Q4 2019 Earnings Call

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Greetings, ladies and gentlemen, and welcome to the staffing 360 solutions the school you're in.

19 results conference call.

This time.

Participants are in listen only mode.

Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad 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.

Forward looking statements are subject to a number of significant risks and uncertainties.

Actual results may differ materially please refer to the company's filings with the FCC, which contain and identify important risk and other factors that may cause staffing 360 solutions actual results to differ from those contained in our forward looking statements.

All forward looking statements are made as of today May 12, 2020, and staffing 360 solutions expressly disclaims any obligation to revise or update any forward looking statement. After the date at this conference call.

During these prepared remarks, we may make reference to certain non-GAAP measures such as it adjusted EBITDA.

Whereas 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 Christine.

Thank you everyone, who has joined US for staffing 300, Sixtys fiscal full year, what do you not gene financial results Conference call.

I'm joined today by at least Barker, our Chief operating officer.

I'm by shortening of Israel cooler, our corporate controller and principal accounting officer.

I will start my remarks by saying that I hope everyone is staying healthy unsafe during this unprecedented could not be in pandemic.

Well being up our stuff contractors and clients.

Within our first priority since the virus so quickly descended upon everyone all around the globe.

Felicia, we'll talk anymore about how our executive team team leaders.

A dedicated stuff, we're able to turn on a Darren <unk>.

Enabling us to continue to seamlessly provide our customary best in class.

And service with the majority of us working from home.

I'll now give an overview of our financial and operational.

Covering the full year 2019.

Before commenting on the fourth quarter in a bit more detail.

Then I will hand, the call over the short it goes for further details.

After which leisha, we'll update us on the impact of the grown of ours pandemic.

Quick and effective response to it.

I will finish by outlining what we're seeing operationally and the early part of Twentytwenty.

And what our near term plans are in relation to our acquisition strategy and our intended refinancing of our business.

The line will then be open for questions.

As previously advised.

What are your revenue for 2019 was $278.5 million.

6.7% increased from 2018.

Gross profit at 48.3 billion was flat against prior year.

In the middle of 2018, we divested of the people served business.

Excluding this from the comparative we've done so the following.

Revenue for the year was up 10% to 278.5 million from 253 point Threemillion.

And gross profit increased by 2% year over year to 48.3 million from 47.5 million.

Additionally, we have been adversely impacted by the weakening of the pound sterling against the dollar.

Excluding people serve again, our revenue grew by 12.3% on a constant currency basis.

Adjusted EBITDA for the year was $9.8 million, an increase of 8.6% over 9.0 million in 2018.

But I know on adjusted basis, our EBITDA was 6.6 million up 18% on 28 teens 5.6 million.

Our net loss of 4.9 million.

Wasn't approval from the prior years net loss of 6.5 million.

The key challenges facing the business in the second half 2019 were primarily in the UK.

We lost a low margin pay rolling contract in July.

Impacted us to the tune of 1 million wouldn't billion pounds for $1.3 million per month.

Across the July to December period.

We faced a spectrum of depending introduction of Brexit from December 31st.

Well, we were not hugely exposed directly to Brexit, we did have some clients whose clients were affected.

So the uncertainty leading up to it creates a decision making vacuum in certain parts of the UK economy.

Finally, we also face the challenge of depending introduction of a piece of tax legislation called high or 35.

We're pleased that this introduction was subsequently deferred for 12 months.

But a forced the reshaping of some of our UK business to be more balanced towards permanent placement activity rather than temporary contracting.

We look at Q4, given the items just mentioned it is more meaningful to look at the sequential movements that we are seeing.

Q4 revenue was 63.8 million, a drop of 3.5 million or 5.2%.

From Q3 with gross profit moving to $11 million in Q4 from 12.5 million in Q3.

Because of the holidays you for his acquired order for permanent placements.

Our adjusted EBITDA in Q4 was 2.5 billion I guess 2.9 billion in the third quarter.

Our press release contains a table showing the trailing 12 months performance.

I'll now hand, the call over to shorten <unk> corporate controller and principal accounting officer for further update gianluca.

Thank you Brenda and good morning, everyone.

Full year, it's called <unk> revenue increased by 6.7 sent back to 207 78.5 million as compared to 261 million for fiscal 2018.

Oh that growth 47.2 million, that's funny mission to come up in cat right.

This is partially offset by decline 7.6, now come divesting of the people Pennsaid <unk> 5.2 million unfavorable foreign currency translation.

