BG STAFFING, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
April 1, 2018
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to .
Commission File Number: 001-36704
BG STAFFING, INC.
(exact name of registrant as specified in its charter)
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Delaware
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26-0656684
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5850 Granite Parkway, Suite 730
Plano, Texas 75024
(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. Yes
þ
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). Yes
þ
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
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¨
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Accelerated filer
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þ
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Non-accelerated filer
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¨
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(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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þ
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|||
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
The number of shares outstanding of the registrant’s common stock as of
May 10, 2018
was
8,764,020
.
TABLE OF CONTENTS
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2
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:
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•
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future financial performance and growth targets or expectations;
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•
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market and industry trends and developments; and
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•
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the benefits of our completed and future merger, acquisition and disposition transactions.
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You can identify these and other forward-looking statements by the use of words such as "aim," "potential," “may,” “could,” “would,” “might,” “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:
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•
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the availability of workers’ compensation insurance coverage at commercially reasonable terms;
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•
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the availability of qualified temporary workers;
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•
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compliance with federal, state and local labor and employment laws and regulations and changes in such laws and regulations;
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•
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the ability to compete with new competitors and competitors with superior marketing and financial resources;
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•
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management team changes;
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•
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the favorable resolution of current or future litigation;
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•
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the impact of outstanding indebtedness on the ability to fund operations or obtain additional financing;
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•
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the ability to leverage the benefits of recent acquisitions and successfully integrate newly acquired operations;
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•
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adverse changes in the economic conditions of the industries or markets that we serve;
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•
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disturbances in world financial, credit, and stock markets;
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•
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unanticipated changes in regulations affecting the company’s business;
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•
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a decline in consumer confidence and discretionary spending;
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•
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the general performance of the U.S. and global economies;
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•
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continued or escalated conflict in the Middle East; and
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•
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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 31, 2017
.
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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, 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, Washington, D.C. 20549.
3
BG Staffing, Inc. and Subsidiaries
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April 1,
2018 |
December 31, 2017
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ASSETS
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Current assets
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Accounts receivable (net of allowance for doubtful accounts of $473,573 at 2018 and 2017)
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$
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35,018,400
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$
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36,707,885
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||||
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Prepaid expenses
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1,803,606
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947,968
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||||||
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Income taxes receivable
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—
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190,912
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||||||
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Other current assets
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201,862
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143,237
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||||||
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Total current assets
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37,023,868
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37,990,002
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Property and equipment, net
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2,242,225
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2,039,935
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Other assets
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Deposits
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3,043,368
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2,907,104
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Deferred income taxes, net
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6,253,256
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6,402,513
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Intangible assets, net
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36,193,616
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37,323,286
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Goodwill
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17,983,549
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17,970,049
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Total other assets
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63,473,789
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64,602,952
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Total assets
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$
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102,739,882
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$
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104,632,889
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
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Long-term debt, current portion (net of deferred finance fees of $133,503 and $138,801 for 2018 and 2017, respectively)
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$
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3,235,247
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$
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2,923,699
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Accrued interest
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365,818
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330,630
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Accounts payable
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753,965
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1,909,612
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Accrued payroll and expenses
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11,210,316
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11,540,806
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Accrued workers’ compensation
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406,788
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592,121
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Contingent consideration, current portion
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4,432,984
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4,299,184
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Other current liabilities
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—
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74,052
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Income taxes payable
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307,176
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—
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||||||
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Total current liabilities
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20,712,294
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21,670,104
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||||||
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Line of credit (net of deferred finance fees of $703,733 and $747,716 for 2018 and 2017, respectively)
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20,032,312
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20,620,352
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Long-term debt, less current portion (net of deferred finance fees of $214,534 and $246,030 for 2018 and 2017, respectively)
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19,691,716
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20,578,970
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Contingent consideration, less current portion
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2,224,064
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2,178,486
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Other long-term liabilities
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609,561
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450,298
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Total liabilities
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63,269,947
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65,498,210
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Commitments and contingencies
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Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding
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—
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—
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Common stock, $0.01 par value per share; 19,500,000 shares authorized, 8,763,965 and 8,759,376 shares issued and outstanding for 2018 and 2017, respectively
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87,640
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87,594
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Additional paid in capital
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37,734,812
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37,675,329
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Retained earnings
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1,647,483
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1,371,756
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Total stockholders’ equity
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39,469,935
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39,134,679
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Total liabilities and stockholders’ equity
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$
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102,739,882
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$
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104,632,889
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||||
4
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME
For the
Thirteen
Week Periods Ended
April 1, 2018
and
March 26, 2017
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Thirteen Weeks Ended
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|||||||||
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2018
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2017
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|||||||
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Revenues
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$
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66,855,470
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$
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56,843,687
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Cost of services
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49,545,539
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43,172,453
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Gross profit
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17,309,931
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13,671,234
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Selling, general and administrative expenses
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11,979,120
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9,606,444
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Depreciation and amortization
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1,295,506
