Q1 2020 Staffing 360 Solutions Inc Earnings Call
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Please standby were about big yet.
Greetings, ladies and gentlemen, and welcome to the staffing 360 solutions. This Q1 thousand 20 result.
At this time, all participants on the listen only mode.
Question and answer session will pose a 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 security laws concerning staffing.
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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 FCC, which contain and identify important risk and other factors that may cause yourself.
60 solution actual results to differ from those contained in our forward looking statements.
All forward looking statements are based assets today June 29, 2020, staffing 360 solutions expressly disclaims any obligation to revise or update any forward looking statement. After the date of this conference call.
Yes.
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 measures.
Now my pleasure to introduce Brendan flood.
In Chief Executive Officer staffing.
Mr Plus you may begin.
Thank you operator.
Thank you everyone, who is joining us for stuff is re sixtys fiscal Q1 2020.
Not to results conference call.
I'm joined today by at least Barker.
Operating officer by showing a visible cooler.
Corporate controller and principal accounting officer.
I will start remarks by saying as I do done on last call.
I hope that everyone is staying healthy unsafe.
During this increase it ended October 19th and [noise].
Well being of ourselves contractors and slots.
Has continued to be on me for already since bars was discovered and the outbreaks, but spread to watch overseas.
Sean will provide more depth to our financial results.
Lisa will update you about how we're business has managed through this environment from a practical prospectus.
Including how we have begun to reopener offices, one ensuring that we continue to provide our customary best in class client service.
Lisa will also expressed argues supporting social and racially quality at this time of civil unrest.
I'll begin with an overview of our financial and operational performance covering the first quarter of Twentytwenty.
On the call over to John I guess for further details.
Which at least real estate is on the operation in fact Covidien pandemic.
Continue response to it.
I will say Flatlining will receive performance was in the second quarter.
What our near term plans are in relation to our acquisition strategy.
I never intended refinancing of our business.
The line will then be open for questions.
That was in a press release on Friday revenue for Q1, Twentytwenty was $58.7 million would gross profit a $10.6 million.
Both of these metrics are in line with the numbers previously estimated on the your rental.
The reductions year on year were principally driven by the last of a pay rolling it out in the UK.
The introduction of deal I was 35 tax legislation in the UK.
In fact in March 19 pandemic.
On a sequential basis.
Q1 revenue was down 8% against Q4 gross profit down 8.6%.
Well. The these are materially in line with a seasonal movements and slightly better than the 10% dropped I guided towards in the previous call.
At the end of March in the beginning of April we took $4.2 million about annualized overhead out of the business. That's all that stuff would a further $1 million of annualized savings during Q2.
Our adjusted EBITDA for Q1 was $1.2 million, which was down year on year.
Reflects the drop in gross profit in the quarter.
Do you want is typically on those profitability quarter and this year results were impacted by the economic effect of totaling 19.
You understand that we talked a 3 million dollar goodwill impairment charge into first quarter against our first pro business in Georgia.
This is a reflection of the impact of token not gene.
So I was a heavy proportion of permanent placement business.
Okay, that's offering and this area has been challenged most by remote working locked down and the difficulty and completing face to face interviews.
The team at first from working diligently as all of our brands.
We believe that deal most in demand for these services.
I will occur once cost and reopen and Reengaged agrees projects over the course of the coming quarters.
Well my definition, a prospectus, we saw an improvement of $2.9 billion in our cash management in Q1, Twentytwenty over Q1 29 team.
This was primarily driven by cost containment and receivables management, particularly in the UK well removed from having 1.5 million pounds of age that down to about 100000 into space for three months.
Well, that's my husband is always tea business like ours again, the heightened degree of focus in the spectrum with young something totaled 19 concerns.
These levels of controls have continued into Q2.
And I'd like to complement the fun it seems that both U.S. and UK recognizing the need for this laser focus.
Also on an excellent job and executing on that.
Yes.
The key challenges we faced during Q1.
The implementation of by almost 35 in UK [noise].
Which necessitated some we quickly and efficiently reshape.
Some of the brands from primarily offering contract placement services to primarily offering permanent placement services.
This was a transformation that started in late Q3 early Q4.
2019, I continues into the current year.
In early March we safety advancement of pandemic dependent movement to shelter in place and locked up.
We successfully closed all her offices between March 16 at March 22nd.
That's awesome to supply didn't activity levels of our clients as they struggled to come to grips would you abrupt financial impact on their businesses.
As mentioned on the previous call approximately 60%, 67% of our commercial staffing business.
Great and use central area food manufacturing and related supply chain.
At the moment.
We're seeing revenue declines in Q2 of approximately 27%.
Similar to move into gross profit over Q1.
No this decline to be resolved by the overhead reductions that we have made.
