Q3 2021 Staffing 360 Solutions Inc Earnings Call
Okay.
Please standby.
Good day, everyone and welcome to the staffing 360 solutions fiscal Q3 results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Terry Mcmanus V. P of Investor Relations with Baby Kaufmann Mcmanus Inc. Please go ahead ma'am.
Thank you Shannon.
Oh and welcome to the staffing 360 solutions fiscal Q3, 2021 results conference call. At this time all participants are in 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.
Conference call will contain forward looking statements within the meaning of the U S. Federal Securities Law concerning staffing 360 solution Inc.
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 and other factors that may cause staffing 360 solutions actual results to differ.
As contained in our forward looking statements.
All forward looking statements are made as of today November 16, 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 remarks, the company may make reference to certain non-GAAP measurements, such as adjusted EBITDA, where applicable we have provided reconciliation.
These non-GAAP measures to the most directly comparable GAAP measure.
It is now my pleasure to introduce Brendan flood, Chairman, President and Chief Executive Officer of staffing 360 solutions Brendan you may begin.
Thank you Terry.
And welcome to everyone, who has joined US for staffing 300, Sixty's fiscal Q3, 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 to you today about the continuing progress we have made and the improved results. We have delivered in the third.
Yeah.
We have made meaningful progress across a number of important financial metrics in the third quarter and are positioned to finish the year strongly.
I am still optimistic about the vast and growing pipeline of opportunities in the staffing business.
And also about the progress being made towards economic recovery in the United States and the United Kingdom.
The wellbeing of our staff contractors and clients continues to be a vital and key priority for us.
The format of our call today will begin with my overview of our improved quarterly results.
Which include positive net income from operations net income and earnings per share in quarter three.
Khalid will provide more detail on the financials.
Next I'll discuss how we continue to make excellent progress through the current environment.
And a lot more color about our strong quarter and our optimistic view of the business outlook.
Ron will then be open for your questions.
As outlined in yesterday's press release.
Revenue for Q3, 2021 was $47.5 million with gross profit at $9 $6 million.
Excluding first pro which was disposed off in September 2020.
Revenue growth was 2% year on year and gross profit showed a markedly improved 29% uplift.
As many of our fellow public company staffing companies have found.
The return of available workers since this evening and of the stimulus check program has been slower than anticipated.
As a consequence of this we have concentrated on driving gross profit and EBITDA growth.
Sometimes at the expense of revenue.
Gross profit and EBITDA or the staffing industry standard for true measure of performance.
Yeah.
On a year to date basis, we are within just a couple of percentage points from returning to 2000 Twenty's revenue.
And we're ahead of 2020, yet the gross profit level.
Excluding the disposed business year to date, we were up two 8% in revenue at 16, 4% and gross profit.
Our adjusted EBITDA for Q3 was 1.5 million, which was up 23% on the prior year and growth of 9% sequentially from Q2, 2021.
Okay.
On a non adjusted basis, we delivered EBITDA of $10 $5 million.
I haven't received forgiveness of the remaining paycheck protection program loans of $9 4 million.
Giving us a total forgiveness of $19 4 million across quarters, two and three or $19 6 million, including accrued interest.
Yeah.
As a result of our strengthened balance sheet interest burden has been reduced by 49% from where it was a year ago.
Which has led to an $8 $7 million and net income for the third quarter.
It gets a net loss in 'twenty 'twenty of $4 9 million, excluding the divested business.
I'm pleased to report that we've continued to reduce our non receivables debt and redeemable preference shares which were approximately $72 $3 million in June 2020.
The $13 5 million at quarter end.
Further to 9 million subsequent to the end of the quarter.
Year to date, we have positive net income was $14 9 million.
Against the prior year loss of $12 6 million, excluding the divested business.
And then improvement of $27 5 million.
Excluding the $19 4 million of P. P. P. Forgiveness, our net income has improved by $8 $1 million a year on year.
Overall, we're very pleased with the outcome of this quarter.
With that I will hand, the call over to Caledon, where our principal financial and accounting officer for further financial update salad.
Thank you Brandon and good morning, everyone.
For the third quarter of 2021 revenues up 47, 5 billion reflect a decrease of two 3% over the prior year of $48 6 million.
Excluding the divested business Westborough revenues actually increased by about 2%.
Revenues during the quarter were comprised of $46 $2 million.
I'm very contracted revenue.
One 3 billion of prominent placement Debbie.
The temporary contractor revenue is now running at approximately $3600 per week.
After adjusting for the divested business.
Decorate revenues running slightly higher than prior years third quarter.
We ended the quarter with more than trading things like a temporary employee contract or an increase of more than 100 from the last quarter.
At the end of the of October 10th project was up by about another 100.
Gross profit for the quarter of $9 $6 million increased by $1 3 million or 56%.
Over the comparative third quarter of the prior year.
Excluding the divested business gross profit increased by $2 $2 million or 28, 8%.
