27.7 | % | | 26.9 | % |
Selling, general and administrative expenses | Selling, general and administrative expenses |
| 15.7 | % | | 15.3 | % | | 16.0 | % | | 15.1 | % | Selling, general and administrative expenses |
| 18.3 | % | | 18.2 | % | | 19.1 | % | | 17.9 | % |
Gain on contingent consideration | | Gain on contingent consideration | | — | % | | (1.3 | )% | | — | % | | (1.0 | )% |
Depreciation and amortization | Depreciation and amortization |
| 2.0 | % | | 2.5 | % | | 2.4 | % | | 2.7 | % | Depreciation and amortization |
| 1.5 | % | | 1.6 | % | | 1.6 | % | | 1.8 | % |
| Operating income |
| 7.9 | % | | 6.6 | % | | 6.6 | % | | 5.9 | % | Operating income |
| 8.2 | % | | 9.2 | % | | 7.0 | % | | 8.2 | % |
Loss on extinguishment of debt | Loss on extinguishment of debt | | — | % | | — | % | | — | % | | (0.2 | )% | Loss on extinguishment of debt | | 0.7 | % | | — | % | | 0.2 | % | | — | % |
Interest expense, net | Interest expense, net |
| (1.2 | )% | | (1.0 | )% | | (1.2 | )% | | (1.7 | )% | Interest expense, net |
| 0.5 | % | | 0.9 | % | | 0.6 | % | | 1.1 | % |
| Income before income tax |
| 6.7 | % | | 5.6 | % | | 5.4 | % | | 3.9 | % | Income before income tax |
| 7.0 | % | | 8.3 | % | | 6.2 | % | | 7.2 | % |
Income tax expense | Income tax expense |
| 2.3 | % | | 2.1 | % | | 2.0 | % | | 1.5 | % | Income tax expense |
| 1.7 | % | | 1.8 | % | | 1.4 | % | | 1.3 | % |
| Net income |
| 4.4 | % | | 3.5 | % | | 3.4 | % | | 2.4 | % | Net income |
| 5.3 | % | | 6.6 | % | | 4.7 | % | | 5.9 | % |
Thirteen Week Fiscal Period Ended September 24, 2017 (Fiscal Quarter 2017)29, 2019 ("Fiscal 2019") Compared with Thirteen Week Fiscal Period Ended September 25, 2016 (Fiscal Quarter 2016)30, 2018 ("Fiscal 2018")
| | Revenues: | Revenues: | | Thirteen Weeks Ended | Revenues: | | Thirteen Weeks Ended |
| | September 24, 2017 | | September 25, 2016 | | September 29, 2019 | | September 30, 2018 |
| | (dollars in thousands) | | (dollars in thousands) |
Revenues by segment: | Revenues by segment: | | |
| | | | |
| | | Revenues by segment: | | |
| | | | |
| | |
| Multifamily | | $ | 21,759 |
| | 30.5 | % | | $ | 18,889 |
| | 28.0 | % | Real Estate | | $ | 29,470 |
| | 37.1 | % | | $ | 26,531 |
| | 34.4 | % |
| Professional | | 31,740 |
| | 44.5 | % | | 25,822 |
| | 38.3 | % | Professional | | 31,506 |
| | 39.7 | % | | 29,172 |
| | 37.9 | % |
| Commercial | | 17,783 |
| | 25.0 | % | | 22,696 |
| | 33.7 | % | Light Industrial | | 18,388 |
| | 23.2 | % | | 21,359 |
| | 27.7 | % |
| Total Revenues | | $ | 71,282 |
| | 100.0 | % | | $ | 67,407 |
| | 100.0 | % | Total Revenues | | $ | 79,364 |
| | 100.0 | % | | $ | 77,062 |
| | 100.0 | % |
MultifamilyReal Estate Revenues: Multifamily Real Estate revenues increased approximately $2.9$3.0 million (15.2%(11.1%), due to our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately $1.6 million of the increaseplan and revenue from branchesgrowth in Texas increased approximately $1.3 million.existing offices. The increase was due to an 8.5%a 5.9% increase in billed hours and a 6.0%4.6% increase in average bill rate. Revenue from existing offices accounted for approximately $1.2 million of the increase and revenue from new offices provided approximately $1.7 million.$0.7 million of the increase. Revenues from the commercial buildings group were flat.
