Q1 2021 Staffing 360 Solutions Inc Earnings Call

And ladies and gentlemen, please standby.

Greetings, everyone and welcome to the staffing solutions 360 fiscal Q1 2021 results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require assistance during the conference. Please press.

Star Zero on your telephone keypad and as a reminder, this call is being recorded.

This conference call will contain forward looking statements within the meaning of the U S. Federal Securities law, starting the staffing 360 solutions Inc.

The forward looking statements are subject to a number of.

Significant risks and uncertainties and our actual results may differ materially please refer to the company's filings with the SEC, which contain and identify important risks and other factors that may cause staffing three fees D solutions actual results to differ from those contained in our forward looking statements all forward looking.

Statements are made as of today on May 18th 2021 and staffing three.

<unk> hundred 60 solutions expressively disclaims any obligation to revise or to update any forward looking statements. After the date of this conference call.

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

Which applicable we have provided reconciliations of these non-GAAP measures to the most.

Lee comparable GAAP measures.

It's 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 Q1, 2021 financial results conference call.

I'm joined today by colored on war.

Principal accounting and principal financial officer.

I'm delighted to see the progress that is being made in the COVID-19 vaccination efforts in the United States and the United Kingdom.

I will continue to stress that the wellbeing of our staff contractors and clients continues to be a key priority.

Pellet, we'll provide more depth to our financial results and then I will provide an update.

On how we are progressing out of the pandemic and the view on our business outlook.

The line will then be open for questions.

As outlined on our press release from yesterday.

Revenue for Q1, 2021 was $49 million with gross profit at $8 million.

The first quarter of 2020 was the last pre pandemic quarter.

It was also the quarter at the end of which the I R. 30 fives legislation in the U K was intended to be enacted.

Overall.

Our first quarter revenue was down 16, 6% year over year.

Excluding the disposed business, our first pro we saw an 11, 3% decline.

Gross profit was down 24.7% or nine 4% excluding the disposal.

On a sequential basis Q1 revenue was down 9% against Q4 with gross profit down 3.5%.

We typically experience a seasonal drop in our commercial staffing revenues in Q1.

As mentioned on the year end conference call the.

The seasonal drop was not as pronounced as in the past.

And our professional business dreams continued to grow.

Our adjusted EBITDA for Q1 was 1.1 million, which was broadly flat year over year.

Q1 is typically our least profitable quarter.

And this year the quarter was further impacted by the trailing economic effects of COVID-19.

The key challenges that we faced during Q1 related to the delayed implementation of the I R 35 tax legislation in the U K.

Which caused some uncertainty in our client base.

Thankfully this is now behind us on projects can get started.

Despite the market uncertainty and the major impacts on both of our U S and U K economies.

We have used the time prudently to clean up some issues and to put our business on a more solid financial footing.

In February.

We raised $19.6 million of new equity.

Which allowed us to further reduce our debt levels.

Overall, our debt levels have broadly halved since last summer.

And we continue to manage this burden down.

We have filed for forgiveness on our paycheck protection program loans of $19.4 million.

We've had a number of clarification requests from the small business administration.

But we continue to await a determination.

I will now hand, the call over to call it on where our principal financial and accounting officer for further update pallet.

Thank you Brendan and good morning, everyone.

For the first quarter of 2021 revenues of 49 million reflect a decrease of 15, 6% over the prior year of $58 7 million.

Excluding the divested business Westborough revenue declined by 11, 3%.

The decline was offset by favorable foreign currency translation of just under $1 billion.

The remaining decline of <unk> 7 million was due to the divested business and COVID-19 impact.

Revenue during the quarter was comprised of 48 million on temporary contractor revenue and $1 million of permanent placement revenue.

The temporary contractor revenue is now approximately $3700 per week down from approximately 4100 per week in the prior year first quarter.

After adjusting for the divested business.

And it's down slightly from the approximately 3800 per week in the fourth quarter of 2020.

We ended the quarter with approximately 3500 temporary employees on.

Factors what is approximately the same amount last December.

Gross profit for the quarter of 8 million decreased $2 6 million or 24, seven percentage over the comparative first quarter of the prior year.

Excluding the divested business gross profit decreased by 0.8 million or nine 4%.

Gross margin for the quarter was 16, 4% compared with 18.1% in the prior year first quarter.

Largely driven by lower from net revenue from the divested business.

Excluding the divested business gross margin for Q1 2020 was 16%.

Yes.

Operating expenses for the quarter was $8 7 million a decrease of 41, 1% or $6 1 billion.

Do you on 2020 included goodwill impairment charge of approximately $3 million of the first broad reporting unit, which has since been divested.

The remaining decrease of $3 1 million was driven by lower people costs or steps taken in 2020 in the wake of the pandemic.

Reduced professional fees and overall reduction in general and administrative costs.

