Q3 2020 Staffing 360 Solutions Inc Earnings Call
Please standby we're about to begin.
Greetings.
Welcome to the staffing 360 solutions fiscal Q3 2020 results conference call.
This time, all participants are in a listen only mode.
A brief question and answer session will follow the freeze.
In addition, if anyone should require operator sessions 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 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 companys filings with the FCC, which contain and identify important risks and other factors that may cause staffing 360 solutions.
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Actual results to differ from those contained in our forward looking statements.
All forward looking statements are made as of today November 11, 2020, and staffing 360 solutions.
[noise] expressly disclaims any obligation to revise or update any forward looking statements. After the date of the conference call.
During these prepared comments, we may make reference to the store in 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. Flynn you may begin.
Thank you Celeste.
And thank you to everyone, who has joined US for staffing 300, Sixtys fiscal third quarter Twentytwenty financial results Conference call.
Joining me today are they should Barker, our chief operating officer.
So I want to go visit cooled off our corporate controller and principal accounting officer.
This quarter I.
Well once again start my remarks.
Hi, good wishes for everyone's health and safety as we continued to fly through the COVID-19 pandemic.
Well being of our stuff contractors and clients.
And our key priority since the virus was discovered at the outbreak spread across the world.
I'll begin with an overview of our financial and operational performance during the third quarter Twentytwenty.
Then I will turn the call over to Sean It go for further details.
After which Alicia who will provide an update including the operational impact of the code at 19 pandemic.
Ongoing response to it.
I will finish by outlining what we are seeing performance wise as we look to the fourth quarter before the line will be opened for your questions.
As outlined in our press release yesterday.
Revenue for Q3 Twentytwenty.
Was 48 point Sixmillion.
Gross profit at $8.3 million.
The reductions year on year were principally driven by the loss of the pay rolling accounts in the UK injured.
The introduction of the 30 fives tax legislation in the UK.
The slower than expected recovery from the Cove at 19 pandemic.
On a sequential basis, our Q3 revenue of 48.6 million.
It was up 12.2% against Q2.
Gross profit of 10.2% for the same period.
Well they weekly billing perspective, we continued to see continued sequential improvement since may.
I grew up 4.4% to $3.3 million.
5% in June to $3.5 million.
In July were up 4.7% to three point Sixmillion.
In August we had an increase of 5.5% to 3.8 million.
Before September being slightly down at 3.7 million.
Our total contractor numbers at the end of September were 3903 level.
Level, we had not seen since February before we went into shelter in place and locked up.
In Q1, and Q2, we took $5.2 million annually.
Annualized overhead out of the business.
We followed that with a further 1 million of overhead removed in early October.
These overhead savings have allowed us to manage against the worst impact of the pandemic.
Into what we hope is the recovery phase.
So do we continue to deliver a positive adjusted EBITDA for the third quarter of $1.2 million in line with our guidance on the previous call.
Our adjusted EPS Jena in Q3 was $7.1 million flat against Q2 and.
And 26% or 2.5 million lower than Q3 of 2019.
I'm pleased to recap the recent restructuring for two senior debt agreements and the extension of close for a two year term.
Our new senior secured debt agreement with Jackson investment group.
I was just to strengthen our financial position and provides considerable flexibility.
The significant benefits of this restructuring include.
The two year extension being important does it provides us with a meaningful runway in which to refinance the loan I'm.
Our total debt prior to its maturity.
Reduces our cash outflow by 50% from the previous facility.
Further reduces 1 million and interest expense in the first six months.
It moves out for two years, the potential conversion of the preferred shares.
Our ability to complete the more attractive refinancing in 2021.
Well provide us even greater flexibility to build organic gross like for M&A driven expansion in the future.
Enhancing our ability to achieve our long term goals.
In the near term, we will focus significantly more on enhancing organic growth then on M&A gross.
Our strategy remains around M&A and.
When the market recovery is a lot clearer.
Returning to the M&A market as a strategic growth options.
I will now turn call over to Charlie because of the cooler our corporate controller and principal accounting officer for a further update you ought to go.
Thank you Brenda and thank you everyone for joining us today.
Revenue was 48.6 million pets that caught up 2020, a decline of approximately 28% over the prior year 67 point no.
It does not include approximately 500000 cells from such trials since its divestiture in September tiny tiny.
The decline of 18.7 million was driven by a combination of IR 35 in the UK the loss of a couple of key clients, namely the payroll business in the UK and the client that filed for chapter 11 bankruptcy for which we recognized a bad debt expenses approximately.