Professional Revenues: Professional revenues increased approximately $5.9$2.3 million (22.9%(8.0%), primarily from Zycron, which contributed approximately $9.0 million of new revenues.. The remaining IT group decreased $2.1increased $4.0 million and the finance and accounting group decreased $0.9$1.7 million. The overall increase was due to a 26.8%11.2% increase in average bill rate, which was partially offset by $0.4 million of a decrease in permanent placements and 5.3% decrease in billed hours. The IT group increased 12.9% in billed hours and increased permanent placements of $0.2 million, offset by a 3.2% decreasethe finance and accounting group decreased 39.9% in average bill rate.billed hours.
CommercialLight Industrial Revenues: Commercial Light Industrial revenues decreased approximately $4.9$3.0 million (21.6%(13.9%). Texas branches decreased $3.1 million, other branches outside of the Midwest decreased $2.1 million, while the Illinois and Wisconsin locations increased $0.3 million. The overall revenue decrease was due to a 25%17.6% decrease in billed hours, which was offset by a 4.5%an 4.4% increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, temporary workerfield talent costs, and reimbursable costs.
|
| | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended |
| | | September 24, 2017 | | September 25, 2016 |
| | | (dollars in thousands) |
Gross Profit by segment: | | |
| | | | |
| | |
| Multifamily | | $ | 8,198 |
| | 44.9 | % | | $ | 7,009 |
| | 42.7 | % |
| Professional | | 7,487 |
| | 41.0 | % | | 6,198 |
| | 37.7 | % |
| Commercial | | 2,563 |
| | 14.1 | % | | 3,225 |
| | 19.6 | % |
| Total Gross Profit | | $ | 18,248 |
| | 100.0 | % | | $ | 16,432 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | |
| | | Thirteen Weeks Ended |
| | | September 29, 2019 | | September 30, 2018 |
| | | (dollars in thousands) |
Gross Profit by segment: | | |
| | | | |
| | |
| Real Estate | | $ | 11,265 |
| | 50.8 | % | | $ | 10,045 |
| | 47.0 | % |
| Professional | | 8,264 |
| | 37.3 | % | | 8,110 |
| | 37.9 | % |
| Light Industrial | | 2,647 |
| | 11.9 | % | | 3,218 |
| | 15.1 | % |
| Total Gross Profit | | $ | 22,176 |
| | 100.0 | % | | $ | 21,373 |
| | 100.0 | % |
|
| | | | | | | |
| | | Thirteen Weeks Ended |
| | | September 24, 2017 | | September 25, 2016 |
Gross Profit Percentage by segment: | | |
| | |
|
| Multifamily | | 37.7 | % | | 37.1 | % |
| Professional | | 23.6 | % | | 24.0 | % |
| Commercial | | 14.4 | % | | 14.2 | % |
| Company Gross Profit | | 25.6 | % | | 24.4 | % |
|
| | | | | | | |
| | | Thirteen Weeks Ended |
| | | September 29, 2019 | | September 30, 2018 |
Gross Profit Percentage by segment: | | |
| | |
|
| Real Estate | | 38.2 | % | | 37.9 | % |
| Professional | | 26.2 | % | | 27.8 | % |
| Light Industrial | | 14.4 | % | | 15.1 | % |
| Company Gross Profit | | 27.9 | % | | 27.7 | % |
Overall, our gross profit has increased approximately $1.8$0.8 million (11.1%(3.8%) due primarily to Zycron ($1.8 million) and growth in our Multifamily segment, offset by decreased revenues in our Commercial segment.. As a percentage of revenue, gross profit has increased to 25.6%27.9% from 24.4% primarily27.7% due to a greater percentage of revenues coming fromgrowth in our Multifamily and Professional segments.Real Estate segment.
We determine spread as the difference between average bill rate and average pay rate.
MultifamilyReal Estate Gross Profit: Multifamily Real Estate gross profit increased approximately $1.2 million (17.0%(12.1%) in line with the increase in revenue. The increase in gross profit percentage of 0.6% was due primarily to 6.3%4.5% increase in average spread.
Professional Gross Profit: Professional gross profit increased approximately $1.3$0.2 million (20.8%(1.9%), due to Zycron of $1.8 million, a 2.3%10.6% increase in average spread, offset by a $0.3 million decrease in the remainingspread. The IT group and a $0.2increased by $0.9 million decrease inand the finance and accounting group.group decreased by $0.7 million.
CommercialLight Industrial Gross Profit: Commercial Light Industrial gross profit decreased approximately $0.6 million (20.5%(17.7%) due toin line with decreased revenue which was offset by a decrease2.2% increase in the corresponding revenue. The average spread increased 5.2%.spread.
