Q4 2020 Staffing 360 Solutions Inc Earnings Call
Okay.
Greetings, everyone and welcome to the staffing 360 solutions fiscal 2020, one year and results conference call. At this time all participants are in the on listen.
Listen only mode. A brief 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 and corporate.
The forward looking statements are subject to a number of significant risks and uncertainties and actual results may differ materially. Please refer to the company's filings with the SEC, which contain and identify important risks risks 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 April 21st 2021, and staffing 360 solutions expressly disclaims any obligation to revise or update any forward looking statements. After the date of this conference call.
During these prepared comments the company may make reference to a suite and non <unk> measure.
Such as adjusted EBITDA, which were applicable reconciliations have been provided for these non <unk> measures to the most directly comparable <unk> 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 operator.
And thank you to everyone, who has joined US for staffing 360, <unk> fiscal full year 2020, and fourth quarter for financial results Conference call.
I'm joined today by color <unk>.
Our principal accounting and principal financial officer.
I'll begin my remarks by saying that I hope, everyone is staying healthy and safe.
We are excited about and encouraged by the COVID-19 vaccine process progress.
The wellbeing of our staff contractors and clients.
And use to be our key priority during this worldwide outbreak.
As we look forward, we can start to see and entered this crisis.
And the beginnings of recovery and our two core markets of the United States and United Kingdom.
While safety will always be at the forefront.
The growth and health of our business is our focus as we look towards 2021.
During my remarks, I will outline how this pandemic has impacted us and how we are positioned as we make our way through what is hopefully the exit.
I'll now give an overview of our financial and operational performance.
Covering the full year, 2020 before commenting on the fourth quarter's performance.
And I will hand, the call over to talent for additional details on our financial statements.
After which I'll conclude by outlining what we're seeing operationally and the early part of 2021.
And what our near term plans are in relation to our acquisition strategy and.
And our intended continuing refinancing of our business.
The line will then be opened by the operator for questions.
Our full year revenue for 'twenty, and 'twenty was 200 and for point $5 million.
26, 6% decrease from 2019 and.
In line with what we had earlier pre announced.
Gross profit of $34 8 million was down 28% from the prior year.
Yeah.
Yes.
In addition to the impact of the pandemic there were a number of events in 2020 that are worthy of note.
In late March early April we made bold moves on our cost base and took $5.5 million of overhead out on an annualized basis, mostly people.
And took a further 1 million out as we entered the fourth quarter.
This resulted in a leaner organization and.
And allowed us to manage against the worst impact of the pandemic.
And to what we are cautiously optimistic as the recovery phase.
In December 2019, we had 282 internal employees.
And in December 2020, we had 196 employees.
And the past 12 months, we have closed three of our branch locations and relocated the client activity from them to other branches.
These were all opportunities to exit leases and save additional overhead.
As we see the recovery coming we will have a stronger business base with which to execute on growth.
During the month of May we qualified for and received 19 point for millions of Paycheck protection program monies from the small business administration.
We use these loans for the purposes for which they were intended and.
And now going through the forgiveness process.
At this moment in time, we have not received forgiveness on any of the loans.
And September 'twenty, and 'twenty, we disposed off to its management and the first pro business and Atlanta, Georgia.
Including the intangibles impairment that we recognized in Q1, we.
We had overall.
Hit of approximately $3 million to our P&L for this business in 2020.
Our press release on Monday has outlined and the fourth quarter performance with and without this business and I will reiterate those statistics shortly.
Yeah.
Our cash management was very strong across the year.
We recognized early the potential impact of the pandemic might have and swiftly tightened our controls over receivables during Q1 and onwards.
Particularly in the U K, where we reduced our dsos materially.
We had only one bad debt during the year.
Our U S client and took a hit from the closure of the restaurant trade and filed for chapter 11.
As a result, we experienced a $900000 bad debt.
This cash management allies of the stimulus programs and both the United States, particularly the FICA deferral program.
And the United Kingdom allowed us to manage our debt balances and we further manage them with the capital raises in December and February <unk>.
Resulting in our debts, including outstanding interests and the redemption of convertible preference shares being reduced by 55% from June 2020.
Okay.
The introduction of the eye on 35 tax legislation and the U K had a material impact on our contracting business in that market.
Over the course for three months period, we had approximately 100 U K contractors changed their status from temporary contractors to permanent employees.
Often without a conversion fee as they as they had been contracting for a significant period of time.
The largest part of this impact was felt in the first quarter of 2020.
But is it deferred start date of the legislation to 2021 that's at the uncertainty surrounding it stayed with us longer than we had hoped or expected.
Our U K contract revenue in 2020 was 26, 4% below 2019.