And the remainder of the decline in South is due to the continued impact to our business and the COVID-19 pandemic offset by favorable foreign exchange.
The company did see signs of recovery in the third quarter of 2020, but by a sales increase by approximately 12% as compared with the second quarter at 2020.
Rob made during the third quarter to 2020 was comprised of 47.1 million template contractor that.
And 1.5 million permanent placement.
The temporary contracted revenue is now approximately 3.6 million per week down from approximately 4.9 million per week in the prior year third quarter.
We ended the third quarter of 2020 with approximately 3900 temporary workers contractors a decline from the third quarter 2019 of approximately 5100, driven by the impact to our business from the IR 35, and the UK and the loss of a couple of key clients upsides discussed previously.
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Since the end of the third quarter of 2020. The company is continuing to see that trend and I, we could happen and more recently have seen an increase of approximately 5% 200000 per week in October 2020, as compared to September 2020.
Gross profit for the quarter 8.3 million decreased by 33.3% from 12.5 million in the prior year.
Overall gross margins declined to 17.1% versus 18.5% in the prior year. This.
This is largely due to a lower level of public hiring compared with last year.
Gross margin for permanent placement with 1.5 million in the third quarter of 2020 as compared with 3.6 million in the same period last year.
Operating expenses for the quarter was 10.2 million a decrease of 16.9% from the 12.2 million in the prior year.
The decrease in operating expenses was driven by the company's actions taken to reduce the negative effects of the COVID-19 pandemic to berry cost cutting initiatives such as a decrease such a decrease in salaries and wages and a reduction in nonrecurring costs.
Legal and other costs associated with refinancing acquisition assets.
This decline in operating expenses was offset by bad debt expenses recognized 808000 as a result of the Cline filing for chapter 11 bankruptcy.
Loss from operations was 1.8 million as compared to income from operations of 22 million in the prior year compared to quarter.
Other expenses for the quarter declined 2.8 million from 1.3 million compared to prior year.
In September of 2020, we divested a first pro business and recognize a gain on the sale of approximately 220000.
This performance translated into a net loss of 2.6 million.
Compared with a 1.1 million net loss in the prior quarter.
Yeah, but it declined by approximately 113 to such a negative quite 2 million compared with a positive 1.8 million in the prior year and adjusted EBITDA declined by 58% to 1.2 million in the third quarter of 2020.
Turning to the balance sheet and cash flow. The most significant changes from December 2019, our DPP, though.
19.39 million of which 10.8 million is reflective of current liability and 8.6 million is reflected as non current liabilities.
We had funding of 1 million British pounds from HSBC in the UK and we refinance the receivable financing facility in the UK aside the 12 month.
The paid off our short term loan of 2.5 million jobs and investment growth in May 2020.
We divested up that's pro business up 3.3 million during the quarter of 20 21.3 million, but this was used to redeem the series D preferred stock subsequent to the third quarter tiny tiny.
Subsequent to the third quarter 20, we also refinanced the mid cap they are financing facility extending the maturity date by two years.
We also refinancing our debt, but Jackson.
Subsequent to the third quarter of 2020, extending the companies that we track them by two years and that such this is being shown at the noncurrent debt on the balance sheet, but that the third quarter.
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I will now hand, the call over to we should talk or our executive Vice President and Chief operating officer.
Thank you Brenda and shot at that and thank you to everyone who has joined us for today's call.
Since our last update we continue to track daily the rates of contagion in each state and country, where we have an office there start to decline.
Internally, we use a threshold of 1.5 as our rate to determine when we pivot to a fully remote working environment.
Our offices in the U.S. ever made in phase two with the exception of an occasional shutdown in deep clean because of the coping breakout.
Fortunately.
Because of our safety protocols and the continued good choices of our staff. So it's been a rare occurrence.
The transition to phase two of our reopening planned mid August and as a reminder.
She was a hybrid schedule that has our stuff working in offices and remote lake per state guidelines.
We continue to believe that our productivity and client services supported the theater to either come true in person collaboration whenever possible.
This ongoing diligence requires discipline and everyone's part and the team is to be commended.
A long list of safety precautions and preparations we've taken has not changed with the exception of permitting in person interviewing and our commercial staffing business.
I mentioned on our last call. The safety precautions include daily self certification to tell you.
Each time anyone goes into an office.
Cleaning <unk> sanitizing.
Visioning of P.P.E. equipment and all that.
Visual signage for social distancing maximum capacity limitation.
Coordinated effort building management.
And ongoing communications with clients and contractors.
But many of the contractors and our commercial staffing business don't have regular access to a computer so in person interviewing is a necessary part of doing business today.
