Q2 2021 Staffing 360 Solutions Inc Earnings Call
Greetings to all and welcome to the staffing 360 solutions fiscal Q2, 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 operator assistance. During the conference. Please press star zero on your telephone keypad.
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 laws concerning staffing 360 solutions incorporated.
The 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 SEC, which contain and identify important 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 August 17th 2021.
And staffing 360 solution expressly disclaims any obligation to revise or to update any forward looking statements. After the date of this conference call.
During these prepared comments the company may make reference to certain non G. A a P measurements such as adjusted E. B I T D a where applicable.
We have provided reconciliations of these non G. A a P measurements to the most directly comparable G.
A a P measure it is now my pleasure to introduce Brendan flood Chairman, President 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 Q2, 2021 financial results conference call.
I'm joined today by colored on where our principal accounting and principal financial officer.
I'm pleased to speak with you today about the solid progress that we have made and the improved results. We have delivered in the second quarter.
I am optimistic about the vast and growing pipeline of opportunities in the staffing business.
And also about the progress being made in 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 vital and key priority.
We will discuss this in a little bit more detail later in the call.
The format of our call today will begin with my overview of our improved quarterly results.
And then Khalid will provide more detail on the financials.
Next I'll discuss how we continue to make excellent progress through the pandemic.
And a lot more color about our strong quarter and our optimistic view of the business outlook.
The line will then be opened for your questions.
Today staffing 360 solutions operates our seven brands with 40 in U S and two U K brunches.
In each of our five verticals, we are seeing promising and positive indications.
While industry trends continue to improve.
As outlined in yesterday's press release.
Revenue for Q2, 2021 through to $55 million with gross profit up to $9 million.
Excluding first pro which is disposed of in September 2020.
Revenue growth was 23% year on year in.
Gross profit showed a markedly improved 37% uplift.
We also recorded sequential quarterly growth in both revenue and gross profit.
Kind of improvement in our industry.
On a year to date basis, we're within just a couple of percentage points from returning to 2000, Twenty's revenue and gross profit.
Excluding the disposed business year to date were up three 3% in revenue and 10, 3% and gross profit.
Our adjusted EBITDA for Q2 was $1.4 million, which was up 160% on the prior year and growth of 21% from Q1 2021.
On a non adjusted basis, we delivered EBITDA of $9.7 million.
Having received forgiveness of the first $10 million, a paycheck protection loan too.
Totaling $19.4 million.
In the second quarter, we recorded a 239000 COVID-19 related bad debt in our U S business on the last day of the quarter.
As a result of our strengthened balance sheet.
Interest burden has been reduced from 50% and by 50% from where it was a year ago.
Which has led to seven 8 million and net income for the second quarter against a net loss in 2020 of $3.8 million.
I'm pleased to report that as of last week, we have reduced our non receivables debt and redeemable preference shares from approximately $72.3 million in June 2020 to $13.5 million now.
Year to date, we have positive net income of $6.2 million against the prior year loss of $10.8 million an improvement of $17 million.
We continue to sell new business through the quarter in both the U S and the U K and our numbers are showing important progress.
The deeper step change progress is expected in early September when the U S stimulus unemployment check program ends.
The unemployment stimulus has adversely impacted the growth of our commercial staffing business.
And we are competing to attract workers against the U S stimulus program, which is a challenge.
We are successfully rising to that challenge.
Overall, we are pleased with the outcome of this quarter.
And with that I will hand, the call over to Canada, and where our principal financial and accounting officer for further financial update salad.
Thank you Brendan.
And good morning, everyone.
Well the second quarter of 2021 revenues of $15.5 million, reflecting an increase of 16, 5% over the prior Europe.
What do you think one 4 million.
Excluding the divested business first row.
Revenues increased by 22, 9%.
The increase included a favorable foreign currency translation of $2.1 billion.
The remaining increase was due to organic growth of the businesses in the U S and U K by $7.3 million.
Offset by domestic business.
2 million.
Revenue during the quarter was comprised of $49.2 million of temporary contract revenue like.
One 3 million of permanent placement revenue.
The temporary contractor revenue is now what I need.
Approximately $8800 per week after adjusting for the divested business.
That number is up by more than 22%, while approximately $31 million per week in the prior year second quarter.
Temporary worker revenue is also up from approximately $700 per week in the first quarter of this year.
We ended the quarter with approximately 3500 temporary workers.
And there has been an overall uptick in utilization.
Gross profit for the quarter up $9 million increased by $1.5 million or 19, 4%.
Over the comparative second quarter of the prior year.
Including that of the divested business gross profit increased by $2.4 million.
Or 36, 8%.
Gross margin for the quarter was 17, 8% compared with 17, 4% in the prior year second quarter.
Excluding the divested business gross margin for Q2 of 2020 was 16%.
Operating expenses for the quarter were $10.1 million and <unk>.
These are top line, 3% or $1.1 billion from the same time last year.
Excluding the divested business operating expenses were higher from last year by $2.3 billion.
The increase was driven by higher commissions due to the growth in business.