Gross margin for the quarter was 23% compared with 17, 1% in the prior year's second quarter.
Excluding the divested business the gross margin for Q2 of 2020 was 16, 8%.
Operating expenses for the quarter was $9 2 million, a decrease of nine 9% or $1 million from.
From same time last year.
Excluding the divestiture business operating expenses were flat compared with the same time last year.
Higher commissions due to the growth in the business and higher insurance costs were offset by lower one time costs and overall reduction in general and administrative costs.
Operating income of $473000 was favorable to last year.
By $2 3 million.
A significant improvement.
Looting that Davis your business the favorability was still significant at $2 2 million.
In Q3 of this year the company recorded a loss of 316000 on FX re measurement of intercompany loan.
Compared with a gain of $443000 an unfavorable variance of $758000.
On currency movements.
Other income of $8 $3 million includes the 100% forgiveness about $9 4 million of the PPP loans with the loss for the three remaining subsidiaries.
That's accrued interest of one and $2000.
Interest expense of $800000 is about half of the interest expense from last year.
Helped by the Companys continued efforts to reduce its debt load over the last several months.
As you know these efforts continued into the fourth quarter.
This quarterly performance translated into $8 7 million of net income versus a loss of $2 6 million last year.
This is a significant improvement from last year by 11 $4 million.
Excluding the gain from PPP loan forgiveness net loss narrowed to $700000. What does is allows the $2 6 million in the prior year.
Excluding debit your business the prior year loss was 5 million.
EBITDA was $10 5 million improved significantly from a loss of $247000.
Or a loss of $2 6 million, excluding the divested business.
This includes the $2 2 million or loss of sale of Westbrook.
Adjusted EBITDA of $1 5 million was higher by $277000 from Q3 last year, an increase of 23%.
Year to date adjusted EBITDA of $4 million was favorable to last year by $1 million, an increase of 35, 5%.
And also more progress in the fourth quarter.
The company sold shares in the market raising an additional $9 million to $5 million.
And importantly paid down $4 5 billion in additional debt after transaction to transaction fees and working capital needs.
On a year to date basis, the company eliminated $2 2 million in interest expense since December 2020.
Having raised more than 2 million stock offerings and hazard use historical debt by $62 2 million.
I will now turn the call back to Brendan.
Yeah.
Thank you Kelly.
Economists in the business press have recently cited evidence that we will have stronger job growth going into next year and that the economy is making progress towards the federal reserve's goal of maximum employment.
As the pandemic eases millions of job vacancies have and are being created.
We continue to expect that pent up demand for staffing will help to accelerate growth.
We have a good runway with building momentum and continue to believe that the next year or two could be the biggest years into staffing industry's history.
Our outlook for 2022.
As I've mentioned before we see the same similarities in the staffing market recovery and opportunity as do our peers.
We reiterate our previous comments that our industry and staffing 360 solutions and.
Now in a continuing growth period.
This strong recovery expected to last well into 2022.
I remind you that one major difference between this economic downturn and those that have gone before.
Is the strong recovery this time and permanent placement business, our direct hire over temporary contracting.
As we anticipated returned to work following the end of the stimulus check program has been slower than anyone expected we.
We have concentrated on meeting this direct hire need print.
Principally in the professional staffing business streams.
Excluding the disposed business, our permanent placement gross profit was up 34% year over year in Q3 and.
We expect continuing.
Strength in Q4.
Our professional business in the U S lighthouse professional services reported that direct higher gross profits grew.
Grew by more than 150% year over year in Q3.
And professional staffing in total.
All of our non light industrial businesses.
Grew by 57% year over year.
Temporary or contract staffing has been a little slower to recover it unexpected but as weird now several weeks into Q4.
Pleased to see is colored has mentioned that we're seeing average weekly revenue numbers for our temporary and contract businesses growing.
The second half of last year delivered $102 $5 million of revenue or 100.5 million, excluding the sale of first pro.
With gross profit of $15 8 million, excluding the disposal.
Well, we're not issuing specific guidance, we do continue to expect to beat both the revenue and gross profit numbers in the second half of the current year.
With the improvement in gross profit be more significant than the improvement in revenue for the reasons explained earlier.
In summary.
<unk> 360 solutions continues to productively adapt and react to the manner in which our markets are growing and recovering.
We continue to benefit from our early Swift and strong reorganization at the onset of the pandemic.
And the economic recovery in both the U S in the U K.
And continued lower lower overall spending by the company.
I'm very pleased to talk about some of our recent business wins.
We continue to sign up new customers within our commercial staffing business and we have now executed on 107, new contracts since the beginning of the year.
Our largest U K client is progressing through the legal documentation for what has now become a five year extension to our framework agreement.
This is on the heels of our being awarded last quarter. The exclusive managed service provider position for all of its recruitment globally.
That program began in July and continues for at least two years.
A large U K clients continues to drive its growth with our support in both the U K and the U S.