<unk> point 7 million come organic revenue decline.

Then organic revenue temporary contractors have declined 16.8.

Permanent placement grew by approximately 5 million.

Gross profit for fiscal 2019 was 28.3 known flat versus fiscal 2018 to 48.3 million representing growth margins of 17.3% 18.5, something each period responsibly.

Operating expenses for fiscal 2019, but 47.6, no one an increase of 2.2% 46.6 million to pick up from 18.

The acquisitions that kinda managed care like an additional increased 5.7% operating expense to south ratio.

Excluding Walker vessel operating expenses decreased by four points response.

Other expenses the fiscal 2019 were 5.8 more a decrease of 28.5% from 8.1 young technical training team.

The decrease was primarily driven by gain on the settlement CBS outlet Adnoc up approximately 1.8 million came on the settlement if that's probably get tied consideration.

I'll try to 19.

[laughter] woman translated into a net loss at 4.9 down for fiscal 2019, as compared with 6.5 more room blocks for fiscal 2018, a decline of 1.6 million <unk> law.

EBITDA grew by 18.1% year over year to 6.6 million.

The fourth quarter of 2019 revenue of 63.8 million declined 13.8% from prior year 74.1 million decline stems from contracted revenue primarily due to a shift away from high back me about low margin clients in the UK got Brendan mentioned earlier.

Hi, Tom placement that has remained stable.

Revenue during the quarter comprised of 61.5 million a temporary contract is evident from 2.4 million permanent placement revenues.

The temporary contract to revenue, how approximately 4007 times Intel weekend, and the cool approximately 5000, telling them pretty contractors.

Gross profit for the quarter was 11.6 million with a slight decline from prior year fourth quarter.

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Gross margin of 18.2% improved by approximately 150 basis point.

16.7% in the prior year quarter, primarily due to a shift away from low gross margin Cline.

Operating expenses at 12.5 million with slightly higher than the prior year, primarily driven by the nonrecurring costs related to potential acquisitions and costs related to us.

Excluding nonrecurring and knock a non cash huh underlying operating expenses have declined by approximately 8.7 million.

<unk> operating results translated into a loss from operations of approximately 8.9 million.

Below operating income net other expenses for the quarter 1.7 million versus 2.6 million in the prior year.

Interest expense and amortization of deferred financing costs remained relatively stable and we had noncash foreign currency remeasurement gain of approximately 8.9 working on the strengthening of the pound sterling by year on that compared with third quarter uptime on team.

Its performance translated into a net loss of 2.5 more into the fourth quarter, a 1.4 million decline from prior years fourth quarter net loss.

Although EBITDA declined 65.6 to seven from prior quarter 2.7, Marine we continued the trend of positive EBITDA for the eighth consecutive quarter.

I'll now hand, the call, though they tell you should Parker, our executive Vice President and Chief operating Officer.

Let me so thank you sound like a thanks, Brendan and thank you everyone for giving us some of your time today.

We know these are stressful time with many of us working remotely and developing a new appreciation for teachers that they've always deserved.

Unfortunately, you down because there are many of US on this call who are not somehow can impacted by covered my team.

All of us in staffing 360 extend our deepest sympathy to you and your loved and our continued wishes figure could help.

The last time, our board of directors met him personally but February 25th.

We discussed our growing concern about the corona virus from the potential impact to our business at that time.

We issued our first guidance to all of our employees. The first week of March by the second week guidance and communication had been issued to all of our contractors and client.

On March 11, the decision was made that our corporate headquarters in New York, where operate remotely.

Yeah, we quickly laid out a plan to shift the rest of the business in the UK and the U.S. remote.

We conducted I T resiliency testing in our key locations.

And it executed guidance for workforce to be sold the remote well before the first locked down or shelter in place orders for issued.

We had planning plan B and Glenn say current Surepayroll for all of our contractors.

And our professional business stream, that's a relatively straightforward process and our commercial business.

Many low income workers.

To not have technology or direct deposit anything.

Well, thanks to all of the support service team involved in our efforts we've been very successful to date.

As Brendan mentioned, the safety of our staff and contractors is paramount to us.

And this priority has resulted in high levels of productivity.

I'm extremely proud of the work that our executive team has executed under Brendan stewardship.

It's the result of this priority that we had been so successful and maintaining our productivity levels I see went Ramon.

We have over communicated from the start with daily All company communication.

And regular contractor and client communication.

