Staffing 360 Solutions Inc (STAF) 2019 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Staffing 360 First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

This conference call will contain forward-looking statements within the meaning of the U.S. federal securities laws concerning Staffing 360 Solutions, Inc. The forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. Please refer to the company's filings with the SEC, which contain and identify important risks and other factors that may cause Staffing 360's actual results to differ from those contained in our forward-looking statements. All forward-looking statements are made as of today, May 1, 2019, and Staffing 360 Solutions expressly disclaims any obligation to revise or to update any forward-looking statement after the date of this conference call.

During these prepared comments, we may make reference to certain non-GAAP measurements, such as adjusted EBITDA. Where applicable, we have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measure.

It is now my pleasure to introduce Brendan Flood, Chairman and Chief Executive Officer of Staffing 360 Solutions. Mr. Flood, you may begin.

Thank you, Holly, and thank you to everyone who has joined us for Staffing 360's Fiscal First Quarter 2019 Earnings Conference Call. I'm joined today by David Faiman, our Chief Financial Officer.

I will start my remarks with an overview of our financial and operational first quarter 2019 performance, then I'll hand the call over to David Faiman to discuss our financial statements in more detail. After Dave, I will give you an update on recent business developments and our strategy going forward, before opening the line for questions.

The first quarter delivered a 32.3% increase in revenue from $55.8 million to $73.8 million. It also delivered a 4.9% organic growth within that number.

Gross profit was flat, recognizing the year-on-year impact of disposal of the PeopleSERVE business in June 2018, offset by the impact of the lower-margin increases in commercial and RPO, with permanent placement being flat year-over-year. Non-adjusted EBITDA of $3.1 million was up 77.2% from $1.8 million in the prior year. Adjusted EBITDA was up 26.2% to $2 million year-over-year. Most importantly, we delivered a long-awaited net income positive number of $230,000 of net income.

I will now hand the call over to David Faiman, our Chief Financial Officer, for the financials. Dave?

Thank you, Brendan, and good morning, everyone. For the first quarter of 2019, revenue of $73.8 million reflects an increase of 32.3% over the prior year of $55.8 million. The growth included organic growth of $2.5 million or 4.9%, and $21 million from the acquisitions of Clement May and Key Resources that closed in June and August of 2018, respectively. This is partly offset by a $4.3 million decline attributable to the divestiture of the PeopleSERVE business in June of 2018 and an unfavorable foreign currency translation of $1.1 million.

Revenue during the quarter was comprised of $71 million of temporary contractor revenue and $2.8 million of permanent placement revenue. The temporary contractor revenue is now $5,658 per week, up from $5,201 per week in the prior year first quarter and up 2.2% from $5,538 per week in the fourth quarter of 2018. We ended with approximately 5,500 temporary contractors on billing versus 3,900 last December.

Gross profit for the quarter of $12.1 million increased $500,000 or 4.6% over the prior year. Gross margin was 16.4% versus 20.8% in the prior year fourth quarter, partly driven by mix reflecting the addition of the RPO business in Clement May and the acquisition of Key Resources, which operates in the light industrial space, both with lower gross margins than our professional staffing businesses.

Operating expenses for the quarter were $11.4 million, a decrease of 5.2% or $600,000. The acquisition of Clement May and KRI drove an increase of 9.5% in expenses, while underlying organic expenses decreased 14.7%, driven by lower nonrecurring and acquisition-related costs as well as savings attributable to cost saving initiatives and operating expenses associated with PeopleSERVE that was disposed in June of 2018.

Income from operations was a positive $750,000 versus an operating loss of $405,000 in the prior year comparative quarter. This is the company's fourth consecutive quarter of positive operating income.

Other expenses for the first quarter was $523,000 versus $714,000 in the prior year, driven by lower interest from the $13 million debt conversion we executed in the fourth quarter of 2018, an $840,000 gain from the settlement of the remaining firstPRO deferred consideration at a 50% discount, partially offset by a $538,000 gain from fair valuing of warrants in the prior year and a $224,000 year-over-year lower remeasurement gain on our intercompany note.