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1,371,434
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Operating income
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4,035,305
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2,693,356
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||||
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Interest expense, net
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(871,092
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)
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(558,619
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)
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|||||
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Income before income taxes
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3,164,213
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2,134,737
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Income tax expense
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698,642
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832,906
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|||||
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Net income
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$
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2,465,571
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$
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1,301,831
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Net income per share:
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|||||
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Basic
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$
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0.28
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$
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0.15
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Diluted
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$
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0.27
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$
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0.15
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|||
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Weighted-average shares outstanding:
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|||||
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Basic
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8,761,292
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8,668,955
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|||||
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Diluted
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9,087,016
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8,924,419
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|||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
BG Staffing, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the
Thirteen
Week Period Ended
April 1, 2018
|
Common Stock
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|||||||||||||||||||||||
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Preferred
Stock
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Shares
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Par
Value
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Additional Paid in Capital
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Retained
Earnings
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Total
|
|||||||||||||||||
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Stockholders’ equity, December 31, 2017
|
$
|
—
|
|
8,759,376
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$
|
87,594
|
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$
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37,675,329
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$
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1,371,756
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$
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39,134,679
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||||||
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Share-based compensation
|
—
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—
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—
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67,029
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—
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67,029
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|||||||||||
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Additional shares of common stock available for issuance in the 2013 Long-Term Incentive Plan
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—
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—
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—
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(7,500
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)
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—
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(7,500
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)
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|||||||||||
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Exercise of common stock options
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—
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4,589
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46
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(46
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)
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—
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—
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Cash dividend declared ($0.25 per share)
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—
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—
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—
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—
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(2,189,844
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)
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(2,189,844
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)
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|||||||||||
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Net income
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—
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—
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—
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—
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2,465,571
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2,465,571
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|
|||||||||||
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Stockholders’ equity, April 1, 2018
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$
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—
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|
8,763,965
|
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$
|
87,640
|
|
$
|
37,734,812
|
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$
|
1,647,483
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$
|
39,469,935
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|
||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
BG Staffing, Inc. and Subsidiaries
For the
Thirteen
Week Periods Ended
April 1, 2018
and
March 26, 2017
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|
2018
|
2017
|
|||||||||
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Cash flows from operating activities
|
|
|
|
|
|||||||
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Net income
|
$
|
2,465,571
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$
|
1,301,831
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|
|||||
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Adjustments to reconcile net income to net cash provided by operating activities:
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|
|||||||
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Depreciation
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165,836
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|
139,591
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|||||||
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Amortization
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1,129,670
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1,231,843
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|||||||
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Amortization of deferred financing fees
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80,777
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24,798
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|||||||
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Interest expense on contingent consideration payable
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179,378
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258,116
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|||||||
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Provision for doubtful accounts
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197,321
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|
4,254
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|||||||
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Share-based compensation
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67,029
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|
77,563
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|||||||
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Deferred income taxes
|
149,257
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|
—
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|
|||||||
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Net changes in operating assets and liabilities, net of effects of acquisitions:
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|
|||||||
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Accounts receivable
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1,492,164
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|
1,916,967
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|
|||||||
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Prepaid expenses
|
(855,638
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)
|
(66,971
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)
|
|||||||
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Other current assets
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(58,626
|
)
|
2,096
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|
|||||||
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Deposits
|
(136,263
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)
|
(40,123
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)
|
|||||||
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Accrued interest
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35,188
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(489
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)
|
|||||||
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Accounts payable
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(1,155,647
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)
|
350,484
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|
|||||||
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Accrued payroll and expenses
|
(330,490
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)
|
754,333
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|
|||||||
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Accrued workers’ compensation
|
(185,333
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)
|
(284,020
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)
|
|||||||
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Other current liabilities
|
(87,552
|
)
|
—
|
|
|||||||
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Income taxes payable
|
498,088
|
|
829,905
|
|
|||||||
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Other long-term liabilities
|
(54,959
|
)
|
(28,294
|
)
|
|||||||
|
Net cash provided by operating activities
|
3,595,771
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|
6,471,884
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|
|||||||
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Cash flows from investing activities
|
|
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|
|||||||
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Capital expenditures
|
(153,904
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)
|
(327,112
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)
|
|||||||
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Net cash used in investing activities
|
(153,904
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)
|
(327,112
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)
|
|||||||
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Cash flows from financing activities
|
|
|
|
|
|||||||
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Net payments under line of credit
|
(632,023
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)
|
(3,977,445
|
)
|
|||||||
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Principal payments on long-term debt
|
(612,500
|
)
|
—
|
|
|||||||
|
Payments of dividends
|
(2,189,844
|
)
|
(2,167,327
|
)
|
|||||||
|
Additional shares of common stock available for issuance in the 2013 Long-Term Incentive Plan
|
(7,500
|
)
|
—
|
|
|||||||
|
Net cash used in financing activities
|
(3,441,867
|
)
|
(6,144,772
|
)
|
|||||||
|
Net change in cash and cash equivalents
|
—
|
|
—
|
|
|||||||
|
Cash and cash equivalents, beginning of period
|
—
|
|
—
|
|
|||||||
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Supplemental cash flow information:
|
|
|
|
|
|||||||
|
Cash paid for interest
|
$
|
529,195
|
|
$
|
240,845
|
|
|||||
|
Cash paid for taxes, net of refunds
|
$
|
43,500
|
|
$
|
—
|
|
|||||
|
Non-cash transactions:
|
|
|
|
|
|||||||
|
Leasehold improvements funded by landlord incentives
|
$
|
214,222
|
|
$
|
—
|
|
|||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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”) (collectively, the “Company”), primarily within the United States of America in
three
industry segments: Multifamily, Professional, and Commercial.
We now have 65 branch offices and 15 on-site locations located across 26 states.
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in 23 states, via property management companies responsible for the apartment communities' day-to-day operations.
The Professional segment provides skilled temporary workers on a nationwide basis for
information technology ("IT")
and finance and accounting customer projects.