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $0.9$0.5 million (8.6%(3.4%) primarily related to an increase in Professional of $0.9 million from Zycron offest by a $0.6 million decreasevarious costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in the remaining IT group and a $0.3 million increase in the finance and accounting group. Multifamily increased approximately $0.5 million from growth and new office expansion, partially offset by a decrease in Commercial of approximately $0.3 million from decreased revenues.following table.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended |
| | September 29, 2019 | | September 30, 2018 | | | | |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | (dollars in thousands) |
Compensation and related | | $ | 10,726 |
| | 14 | % | | $ | 10,320 |
| | 13 | % | | $ | 406 |
| | 4 | % |
Advertising and recruitment | | 508 |
| | 1 | % | | 513 |
| | 1 | % | | (5 | ) | | (1 | )% |
Occupancy and office operations | | 1,052 |
| | 1 | % | | 891 |
| | 1 | % | | 161 |
| | 18 | % |
Client engagement | | 364 |
| | — | % | | 284 |
| | — | % | | 80 |
| | 28 | % |
Software | | 511 |
| | 1 | % | | 316 |
| | — | % | | 195 |
| | 62 | % |
Professional fees | | 427 |
| | 1 | % | | 282 |
| | — | % | | 145 |
| | 51 | % |
Public company related costs | | 180 |
| | — | % | | 143 |
| | — | % | | 37 |
| | 26 | % |
Bad debt | | 35 |
| | — | % | | 22 |
| | — | % | | 13 |
| | 59 | % |
Share-based compensation | | 244 |
| | — | % | | 758 |
| | 1 | % | | (514 | ) | | (68 | )% |
Transaction fees | | 37 |
| | — | % | | 135 |
| | — | % | | (98 | ) | | (73 | )% |
Other | | 418 |
| | 1 | % | | 358 |
| | — | % | | 60 |
| | 17 | % |
| | $ | 14,502 |
| | 18 | % | | $ | 14,022 |
| | 18 | % | | $ | 480 |
| | 3 | % |
Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.2$0.1 million (14.3%(4.1%). The decrease in depreciation and amortization is primarily due to the Professional segment fully amortized intangible assets related to the 2011 Extrinsic, LLC2015 D&W acquisition.
Interest Expense, net: Interest expense, net increased approximately $0.2decreased $0.3 million (25.9%(40.3%) primarily due to amortization of contingent consideration discounts related to the new term note.2017 Zycron and Smart acquisitions and due to the pay down on the existing indebtedness of the Company.
Income Taxes: Income tax expense increased approximately $0.2 millionwas flat primarily due to higher pre-tax income offset bythe share-based compensation exercises in 2018 that are deductible for tax purposes, which resulted in a decrease in the effective rate.rate, offset by higher pre tax 2018 income.
Thirty-nine Week Fiscal Period Ended September 24, 201729, 2019 ("Fiscal 2017"2019") Compared with Thirty-nine Week Fiscal Period Ended September 25, 201630, 2018 ("Fiscal 2016"2018")
| | Revenues: | Revenues: | | Thirty-nine Weeks Ended | Revenues: | | Thirty-nine Weeks Ended |
| | September 24, 2017 | | September 25, 2016 | | September 29, 2019 | | September 30, 2018 |
| | (dollars in thousands) | | (dollars in thousands) |
Revenues by segment: | Revenues by segment: | | |
| | | | |
| | | Revenues by segment: | | |
| | | | |
| | |
| Multifamily | | $ | 51,436 |
| | 26.1 | % | | $ | 43,556 |
| | 23.0 | % | Real Estate | | $ | 73,043 |
| | 32.9 | % | | $ | 65,864 |
| | 30.6 | % |
| Professional | | 91,770 |
| | 46.6 | % | | 80,829 |
| | 42.6 | % | Professional | | 93,421 |
| | 42.1 | % | | 90,394 |
| | 42.1 | % |
| Commercial | | 53,693 |
| | 27.3 | % | | 65,188 |
| | 34.4 | % | Light Industrial | | 55,534 |
| | 25.0 | % | | 58,605 |
| | 27.3 | % |
| Total Revenues | | $ | 196,899 |
| | 100.0 | % | | $ | 189,573 |
| | 100.0 | % | Total Revenues | | $ | 221,998 |
| | 100.0 | % | | $ | 214,863 |
| | 100.0 | % |
MultifamilyReal Estate Revenues: Multifamily Real Estate revenues increased approximately $7.9$7.1 million (18.1%(10.9%) due to our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately $5.5 million of the increaseplan and revenue from branchescontinued growth in Texas increased approximately $2.4 million.existing offices. The increase was due to a 11.3%4.7% increase in billed hours and a 5.9%5.5% increase in average bill rate. Revenue from existing offices accounted for approximately $4.8 million of the increase and revenue from new offices provided approximately $3.1 million.$1.0 million of the increase. Revenues from the commercial buildings group contributed $0.8 million of the increase.