Finally, we recognized a small benefit from income taxes in the current year compared with $152,000 provision in the prior year. This performance translated into the company's first-ever net income of $230,000 compared with a $1.3 million net loss in the prior year.

EBITDA grew 77.2% to $3.1 million over the $1.8 million reported in the prior year, making it our fifth consecutive quarter of positive EBITDA. And adjusted EBITDA grew 26.2% to $2 million.

Turning to the balance sheet. The more significant changes from December of 2018 is the recognition of a right-of-use asset and offsetting liability in the amount of approximately $5.3 million in connection with the new lease standard. This is a balance sheet gross-up impact only. In addition, we relieved appropriately $2 million of liabilities in connection with the settlement of the firstPRO deferred consideration.

Finally, with respect to cash flow, we recorded $825,000 of positive cash from operations compared to $8.8 million in the prior year. However, the prior year included a onetime inflow from refinancing the U.K. borrowing facilities to a factoring arrangement.

Financing activities include $4.9 million of proceeds from the sale of equity through our S1 and S3, offset by approximately $950,000 of financing costs; $1.8 million paid on earnouts, including the firstPRO deferred consideration; and finally, $81,000 for the company's first-ever dividend.

I will now hand the call back to Brendan.

Thank you, Dave. 2019 has shown a great start throughout Staffing 360 Solutions. We have delivered another huge increase in performance year-over-year. And with the work that was performed across 2018 and into the early part of 2019 on our cost base, we have now moved the company into being net income positive.

We have also now declared our second dividend with an effective date of May 17, payable on May 30.

In the first quarter, we made important progress in strengthening our balance sheet, positioning us for future growth. On our previous call, we issued guidance for our first time. That guidance was through a revenue number for calendar '19 in excess of $320 million and an unadjusted EBITDA number in excess of $12 million. At this point, we are reaffirming that guidance and have seen nothing in the first quarter's performance or the early part of quarter 2 that would make us any less confident on delivering that.

Additionally, discussions on possible acquisitions continue, and these will be explored over the coming months and quarters as we move towards our stated aim of being a $500 million revenue business.

Operator, at this point, I would like to hand the call over to a Q&A session.

(Operator Instructions) We will now take our first question from William Gregozeski from Greenridge Global.

Congratulations on a great quarter. How much did you say Key Resources and Clement May added in the first quarter in revenue?

$21 million.

Okay. And as far as the gross margin is concerned, what are you guys aiming for? With the businesses you have now, what would be kind of a good long-term gross margin that you would shoot for?

I would say our contractor gross margin is going to be about 14%, I would say, based upon projected mix of the business. Perm comes through at 100%.

Okay. So blended, I mean, what could we look at -- look for as far as the blended rate?

Yes, blended will be approximately 16.5% probably. 16% to 17%.

We will now take our next question from Tucker Andersen from Above All Advisors.

Congratulations. A couple questions, financial questions for David. Do you have there, given the changes that have occurred, the number of common shares and fully diluted shares outstanding at the end of the quarter and the net debt on the balance sheet?

I do. The -- if you bear with me one second. So we have about 8.25 million shares outstanding at the end of the quarter. There's an additional 9.5 million shares that would get added on a total fully diluted basis. That's primarily 7.5 million relating to the convertible e-shares. And I'm sorry, what was the second question?

The net debt at the end of the quarter.

Sure. The net debt at the end of the quarter, we have $37.2 million of term loan on a gross basis. There's about $1 million of deferred financing costs against that.

As there are no further questions, I'd like to turn the call back to Brendan Flood for any additional or closing remarks.

Thank you again, Holly. We are very pleased with how the year has begun. And frankly, it is a testimony to our hardworking staff that we have moved to being net income positive at this time. So on behalf of the management team, I would like to commend each and every one of them. We look forward to continuing to drive improvements to our operational performance and to continuing to drive shareholder value as this journey continues. Thank you, all, and we look forward to speaking with you again. Operator, that is the end of our call.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.