The Commercial segment provides temporary workers primarily to logistics, distribution, and call center customers 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’ business. Demand for our Multifamily 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 Commercial 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 and adverse weather conditions in the winter months. 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 their 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 31, 2017
, included in its Annual Report on Form 10-K.
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
April 1, 2018
and
December 31, 2017
, and include the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
, referred to herein as Fiscal
2018
and
2017
, respectively.
Reclassifications
Certain reclassifications have been made to the
2017
financial statements to conform with the
2018
presentation.
9
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 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, 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 bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with Texas Capital Bank, National Association (“TCB”) that provides 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 customer base and their dispersion across many different industries and geographic locations nationwide. No single customer accounted for more than 10% of the Company’s accounts receivable as of
April 1, 2018
and
December 31, 2017
or revenue for the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal
2018
and the related percentage for Fiscal
2017
was generated in the following areas:
|
Thirteen Weeks Ended
|
||||||
|
April 1,
2018 |
March 26,
2017 |
|||||
|
Maryland
|
12
|
%
|
14
|
%
|
||
|
Tennessee
|
14
|
%
|
3
|
%
|
||
|
Texas
|
28
|
%
|
30
|
%
|
||
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 customers in the normal course of business. Accounts receivable represents unpaid balances due from customers. The Company maintains an allowance for doubtful accounts for expected losses resulting from customers’ 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 customers 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.
10
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for doubtful accounts are as follows:
|
|
Thirteen Weeks Ended
|
|||||||
|
|
April 1, 2018
|
March 26, 2017
|
||||||
|
Beginning balance
|
$
|
473,573
|
|
$
|
473,573
|
|
||
|
Provision for doubtful accounts
|
197,321
|
|
4,254
|
|
||||
|
Amounts written off, net
|
(197,321
|
)
|
(4,254
|
)
|
||||
|
Ending balance
|
$
|
473,573
|
|
$
|
473,573
|
|
||
Property and Equipment
Property and equipment are stated net of accumulated depreciation and amortization of
$1,542,497
and
$1,377,319
at
April 1, 2018
and
December 31, 2017
, respectively.
Deposits
The Company maintains guaranteed costs policies for workers' compensation coverage in the states in which it operates, with minimal loss retention for employees in the Commercial segment. Under these policies, the Company is required to maintain refundable deposits of
$2,799,218
and
$2,665,665
, which are included in Deposits the accompanying consolidated balance sheets as of
April 1, 2018
and
December 31, 2017
, 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
2018
and Fiscal
2017
.
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.
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.
11
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
Deferred Financing Fees
Deferred financing fees are amortized using 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 has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are 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 a new valuation methodology, the fair value calculation of the expected future payments uses a discount rate 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
three
segments: Multifamily, Professional, and Commercial. The Company provides temporary staffing and permanent placement services. Revenues are recognized when promised services are delivered to customers, 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 customers less variable consideration, such as sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalent amounts of reimbursable expenses are included in cost of services.
The Company records revenue on a gross basis as a principal versus on a net basis as an 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 workers, (ii) has the discretion to select the workers and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers.
Temporary staffing revenues - Temporary and consultant staffing revenues from contracts with customers are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s temporary employees.
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 customers through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to customers 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 12 for disaggregated revenues by segment.
Payment terms in our contracts vary by the type and location of our customer and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of
April 1, 2018
. There were no revenues recognized during the
thirteen
week period ended
April 1, 2018
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
thirteen
week period ended
April 1, 2018
.
12
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation
The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options 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 earnings per share.
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
|
||||||
|
|
April 1,
2018 |
March 26,
2017 |
|||||
|
Weighted-average number of common shares outstanding:
|
8,761,292
|
|
8,668,955
|
|
|||
|
Effect of dilutive securities:
|
|||||||
|
Stock options
|
286,875
|
|
227,214
|
|
|||
|
Warrants
|
38,849
|
|
28,250
|
|
|||
|
Weighted-average number of diluted common shares outstanding
|
9,087,016
|
|
8,924,419
|
|
|||
|
Stock options
|
178,000
|
|
50,000
|
|
|||
|
Warrants
|
32,250
|
|
32,250
|
|
|||
|
Antidilutive shares
|
210,250
|
|
82,250
|
|
|||
Income Taxes
The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general and administrative expenses. Goodwill is deductible for tax purposes.
On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“TCJA”) into law. Effective January 1, 2018, among other changes, TCJA reduced the federal corporate tax rate to 21 percent. Accounting Standards Codification ("ASC") Topic 740-25 and 35 prescribes that the impact of changes in laws or rates shall be recognized at the date of enactment. The Company recorded a
$3.3 million
impact of the TCJA in the fourth quarter of Fiscal 2017.
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 record 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 consider whether it is more likely 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.
13
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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, the FASB has issued additional and amended authoritative guidance regarding revenue from contracts with customers in order to clarify and improve the understanding 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 exchange for those goods or services. The new standard is effective for annual and interim periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018 on a modified retrospective basis. As the initial adoption of the standard did not have a material impact on the Company's financial condition or results of operations, no cumulative effect was recognized at the date of initial application. The Company also had no significant changes to systems, processes, or controls.