Professional Revenues: Professional revenues increased approximately $10.9$3.0 million (13.5%(3.3%), primarily from Zycron, which contributed approximately $17.6 million of new revenues.. The remaining IT group decreased $5.1increased $4.8 million, which was partially offset by the finance and accounting group decrease of $1.8 million. The overall increase was due to an increase of 5.3% in average bill rate and an increase in permanent placements of $0.2 million that was offset by a 2.7% decrease in billed hours. The IT group increased 4.8% in billed hours and the finance and accounting group decreased $1.6 million. The overall increase was due to a 11.9% increase18.5% in billed hours, an increase of 0.4% in average bill rate, and increased permanent placements of $0.5 million.hours.
CommercialLight Industrial Revenues: Commercial Light Industrial revenues decreased approximately $11.5$3.1 million (17.6%(5.2%). Texas branches decreased $6.8 million and other branches outside of the Midwest decreased $5.1 million, which were offset by Illinois and Wisconsin locations increased $0.4 million. The overall revenue decrease was due to a 22.1%8.6% decrease in billed hours that was offset by a 5.6%3.7% increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, temporary workerfield talent costs, and reimbursable costs.
|
| | | | | | | | | | | | | | | |
| | | Thirty-nine Weeks Ended |
| | | September 24, 2017 | | September 25, 2016 |
| | | (dollars in thousands) |
Gross Profit by segment: | | |
| | | | |
| | |
| Multifamily | | $ | 19,506 |
| | 39.7 | % | | $ | 16,172 |
| | 36.0 | % |
| Professional | | 21,984 |
| | 44.7 | % | | 19,450 |
| | 43.3 | % |
| Commercial | | 7,656 |
| | 15.6 | % | | 9,341 |
| | 20.7 | % |
| Total Gross Profit | | $ | 49,146 |
| | 100.0 | % | | $ | 44,963 |
| | 100.0 | % |
|
| | | | | | | | | | | | | | | |
| | | Thirty-nine Weeks Ended |
| | | September 29, 2019 | | September 30, 2018 |
| | | (dollars in thousands) |
Gross Profit by segment: | | |
| | | | |
| | |
| Real Estate | | $ | 28,038 |
| | 45.6 | % | | $ | 25,044 |
| | 43.2 | % |
| Professional | | 25,334 |
| | 41.2 | % | | 24,056 |
| | 41.6 | % |
| Light Industrial | | 8,106 |
| | 13.2 | % | | 8,775 |
| | 15.2 | % |
| Total Gross Profit | | $ | 61,478 |
| | 100.0 | % | | $ | 57,875 |
| | 100.0 | % |
|
| | | | | | | |
| | | Thirty-nine Weeks Ended |
| | | September 24, 2017 | | September 25, 2016 |
Gross Profit Percentage by segment: | | |
| | |
|
| Multifamily | | 37.9 | % | | 37.1 | % |
| Professional | | 24.0 | % | | 24.1 | % |
| Commercial | | 14.3 | % | | 14.3 | % |
| Company Gross Profit | | 25.0 | % | | 23.7 | % |
|
| | | | | | | |
| | | Thirty-nine Weeks Ended |
| | | September 29, 2019 | | September 30, 2018 |
Gross Profit Percentage by segment: | | |
| | |
|
| Real Estate | | 38.4 | % | | 38.0 | % |
| Professional | | 27.1 | % | | 26.6 | % |
| Light Industrial | | 14.6 | % | | 15.0 | % |
| Company Gross Profit | | 27.7 | % | | 26.9 | % |
Overall, our gross profit has increased approximately $4.1$3.6 million (9.3%(6.2%) due primarily to Zycron ($3.8 million)our Real Estate segment of $3.0 million and increased revenues in our MultifamilyProfessional segment offset by decreased revenues in our Commercial segment.of $1.3 million. As a percentage of revenue, gross profit has increased to 25.0%27.7% from 23.7%26.9% primarily due to a higher percentage ofgross profits across our revenues from our MultifamilyReal Estate and Professional segments.