In the U S. We continue to see a candidate driven market, especially during the recovery from the end of the stimulus check program.
A large portion of our client relationship management continues to focus on helping to educate clients on required higher pay rates to compete over a depleted pool of workers in this new normal.
While our business has been good unimproved ing, our internal corporate focus has simultaneously been on refinancing our balance sheet and you're continuing to look after and prioritize the safety of our employees their families and our contractors.
In line with Biden administration's announcement with respect to employers with more than 100 employees.
Being mandated to why there'd be vaccinated are regularly tested.
We will continue to comply with all legislation.
And I started working with our clients and candidates to ensure that we will be fully compliant with the emergency temporary standard comes into effect in January subject to the legal challenge that is facing.
Securing our financial future continues to be one of the core issues that we've been dealing with for several years.
There is no certainty that access to capital will last.
And it is important to note that this recent period has 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 sits before us.
$13.5 million of non receivables debt.
Reduced to $9 million post balance sheet.
It's very manageable and is not a drain on our operating cash flow.
But it does play some restrictions on our operating and M&A decisions.
We've already begun to focus on M&A and been in discussions with several parties, though nothing is sufficiently far along those discussions to highlight in detail right now.
We believe that even though M&A deal flow is high and there is competition for growth.
The fragmented nature of the staffing market still allows for accretive and attractively priced acquisitions to be found.
But all of that said I. Thank you for your time and attention and I wish you good health and safety.
Operator, now I'd 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'd like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate that your line is in the question queue. You May press star two if you'd 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 also please limit yourselves to one question one moment, please while we poll for questions.
Hey, Brendan.
Can you talk a little bit about any difficulty you are having in billing.
The openings, you have and keeping those workers in place.
Sure.
So we're experiencing somewhat the same difficulties that all of our.
Peers are having out there and that the speed at which people are coming back to the market is not as great as we all expected.
It is starting to improve but there are ways and means which.
Workers who've been out of the workforce for a year, maybe 18 months are finding different ways in which to receive some kind of stimulus from the government.
We are additionally, I'm seeing that a number of candidates are starting jobs, but theyre shopping around said he might start on Monday, and they all disappeared through a higher paid job by Wednesday.
Which is a great challenge for us.
So we recently had a meeting in New York with the entire leadership team of the commercial staffing business, which is where this is principally an issue.
And we worked through a whole load of.
Attraction and retention strategies that we're going to engage in over the next six months.
To work out exactly where we can find.
Our candidates from and how we can retain them going forward.
I would love to tell you exactly what they are bill, but everybody's probably listen to this call or will listen to read the transcript at some point. So we would like to make sure that we get a jump on our competitors out there without having to tell them exactly what it is that we're going to do.
But we did come away from that meeting with probably about 15 different action points that we believe will make a material improvement for us in the next.
Three to six months.
Okay, alright, great. Thanks, and congratulations on the big debt reduction too.
Thank you very much.
Our next question will come from Peter Nuts.
Gentlemen, thats pretty good progress this quarter.
It seems to me like you've had.
Greater success on lower margin business.
You have on other.
And this is leading to a larger gross profit can you.
Talk about that.
Sure. Thanks Peter.
So what are the things that we've done internally over the course of the last.
Year to 18 months is to increase the level of visibility and transparency that we have in terms of our internal financial statements.
Historically stuff like.
Workers compensation claims.
Yossi claims, which we don't have very many of them relatively but.
There is a certain.
Number of costs that weren't as visible to the organization as they probably should be so what we've been looking at.
While it's been somewhat difficult to get all of these candidates back into the marketplace is to determine exactly where we're incurring.
Our workers comp claims.
Actually where we may be incurring some EEOC claims.
And determining whether there are individual clients.
That are more problematic than other clients.
So we have over the last number of months said goodbye to three clients, who we determine that we're not sufficiently safe.
And that we're increasing our workers compensation liabilities to the point, where we weren't really making any money from them.
So.
We've effectively taken.
Those items out which were impacting our gross profit and therefore on a mixed basis. We ended up with a higher gross profit number which you can see in our financial statements. So.
I think it comes down and Peter to a lot more visibility a lot more accountability and all of these sales and recruitment and operations functions working more readily together.
Do we ever have before.
Thank you.
And we have no further questions I'd now like to turn the call back over to Brendan flood for a brief closing comment.
Thank you operator.
As always but especially in these unique times I commend, our talented staff and management team for continuing to successfully navigate the new normal with integrity on purpose in these continuing less than ideal conditions.
We believe that our company has reached a key inflection point in its evolution.
We continue to build upon our improved financial foundation.
And anticipate that we will keep on driving improvements through our operational performance and to maintain and drive shareholder value as we progress on our path towards our goal to build a profitable $500 million revenue company.
Thank you all I wish you continued good health and a happy holiday season.
I look forward to speaking with you again to discuss what we anticipate will be further improved Q4 results.
Operator that is the end of our call.
Okay. Thank you everyone. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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