To date, we have not had a single incidence of in person interviewing spreading kogut in our offices.
Well, we're hopeful that the states will allow businesses to continue to operate from an office environment well.
Well well prepared to turn on a dime, if we need to do so well.
We recently had to return to a fully remote.
In London in Red Hill, after Prime Minister Boris Johnson mandates under Brendans leadership, our team continues to manage a constantly shifting landscape very successfully.
Brendan noted 5.2 million a reduction we took out of our business late March to early April our logical.
Additional million ticking up and my shoulder is.
He is a reflection of our regular guilt to ensure that we're operating as efficiently as possible.
And our teams have absorbed the work from their colleagues right and as you all know it's not easy to manage that during an economic downturn.
In addition to the reduction.
We've made weiss operational investments, including recent decision to upgrade our payroll and capability in both the U.S. and they pay.
This decision is anticipated to save US a combined total of 450020 21.
Additionally, it protects our ability to pay our contractor, which is a necessity in any stopping company in the face of many weather related challenges that we anticipated heading into this winter.
Very proud to share with you all but Brendan recently signed the CEO in action pledged for diversity and inclusion.
Brendan was one of the first staffing companies Ceos, So I have to watch.
And that's one of the more than 1300 Ceos that have come together he was CEO actually answered diversity and inclusion.
Brent has made a very real formal commitment of himself and our organization to advance diversity and inclusion in the workplace.
By signing a commitment we've taken a pledge to take action and to cultivate a workplace where diverse perspectives and experiences are welcomed and respected.
And where employees feel encouraged to discuss equity conclusion.
Over the summer we assembled an international Task Force and then late October we named Kate Simpson, Our international Senior Vice President of equity and inclusion.
Jade as reported keeping over the past year and international capacity driving programs and delivery of learning and development engagement and human resources programs throughout the company.
We firmly believe that it is not enough for an organization to be diverse.
We must create equity within that environment and case appointment is a reflection of our ongoing commitment to that effort.
Welcome the opportunity to join the players and ensure we're doing our part to educate them about institutional racism.
Micro questions in the workplace.
And unconscious bias.
The CEO action for diversity and inclusion is led by a steering committee of Ceos leaders from Accenture.
D.C. G.
Like U.S.
The executive leadership Council birthing young Jenna.
General Atlantic.
He N G.
New York Life.
Proctor and Gamble and Pwc.
The coalition refers to 85 industry all.
All 50 of the United States and millions of employees globally.
If you're interested in learning more about this bunch visit CEO action Dot com.
I'd like to close my comments by sharing my appreciation to our entire staff for their continued responsiveness and exceptional work ethic under less than ideal 10 done the conditions.
I'll now hand, the call back to Brendan.
Thank you Alicia.
Today, we're seeing revenue improvements early in Q4 with October 12% up on its equivalent month of July in Q2.
We anticipate a Q4 revenue will be 12% over Q3.
Gross profit similarly, improving.
With respect to cost controls over adjusted EBITDA should show improvement on Q3.
As I mentioned earlier.
We exited September with 3903 contractors on billings.
Level, we had not seen since February.
The general business outlook, and our pipeline of activity leads us to expect that we will close Q4 would continual improvement.
We continue to look forward to achieving pre coded numbers at the year end.
[noise] strongest area of growth continues to be in our commercial staffing business stream and.
Green shoots of recovery I spoke about in Q2, and the professional staffing businesses are maturing nicely.
I'm encouraged to note that we have not seen nor do we see no any margin pressure in our client engagement.
We did have some clients furlough or temporary workers in the first half of the year.
These positions continued to return.
To drive our gross.
As I've noted previously while no one can predict and there are no guarantees how this pandemic develops.
Our business along the eastern Seaboard and in the UK are now in towns and cities, where the virus reduction rates are generally holding steady.
However, should things change, we now have the capability to pivot on the time to move to full remote working as needed.
The development and adoption of work from home communication platforms makes it possible and continues to highlight the importance of strong right T. In the modern world for the staffing industry in general both as a tool product offerings.
We have filed a paperwork to initiate the forgiveness process, but a change paycheck protection program stimulus subs.
We remain confident that we justify total or almost total forgiveness on the 19.39 size.
<unk> dollars of loans received from the small business administration.
And I'm hopeful that we will know more about the end of the year.
We continue to participate in another government stimulus program.
Payroll tax deferral program.
This plan allows for the deferral of FICA taxes on an interest free basis with repayments to 50% in December 2021.
At 50% in December 2022.
It's I payroll tax savings amounting to approximately 75000 $210000 per week since April.