We determine spread as the difference between average bill rate and average pay rate.
MultifamilyReal Estate Gross Profit: Multifamily Real Estate gross profit increased approximately $3.3$3.0 million (20.6%(12.0%) consistent with the increase in revenue. The increase in gross profit percentage of 0.8% was due primarily to 6.6%5.5% increase in average spread.
Professional Gross Profit: Professional gross profit increased approximately $2.5$1.3 million (13.0%(5.3%), due to Zycron of $3.8 million, a 5.4%6.8% increase in average spread, offset by a $0.9 million decrease in the remainingspread. The IT group and a $0.4increased $1.4 million decrease inwith $0.1 million from permanent placements and the finance and accounting group.group decreased $0.1 million with an increase of $0.1 million from permanent placements.
CommercialLight Industrial Gross Profit: Commercial Light Industrial gross profit decreased approximately $1.7$0.7 million (18.0%(7.6%) due toconsistent with the corresponding decreased revenue. Thedecrease in revenue which was offset by a 2.5% increase in average spread increased 5.7%.spread.
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $2.9$3.8 million (10.1%(9.9%) primarily related to an increasevarious costs associated with our revenue growth and geographic expansion including increased headcount, commissions and bonuses as detailed in Multifamily of $1.7 million from growth, including $0.7 million of new office expansion, and an increase in Professional of $1.8 million from Zycron.the following table.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Thirty-nine Weeks Ended |
| | September 29, 2019 | | September 30, 2018 | | | | |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | (dollars in thousands) |
Compensation and related | | $ | 31,680 |
| | 14 | % | | $ | 28,948 |
| | 13 | % | | $ | 2,732 |
| | 9 | % |
Advertising and recruitment | | 1,679 |
| | 1 | % | | 1,581 |
| | 1 | % | | 98 |
| | 6 | % |
Occupancy and office operations | | 3,009 |
| | 1 | % | | 2,767 |
| | 1 | % | | 242 |
| | 9 | % |
Client engagement | | 1,141 |
| | 1 | % | | 934 |
| | — | % | | 207 |
| | 22 | % |
Software | | 1,530 |
| | 1 | % | | 931 |
| | — | % | | 599 |
| | 64 | % |
Professional fees | | 1,141 |
| | 1 | % | | 909 |
| | — | % | | 232 |
| | 26 | % |
Public company related costs | | 533 |
| | — | % | | 396 |
| | — | % | | 137 |
| | 35 | % |
Bad debt | | 6 |
| | — | % | | 39 |
| | — | % | | (33 | ) | | (85 | )% |
Share-based compensation | | 751 |
| | — | % | | 873 |
| | — | % | | (122 | ) | | (14 | )% |
Transaction fees | | 94 |
| | — | % | | 472 |
| | — | % | | (378 | ) | | (80 | )% |
Other | | 796 |
| | — | % | | 680 |
| | — | % | | 116 |
| | 17 | % |
| | $ | 42,360 |
| | 19 | % | | $ | 38,530 |
| | 18 | % | | $ | 3,830 |
| | 10 | % |
Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.5$0.2 million (9.8%(4.4%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets in the Light Industrial segment related to the 2011 Extrinsic, LLC2013 InStaff acquisition of $0.9 million that was partially offset by an increaseand in the Professional segment intangible assets acquired inrelated to the Zycron acquisition of $0.4 million.2015 D&W acquisition.
Interest Expense, net: Interest expense, net decreased approximately $1.0 million (30.4%(45.3%) primarily due to the decrease inMay 2018 offering of common stock which proceeds were used to pay down on the interest of $1.2 million related to the payoffexisting indebtedness of the 13% subordinated debt,Company and the decrease in contingent consideration discounts of $0.5 million, partially offset byrelated to the increase of $0.4 million in new term debt2017 Zycron and the increase of $0.2 million in the revolver.Smart acquisitions.
Income Taxes: Income tax expense increased approximately $1.1$0.5 million (16.9%) primarily due to higher pre-tax incomethe 2018 Option Cancellation Agreement and the share-based compensation exercises that are deductible for tax purposes that resulted in a reduced 2018 effective rate, which was partially offset by a decrease in the effective rate.higher pre tax 2018 income.
Use of Non-GAAP Financial Measures
We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles (non-GAAP)("non-GAAP"), in this Quarterly Report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for companyour management. In addition, certainthe financial covenants in our Amended Credit Agreement (as defined below)credit agreement are based on this measure.EBITDA as defined in the credit agreement.
