Q4 2021 Staffing 360 Solutions Inc Earnings Call
Good day and welcome to the staffing. Three hundred and sixty.
Miss year end results con.
Call today's conference is being recorded.
At this time. I would like to turn the conference over to Terry mechanist.
Vp of IRR at biblo and mechanistsm.
Please go ahead.
Thank you, operator greeding stalls and welcome to the staffing 360 Solutions. Fiscal q4- year-end 2021 results- conferencecall.
At this time all participants are in a listen only modes. A brief question and answer session will follow the formal presentation in which management will answer questions previously submitted via email. 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. 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 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, June 32.022 thousand, and staffing 360 Solutions expressly disclaims any obligations to revise or to update any forward-looking statement after the date of this conference call. During these prepared remarks, the company made D's reference to certain non-GAAP measures, such as adjusted EBITDA, were 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 floods. Chairman, President and chiefs Executive Officer of staffing 360 Solutions. brendaencies begin.
Thank you, Terry.
And welcome to everyone who has joined us for starting 360 Solutions. Fiscal Q4 and 2021 year-end financial results conference call.
I'm joined today by callaladanwar, our principal accounting and principal financial Officer.
Our much-delayed audit is now completed and I'm pleased to speak to you today to briefly review last year's results and our plans for improving upon them, and then spend time talking about the brighter horizon before us after our accretive acquisition in May of headway Workforce Solutions.
Headway brings approximately $85 million of revenue and the leading edge proprietary technological platform and delivery methodology critical to the future of national human capital management.
edway sits within our professional staffing. U's business dream.
But we'll also work closely with our commercial staffing business DAM.
We view headway as an important value creatater for shareholders, as it supports and accelerates both our business model and our growth strategy.
Although it seems like ancient history now, I think it's worth noting that we successfully navigated the ongoing social and economic vagaries of 2021.
And are making a way through those similar conditions in 2020 -two.
We've maintained our focus to make the hard choices, to continue to position our company for future growth and success.
And we now have a materially improving outlook for 2022, improved by our recent acquisition of headway Workforce Solutions.
We continue to make progress across a number of important metrics throughout the fourth quarter of the year and are now positioned for particularly strong second half of 2020 -two.
There is no doubt about it: 2021 was certainly a challenging year for our industry and for us in particular.
We adopted and reacted to the eand flow of business and to a differing recovery phases in our markets.
We particularly benefited from our early, swift and strong reorganization at the onset of the pandemic.
The lowered overall spending by the company the capital raises, improving our balance sheet and subsequent meaningful debt reduction.
These factors and others combined to leave us optimistic about our ability to deliver materially improved results in 2020. -two and.
We remain optimistic, based on our internal progress and the road roadmap ahead. Both are bolstered by the economic recovery advancements in the United States and the United Kingdom, although we are closely watching the impact of inflationary pressures in both markets.
I'm pleased to note that we still see a considerable and increasing pipeline of opportunities in the startaffing industry and MMA deal flow remains active.
And of course, as always, an essential and significant priority for us is the continued well-being of our staff, contractors and clients.
We nurture our company culture by continuing to lead with values and lead with a shared purpose.
The format of our call today will begin with my brief overview of our financial results with calid, providing more detail on the financials.
After that, I'll discuss the many reasons for my confidence in the business outlook for both staffing 360 and our industry into 2022 and beyond.
I will then address the questions which we re submitted to us via email.
As outlined in Monday's news release, revenue for 2021 was $197.8 million.
A drop of 3% year-on-year, but slightly up when excluding first pro, which is disposed of in September 2020.
Gross profit was down 3% of 33.9 million, but improved by 9% when first pro is excluded.
Net income improved by $23.8 million year-on-year.
Greatly enhanced by the forgiveness of four PPP loans amouning to 19.6 million, including interest.
Another strong contributor to bottom line improvement was the reduction inour debt burden.
We have continued to reduce our nonreceivabable debt and redeemable preference shares, which were approximately $72.3 million in June 2020 down to nine point five million at the end of 2021 year.
As a consequence, our interest burden reduced from $7.2 million in 2020 to $3.9 million in 2021.
Overall we continue have work to have, work to do and our armed with a realistic plan to achieve cash flow breakeven and to demonstrate our perstistion ability to change adthatt grow and prepare for future success.
With that, I will hand the call over to calladanwar, our principal financial and accounting Officer, for a further financial update callido.
Thank you bandon, and good morning everyone.
The full year fiscal 20- 20: one revenues of one 97.8 million. decrees by 3% from 204.5 million in 20- 20.
This decline was driven by a combination of continued impact of COVID-19 during most of 2021, IR thiry-five in the U? K and divestment of first pro business in September 2020.
Excluding the revue, business revenues increased just slightly.
Gross profit of fiscal twentthousand 21 was 33.9 million posting a decrease of 945 thousand or 3%.
excloring the divestative business, gross profit increased by two point seven million, O an increase of 9%.
This was due to increase in direct high revenue by about zero, seven thousand or 16%.
Gross profit and contract buses grew by two million or sesevene 0%.