In February 2016, the FASB issued ASU 2016-02 Leases, which changes financial reporting as it relates to leasing transactions. Under the new guidance, lessees will be required to recognize a lease liability, measured on a discounted basis; and a right-of-use asset, for the lease term. The new guidance is effective for annual and interim periods beginning after December 15, 2018. Early application is permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. While the impact of the adoption of this guidance will include the recognition of right-of-use assets and lease liabilities on the Company’s statement of financial position, the Company is in the process of evaluating the impact of adoption of this guidance on its systems, processes, and controls.
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 standard 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, 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 changes to the terms or conditions of a share-based payment award. The Company adopted this ASU on a prospective basis in the first quarter of fiscal 2018 which did not have a material impact on the consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 which adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118 and expresses the view of the staff regarding application of Topic 740, Income Taxes. The amendments are effective upon addition to the FASB Accounting Standards Codification. The Company adopted this ASU in the first quarter of 2018 which had no impact on the consolidated financial statements
Zycron, Inc.
On
April 3, 2017
, the Company acquired substantially all 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, which was paid on October 24, 2017 net of a working capital adjustment. 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
120
days after the closing date. The Fiscal
2017
consolidated statement of income does not include any operating results of Zycron.
14
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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
90
days after the closing date. The Fiscal
2017
consolidated statement of income does not include any operating results of Smart.
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
2017
fiscal year would be as follows (dollars in thousands, except per share amounts):
|
Thirteen Weeks Ended
|
||||
|
|
March 26,
2017 |
|||
|
Revenues
|
$
|
69,389
|
|
|
|
Gross profit
|
$
|
16,807
|
|
|
|
Net income
|
$
|
1,481
|
|
|
|
Income per share:
|
||||
|
Basic
|
$
|
0.17
|
|
|
|
Diluted
|
$
|
0.17
|
|
|
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
38.3%
for Fiscal
2017
. 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
2017
fiscal year or of the results that may be achieved by the combined enterprise in the future.
Intangible assets are stated net of accumulated amortization of
$37,086,125
and
$35,956,455
at
April 1, 2018
and
December 31, 2017
, respectively. Total amortization expense for the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
was
$1,129,670
and
$1,231,843
, respectively.
Accrued payroll and expenses consist of the following at:
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
|
Temporary worker payroll
|
|
$
|
5,816,993
|
|
|
$
|
5,124,908
|
|
|
Temporary worker payroll related
|
|
1,835,776
|
|
|
2,454,539
|
|
||
|
Accrued bonuses and commissions
|
|
1,105,074
|
|
|
1,172,497
|
|
||
|
Other
|
|
2,452,473
|
|
|
2,788,862
|
|
||
|
|
|
$
|
11,210,316
|
|
|
$
|
11,540,806
|
|
15
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a schedule of future estimated contingent consideration payments to various parties as of
April 1, 2018
:
|
Estimated Cash Payment
|
Discount
|
Net
|
|||||||||
|
Due in:
|
|
||||||||||
|
Less than one year
|
$
|
4,750,000
|
|
$
|
(317,016
|
)
|
$
|
4,432,984
|
|
||
|
One to two years
|
2,500,000
|
|
(275,936
|
)
|
2,224,064
|
|
|||||
|
Contingent consideration
|
$
|
7,250,000
|
|
$
|
(592,952
|
)
|
$
|
6,657,048
|
|
||
In May 2018, the Company determined the preliminary
year one earn out related to the Zycron acquisition was
$0.1 million
of a potential
$1.5 million
. Under the provisions of the Asset Purchase Agreement, the remaining
$1.4 million
can be earned at the year two measurement period. Accordingly, management believes that no adjustment to fair value is necessary as of April 1, 2018.
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 provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which is
85%
of eligible accounts receivable, and TCB’s commitment of
$35.0 million
and also provided for a term loan maturing April 3, 2022 (the “Term Loan”) 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 originally provided for the Company to increase the commitment by
$20.0 million
(
$15.0 million
remaining) with an 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 and Term Loan bear 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 at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, the Company pays an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.
The Amended Credit Agreement's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement. The Company is subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. The Company was in compliance with these covenants as of
April 1, 2018
.
Line of Credit
At
April 1, 2018
and
December 31, 2017
,
$20.7 million
and
$21.4 million
, respectively, was outstanding on the Revolving Facility with TCB.
16
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Borrowings under the Revolving Facility bore interest at:
|
April 1,
2018 |
December 31,
2017 |
|||||||||||
|
Base Rate
|
$
|
5,736,045
|
|
5.50
|
%
|
$
|
6,368,068
|
|
5.50
|
%
|
||
|
LIBOR
|
5,000,000
|
|
4.45
|
%
|
5,000,000
|
|
4.09
|
%
|
||||
|
LIBOR
|
5,000,000
|
|
4.54
|
%
|
5,000,000
|
|
4.13
|
%
|
||||
|
LIBOR
|
5,000,000
|
|
4.77
|
%
|
5,000,000
|
|
4.24
|
%
|
||||
|
Total
|
$
|
20,736,045
|
|
$
|
21,368,068
|
|
||||||
Long-Term Debt
Long-term debt consists of and bore interest at:
|
April 1,
2018 |
December 31,
2017 |
|||||||||||
|
Base Rate
|
$
|
687,500
|
|
5.50
|
%
|
$
|
687,500
|
|
5.50
|
%
|
||
|
LIBOR
|
6,500,000
|
|
4.70
|
%
|
6,500,000
|
|
4.34
|
%
|
||||
|
LIBOR
|
6,500,000
|
|
4.79
|
%
|
6,500,000
|
|
4.38
|
%
|
||||
|
LIBOR
|
6,000,000
|
|
5.02
|
%
|
6,000,000
|
|
4.49
|
%
|
||||
|
LIBOR
|
3,587,500
|
|
5.22
|
%
|
4,200,000
|
|
4.64
|
%
|
||||
|
Long-term debt
|
$
|
23,275,000
|
|
$
|
23,887,500
|
|
||||||
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 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;
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:
|
Amounts Recorded at Fair Value
|
|
Financial Statement Classification
|
|
Fair Value Hierarchy
|
|
April 1,
2018 |
December 31,
2017 |
|||||
|
Contingent consideration, net
|
|
Contingent consideration, net - current and long-term
|
|
Level 3
|
$
|
6,657,048
|
|
$
|
6,477,670
|
|
||
The changes in the Level 3 fair value measurements from
December 31, 2017
to
April 1, 2018
relates to
$0.2 million
in accretion. The key inputs in determining the fair value of the contingent consideration as of
April 1, 2018
and
December 31, 2017
included discount rates of ranging from
8%
and
22%
as well as management's estimates of future sales volumes and EBITDA.