Therefore, our outlook for adjusted EBITDA, just between breakeven to positive Q1 result.
As we move through the impact across March April may.
We hit a bottom in early may have been slowly recovering since then.
Our temporary contractor headcounts in February was 4234, which resulted in April of 3355.
May was a pretty slow months given the uncertainty in the market.
But I'm pleased to note that as we exit you we're at 3653 headcount.
14% shortfall against February and on a growing tour.
We expect to move a lot a minimum of an additional 400 more headcount in the month of July.
Currently we have more than 800 open roles that we are working to fill and have a number of sales proposals, so which we await slots feedback.
We fully expect to return to February levels at some point during Q3.
But of course that is dependent upon how quickly to hiring patterns of our closers over.
Our world still has a way to go in terms of the U.S. and UK unemployment and furlough.
During the most of May we repaid the 2.5 million short term loan to Jackson investment group.
Which was originally due on December 30, Onest 2019.
During the period of January to me this was entering an 18% interest rate.
The issuance of 100000 pounds of shares of common stock each month.
With repayment of the slow we removed as interest charge and the stock issuances.
As we enter July we will be fully compliant with all the cash payments due to the Jackson investment group.
Relating to our term loan a preference he shares.
We have a huge set aside a two to the Jackson investment to make substantial at HSBC banks are you say banker.
To support they have provided during this challenging period.
Despite the market uncertainty and the major impacts on boasts a bar U.S. and UK economies.
We have used to time prudently to clean up some issues and to put our business on a more solid financial footing.
I'll now turn the call the Sean It gives us a cooler our corporate controller and principal accounting officer for further update John ACA.
Thank you Brenda and good morning, everyone.
That's quadrants 20 Chinese happened you 68.7 million reflects a decrease of 20.5 to such as the price here at 73.8 million.
The decline was driven by point 2 million is on favorable foreign currency translation and 14.9 million of organic decline.
Revenue during the quarter was comprised of 56 million is temporary contracted revenue and 2.7 million of permanent placement revenue.
Temporary contracted revenue is now approximately 4310 week downturn approximately 5006 612 week in the prior year quarter and its down by 8.5 to sign from approximately 4700, Toby in the fourth quarter 2019.
We ended the caught up with approximately 4300 temporary contractors versus approximately 5000 last December.
Gross profit for the quarter of 10.6 million decreased 1.5 million or 12.12 cents over the comparative sets corridor that the prior year.
Gross margin for the quarter improved to 18.1% versus 16.4% in the prior year Fats corridor.
Its nature been buys shift from lower margin customers to high margin custom is okay.
Operating expenses for the quarter was 14.7 million increase of 29.4% or 3.3 million.
The increase in operating expenses were primarily driven by good will impairment. So that's probably reporting unit, that's approximately 3 million.
Hi, a nonrecurring costs legal and other costs associated with acquisition targets.
Loss from operations was 4.1 million versus 750000 in the prior year.
Pardon corridor.
Other expenses for the quarter totaled 3.1 million versus 523000 compared to last quarter I surprise here.
This was primarily driven by losses from Remeasuring the company's intercompany now in this past quarter 2020, 675000 compared to the games. That's 351000 in this past quarter 2019.
In addition in the comparative study called your prior year. The company recorded a gain somebody settlement of deferred consideration at 847000 and the caught in other income of 286000.
The company also had higher interest expense and amortization that stretch financing costs in this past quarter 2020, compared with the first quarter of 2019 approximately 410000.
This performance translated into companies net loss of it.
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29000 net income in the prior year.
EBITDA declined approximately 2200, 27%.
To a loss of 4 million.
Over the 3.1 million possible recorded in the so called.
Here, an adjusted EBITDA declined approximately 40% to 1.2 million.
Finally, with respect to operating cash flow, including proceeds from accounts receivable financing, we reported a breakeven in the first quarter of 2020, that's compared with negative 2.9 million, that's quite a 29 gene.
This was the result of successful management of our accounts receivable aging, particularly in the UK overall cost controls most of which will flow through to the second and third quarter's.
I'll now hand, the call over till we should talk or our executive Vice President and Chief operating officer.
Yes.
Hi, Simon in South Africa, and thank you everyone, who has joined for today's call.
I used to report that 18 of our 21 off.
That's a big reopened since our first preopening watched as I'm sure.
Our New York headquarters reopened funds a life.
And the employed some remaining close offices are now working out of an alternative okay.
Along with safety precautions incorporation ticket.
Patient starting tomorrow.
Claims.
Really self or something.
For each time anyone goes into an office.
Cleaning <unk> sanitizing.
Provisioning P.P. equipment, including somebody to all of us.
Well the abundance of visual image for social just something maximum capacity limitations.
Coordinated effort building management.
Continuing and I'm going communications clients in contract.