We have posted multiple townhall called with over 80% up our workforce in attendance.

To date, we've been extremely fortunate with the health of our style and light up almost two dozen of our internal staffing 360 employees working with our clients and contractors on site our client facilities.

We employ thousands of essential workers to across the United States in the United Kingdom.

Keeping all of them as safe as possible has done a full time job for all of us.

We are proud and so fortunate that we have not lost deep into one employee or contractor in the battle against suppliers.

Unfortunately, and out of necessity and responsible fiscal management.

He also has to quickly execute a reduction in force enforcing furlough plan, which resulted in a net savings of $4.5 million across both geography.

We executed a plan to dramatically cut costs another area and have worked with our landlord in our key geography to defer rent in an effort to preserve cash flow.

At this point, we're now focused on our reopening plan, which will look different in different countries and state.

Of course will look to health agencies and government for guidance, but our decisions as to when and how to reopen will be ours and ours alone.

We will continue to be as careful now it's we have been principally beginning of this pandemic.

And I full faith in our leadership in place to carry out this plan with the same level of care professionalism in detail.

That we did when executing our remote workforce.

I'll now hand, the call back to Brendan.

Thank you Alicia.

Nowhere during school in this environment would be complete without discussing some of the economic aspects of the Corona virus.

From the beginning of April we have participated in the employer payroll tax deferral program and U.S.

And are working and other stimulus programs available there.

Paycheck protection program at the main street loan initiatives.

In the UK, we're taking advantage of the recently introduced Furloughing policy of the UK government.

And our UK banker HSBC.

I'm very proactive in ensuring continued liquidity for that part of our business.

Well the stimulus programs be enough only time will tell.

In relation to trading what we've seen in the early part of the year.

Is that we were gaining strong traction across late January through to the middle of March.

So our revenue for the first quarter, allowing for seasonal issues in commercial staffing.

Is about 10% down on Q4 would gross profit similarly affected.

Overall, our first quarter was in line with where we expected it to be.

We have no reason to see the market and any different way to other staffing firms that have already applied to put it.

Twentytwenty will be a challenging year.

Shelter in place and locked down restrictions have made March and April difficult months discontinued into may.

These restrictions have started to ease in certain states and in certain business sectors.

Given that about 65% of our commercial staffing business is involved in food manufacturing for its <unk>, it's related supply chain.

We've had some economic protection. So there's nothing enjoyed by many of our friends in the staffing industry.

We do see some recovery based on discussions with clients about their needs and plans in the second half at a much stronger recovery in 2021.

In relation to refinancing at M&A, we have withdrawn from the actions we were taking until we can see the full or as much as possible impact of to pandemic appetite and showed recession coming from it.

We still intend to refinance your balance sheet.

Couple of work diligently towards that.

But it will not be through the exercise in which we have spent the previous few quarters working.

We didn't markets such as this one there are always opportunities for gross.

We're also working diligently on these.

There will be further updates on these overtime.

Thank you for giving US your time this morning, I wish you good health and safety.

Operator at this point I would like to have to call over to you for the Q1 day session.

Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to layer signal to reach our equipment again press star one to ask a question.

Well take our first question from William Gregozeski with Greenridge Global.

Oh, Hey, Brandon you mentioned, you know, having some protection with.

You know being in the food production industry and then obviously you know you're you're in IP and spaces like that you give a sense for you know how much of a hit you guys took in March and April.

And what you're looking at now as far as you know I mean, obviously you mentioned other.

Wrapping companies were getting hit harder can you give a sense of kind of what that you've taken so far.

Sure.

So.

Put it in a little bit of context, bill the commercial staffing business is.

Roughly 50% of our total revenue.

And two thirds of that season, food manufacturing or supply chain.

The next biggest parts about 40% of the business is in do UK, which is all professional staffing so what we've found on our professional staffing side.

Is that most of our professional contractors can work from home.

However, we have probably see in about a 25% decline across late March and into April.

Spikes that and we've also been challenged in terms of permanent placement business.

Where these a lot of the interviews are being done.

True conference calls and video calls, but most clients want the funnel into viewed to be and in person.

So there's a lot of pent up demand that we're expected to see as soon as.

All of the various restrictions can lifted.

In terms of general size, So I mentioned on the call that our first quarter was about 10% lower than quarter for.

We will expect to see something in the order of 15% to 20% decline further.

Into the second quarter.

So.