17
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Stock Options
For the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
, the Company recognized
$0.1 million
and
$0.1 million
of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of
April 1, 2018
amounted to
$0.5 million
which is expected to be recognized over the next
2.3
years.
A summary of stock option 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)
|
||||||||
|
Options outstanding at December 31, 2017
|
765,411
|
|
$
|
10.27
|
|
7.3
|
$
|
4,521
|
|
|||
|
Exercised
|
(9,000
|
)
|
$
|
8.36
|
|
|||||||
|
Options outstanding at April 1, 2018
|
756,411
|
|
$
|
10.29
|
|
7.0
|
$
|
6,579
|
|
|||
|
Options exercisable at December 31, 2017
|
498,611
|
|
$
|
8.74
|
|
6.8
|
$
|
3,640
|
|
|||
|
Options exercisable at April 1, 2018
|
536,011
|
|
$
|
8.53
|
|
6.5
|
$
|
5,605
|
|
|||
|
|
Number of
Shares |
Weighted Average Grant Date Fair Value
|
|||||
|
Nonvested outstanding at December 31, 2017
|
266,800
|
|
$
|
3.09
|
|
||
|
Nonvested outstanding at April 1, 2018
|
220,400
|
|
$
|
3.12
|
|
||
For the
thirteen
week periods ended
April 1, 2018
, the Company issued
4,589
shares of common stock upon the cashless exercise of
9,000
stock options.
18
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Warrant Activity
For the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
, the Company did not recognize compensation cost related to warrants. There was
no
unamortized stock compensation expense to be recognized as of
April 1, 2018
.
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 31, 2017
|
123,984
|
|
$
|
11.51
|
|
2.2
|
$
|
577
|
|
|||
|
Warrants outstanding at April 1, 2018
|
123,984
|
|
$
|
11.51
|
|
1.9
|
$
|
927
|
|
|||
|
Warrants exercisable at December 31, 2017
|
123,984
|
|
$
|
11.51
|
|
2.2
|
$
|
577
|
|
|||
|
Warrants exercisable at April 1, 2018
|
123,984
|
|
$
|
11.51
|
|
1.9
|
$
|
927
|
|
|||
There were no nonvested warrants outstanding at
April 1, 2018
and
December 31, 2017
.
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.
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company matches employee contributions
100%
up to the first
3%
and
50%
of the next
2%
of an employee’s compensation. The Company contributed
$268,985
and
$202,421
to the 401(k) Plan for the
thirteen
week periods ended
April 1, 2018
and
March 26, 2017
, respectively.
The Company operates within
three
industry segments: Multifamily, Professional, and Commercial.
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in 23 states, via property management companies responsible for the apartment communities' day-to-day operations.
The Professional segment provides skilled temporary workers on a nationwide basis for IT and finance and accounting customer projects.
The Commercial segment provides temporary workers primarily to logistics, distribution, and call center customers needing a flexible workforce in Illinois, Wisconsin, New Mexico, Texas, Tennessee and Mississippi.
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, deferred tax assets, and other assets.