Well, we're hopeful that state what allows businesses to continue to operate.
Firemen.
We are well compared with one another dynamic we need to do so.
As I shared on the last call.
So correct me transition to a remote workforce prior to any form of mandates sabal plumbing.
Yeah, So jackson with compared it to keep our employees.
Business fully operational.
Since then I cannot say several people how we never want so quickly.
Not no more than 91, though what we did though hesitating I think too low.
Pretty devastating.
What's the leadership of our executive team in partnership with local management operation that enabled us to continue to service our clients.
The level of urgency failed crops and to acquire.
We know that we're running a marathon.
I think there's not a spread.
We're proceeding with you coffin in this dynamic environment.
We have prepared contingency plans for what May lie ahead.
Right.
Brendan Nowadays at $4.2 million reductions, we took out of our business late March.
People and we conducted some additional reductions for though since our last call primarily driven by the productivity of our clients.
And our business, we always have to be prepared to shift our workforce quickly.
We've adjusted our overhead support staff to Dallas, Perten lumber sales and look for others.
And we had brought back a few employees.
And again that was driven by the need for onsite employee commercial stopping.
We also focus a lot of our attention on collaboration cross selling seen that Brad.
Thanks, Jim.
This environment.
As necessary.
Right so.
Last year at this time.
White House professional services.
Narrowly it sounds like contracting.
Today.
Generating approximately $100000 Permian contracting.
Huh.
Our last call I mentioned that means shifting our focus to the reopening.
Turning to closely monitored.
Charlie.
There's a staffing threesixty global reopening plan and that can be found on our website for anyone who maybe interested in taking a more detailed work.
There are variety of mandates.
Local coverage.
Countries in which they do that.
We assigned to special passports and underground later since like if I could.
Oh for to deliver a reopening plan that allowed for increased collaboration.
Gross.
Client service.
And productivity.
With both safety and customer service being the pillars of our foundation.
And I'm pleased to report that we've had a very successful reopening bar.
Arthritis, whatever telecommunications, playing with every client employee in contractor.
And our reopening plan consent.
He said.
They want which is the phase we're in now.
It's completely voluntary.
And consider the needs of both individuals in high risk category.
We're planning for phase two where our level of in office attendees will be required.
We're hopeful that won't be able to implement phase two in July.
Okay, great well bring it back to its close to normality.
Following the current environment.
As you all know work one company with an aggressive acquisition strategy, we can't grow and onboard new employees.
Yes.
I'm happy to note that our employee engagement morale is never going higher and.
Everyone is talking to me 60 solution turn to see it against whatever obstacles and thrown our way.
Our core values honesty integrity.
I believe.
Parenting tenacity and I'm proud to play these past few months.
It's an honor to working partnership Brendan.
Before I turn our call back over to Brian.
I'd like to let you know that at the current climate social justice in the U.S. and beyond.
Each day, we continue to honor Argus and should be good acumen.
Good good corporate citizen.
We do this by respecting and actively supporting diversity.
We are guided spoken thought and indeed.
Hi, this five pillars of our core values.
I'll now hand, the call stuff.
Thank you really show.
In relation to the various government stimulus programs, we've continued to participate in the employer payroll tax doctoral program.
This plan allows for the deferral of FICA taxes on an interest free basis with repayments to 50% in December Twentytwenty wall and 50% in December 2022.
We have purposely been executing on this since the beginning of April.
Payroll tax savings amounting to approximately $110000 per week.
This is expected to amounted to $4.3 million.
Cash flow support through December 30, Onest Twentytwenty.
During may we applied for and were granted a total of $19.4 million Forgivable Paycheck protection program loans known as PPP.
It is our attention and the that's been our activity so far.
Like these loans for their prescribed purpose, so that the funding level up to get most will be total or materially forget.
We continue to look at a requirements for the main street lending program, what are a investment banker won't W. Baird.
Although there are further guidance details yet to come out which will outline our potential participation.
Already collecting and organizing the materials about two forms of the company and its prospects.
We are prepared to act, what's the guidance has been issued.
On our last call I mentioned that our UK banker HSBC.
In very proactive and ensuring continued liquidity for that part of our business.
We did receive 1 million pounds of liquidity in the form of a low margin three year term loans.
Six months of prepayment Repreve, but just beginning of June.
The Bank also gave us a six month holiday on the existing half a million pound loan that was outstanding.
And it has been partnering with us through these challenging times.
We have no reason to see the softer market in any different ways that appear firms that have already defined on it.
And we reiterate our previous view the twentytwenty well continue to be a challenging year.
As I said earlier, we are seeing some recovery.
Based on discussions with clients about their needs and plans.
The second time to be continuing growth period with a much stronger recovery, even twentytwenty wall.
At the moment, our internal corporate focus is on keeping our employees safe and on refinancing our balance sheet.