And this legislation ally to the loss of a payroll inclined and July 2019 accounted for the majority of this loss.
Adjusted EBITDA for the year was $4 $7 million, a decrease of $5 1 million from the $9 8 million and we achieved in 2019.
Our net loss from operations of $8 8 million.
It was materially down from the 623000.
Profit from the previous year, driven by the reduction in gross profit the impairment and first broke and the pandemic related bad debt.
Yeah.
When we look at quota for given the items just mentioned it is more meaningful to look at the sequential movements we are seeing.
For the for revenue was $53 $8 million, which excluding the disposal was a gain of 15.3% over Q3.
With gross profit being up 11% excluding day disposal.
Our adjusted EBITDA in Q4 was $1.7 million against $1 2 million and the third quarter for 1.1 million, excluding the disposed business.
Our press release contains a table showing the trailing 12 months performance.
I will now hand, the call over to Cal It for further update.
Okay.
Thank you Brendan and good morning, everyone.
As Brendan mentioned, our revenue for the fourth quarter of 2020 or $52 8 million a decline.
Decline of approximately 16% over the prior period.
$53 8 billion.
Q4 revenues comprised of $52 9 million on contract revenue and 0.9 permanent placement revenue.
The temporary contractor revenue is now approximately $3 8 million per week down from approximately $4 2 million on prior year.
Excluding the disposed business.
The average head count a courthouse and at year end compared with approximately 4300 and proprietary.
The decline of $10 million and revenues was driven by a combination of IL 35, and the U K and the decline in sales due to continued impact and our business from the COVID-19 pandemic.
Offset by favorable foreign exchange out for good.
Excluding the disposed business the decline was approximately 11%.
Compared with Q3 revenues have increased from $48 6 million to $53 8 billion and inquiries, though rocks that would be 11%.
Excluding the disposed business.
Revenues increased by more than 15% ROE Q3.
The increase in revenues of $5 2 million is due to the continued recovery from the pandemic and our core customers as.
As well as from new customers acquired during the pandemic.
Q4, gross profit of $8 3 million was unfavorable to prior year by approximately 29%.
The decline of people and $3 million was primarily due to I F 35 and impact for COVID-19 net debt.
Excluding disposed business gross profit declined approximately 16%.
<unk> for gross profit of $8 3 million was flat versus Q3, 2020.
Excluding debt disposed business Q4, gross profit increased by approximately 11% from the previous quarter.
Again, showing strong improvement and sequential quarter over quarter.
For the full year fiscal 2020 revenues decreased by 26, 6% for $4 5 billion or $2 22, a $4 5 billion as compared with 278 million for fiscal 2019.
This decline was driven by a combination of <unk> 35, and UK and also for.
Key guidance.
Payroll and business and U K and declined and the U S debt filed for chapter 11 bankruptcy.
For which we recognized a bad debt expenses of approximately.
880000.
The remainder of the decline in sales was due to the impact of our business from the COVID-19 pandemic all set by a favorable foreign exchange of $4 million.
Gross profit for fiscal 'twenty, and 'twenty was $34 8 billion down versus fiscal 2019 O $48 3 million.
Representing gross margin on 17% and 17, 3% for each period respectively.
The gross profit decline was approximately 28% due to lower from net hiring fees compared with prior year on.
44% decline.
At the same time contract business declined by approximately 23% due to the impact of <unk> 35, and the UK and COVID-19 and.
Okay.
Operating expenses for fiscal 2020 were $43 6 million a decrease of approximately 9% over $47 7 billion bookings for 2019.
As mentioned earlier, the company aggressively reduced head count and other discretionary costs travel and projects et cetera.
To bring the business to a sustainable level during the pandemic.
SG&A for example decreased by approximately $6 8 million or 15, 4% on for prior year.
Other expenses for fiscal 'twenty, and 'twenty was a 3 million goodwill impairment charge of course broke business that was sold during the year.
Interest expense for fiscal 'twenty, and 'twenty declined by 433000 and focus on 2019 as the company restructured its debt the Jackson investment group.
Extending it out by two more years.
The net loss for fiscal 'twenty, and 'twenty came to $15 6 million as compared with a net loss of $4 9 million for fiscal 2019.
Decline of $10 7 million and net.
Net loss.
As Brendan mentioned earlier, the company raised new capital and the market for since December 2020, and then and February 2021 and.
And use the proceeds to reduce the Jackson debt and preferred shareholders.
This brought the total owed to Jackson from June 2020, or $35 7 million to the credit level.
A level of $19 2 million.
A decrease of $16 5 billion.
Furthermore.
Series E preferred shares budget used for late June balance of $13 million to a current balance of $6 two a.