19
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
|
||||||
|
|
|
April 1,
2018 |
March 26,
2017 |
|||||
|
Revenue:
|
|
|
|
|
|
|||
|
Multifamily
|
|
$
|
18,034,363
|
|
$
|
13,091,645
|
|
|
|
Professional
|
|
31,089,755
|
|
25,832,624
|
|
|||
|
Commercial
|
17,731,352
|
|
17,919,418
|
|
||||
|
Total
|
|
$
|
66,855,470
|
|
$
|
56,843,687
|
|
|
|
Depreciation:
|
|
|
|
|
|
|||
|
Multifamily
|
|
$
|
39,282
|
|
$
|
23,310
|
|
|
|
Professional
|
|
52,029
|
|
41,161
|
|
|||
|
Commercial
|
26,352
|
|
26,169
|
|
||||
|
Corporate
|
|
48,173
|
|
48,951
|
|
|||
|
Total
|
|
$
|
165,836
|
|
$
|
139,591
|
|
|
|
Amortization:
|
|
|
|
|
||||
|
Professional
|
$
|
1,060,147
|
|
$
|
1,137,222
|
|
||
|
Commercial
|
66,151
|
|
94,621
|
|
||||
|
Corporate
|
3,372
|
|
—
|
|
||||
|
Total
|
$
|
1,129,670
|
|
$
|
1,231,843
|
|
||
|
Operating income:
|
||||||||
|
Multifamily
|
$
|
2,606,378
|
|
$
|
1,701,517
|
|
||
|
Professional
|
2,266,655
|
|
1,811,980
|
|
||||
|
Commercial
|
1,056,055
|
|
853,645
|
|
||||
|
Corporate - selling
|
(173,948
|
)
|
(126,921
|
)
|
||||
|
Corporate - general and administrative
|
(1,719,835
|
)
|
(1,546,865
|
)
|
||||
|
Total
|
$
|
4,035,305
|
|
$
|
2,693,356
|
|
||
|
Capital expenditures:
|
||||||||
|
Multifamily
|
$
|
9,161
|
|
$
|
43,287
|
|
||
|
Professional
|
10,992
|
|
117,819
|
|
||||
|
Commercial
|
—
|
|
34,157
|
|
||||
|
Corporate
|
133,751
|
|
131,849
|
|
||||
|
Total
|
$
|
153,904
|
|
$
|
327,112
|
|
||
20
BG Staffing, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
April 1,
2018 |
|
December 31,
2017 |
||||
|
Total Assets:
|
|
|
|
|
|
|
||
|
Multifamily
|
|
$
|
11,158,439
|
|
|
$
|
11,678,908
|
|
|
Professional
|
|
65,881,159
|
|
|
67,089,681
|
|
||
|
Commercial
|
17,896,666
|
|
18,075,307
|
|
||||
|
Corporate
|
|
7,803,618
|
|
|
7,788,993
|
|
||
|
Total
|
|
$
|
102,739,882
|
|
|
$
|
104,632,889
|
|
Dividend
On
May 10, 2018
, the Company's board of directors declared a cash dividend in the amount of
$0.30
per share of common stock to be paid on
May 29, 2018
to all shareholders of record as of the close of business on
May 21, 2018
.
21
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. Comparative segment revenues and related financial information are discussed herein and are presented in Note 12 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 31, 2017
, 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, Professional, and Commercial. We provide services to customers primarily within the United States of America.
We now have 65 branch offices and 15 on-site locations located across 26 states.
The Multifamily segment provides front office and maintenance temporary workers to various apartment communities, in 23 states, via property management companies responsible for the apartment communities' day-to-day operations.
The Professional segment provides skilled temporary workers on a nationwide basis for information technology ("IT") and finance and accounting customer projects.
The Commercial segment provides temporary workers primarily to logistics, distribution, and call center customers 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’ business. Demand for our Multifamily 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 Commercial 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 and adverse weather conditions in the winter months. 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.
22
|
|
|
Thirteen Weeks Ended
|
|||||||
|
|
|
April 1,
2018 |
March 26, 2017
|
||||||
|
|
|
(dollars in thousands)
|
|||||||
|
Revenues
|
|
$
|
66,855
|
|
$
|
56,844
|
|
||
|
Cost of services
|
|
49,545
|
|
43,173
|
|
||||
|
Gross profit
|
|
17,310
|
|
13,671
|
|
||||
|
Selling, general and administrative expenses
|
|
11,978
|
|
9,606
|
|
||||
|
Depreciation and amortization
|
|
1,296
|
|
1,371
|
|
||||
|
Operating income
|
|
4,036
|
|
2,694
|
|
||||
|
Interest expense, net
|
|
(871
|
)
|
(559
|
)
|
||||
|
Income before income tax
|
|
3,165
|
|
2,135
|
|
||||
|
Income tax expense
|
|
699
|
|
833
|
|
||||
|
Net income
|
|
$
|
2,466
|
|
$
|
1,302
|
|
||
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
||||
|
Cost of services
|
|
74.1
|
%
|
75.9
|
%
|
||||
|
Gross profit
|
|
25.9
|
%
|
24.1
|
%
|
||||
|
Selling, general and administrative expenses
|
|
17.9
|
%
|
16.9
|
%
|
||||
|
Depreciation and amortization
|
|
1.9
|
%
|
2.4
|
%
|
||||
|
Operating income
|
|
6.0
|
%
|
4.7
|
%
|
||||
|
Interest expense, net
|
|
(1.3
|
)%
|
(1.0
|
)%
|
||||
|
Income before income tax
|
|
4.7
|
%
|
3.8
|
%
|
||||
|
Income tax expense
|
|
1.0
|
%
|
1.5
|
%
|
||||
|
Net income
|
|
3.7
|
%
|
2.3
|
%
|
||||
Thirteen
Week Fiscal Period Ended
April 1, 2018
("Fiscal
2018
") Compared with
Thirteen
Week Fiscal Period Ended
March 26, 2017
("Fiscal
2017
")
|
Revenues:
|
Thirteen Weeks Ended
|
||||||||||||||
|
|
April 1,
2018 |
March 26,
2017 |
|||||||||||||
|
|
(dollars in thousands)
|
||||||||||||||
|
Revenues by segment:
|
|
|
|
|
|||||||||||
|
Multifamily
|
$
|
18,034
|
|
27.0
|
%
|
$
|
13,092
|
|
23.0
|
%
|
|||||
|
Professional
|
31,090
|
|
46.5
|
%
|
25,833
|
|
45.4
|
%
|
|||||||
|
Commercial
|
17,731
|
|
26.5
|
%
|
17,919
|
|
31.6
|
%
|
|||||||
|
Total Revenues
|
$
|
66,855
|
|
100.0
|
%
|
$
|
56,844
|
|
100.0
|
%
|
|||||
Multifamily Revenues
:
Multifamily revenues
in
creased approximately
$4.9 million
(
37.7%
) due to our continued geographic expansion plan. Revenue from branches outside of Texas accounted for approximately
$3.2 million
of the
in
crease and revenue from branches in Texas
in
creased approximately
$1.7 million
. The
in
crease was due to a
29.6%
in
crease in billed hours and a
5.3%
in
crease in average bill rate. Revenue from existing offices accounted for approximately
$4.2 million
of the
in
crease and revenue from new offices provided approximately
$0.7 million
.