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, transaction fees, and the non capital information technology improvement project ("IT roadmap") and other non-cash expenses such as the loss on extinguishment of debt and share-based compensation expense. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of
companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. In addition, the financial covenants in our credit agreement are based on adjusted EBITDA as defined in the credit agreement. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income (loss).income. Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.
To properly and prudently evaluate our business, we encourage you to review our unaudited consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-goingongoing operating performance.
| | |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended |
| Thirteen Weeks Ended | | Thirty-nine Weeks Ended | | Trailing Twelve Months Ended |
|
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
| September 29, 2019 | | September 30, 2018 | | September 29, 2019 | | September 30, 2018 | | September 29, 2019 |
|
| (dollars in thousands) |
| (dollars in thousands) | | |
Net income |
| $ | 3,137 |
| | $ | 2,348 |
| | $ | 6,723 |
| | $ | 4,578 |
|
| $ | 4,207 |
| | $ | 5,061 |
| | $ | 10,505 |
| | $ | 12,697 |
| | $ | 15,358 |
|
Interest expense, net |
| 884 |
| | 702 |
| | 2,280 |
| | 3,278 |
|
| 395 |
| | 662 |
| | 1,245 |
| | 2,275 |
| | 1,821 |
|
Income tax expense |
| 1,616 |
| | 1,417 |
| | 3,909 |
| | 2,852 |
|
| 1,334 |
| | 1,368 |
| | 3,194 |
| | 2,732 |
| | 4,321 |
|
Loss on extinguishment of debt | | — |
| | — |
| | — |
| | 404 |
| | 541 |
| | — |
| | 541 |
| | — |
| | 541 |
|
Operating income | | 5,637 |
| | 4,467 |
| | 12,912 |
| | 11,112 |
| | 6,477 |
| | 7,091 |
| | 15,485 |
| | 17,704 |
| | 22,041 |
|
Depreciation and amortization |
| 1,436 |
| | 1,674 |
| | 4,673 |
| | 5,181 |
|
| 1,197 |
| | 1,248 |
| | 3,633 |
| | 3,801 |
| | 4,876 |
|
Contingent consideration adjustment | | | — |
| | (988 | ) | | — |
| | (2,160 | ) | | (1,615 | ) |
Share-based compensation |
| 92 |
| | 111 |
| | 357 |
| | 253 |
|
| 244 |
| | 758 |
| | 751 |
| | 873 |
| | 947 |
|
Transaction fees | | | 37 |
| | 135 |
| | 94 |
| | 472 |
| | 130 |
|
IT roadmap | | | 341 |
| | — |
| | 369 |
| | — |
| | 369 |
|
Adjusted EBITDA |
| $ | 7,165 |
| | $ | 6,252 |
| | $ | 17,942 |
| | $ | 16,546 |
|
| $ | 8,296 |
| | $ | 8,244 |
| | $ | 20,332 |
| | $ | 20,690 |
| | $ | 26,748 |
|
Liquidity and Capital Resources
Our working capital requirements are primarily driven by temporary workerfield talent payments, tax payments and customerclient partner accounts receivable receipts. Since receipts from customersclient partners lag payments to temporary workers,field talent, working capital requirements increase substantially in periods of growth.
Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement (the “Amended Credit Agreement”) with Texas CapitalBMO Harris Bank, National Association (“TCB”N.A. ("BMO") as amended and restated, that provides for a revolving credit facility maturing April 3, 2022July 16, 2024 (the “Revolving Facility”). Our primary uses of cash are payments to temporary workers, employees,field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, and contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of
our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $34$13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.
A summary of our operating, investing and financing activities are shown in the following table:
| | |
| Thirty-nine Weeks Ended |
| Thirty-nine Weeks Ended |
|
| September 24, 2017 |
| September 25, 2016 |
| September 29, 2019 |
| September 30, 2018 |
|
| (dollars in thousands) |
| (dollars in thousands) |
Net cash provided by operating activities |
| $ | 11,962 |
|
| $ | 7,112 |
|
| $ | 13,965 |
|
| $ | 11,381 |
|
Net cash used in investing activities |
| (25,394 | ) |
| (611 | ) |
| (1,534 | ) |
| (681 | ) |
Net cash provided by (used in) financing activities |
| 13,432 |
|
| (6,501 | ) | |
Net cash used in financing activities | |
| (12,431 | ) |
| (10,700 | ) |
Net change in cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Operating Activities
Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense on contingent consideration payable, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable and other current liabilities.accrued payroll and expenses.