Bad debt expense on a customer that filed for bankruptcy.
I guess how many.
Between Q1 and Q2.
Year to date is in line.
Legal costs related to setting up the company for Epsilon filings.
Other consulting costs.
Insurance costs.
Partially offset by overall reduction in general and administrative costs.
Loss from operations narrowed to one $1 billion versus a loss of $1.5 million in the prior year.
Excluding divested business prior year loss was $1.3 million.
Other income of $8.9 million includes the 100% forgiveness over $10 billion of beef.
Elon, well Monroe staffing services LASA.
That's a good interest of $91000.
Interest.
Expense of $1.2 million as favorable to last year by about $927000.
Helped by the Companys successful efforts to reduce its debt load over the last several months.
As you know these efforts have continued into the third quarter.
This quarterly performance translated into $7.8 million of net income is a loss of $2.8 million last year.
EBITDA of $9.7 million improved significantly from a loss of $845000 or a loss of 349000, excluding the divestiture.
Adjusted EBITDA of $1.4 million was higher by $842000 from Q2 last year, an increase of 160%.
Year to date adjusted EBITDA of $2.5 million was favorable to last year by $768000 an increase of 44%.
Finally, a more positive news in the third quarter.
We previously shared that FDA gave us vulnerabilities that the remaining PPP loan of $9.4 million had been fully forgiven.
The company sold shares in the market raising an additional $11.2 million.
And importantly pay.
Paid down $8.3 million in debt after transaction fees and working capital needs.
Since December 2020, the company has nowadays more than $40 million via a stock offering and it has reduced its total debt and redeemable revenue.
And shares by $58.8 million.
As a result on a year to date basis, the company eliminated $2.1 million in interest expense.
I will now turn the call back to Brendan Thank you.
Thank you Kelly.
The pandemic has forced us all to adapt and to challenge the way, we evaluate our business models.
I'm pleased to note that the recovery is most certainly underway as evidenced by the recent encouraging jobs reports.
By the U S Bureau of Labor statistics.
Every month this year has shown positive growth in non farm labor.
As reported in the Wall Street Journal the Delta variant of COVID-19 isn't expected to dent the robust U S recovery.
However, nobody can predict the future.
We are cautiously optimistic as we continue to closely monitor the situation.
There are literally millions of jobs vacancies created as the pandemic eases.
We continue to expect that pent up demand for staffing will accelerate growth.
It could very well see the next year or two as the biggest years in the staffing history.
As I mentioned on last quarter's call we just.
We see the same similarities in the staffing market recovery and opportunity as do our peers.
And we reiterate our previous comments that our industry and staffing 360 solutions.
I expect it to be in a continuing growth period with a strong recovery expected in the second half of 2021 lasting well into 2022.
One major difference between this downturn and those that have gone before us.
Strong recovery this time in permanent placement or direct hire over temporary contracting.
Excluding the disposed business.
Permanent placement gross profit was up 52% year on year in Q2.
We expect at least that same level of growth in Q3.
Not quite the middle of Q3, and we've already generated more permanent placement business. This quarter than we did in all of Q3 last year.
And I pointed out that permanent placement is a higher gross margin business.
Temporary or contract staffing.
Been a little slower to recover.
This should certainly change with the ending of the stimulus program in early September as previously mentioned.
Tell it as already said that recently all three of our remaining PPP loans totaling $9.4 million have now been fully forgiven.
And we will be accounted for in our Q3 results.
Second half of 2020 delivered $102.5 million of revenue.
100.5 million, excluding the sale of first pro.
Gross profit of 15.8 million, excluding the disposal.
Well not issuing specific guidance, we do expect to significantly beat both of those revenue and gross profit numbers in the second half of the current year.
In summary, staffing 360 solutions continues to benefit from top line growth.
Resulting of our Swift and strong reorganization at the onset of the pandemic.
Plus the economic recovery and lower overall spending by the company.
I'm pleased to talk about some of our business wins.
We continue to sign up approximately 12, new customers per months within our commercial staffing business.
Bringing us to nearly 100, new contract or contracts since the beginning of the year.
Our largest UK client is progressing through the legal documentation for a new two year extension to our framework agreement.
And importantly, it's also rewarded us the exclusive managed service provided a position on all of its recruitment globally.
This program started in July and will continue for at least two years.
A large U K cloud continues to drive its growth with our support in the U K, Poland and the U S.
And our largest client in professional staffing in the U S has asked us to extend our reach into three additional states.
And is now looking at additional opportunities for us to collaborate more broadly.
I look forward to talking more about that in our Q3 call.
In the U S. We are certainly seeing a candidate driven market.
Especially while the stimulus check program continues.
A large portion of our client relationship management is geared around educating clients on required pay rates.
So they are not competing even with Mcdonald's, which is providing pay rates of $17 per hour in Massachusetts.
While our business has been good and improving.
Our internal corporate focus is simultaneously been on refinancing our balance sheet.
The continued looking after the safety of our employees their families and our contractors.
Like many companies across the United States.
We recently adopted a workplace safety policies, which mandates that all of our internal employees.