Loss from operations was 645000, but this work on $1 billion in the prior year.

On a comparative quarter.

Excluding goodwill impairment comparable.

<unk> locked in 'twenty, one 'twenty 'twenty was $1 1 billion.

Other expenses for the quarter totaled $1 million versus reported $1 million in the comparative first quarter of the prior year.

The reduction was primarily driven by lower interest expenses of $1 1 billion helped by continued successful efforts to reduce the debt load over the last several months.

Gain from re measuring the company's intercompany note in the first quarter of 2021 other than <unk>.

<unk> 8000, compared with a loss of 675000 in the first quarter on 2020.

Yeah.

This performance translated into a company substantially narrowed net loss of $1 7 million compared with a loss of $7 2 million.

In the prior year.

EBITDA of 321000 improved significantly from a loss of 4 million for Q1 2020.

Adjusted EBITDA $1 1 billion was slightly below last year's level of $1 2 million.

Finally.

With respect to the operating cash flow, we reported positive cash flow of 167000 versus negative cash flow of $1 7 million.

This was a result of successful management of our working capital and our overall cost controls.

I would now turn the call back to Brent.

Thank you Kelly.

We have no reason to see the staffing market any differently than our other peer firms that have already opined upon it.

And we reiterate our previous comments made following discussions with our clients about their needs and plans that.

We are now in a continuing growth period with a strong recovery expected in the second half of 2021.

Second quarter of 2020 was our hardest hit quarter of last year.

With a solid pipeline of opportunities our expectation is that we will see a 20% uplift year over year for both revenue and gross profit as all three of our business streams are showing positive trends of growth.

In terms of business wins.

I mentioned on our last call that we had signed 56, new client contracts in our commercial staffing business.

This number has now increased by roughly a dozen.

Our largest U K client is working through the legal documentation for a new two year extension to our framework agreement.

A large existing clients in the U K has awarded US a material contract across Continental Europe.

And our largest client in professional staffing in the U S has asked us to extend our reach into three additional states and to look at how we can support them in Asia.

As you can see there is a definite sense of momentum building in this recovery.

And we were on enthusiastic about these and other opportunities.

Our internal corporate focus is on refinancing our balance sheet and continuing to look after the safety of our employees and contractors.

Encouraging to members of our teams to get vaccinated to help bring our countries back to normality.

Consequently, as previously said, we will focus on M&A in the second half of the year, which will soon be upon us.

But that said I'd like to thank you for your time and attention. This morning, I wish you good health and safety.

Operator, now I would like to hand, the call over to you for our Q&A session.

Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

You May press Star two if you would like to remove yourself from the queue at any time.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please while we poll for questions.

And once again star one.

And we'll take our first question from Peter Nits Private Investor go ahead. Please.

Alright, it sounds like you've got some good momentum going what excites you about the opportunities in 2021.

Thanks, Peter this is Brendan.

I think you've hit the nail on the head it's the level of momentum that we're seeing.

The conversations that we're having with our clients are typically about larger opportunities rather than a person here and a person there.

The conversations that were being brought into.

Or is that theres been a lot of pent up.

Activity that just didn't happen during the course of 2020 and now a lot of projects are being unleashed a lot of developments are restarting.

I just think that everywhere. We look we don't have one person who has a revenue generator in our organization right now.

Isn't working extremely hard and fully loaded up with job orders, which is M C.

Something that we didn't see it this time last year so.

The challenge, we have is probably to get people.

Find candidates, particularly in our commercial staffing business wireless stimulus unemployment checks continue.

But as they are expected to end in September we would expect again that the second half of 2021 was going to be huge for us and for the industry in general.

Any further questions Mr Nets.

No. Thank you.

Thank you.

And as a reminder, everyone. If you would like to ask a question. Please press star one.

With no additional questions in our queue I will turn the call back to Brendan for.

Any additional closing comments.

Thank you again operator.

The speed with which the vaccination programs are rolling out on our two main markets.

Divides us with the confidence to continue to believe that we are coming out of this downturn stronger than we went in.

I extend my thanks, and appreciation to our talented resilient and hard working staff and management team.

These actions are directly responsible for seeing us through this pandemic storm.

Our industry is committed to getting people back to work as quickly as possible.

And we look forward to playing our part in that recovery.

Job openings are climbing.

With the temp penetration rate at 1.84% in the U S. We look forward to returning to pre COVID-19 levels of 1.94% quickly.

Since the dawn of the pandemic, we now work smarter and more efficiently.

As we build upon our improved financial foundation, we anticipate that we will keep on driving improvements to our operational performance.

And to continue to drive and maintain shareholder value.

We progress on our path to our goal of building a profitable $500 million revenue company.

Thank you all and we look forward to speaking with you again on.

Operator that is the end of our call.

Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

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