This is despite the adver impite of B 35 and U G.
Operating expenses for the year came to 41.2 million, a decrease of 6% over last year's allowed of 43.6 million.
As mentioned earlier, the company aggressively reduced headcount and other discresionary costs, like professional fees, to bring the base cost structure to a more sustainable level.
lgf example, decreased by approximately two point two million of 6% from pririer.
Operating expense included three point one million of goodwill impairment chargeed to our UK business.
The company recognised other income of 19.6 million to receive hundred percent forgiveness on its four pdpons.
On the other hand, the company recognise the loss of 26 thousand on FX remeasurement of intercompty loan, compared with a gain of 584 thousand in 2020.
And unfavorable variance of 844 thousand on currency movements.
Interest expense for fiscal 2021 declined by three point three million for fiscal 2020 as the company exedute reduces debt with Jackson investment growth.
The net income of fiscal twentthousand and 21 came to eight point two million, as compared with the net loss of 15.6 million for fiscal 2020, an increase of 23.8 million.
Ebitda, 14.8 million, was higher from last year by 19.6 million, primarily due to be P P P loan forgetus.
adjustated EBITDA of two point four million was unfavourable to fiscal 2020 by two point two million.
On the balance sheet side, total long-term debt for the company is now down to only nine point five million. At the same time, the company has enabled to bring its receivables down so that the DSO has come down to only 38 days from 43 days last year, a decrease of six days.
I will now turn the call back to Brandon. Thank you.
You were't get goodbye.
Thank you, galard. Sorry apologies, I appeared to have been a mute.
As we look at the three business dams, we can see that they are broadly performing in line with the markets in which they operate.
Revenue and commercial staffing was up 4% for the year where the most of the market was flat.
Gross profit improved in that segment by 10% as we engaged in a more consultative approach with our clients in relation to the need to recognize pay rate improvements and other measures to retain staff.
Professional spaff. The? U's excluding the disposed- do first grow, improved by 5%, with permanent place from growing by 92% over 2020.
In the current tiide markets. We recognize the permanent hiring will be a material feature in our results in 2020 -two.
This growth in permanitent placement was also seen in the professional staffing U K business, where we saw an increase of 6%.
We continue to operate in tight labor markets.
suppblind demand of labor are mismatched and are a major factor in rising wages.
Into this candidate-driven market. Our High-Touch client relationship management continues to focus on helping to educate clients on required higher pay rates to stay competitive with a depleted pool of workers.
We still expect that pent-up demand for staffing will help to accelerate growth.
We have a solid runway with building momentum and continue to believe that the next year, or 2, to be the biggest years in this starting industry's history.
Our outlook for 2022 is very optimistic.
Both our industry and stoafing 360 solutions are now in a continuing growth period, with a strong recovery expected into 2020. -three.
Temporary or contract staffing has been a little slower to recover than expected, but I'm pleased to report that we are now seeing encouraging signs, as average weekly revenue numbers for our temporary and contract staffing business are showing 13% growth year-on-year.
2021 delivered $197.8 million of revenue, compared with 196.8 million in 2020, excluding the sale of first pro.
With gross profit of 33.9 million, or 31.2 million in 2020, excluding the disposal.
While we do not issue specific guidance, we expect material improvement in both the revenues and gross profit numbers in the second half of the current year year, and these will be greater still with the recent acquisition of headway.
While focusing on improving our business, our internal internal corporate focus has simultaneously been on refinancing balance sheet.
And continuing, as always, to look after their and prioritize the safety of our employees, their families and our contractors.
Securing our financial future has been one of the core issues that we have been dealing with for several years.
There is no certainty that access to capital will last, and it's important to note that this recent 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, that we can more readily exploit the improving market that sits before us.
nine point five million of nonreceivable debt is very manageable and is not a drain on our operating cash flow.
What still does place some restrictions on our operating and eade decisions.
I'm pleased now to turn to a discussion of our accretive acquisition of headway Workforce Solutions.
And the enormous opportunity to provide our collective clients with deepened and expanded offerings.
Headway has a deep history of providing customized technology and contract-based Workforce Solutions in all 50 states.
Headway reported onaited revenues of approximately $85 million in the year to September 2021 and it is profitable.
New online technology is driving startafing efficiency, and we have now established ourselves in that arena, poised to become a key player in our industry.
As one of the largest U's providers of survey research personnel.
At a proprietary database of three million candidates. Headway's unique survey niche is a valuable tool and differentiator, providing these services in almost every ZIP code in the United States.
The integration of our business is well underway and proceeding smoothly.
The proven in e-recruiting technologies. Headway design: not only improved customer reach and satisfaction, but enhanced operating margins.
The pandemic has proven that a bricksand-mortar presence is no longer necessary to swiftly deliver the best candidate to clients.
I believe that a future leaders in human capital will be those companies with scale, technology and processes.
We are now positioned to take our place in that future.
At this point, I would like to answer some of the questions submitted by e-mail, after which I will end our call with a brief closing comment.
Some of your questions are answered in our prepared remarks and others, which you plicit are, have been combined.