Fully vaccinated against COVID-19, unless they request and receive reasonable accommodation for a medical or religious exemption.
In order to meet the growing demands of our business and to control what we can do avoid interruptions in productivity in office closings.
We believe that this was a necessary step.
And one that follows the ongoing scientific advice.
Each week, a growing number of companies and local entities are taking a similar position.
I would like to thank all of our internal employees, who support this decision.
Many people have asked why we have executed on a number of capital raises in the past eight months.
Simple answer is that the funds had been available and thus securing our financial future is good and one of the core issues that we've been dealing with for several years.
There is no certainty that this access to capital will last but this period allowed us to take a huge cash flow burden off our shoulders.
Which will be instrumental in allowing us to invest further in our operations. So that we can more readily exploit the improving market that we're seeing.
We have to execute on a reverse stock split to make this happen.
And also to ensure that women maintained our NASDAQ listing which.
Which is a core requirement and our raising of capital.
Will there be a need for further raises.
It's likely there will be.
But I would expect it to be linked to either directly or indirectly and for the benefit of our acquisition program.
Right now it was $13.5 million of non receivables debt is very manageable and is not a drain on our operating cash flow.
It does play some restrictions on our operating and M&A decisions.
That said, we can look forward with some degree of confidence that we can execute on a strong plan for the benefit of our shareholders.
As a result of the material physical improvements discussed and as previously noted.
We will begin to refocus on M&A in the second half of the year, which is now upon us.
Deal flow continues to be strong.
And we're optimistic that we can still see attractive multiples for valuation.
We believe that even though M&A deal flow is high and there is competition for growth.
But the fragmented nature of the staffing market allows for accretive and attractively priced acquisitions to be found.
But all of that said I'd like to thank you for your time and attention. This morning.
Good health and safety.
Right.
Like to hand, the call over to you for our Q&A session.
Thank you.
We will now conduct a question and answer session. If you would 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 your question from the queue.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
One moment please.
Please while we poll for questions.
And we'll now take our first question.
It comes from Peter Nits of Investor. Please go ahead.
Hey, great job on your Q2 progress and delivering on your business plan.
My question is this cross selling still strong.
And can you tell us about how it's going.
Okay.
Thank you. So there's a couple of things about cross selling I would say firstly is that I've never worked in a business where cross selling is deemed to be the solution to world hunger.
But what we do with it is to make sure that our operations can work significantly more collaboratively with each other.
And that they can go out and sell our services with <unk>.
Multiple products.
And with a greater degree of confidence that there's a lot of thing done alone.
We do have a number of instances as I said that one of our largest UK clients.
Is operating.
That flows through the J M. Longbridge group in the U K and lighthouse professional services in the U S and.
And as a consequence of that we've already made 10 permanent placements through lighthouse professional services that they wouldn't have made otherwise.
Clement may in the U K with our largest client British American tobacco operates regularly with the.
J M. Longbridge group it operates with CBS Butler and the U K.
And it is starting to operate with Monroe staffing services in the U S.
Last week, we decided on a communication program with our clients in North Carolina.
So that it would look upon as lessors, just a temporary staffing business. So Richard Wilburn, who is the.
Director of that area set of communication to all clients of key resources and Monroe staffing.
And how they can work more collaboratively together and that they can also provide services than just temporary staffing.
So it is becoming more and more of a thing and it's becoming more and more I'll say.
A attractive contribution to our P&L account, but the biggest thing that will actually break is to bring all of our organizations together and get them to work significantly more collaboratively.
They ever worked.
Before the pandemic my.
My expectation is that as we start to rollout some of these services more broadly.
Our commercial staffing business in the U S. We have never historically been very big on <unk>.
Tar.
Some of this communication program will probably bring us from three to 400000 of direct higher gross profit per annum up to something more in the order of one and a half million plus next year and beyond.
There are great opportunities for us but the.
The bigger opportunities to allow our salespeople to grab more confidently and sell a larger proposition to our clients than they might otherwise have been able to do.
Hopefully.
That answers your question.
Yes. Thank you.
Now I'd like to turn the call back to Brendan flood for a brief closing comment.
Thank you operator.
I'd like to believe that resiliency is a team sport and once again I commend our talented staff and management team for continued to successfully navigate the new normal with integrity and purpose in these less than ideal conditions.
As I've noted before since the dawn of the pandemic, we all networks smarter and more efficiently.
Our improved financial condition strategic efforts operational efficiencies enhanced ability to execute.
And the long term market opportunity in front of us are all driving momentum.
The speed with which the vaccination programs are rolling out in our two main markets provides.
Provides us with the confidence to continue to believe that we're coming out of this downturn stronger than when we went in.
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 as we progress on our path toward our goal to build a profitable 500 billion dollar revenue company.
Thank you all I wish you continued good health and look forward to speaking with you again to discuss what we anticipate will be.
Further improved Q3 results.
Operator that is the end of our call.
Thank you.
Everyone. This concludes today's teleconference. You may disconnect your lines at this time.
For your participation.
[music].
Okay.
[music].