Professional Revenues
:
Professional revenues
in
creased approximately
$5.3 million
(
20.4%
), primarily from Zycron, which contributed approximately
$8.5 million
of new revenues and from Smart, which contributed approximately
$2.8 million
of new revenues. The remaining IT group
de
creased
$3.6 million
and the remaining finance and accounting group
de
creased
$2.5 million
. The overall
in
crease was due to a
50.8%
in
crease in billed hours and
an in
crease in permanent placements of
$0.1 million
that was offset by a
de
crease of
18.5%
in average bill rate.
23
Commercial Revenues
:
Commercial revenues
de
creased approximately
$0.2 million
(
1.0%
). Texas branches
de
creased
$0.1 million
and other branches outside of the Midwest
de
creased
$0.2 million
, which were offset by Illinois and Wisconsin locations
in
crease of
$0.1 million
. The overall revenue
de
crease was due to a
5.6%
de
crease in billed hours that was offset by a
5.3%
in
crease 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 worker costs, and reimbursable costs.
|
|
Thirteen Weeks Ended
|
||||||||||||||
|
|
April 1,
2018 |
March 26,
2017 |
|||||||||||||
|
|
(dollars in thousands)
|
||||||||||||||
|
Gross Profit by segment:
|
|
|
|
|
|||||||||||
|
Multifamily
|
$
|
6,880
|
|
39.7
|
%
|
$
|
4,984
|
|
36.5
|
%
|
|||||
|
Professional
|
7,872
|
|
45.5
|
%
|
6,211
|
|
45.4
|
%
|
|||||||
|
Commercial
|
2,558
|
|
14.8
|
%
|
2,476
|
|
18.1
|
%
|
|||||||
|
Total Gross Profit
|
$
|
17,310
|
|
100.0
|
%
|
$
|
13,671
|
|
100.0
|
%
|
|||||
|
|
Thirteen Weeks Ended
|
||||||
|
|
April 1,
2018 |
March 26,
2017 |
|||||
|
Gross Profit Percentage by segment:
|
|
|
|
|
|||
|
Multifamily
|
38.2
|
%
|
38.1
|
%
|
|||
|
Professional
|
25.3
|
%
|
24.0
|
%
|
|||
|
Commercial
|
14.4
|
%
|
13.8
|
%
|
|||
|
Company Gross Profit
|
25.9
|
%
|
24.1
|
%
|
|||
Overall, our gross profit has
in
creased approximately
$3.6 million
(
26.6%
) due primarily to Zycron (
$1.9 million
) and Smart (
$1.0 million
) acquisitions and
in
creased revenues in our Multifamily segment. As a percentage of revenue, gross profit has
in
creased to
25.9%
from
24.1%
primarily due to a
higher
percentage of our revenues from our Multifamily and Professional segments.
We determine spread as the difference between average bill rate and average pay rate.
Multifamily Gross Profit:
Multifamily gross profit
in
creased approximately
$1.9 million
(
38.0%
) consistent with the
in
crease in revenue. The
in
crease in gross profit percentage of
0.1%
was due primarily to
3.4%
in
crease in average spread.
Professional Gross Profit:
Professional gross profit
in
creased approximately
$1.6 million
(
26.7%
), due to Zycron of
$1.9 million
and Smart of
$1.0 million
, offset by a
9.7%
de
crease in average spread,
$0.7 million
de
crease in the remaining IT group and a
$0.6 million
de
crease in the remaining finance and accounting group.
Commercial Gross Profit:
Commercial gross profit
in
creased approximately
$0.1 million
(
3.3%
) was due to
4.4%
in
crease in average spread.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses
in
creased approximately
$2.4 million
(
24.7%
) related to a
n in
crease in Multifamily of
$1.0 million
from growth, including
$0.3 million
of new office expansion, and a
n in
crease in Professional of
$0.9 million
from Zycron and
$0.8 million
from Smart offset by a
$0.5 million
decrease in the remaining Professional segment.
Depreciation and Amortization:
Depreciation and amortization charges
de
creased approximately
$0.1 million
(
5.5%
). The
de
crease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the 2012 American Partners acquisition of
$0.5 million
that was partially offset by a
n in
crease in the Professional segment intangible assets acquired in the Zycron acquisition of
$0.2 million
and the Smart acquisition of
$0.1 million
.
24
Interest Expense, net:
Interest expense, net
in
creased approximately
$0.3 million
(
55.8%
) primarily due to the
in
crease in the interest of
$0.3 million
related to the new Term Loan described below.
Income Taxes:
Income tax
expense
de
creased approximately
$0.1 million
primarily due to the impact of the 2017 Tax Cuts and Jobs Act which resulted in a
de
crease in the effective rate, offset by higher pre tax income of
$1.0 million
.
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), 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 company management. In addition, certain financial covenants in our Amended Credit Agreement (as defined below) are based on this measure.