A decrease of 52, 5%.
The company's balance sheet has strengthened considerably and it's a net working capital position that is very liabilities minus credit assets.
Which has improved by $20 8 million for fiscal 2019.
Cash balance of $10 3 million has improved from $1 2 million at the end of fiscal 2019 and increase of $9 1 billion.
Okay.
I will now turn the call back to bad debt.
Thank you Kelly.
In relation to business flow, what we've seen and the early part of the year is that there is pent up demand for our services that translates to positivity for 2021 is going to be a strong year for our industry and for our company.
Business and Q1 is right in line with where we expected it to be.
We are seeing the usual seasonal decline and overall commercial staffing revenues.
And it is not as impactful as in the past.
Our professional staffing business streams have continued to show growth into the first quarter.
We've increased the strength of our sales capability, especially in commercial staffing and so far this year, we have signed 56 new client engagements.
With the potential to add a further 500 to 1700 and 50 temporary workers across 2021.
That is 56, new client engagements and it is only April.
The difference between this pandemic recovery and other economic and recoveries in the past is that direct hire our permanent placement appears to be recovering faster than contract or 10, par and our professional staffing business streams.
Our core takeaway is that the economy is gaining momentum and our staffing engagements mirrors that positive trend.
In relation to refinancing and mergers and acquisitions I've already mentioned, the extent to which we have already reduced our leverage over the past nine months.
We have held a special shareholder meeting in order to increase our authorized share capital and adjourned twice.
It is important to know that without this increase and share capital. It is difficult for us to deliver on our strategic aims of building a profitable 500 million dollar revenue business.
I urge all shareholders to vote in favor of this change to enable us to drive the growth of our company and the fastest way possible over the next two years.
I've stated on the past two calls that we will revisit M. A day and the second half of 2021 and there was no change to that plan.
Therefore, although we continued to see strong deal flow, we have no active transactions at this current time.
As we close the books and what has been a challenging year for the entire staffing market.
Our solid business pipeline and diverse client base provide a measure of stability to our business.
While no one can predict and there are no guarantees how does this pandemic might surge or how the recovery will develop I remain optimistic as we continue to see increasing recovery both in the United States and the United Kingdom supported by our ongoing discussions with clients about their immediate needs and future plans.
We are seeing you on growth we expected to.
To materialize and we look forward to a strong recovery in 2021.
Thank you for giving US your time. This morning, operator at this point I would like to hand, the call over to us for the Q&A session.
Thank you, ladies and gentlemen, if you would like to ask a question on today's call. Please signal by pressing star one on your telephone keypad. If you all using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Once again, please press star one to ask a question, we'll pause for just a brief moment to allow everyone an opportunity to signal for questions. Thank you.
We will now take our first question from William Greg was asking.
Greenwich Global Please go ahead.
Hey, Brandon you talked about the losses, the large payroll and client and I are 35 impact on the U K.
What's kind of you know for you of the 67 million and you reported for the year, what would be kind of the baseline.
That you are starting at going forward for that business.
Yeah.
Yeah.
So it's pretty close to that William.
And what we're seeing is that the vast majority of the impacts that we had in 2020, we either experienced and the back half of 2019 are we experienced that and the first quarter.
Of 2020.
So the damage was pretty well done.
So what we're seeing now is that there are a number of pitch.
Pitches that are being made so similar to the sales capability and the commercial staffing business growing.
And our market aim and the U K has been to move to larger and larger clients.
So we have a number of pitches out that.
We feel very confident that the $67 million will.
Improved materially across 2021, so the damage was done very early in the year. So the number that we have for the entire year is pretty well to the base number that we're starting from.
Okay, and then looking on the U S. The commercial side, you really didn't get hit as bad just put the foodservice clients and everything how do you see that looking for 2020 one.
So we were fortunate or otherwise that about 67% of our commercial staffing business was deemed to be essential and therefore, those clients didn't close them.
We have been.
Working towards through the back end of.
2020 to.
Beef up our sales function and we hired a guy called micro go on to come in as the senior Vice President.
Looking after our sales and commercial staffing so.
The.
Is it more rigor and focus that he has brought along with the directors that.
On our day to day operations has led to those 56 additional contracts that have been side and since the first of January.
So as I mentioned that the commentaries those 56 opportunities bring us anything from 500 contractors for 1700 50 contractors all in.
It is our full expectation that we are going to sign some more contracts.
The year unfolds.
The challenge we have is that the stimulus program. That's still continues and is scheduled to come continue for a number of months.
Pes additional unemployment benefits. So there are a number of people who are not returning to the market as.
And as quickly as we would expect them to do.
But is that a stimulus program.