My first question is: does the war in Ukraine affect your business?
The simple answer is: we have no operations in Ukraine or in Russia.
The potential impacts on the war on surrounding and European countries in the global economy are dynamic and are yet to be determined for our industry.
Another question ASKs now of the reverse that is completed. Are you in compliance to maintain your NASDAQ listing?
We anticipate the first quarter- 10 -q- to be completed within the next couple of weeks, and then we will be in full compliance with all of the instructions that we have received from NASDAQ.
A more personal question. We asked about the thinking behind the Board awarding me at five thousand bonus in January , given the performance, financial performance and the stock price.
So the answer is, despite the number of the 10 -k not being the basis upon which a party will be thrown, it is clear that we manage the way through a major financial downturn and came out of it to the tent, that we are out of it stronger than we went in.
At the very early point of pandemic we removed $6 million an overhead and efficiently ran a leaner organization through the expected reductions in revenue.
Additionally, we managed to get a large benefit from U's U K government pandemic programs.
Furthermore, the capital raises in difficult environment meant we reduce our debt to redeemable preferenures.
From the burden of seventy-two point million to less than ten million.
While the value of my bonus is not my decision, or was I involve it's awarding? There are many complex in diverse areas in managing business that are not revenue.
These areas need to be actively managed and corrected in order to put us in a place where we can now drive revenue and cash flow growth.
Our next question is: wi re management and the Board of Directors buying shares in the open market at these historically depressed prices? A tangible expression of your confidence.
Management and Directors are bound by inside trading rules regarding possession of inside information.
There is regularly a lot going on behind the scenes and very often there are no or few open trading windows.
A recent example is the acquisition of headway.
Discussions began many, many months ago.
All the senior managers and Directors were aware of and involved in this acquisition.
While inimpossession of material numberum public information, the purchase of shares is not allowed.
Personally I have historically gone to the market seven times to require stock, and these purchases are a matter of public record.
Next question is: what is the biggest challenge to becoming a profitable company?
The biggest challenge we have right now is to continue to grow and to leverage our cost base.
We believe we are well positioned to do that.
My next question is: what is the game plan to pay the remaining debt with this requirement of the dilution?
It is our intention to grow and to become a profitable $5 million revenue business. Some of this will be achieved through debt and some of it will be achieved through equity.
In all cases, the acquisitions will need to be accretive to get through our internal approval processes.
We expect the payment of our remaining debt to be absorbed within one of these activities.
What makes staff an attractive investment.
We have always had a rise in the future while attending to the present: the acquisition of headway in the? U's, the introduction of centralized recruiting hubs in both the? U's and the U? K, the determination of new sales markets and the U? S.
I'd like to the improvements in our balance sheet make the forward view of our performance more enticly for investors.
However as with all forward-looking vies, they are not without their risks, all of which are outlined in our 10 -k.
Continuing all the questions regarding the recent acquisition of headway our next question ASKs.
How did you come to its valuation? What netingg and ebitdaed headway report in 2021?
The purchase price of the acquisition was $14.014625 million.
Of this, there was a cash payment of $14.625 thousand to require some very small shareholdings.
The remainder of the purchase have made up of nine million convertible preference hate shares, redeemable in three years and convertible on a post-bitit basis into three hundred and fifty thousand common shares- a $25 in 71 centents per share and includes a cash air as of five million payable in September 2020. -three.
Headway is an immediately accretive acquisition, having approximately 85 million in revenue and nine point six million in gross profit.
As required. Icc work in the eight -k is underway. That will announce the clear, aludred and aludited numbers of headway expected around the end of July .
It is not uncommon for a privately held company to be acquired before another is completed.
I see continued consolidation in the indvenustry and believe that future winners in human capital will be the enterprise with scale that have taken advantage of technology and processes.
Our combined companies make as a formiddable and entity on the cusp of a major growth dynamic.
We believe that one -plus one equals three for our combined businesses.
The technical resources of headways, core senter for operational recruitment, excellence and important e-advanced recruiting. Cutting edge tools and technology and immediately will give us a national footprint for nationwide recruiting.
This concludes our qa session. Of course, before I close, I want to take a moment to acknowledge our talented staff and management team.
They demonstrate exceptional talent and resilience as they work with integrity and purpose in these continuing less than ideal conditions.
We've heard me speak about the fact that our company has reached a key inflection point in its evolution.
We continue to build upon our improved financial foundation and anticipate driving shareholder value as we progress in our path toward our goal to build a five million profitable revenue company.
2021 was a year of folks and adaptation. We worked through the shifting sands, endured and emmerged better, stronger and more agile for it.
The demand for labor and our solutions continues to be strong, and we will of the key drivers of our success.
I've said it before: the cornerstone of our future success is a combination of superior service declines combined with citting edge technology.
Bolstered by the benefits of the merger and renewed sense of optimism in the staffing market, today we stand ready to deliver.
Thank you all. I wish you continued good health and look forward to speaking with you again to discuss Q2 results and how performance continues to improve across 2020 -two.
Operators. That concludes our call.
Thank you for your participation.
You may now disconnect your line.
We.