During Fiscal 2017,2019, net cash provided by operating activities was $12.0$14.0 million an increase of $4.9$2.6 million compared with $7.1$11.4 million for Fiscal 2016.2018. This increase is primarily attributable to the timing of payments onchanges in contingent consideration adjustments, accrued payroll and related expenses, accounts receivable and other current liabilities.payable.
Investing Activities
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
In Fiscal 2017, we paid $24.5 million in connection with the Zycron and Smart acquisitions and2019, we made capital expenditures of $0.9$1.5 million mainly related to software and computer equipment and software purchased in the ordinary course of business.business and for the IT roadmap. In Fiscal 2016,2018, we made capital expenditures of approximately $0.6$0.7 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our Amended Credit Agreement,credit agreement, payment of dividends and contingent consideration paid.
For Fiscal 2017,2019, we received proceeds from issuance of the $25.0 million term loan mainly to fund the Zycron acquisition. We reduced our revolving line of credit by $3.5 million, paid $6.5$9.2 million in cash dividends on our common stock, paid $1.1down $10.1 million in deferred financing costs related to the Amended Credit Agreement, and paid $0.5 million in principal payment on the term loan.
For Fiscal 2016,loan with TCB, we borrowed $3.0$9.9 million underon our revolving line of credit, and we paid $2.7 million of contingent consideration related to the Zycron acquisition.
For Fiscal 2018, we paid $7.9 million in cash dividends on our common stock, paid down $12.8 million in principal payments on the term loan with TCB, and we reduced our revolving line of credit by $7.7 million, paid $3.3 million for the Option Cancellation Agreement, and we paid $0.3 million of contingent consideration related to the Zycron acquisition. We received net proceeds from issuance of common stock of $15.3$21.3 million and used the net proceeds mainly to pay off the Senior Subordinated Credit Agreement of $15.3 million. We paid $5.9 million in cash dividends onreduce outstanding indebtedness under our common stockrevolving facility and we paid $3.5 million of contingent consideration relatedterm loan with TCB and to cancel outstanding options pursuant to the March 2015 D&W acquisition.Option Cancellation Agreement.
Credit Agreements
We hadOn July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with TCB.BMO Harris Bank, N.A. (“BMO”), as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement providedprovides for a Revolving Facility, maturing August 21, 2019,revolving credit facility (the “Revolving Facility”) permitting us to borrow funds from time to time in an aggregate
amount up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount equalnot to the lesser of the borrowing base amount, which was 85% of eligible accounts, and TCB’s commitment of $35.0exceed $30 million.
In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, we entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”), permitting us to borrow funds We may from time to time, inwith a maximum of two, request an aggregate amount equal to the lesser of the borrowing base amount, which is 85% of eligible accounts, and TCB’s commitment of $35.0 million and also provides for a term loan maturing April 3, 2022 (the “Term Loan”)increase in the amount of $20.0aggregate Term Loan by $40 million, with principal payable quarterly, based on an annual percentageminimum increases of the original principal amount as defined in the Amended Credit Agreement. TCB may also make loans (“Swing Line Loans”) not to exceed the lesser of $7.5 million or the aggregate commitment. Additionally, the Amended Credit Agreement provides for us to increase the commitment with a $20.0 million accordion feature.
We borrowed $20.0 million on the Term Loan in conjunction with the closing of the Zycron acquistion on April 3, 2017. Proceeds from the foregoing loan arrangements were used to pay off our existing indebtedness on the revolving credit facility$10 million. Our obligations under the Credit Agreement dated as of August 21, 2015, as amended, with TCB. We borrowed $5.0 million on the accordionare secured by a first priority security interest in conjunction with the closingsubstantially all tangible and intangible property of the Smart acquisition on September 18, 2017.
Company and its subsidiaries. The Revolving Facility and Term Loan bearCredit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Amended Credit Agreement). Swing Line Loans bear interest atWe also pay an unused commitment fee on the Base Rate plus the Applicable Margin. All interestdaily average unused amount of Revolving Facility and commitment fees are generally paid quarterly. Our obligations under the AmendedTerm Loan.
The Credit Agreement are secured by a first priority security interest in substantially all of our tangible and intangible property and our subsidiaries.