Reduces our ability to place temporary workers that are clients goes fairly exponentially. This year so that is.
The only challenge we have right now is making sure that we can find sufficient candidates to fulfill our cloud needs because.
We have a lot of clouds.
We were not experienced elsewhere and shortage.
Okay.
And then on the professional side and the U S. It sounds like you you mentioned, you're seeing more permanent placement now.
Do you think at some point this year at all kind of switched back into more normalized levels between temporary and permanent.
So a lot of that permanent placement, we're seeing and the U K professional stream as opposed to the U S professional stream. The U S professional treatments that are our smallest business and is.
It is made up of lighthouse professional services. So we just have one brand.
And in Connecticut, and Massachusetts.
That said on the contracting side of that business. We had dropped from 220 fives early in 'twenty 225 contractors early in 2022 as low as 142.
And.
Around the August timeframe, we're now up to about 185 to 190, and we expect to go over 200 again.
And the very near term so the contract recovery and the U S businesses has been quite spectacular.
And what the U S business says gain from a permanent perspective as the relationship it has developed.
Okay and.
And specifically the JM groups largest client which is liquidity.
And we have been placing.
Permanent.
Employees for liquidity in the U K in Poland, and also and Minnesota.
So there was a lot of Interbrand action going on.
Hum.
And I think what are the things, which I may have mentioned on our previous call.
It's a challenge working from home, but when you have a lot of zoom calls and you have a lot of zoom calls and.
And training calls and learning and development goals.
And people get to know each other and significantly better than they ever knew each other before.
And I would say that there isn't one person in our operation.
That doesn't know at least 20 or 30 people and other brands that they never do.
Before this happened and.
And all that getting to know you session has allowed our various brands to work far more intimately with each other than they were ever believes capable in the past.
So.
Okay.
And there's a lot of work between the JM group and lighthouse, there's a lot of work between K R Y and Monroe Theres a lot of work between Clement May and CBS Butler. There was a lot of work between Longbridge and Clement may.
Yeah, it's it's actually.
Very pleasing to see the extent to which all of our management teams are truly working with each other collaboratively every single day for the week.
Okay.
And then last question you mentioned, you know, having asking shareholders to vote, which certainly everyone should both their shares.
Do you plan to have another meeting or what's your what's your plan to get the authorized share issue taken care of so you guys moving forward.
So we had a second adjourned meeting yesterday at which point, we only had 48% of the shares.
<unk> still so we didn't.
A quorum.
So we're looking at our alternatives, we will most likely set a new record date and.
Start all over again because.
The level of liquidity, we have and our stock suggests that the vast majority of the people who were or a lot of people who are holders of record on the 14th of February.
A longer hold those shares so.
We are discussing and internally, but most likely we are going to have to.
Set a new record data and and try again.
Okay, we will alright, thanks, Brian and we will well, we will advertise it and market and a little bit stronger this time, because it's imperative that our shareholders understand that.
The state is strategic goal of making a $500 million profitable business.
It requires and amount of stock to use as currency and to use as and the ability to generate wealth and <unk>.
Order to make those acquisitions that are required to get to $500 million.
Alright, thank you.
We will now take a question from Mr. Ken Knits. Please go ahead.
Mr and Knits your line is open.
We don't seem to have.
A response from Mr. Nitza once again, ladies and gentlemen, if you would like to ask a question. Please press star one.
No further questions at this time.
I would like to turn the call back to Mr. Flood for a brief closing comment. Thank you.
Thank you operator.
The entire staffing industry and the economies of our two main markets are making progress towards working through unprecedented and challenging times.
I am confident that we have been on the forefront of meeting those challenges and only time will tell what other challenges will become greater or subside.
Our productivity remains strong and our sales pipeline is active and looking robust.
And my confidence is still firm that we will come out of this downturn better and stronger than we went into it.
And thank our entire team for working tirelessly throughout 2020 under extremely difficult circumstances.
Their actions are responsible for seeing us through a very challenging year.
And these unprecedented times and I also extend my appreciation and gratitude to all the stakeholders and staffing 360 solutions.
From our employees to our customers vendors advisers and shareholders.
That helped us navigate throughout the year.
As our industry continues to be committed to getting people back to work as quickly as possible. We are playing our part and that.
We closed the books on 2020, having set ourselves up for a successful future and.
And the planned recovery.
We look forward to continuing to drive improvements and our operational performance.
And and two continuing to drive and maintain shareholder value as we progress on our path to build a profitable $500 million revenue company.
I wish you good health and safety.
Operator that is the end of our call.
Okay. Thank.
Thank you ladies and gentlemen, thank you for your participation presentation is now over you may disconnect.
And.
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