Consequently, we put any M&A activity on hold for several months, while we deal with these important issues.
With that said I'd like to thank you for giving US your time and attention. This morning, I wish you good health and safety.
Operator, I would like to how to call over to you for our Q1 day session.
Thank you, ladies and gentlemen, we will now conduct a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation time will indicate that your line is and the question Q you make press star too if you would like to remove your question from the Q.
It just depends using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, one moment, please probably pull for questions.
And our first question today will come from William Gregozeski with Greenridge Global.
Oh, Hey, Brendan congratulations on continuing to take advantage of all the different.
Cash and the pro opportunities that are out there for you guys up you you mentioned you know still looking into the mainstream lending program are you guys looking into other sources for a refinancing the debt.
Or is it just focusing on that right now until you know that the details of that program come out.
[noise] bournville. Thank you.
Principal focus right now is on main street lending and it really depends on where we got to with that we feel somewhat confident but you never know until you know and you never refinanced into your refinery.
So that is where 90% of our focuses right now, but we always look at plan B. So we have been in discussions with our existing debt holders as to what our alternatives are in dealing with them going forward.
No our focus is on main street.
Okay.
Oh, you said for second quarter revenue was down looking down 27% was that from the first quarter of this year or the second quarter of last year.
It's from the first quarter of this year.
Okay.
And then can you just talk a little about a your clients, which ones you're seeing.
Not specifically just generally are coming back now or you know what might take longer to come back.
[noise], So I mentioned earlier that 67% of our commercial staffing business is in food manufacturing or its related supply chain.
The area, where we are seeing the greatest level of recovery is in commercial staffing is that sort of 3% starts to reopen and starts to reengage are temporary workers.
The biggest challenge in park, we harvest is in our permanent placement businesses, both in the U.S. and UK professional staffing.
Wherever it is great challenge for some of our clients to engage candidates or to offer to kinda. That's without meeting them. First so video calls are phenomenal and a great opportunity to get to know candidates.
Quite often our clients are saying, that's all willing good but we still need to meet the calendar or meet the kinds of it in person.
Before we make a formula.
So it is probably the permanent placement business on professional staffing that is the slowest to recover.
Okay.
Thank you.
And as a reminder to ask your question. Please press star followed by the digit one m. all pause for just a moment.
Next we'll hear from Paul did be within the enterprise.
Warner Brendan.
[noise] good morning call and congratulations.
Your form 13 announcing that you're not one of our largest shareholders welcome to the family.
Q.
Alicia touched on a little bit about the and you mentioned on the last call about your early success.
And cross selling between your different divisions can you tell me how that's.
Improving and what what how much of an effect you see that.
In the long term.
Paul Good morning until they sat nice to hear northern white.
Got it thank you.
Sure happy to discuss that so one of the advantages to having so many brands and our umbrella.
To allow those brands to introduce other opportunity to each other so our closetmaid, rather which is one of our grants in the UK has introduced to other in K brands into the P. 80 clients, both long Briggs and CBS Butler, and two and a half for three years ago. When I first started.
South of all of these businesses operating primarily a standalone operations. It really wasn't something but that doesn't that you did and now we have to brands working together in a way where their consistently looking for opportunities to introduce one another so if there are no financial position to fill that.
18, we have a brand that can do that their engineering physician.
He sold at BSG death claim that they will introduce CBS bother to do that another. Good example is CBS Butler has introduced a the JM group into its new cyber security clients.
And then in the U.S. lighthouse professional services has introduced our commercial staffing business on road staffing it just took working.
So we try to really make a point of making sure I think we optimize all of the openings that our client tab and try to capitalize having as many of our brand.
As possible.
That's great. Thanks, Thanks for the answer.
Absolutely they say it's out there in North Carolina.
Well.
Good.
And this marks the end up our question and answer session. Today I'd now like turn the call back to Brendan let for any.
Closing remarks are coming.
Thank you operator.
The into our staffing industry and the economy is about two main markets are working through increased adapted in challenging times.
I'm confident that we've been on the forefront of meeting those challenges.
I 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'm confident that will come out of this downturn stronger than we went in.
I extend my sanctioned appreciation to our talented and hard work and stuff and management team, whose actions are directly responsible for seeing us through this first phase of the store.
But also like to commend the government's about the United States in the United Kingdom for the stimulus activities they have undertaken today.
And those that May still call.
Our industry is committed to getting people back to work as quickly as possible.
We look forward to playing our part in that.
We anticipate that will continue to drive improvements to our operational performance and continuing to drive and maintain shareholder value as we progress on our path toward that goal to build a profitable 500 million revenue company.
Thank you all in we look forward to speaking with you again.
Operator that is the end of our call.
Thank you that will conclude todays call. We thank you for your participation.
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