The Amended Credit Agreement'scontains customary affirmative andcovenants as well as negative covenants remain substantially the same as those in effect under the Credit Agreement including restricting theour ability of us to, among other things (with certain exceptions): (i) incur indebtedness; (ii) incur liens; (iii) enter into mergers, consolidations, or similar transactions; (iv) pay dividends or make distributions (except for permitted distributions as defined in the agreements);restricted distributions; (v) make loans; (vi) dispose of assets; (vii) enter into transactions with affiliates; or (viii) change the nature of our business andtheir business. In addition, we must comply with certain financial covenants. We may not permit the Leverage Ratio, as of the last day of any fiscal quarter subject to a Covenant Holiday adjustment period for an approved Covenant Holiday Acquisition (as such terms are defined in the Amended Credit Agreement) to be greater than the following: 3.00 to 1.0 (July 16, 2019 to June 30, 2021), 2.75 to 1.0 (July 1, 2021 to June 30, 2022), 2.50 to 1.0 (April 3, 2017 to end of fiscal March 2018), 2.00 to 1.0 (March 31, 2018 to end of fiscal March 2019), 1.50 to 1.0 (March 31, 2019 to end of fiscal March 2020), 1.0 to 1.0 (From(from and after end of fiscal March, 2020)July 1, 2022). Moreover, we may not permit, for any four fiscal quarter period, the Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) on a consolidated basis to be less than 1.501.20 to 1.00, and may not permit1.00.
We borrowed $20 million under the Dividend Fixed Charge Coverage Ratio (as defined inRevolving Facility to pay off our existing indebtedness under the Amended Credit Agreement)Agreement and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. We recognized loss on extinguishment of debt of approximately $0.5 million related to be less than (a) 1.10 to 1.00 for any four fiscal quarter period ending on or before September 30, 2017 or (b) 1.20 to 1.00 for any four fiscal quarter period thereafter. As of September 24, 2017, we were in compliance with these covenants.the unamortized deferred finance fees.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, estimates, assumptions and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Consolidated Financial Statements included in “Item 1. Financial Statements.” Please also refer to our Annual Report on Form 10-K for the fiscal year ended December 25, 201630, 2018 for a more detailed discussion of our critical accounting policies.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 25, 2016.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 provides that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We may elect to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.30, 2018.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.
Interest Rates
Our Revolving Facility and Term Loan are priced at variable interest rates. Accordingly, future interest rate increases could potentially put us at risk for an adverse impact on future earnings and cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
For the fiscal quarter ended September 24, 2017,29, 2019, there have been no changes in our internal control over financial reporting identified in connection with the evaluations required by Rule 13a-15(d) or Rule 15d-15(d) under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and our CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errorerrors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change from the information provided in ITEM 3. LEGAL PROCEEDINGS included in our Annual Report on Form 10-K for the fiscal year ended December 25, 2016.30, 2018.
ITEM 1A. RISK FACTORS
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the fiscal year ended December 25, 201630, 2018 (our “2016“2018 Form 10-K”), and filed with the SEC on March 6, 2017.12, 2019. There have been no material changes from the risk factors as previously disclosed in our 20162018 Form 10-K. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. of Part I of our 20162018 Form 10-K, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits
The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.
|
| | |
Exhibit Number | | Description |
| | |
2.1 | | Asset Purchase Agreement, dated, as of April 3, 2017, by and between BG Staffing, Inc., BG Staffing, LLC, Zycron Inc., and Darrell S. Freeman (incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2017). |
2.2 | | |
3.1 | | |
3.2 | | |
4.1 | | |
10.1 | | Credit Agreement, dated as of July 16, 2019, among BG Staffing, Inc., as borrower, the lenders from time to time party thereto, and BMO Harris Bank, National Association, as administrative agent, letters of credit issuer, swing line lender, sole lead arranger, and sole book runner (incorporated by reference from the registrant’s Current Report on Form 8-K filed on July 22, 2019) |
31.1* | | |
31.2* | | |
32.1† | | |
| | |
101.INS * | | XBRL Instance Document. |
101.SCH * | | XBRL Taxonomy Extension Schema Document. |
101.CAL * | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF * | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB * | | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE * | | XBRL Taxonomy Extension Presentation Linkbase Document. |
|
| | |
| * | Filed herewith. |
| † | This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | |
| BG STAFFING, INC. |
| | |
| | /s/ L. Allen Baker, Jr.Beth Garvey |
| Name: | L. Allen Baker, Jr.Beth Garvey |
| Title: | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | /s/ Dan Hollenbach |
| Name: | Dan Hollenbach |
| Title: | Chief Financial Officer and Secretary |
| | (Principal Financial Officer) |
| | |
Date: October 30, 2017November 5, 2019