In relation to how the market itself is generally reacting I think we've been pretty strong we acted very quickly, but also we're protected by the various.

Diverse product range that we have especially in the commercial staffing business, so we'd be down something in the order, 15% to 20% in the second quarter.

And that 15% to 20% is in comparison to which quarter.

One.

Okay.

Alright, the four and a half million cost cutting is all that going to be permanent or is some of that temporary until we get out of those.

So.

We hope that some of its temporary because some of it involves people who are furloughed and the our ability to bring people back from further will be driven.

Specifically buys it the by end of our clients.

That's probably about at least 50% of it is absolutely permanent the rest is dependent upon recovery.

In addition to the 4.5 million, we've identified answered or 1 million of.

Some people related costs that we have similarly taken out of the business over the course catalyst 45 weeks.

Okay.

Alright, and then you mentioned, the M&A stuff and refinances on hold.

Should I expect should we expect them that the bridge you got from Jackson in August will probably remain outstanding until.

You know the other part comes due or you refinance the whole thing.

I will refinance the whole thing, but the bridge in December I.

I would expect that we're going to close that before.

The end of June maybe they'd be will trickle into July.

Okay.

Alright, thank you.

As a reminder, if you'd like to ask your question. Please press star one at this time again that is star one to ask a question.

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Well take our next question from Haldenby would then be in for enterprises.

Hi, Brian I hope everybody staying safe.

Can you hear me.

Thanks, Paul everybody's safe so far it's like you said that it can can you give us a little more color on the different programs there that you're applying for between the UK in the U.S. as far as these P.P.P. programs and when you'll know whether you're going to.

Receive any help from either one of these countries.

Okay. So I'll start with the UK and moved to the U.S. so in the UK.

The U.S. UK government introduced a furlough program, which furloughs that review, where it was been particularly well understood aren't doing into UK.

But the British government or as a loud.

Today's to furloughed employees and the government will pick up 80% of there.

Salary costs up to a maximum of two and a half thousand pounds per month.

So at the moment, we have to 11 employees and for Fives buys contractors, who are currently on furlough.

That furlough program is as of this morning has been extended through to the end of October. So there's plenty of time in order to make sure that the demand is sufficient to bring those people back.

In addition to that there were a V.A.T. deferrals or sales Cox Faro stuff. The government will allow us to defer the payment of that.

To that 700000 pounds.

In the summer it'll be deferred until the end of next March.

Our bank because I mentioned HSBC has been very proactive and they have given us a 1 million pound three year low interest loans.

To help us with the liquidity of these business over that period.

And then moving to the U.S., we like I mentioned, we're into FICA deferral program, which is saving is about $100000 per week the beginning of April.

We have applied for the Paycheck protection program and we have been advised that we have an allocation of $10 million with the small business administration.

We're still working our way through the paperwork I would think in timing wise, and we love to see and that's where the market as and when this happens, but it should happen across the course of next two weeks.

We have started to study the main street lending program.

But as the rules and not really been established in the <unk> and it's like the fluid right now we're not sure exactly the extent to which we qualify.

And to the value to which we would qualify.

But assuming we do and we have a great faith in beliefs that.

The way in which due to various programs will be structured will allow a company of our size to take part.

We would start using that program to refinance the Jackson investments of debt.

Okay.

Sounds pretty promising.

Yeah. It's work, we're feeling very positive about it.

Okay.

Thanks for your time.

Thanks, Paul.

And there are no further questions at this time.

Mr Front I'll turn the call back to you for any additional or closing remarks.

Okay. Thank you again Christine.

The entire industry and the economies are about two main markets are working through unprecedented and challenging times.

Hi, I'm confident that we have been to the forefront of meeting those challenges.

And time will tell what are the challenges will become greater or not.

We are hoping for the best and as is our responsibility planning for less favorable outcomes.

I extend my thanks to the appreciation to our talented than hardworking stuff and management team, whose actions are responsible for seeing is through the first phase of this storm.

They also like to commend the government's both the U.S. into UK, but the stimulus activities that have been undertaken to date.

And so it was that may still come.

Our industry is committed to getting people back to work as quickly as possible and we will be will play a part in that.

We look forward to continuing to drive improvements to our operational performance and.

And you're continuing to drive them and maintain shareholder value.

As we progress on our path to build a profitable 500 million dollar revenue company.

Thank you all in we look forward to speaking with you again.

Operator that is the end of our call.

Today's call. Thank you for your participation you may now disconnect.

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