And this is expected to add more than $4 million of cash flow support between April and December 31st Twentytwenty.
We regularly review additional stimulus programs with a view toward utilizing those for which we may qualify.
Well, that's an understatement to say the Twentytwenty has been a challenging year for the stock market.
Hi, I'm optimistic as we continue to see increasing recoveries in both United States and the United Kingdom.
We were in the people business and remain in very close contact and have ongoing discussions with clients about their immediate needs and future plans.
We are seeing the ongoing growth we expected to materialize in the second half of the year and look forward to a much stronger recovery and Twentytwenty one.
It's important to note that our solid business pipeline and diverse client base provide a measure of stability for our business. During this time.
Regarding our position in relation to M&A.
Remains unchanged from last quarter or so.
Hi, this is on refinancing our balance sheet and keeping our employees safe.
Consequently, our M&A activity is on hold while we prioritize these important matters.
I appreciate your time and attention this morning, and operator, I would now like to hand, the call over to you for our Q1 day session.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach or equipment again that is star one to ask a question.
And we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from William Greg's Pesky from Greenridge Global.
Hi, Brendan it sounds like you know things are still progressing positively for you.
On the the 12% increase for the fourth quarter can you talk about how that's going to break out between the commercial business, which looks like its doing really well and the professional which you know it seems to be more impacted by walk downs and restrictions.
Sure.
Hi, Thanks, I agree with you that we are continuing to show a lot of positive progress.
The expectation is probably that the the light industrial business will grow Uh huh.
Faster clip than the.
Professional business, but the counter to that bill is that the gross profit level and that we are starting to see a significant uptick in permanent placement.
Which is really where the professional staffing businesses will start to grow there.
Profitability in the fourth quarter and into 2021.
So I'm actually generally expecting a similar uplift in both sides.
Sides of the coin in the fourth quarter and most of them to be equally positive.
The meetings, we've had with our various managers across all of our brands in the past week.
And show them incredibly positive returns the pipelines are the strongest they've been the entire year.
We don't have one revenue generator.
Spare time in his or her day. So you know our productivity levels are are back as high as they've ever been and I expect the positivity to be recognized gross.
Well, it's a professional staffing and commercial stuff.
Okay. So no no big concerns with you know the UK being a locked down and you know potentially more restrictions on the U.S. There's no concerns that you know you guys might have a slide on the professional side again.
Oh, so do you.
Answer to that is that the vast majority of our clients in the UK.
Never came back from the first locked up so most of them said that there were sticking up too.
January February 2021.
So just like that Boris Johnson came out and told everybody a few weeks ago that we should all work from home going forward, but.
No difference to the vast majority of our.
Base.
Okay.
All right and last question is regarding your debt.
Yeah, the 3 million dollar payment to Jackson, you know by the end of January and then 2 million for the series G. Redemption. Once you get the PDP forgiveness for first pro do you expect to make any other kind of debt repayments or.
Are there any kind in the next six months.
Besides those two.
We're going to be fairly pragmatic about it so what we will do as most companies will do is.
It's to rally round or a bank balance and just make sure that we have sufficient to cover everything that I agree eventuality that comes forward.
If we continue to see the progress that we expect to see.
And we will utilize our cash.
To bring down the debt as much as we can and save ourselves.
What is effectively still a headline 12% interest rate.
So the answer is we have no fixed plan right now.
But if we hadn't pragmatically bring it down we will bring it down.
Okay, great. Thank you.
And again, if youd like to ask a question that is star one.
Star one to ask a question.
And it looks like there are no further questions. This marks the end of our question and answer session. Today I'd now like to turn the call back over to Brendan flood Fairbreeze closing comment.
Thank you again operator.
Staffing 360 solutions has continued to be at the forefront in meeting the challenges of code at 19 and its economic damage.
Productivity as I've just answered in the previous question remains strong.
And our sales pipeline is active and looking robust.
My confidence level remains high.
We'll come out of this downturn better and stronger than we went in.
Contributions of our talented and hardworking stuff as measured by Alisha and management team are directly responsible for seeing is through the worst of the storm.
I offer that my deepest gratitude and appreciation.
Visibility into the marketplace is improving and our industry outlook continues to brighten.
We'll continue to seek to drive improvements to our operational performance, while always driving to guide and maintain shareholder value as we progress and our path towards our goal.
The profitable 500 billion dollar revenue company.
Oh did you continue to enjoy good health and stay safe and all of US at staffing 360 solutions wish you a happy holiday season.
Thank you all doesn't look forward to speaking with you again next quarter operator that is the end of our call.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation.
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Oh.
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