We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, 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. 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). 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-going operating performance.
25
|
|
|
Thirteen Weeks Ended
|
||||||
|
|
|
April 1,
2018 |
March 26,
2017 |
|||||
|
|
|
(dollars in thousands)
|
||||||
|
Net income
|
|
$
|
2,466
|
|
$
|
1,302
|
|
|
|
Interest expense, net
|
|
871
|
|
559
|
|
|||
|
Income tax expense
|
|
699
|
|
833
|
|
|||
|
Operating income
|
4,036
|
|
2,694
|
|
||||
|
Depreciation and amortization
|
|
1,296
|
|
1,371
|
|
|||
|
Share-based compensation
|
|
67
|
|
78
|
|
|||
|
Adjusted EBITDA
|
|
$
|
5,399
|
|
$
|
4,143
|
|
|
Liquidity and Capital Resources
Our working capital requirements are primarily driven by temporary worker payments, tax payments and customer accounts receivable receipts. Since receipts from customers lag payments to temporary workers, 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 Capital Bank, National Association (“TCB”) as amended and restated that provides for a revolving credit facility maturing April 3, 2022 (the “Revolving Facility”). Our primary uses of cash are payments to temporary workers, employees, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends and contingent consideration 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 $36.0 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:
|
|
|
Thirteen Weeks Ended
|
||||||
|
|
|
April 1,
2018 |
|
March 26,
2017 |
||||
|
|
|
(dollars in thousands)
|
||||||
|
Net cash provided by operating activities
|
|
$
|
3,596
|
|
|
$
|
6,472
|
|
|
Net cash used in investing activities
|
|
(154
|
)
|
|
(327
|
)
|
||
|
Net cash used in financing activities
|
|
(3,442
|
)
|
|
(6,145
|
)
|
||
|
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 accounts payable.
26
During Fiscal
2018
, net cash provided by operating activities was
$3.6 million
a
de
crease of
$2.9 million
compared with
$6.5 million
for Fiscal
2017
. This
de
crease is primarily attributable to the timing of payments on accounts payable and accrued payroll and expenses.
Investing Activities
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
In Fiscal
2018
, we made capital expenditures of
$0.2 million
mainly related to computer equipment in the ordinary course of business. In Fiscal
2017
, we made capital expenditures of approximately
$0.3 million
mainly related to 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, payment of dividends and contingent consideration paid.
For Fiscal
2018
, we
reduced
our revolving line of credit by
$0.6 million
, paid
$2.2 million
in cash dividends on our common stock, and paid
$0.6 million
in principal payment on the Term Loan described below.
For Fiscal
2017
, we
paid down
$4.0 million
under our revolving line of credit and we paid
$2.1 million
in cash dividends on our common stock.
Credit Agreements
In connection with the acquisition of the assets of Zycron described above, on April 3, 2017, we entered into the Amended Credit Agreement with TCB with an aggregate commitment of $55.0 million. The Amended Credit Agreement provides for the Revolving Facility described above, permitting us to borrow funds from time to time in 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 provided for a term loan maturing April 3, 2022 (the “Term Loan”) 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 originally provided for us to increase the commitment by $20.0 million ($15.0 million remaining) with an 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 under the Credit Agreement, dated as of August 21, 2015, as amended, with TCB. We borrowed $5.0 million on the accordion in conjunction with the closing of the Smart acquisition on September 18, 2017.
The Revolving Facility and Term Loan bear 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 at the Base Rate plus the Applicable Margin. All interest and commitment fees are generally paid quarterly. Additionally, we pay an unused commitment fee on the unfunded portion of the Revolving Facility. Our obligations under the Amended 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's customary affirmative and negative covenants remain substantially the same as those in effect under the original credit agreement. We are subject to a maximum Leverage Ratio, a minimum Fixed Charge Coverage Ratio, and a minimum Dividend Fixed Charge Coverage Ratio, as defined in the Amended Credit Agreement. We were in compliance with these covenants as of
April 1, 2018
.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements.
27
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 31, 2017
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 31, 2017
.
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.
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.
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.
28
Changes in Internal Controls Over Financial Reporting
For the fiscal quarter ended
April 1, 2018
, 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 error 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.
29
No change from the information provided in ITEM 3. LEGAL PROCEEDINGS included in our Annual Report on Form 10-K for the year ended
December 31, 2017
.
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 year ended
December 31, 2017
(our “
2017
Form 10-K”), and filed with the SEC on
March 8, 2018
. There have been no material changes from the risk factors as previously disclosed in our
2017
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
2017
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.
None.
None.
Not applicable.
None.
30
The following exhibits are filed or furnished with this Quarterly Report on Form 10-Q.
|
Exhibit
Number
|
|
Description
|
|
3.1
|
||
|
3.2
|
||
|
4.1
|
||
|
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.
|
|
31
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.
|
|
|
Name:
|
L. Allen Baker, Jr.
|
|
|
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:
May 10, 2018
32
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1 - Nature Of OperationsNote 2 - Summary Of Significant Accounting PoliciesNote 3 - AcquisitionsNote 4 - Intangible AssetsNote 5 - Accrued Payroll and Expenses and Contingent ConsiderationNote 6 - DebtNote 7 - Fair Value MeasurementsNote 8 - ContingenciesNote 9 EquityNote 10 Share-based CompensationNote 11 - Employee Benefit PlanNote 12 - Business SegmentsNote 13 - Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits