Transcript of the
Staffing 360 Solutions, Inc. (Ticker: STAF)
Fiscal Q1 2015 Earnings Conference Call
October 21, 2014
Participants
Brendan Flood – Executive Chairman, Staffing 360 Solutions Matt Briand – Chief Executive Officer, Staffing 360 Solutions Jeff Mitchell – Chief Financial Officer, Staffing 360 Solutions Darren Minton – Executive Vice President, Staffing 360 Solutions
Presentation
Operator
Greetings, ladies and gentlemen, and welcome to the Staffing 360 Solutions’ Fiscal First Quarter 2015 Earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce, Darren Minton, Executive Vice President of Staffing 360 Solutions. Mr. Minton, you may begin.
Darren Minton – Executive Vice President
Thank you Stacy, and thank you to everyone who has joined us today for Staffing 360’s Earnings conference call. I'm joined here today by Brendan Flood, Staffing 360’s Executive Chairman, Matt Briand, Chief Executive Officer, and Jeff Mitchell, our Chief Financial Officer.
The purpose of the call today is to discuss the financials for the fiscal first quarter ended August 31, 2014, as well as provide an update regarding Staffing 360’s high-growth initiatives as part of our acquisition strategy in remainder of calendar 2014 and beyond. At the conclusion of this call, we’ll be answering questions during a brief Q&A session. I also want to bring to your attention that a webcast and replay of this conference call is available by following the link contained on the bottom of the press release announcing this call, and is also available on Staffing 360’s website, which is www.staffing360solutions.com.
Now before we get started, I'll take a brief moment to read the Safe Harbor statement regarding today's conference call. This conference call will contain forward-looking statements within the meaning of the US Federal Securities Law concerning Staffing 360 Solutions, 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’s actual results to differ from those contained in our looking statements. All forward-looking statements are made as of today, October 21, 2014, and Staffing 360 expressly disclaims any obligation to revise or update any forward-looking statements after the date of this conference call.
Now with that, I'd like to start the call with a few words from Staffing 360’s Executive Chairman, Brendan Flood. Brendan?
Brendan Flood – Executive Chairman
Thank you, Darren, and welcome everybody to our Q1 2015 Earnings conference call. I will make some initial comments about our fiscal first quarter before handing over to Jeff to add more color to the numbers and then to add some commentary on our operations. After that, I will give an update on our current initiatives and open the call to Q&A.
During fiscal Q1 last year, we had a single acquisition under our belt, Cyber 360 Solutions. Since then, we have completed four additional acquisitions, Control Solutions International, Initio International Holdings, Poolia UK, and PeopleSERVE. This has fueled our expansion from approximately $1 million in revenue in fiscal Q1 2014, to over $33 million in fiscal Q1 2015. This puts us over $130 million in revenue on a current annualized basis.
Since this time last year, we strengthened our management team and our board of directors. Not only has this improved our financial controls, reporting and compliance, it has also positioned us to uplist to a senior exchange as soon as we meet all of the listing requirements. It is safe to say we are extremely satisfied with the incredible growth over the past year and I believe that we are firmly on the path to achieving our stated objectives.
At this point, I will hand the call over to Jeff for some clarity on the numbers. Jeff?
Jeff Mitchell – Chief Financial Officer
Thank you, Brendan. Good morning to all of you joining us on today's call. Let me dive right into the financial results and provide what I hope will be some useful commentary on what has been accomplished this quarter. Let me remind you that the company's fiscal year end is May 31st, so the quarterly results that we are
discussing today are from June 1, 2014, to August 31, 2014.
The company is pleased to report quarterly revenue of $33.4 million. This represents an increase of more than $32 million for the same period last year. Likewise, the quarterly gross profit increased by over $5.5 million, to a total of $5.9 million. These significant increases and improvements are a direct result of the various acquisitions closed after August 31, 2013.
The quarterly SG&A expenses totaled $1.4 million, or approximately 4% of revenue, compared to $150,000 for the prior year. The quarterly salaries and wages expense totaled $4 million or approximately 12% of revenue, compared to $278,000 or approximately 21% of revenue for Q1 2013. The quarterly professional fees totaled $1.1 million for approximately 3% of revenue, compared to $1.9 million for approximately 23% of revenue for Q1 2013.
The SG&A and salaries expenses have increased primarily to support the acquisitions and the revenue growth of the company over the past year. Professional fees increased largely to support the capital raising activity, investor relations, and closing costs associated with the acquisitions.
As mentioned during our last earnings call, the company is aggressively pursuing a plan we refer to as the Pathway to Profitability. This plan includes close scrutiny of all expenses, with the intent of eliminating, reducing, and managing these costs downward. While we are certainly pleased to see most of these costs reducing as a percent of revenue, we know that there remains plenty of room for improvement and we are committed to driving these costs downward.
The company reported quarterly net loss of $4.7 million, compared to a quarterly net loss of $427,000, in the prior year. Yesterday, the company released its earnings report, which included a calculation of adjusted
EBITDA. This report included a detailed schedule reconciling the net loss to an adjusted EBITDA loss of $409,000. These non-GAAP adjustments, totaling approximately $4.3 million, are itemized in the press release and include traditional EBITDA adjustments, as well as non-cash, acquisition, capital raising, and other non-recurring costs.
In contrast to our fiscal 2014 results, which were announced just a few weeks ago, these quarterly results now include the full impact of all of our acquisitions. The timing of these acquisitions is no longer a factor since they all occurred prior to June 1, 2014.
The company's quarterly revenue of $33.4 million now corresponds to the previously mentioned actual revenue run rate of $130 million.
In conclusion, I want to reiterate that we are pleased with the tremendous revenue and gross margin growth. As we move forward with the Pathway to Profitability initiative and reduce SG&A and overhead costs, the company's cash flows should improve. Profitability should become a reality and the future will be brighter and more exciting than ever before.
With that, I'd like to hand the call over to Mr. Briand, our CEO, for further discussion about the company's operations. Matt?
Matt Briand – Chief Executive Officer
Thank you, Jeff, and good morning, everyone. Now that the financials have been discussed, I will be focusing on some of the highlights of the quarter and recent developments as we continue to implement our acquisition strategy.
During the quarter, we increased the company’s credit facility up to $15 million with Wells Fargo Bank. This provides additional working capital for certain subsidiaries of Staffing 360 Solutions and we intend to work with Wells Fargo and our other banking partnerships on additional facilities as we continue to grow. As a new business development initiative in August, we announced that our Cyber 360 Solutions Division was awarded the GSA schedule from the federal government. The five-year contract allows for all federal government agencies to obtain cyber security personnel and services directly from Cyber 360 Solutions as a trusted vendor. Needless to say, this is a major win for our company and could potentially result in multi-year government contracts down the road.
Moving forward, we are continuing with our new branding initiatives across the Staffing 360 family, including the launch of our newly branded subsidiary logos. In fact, we just announced that our Poolia UK operations successfully completed their rebranding to Longbridge 360 at the beginning of October. This involved the launch of a brand-new website in the UK. The combined Longbridge team expects the website to drive new business to the sales team. As mentioned in the past, we are not changing the names of acquired businesses across the board, but instead we are adding an umbrella Staffing 360 logo to enhance the look and feel of each subsidiary.
As we move into the next reporting period, we are looking forward to a very bright future as we drive organic growth and continue to improve operations toward our stated goal of $300 million in annualized revenues. At this point, I would like to hand the call back to Brendan, who will provide some final remarks before we start the Q&A.
Brendan Flood – Executive Chairman
Thank you, Matt. As you heard from Jeff, we have a number of costs that are directly related to the acquisition program, and we would expect these costs to continue while the acquisition program continues. As mentioned during our previous earnings call, our primary initiative is our Pathway to Profitability. We are fully committed to becoming profitable as soon as possible. Our expectation is that we will move into profitability on an adjusted EBITDA basis during fiscal 2015. Moving to profitability at a net income level will be driven by the timings of the acquisitions that we make and the one-off costs incurred in completing these acquisitions.
We expect to provide more details on our Pathway to Profitability across the next few weeks, when we will also firm up our revenue guidance for Q2. Our overall mission is to continue to acquire larger and increasingly more attractive companies, with strong margins, as we drive for greater levels of profitability. We also aim to uplist to a senior exchange. On this front, we just announced our application to NASDAQ and we believe that we qualify for the alternative bid price requirement, which allows us to uplist at $2.00 instead of the $3.00 or $4.00 typically required for most companies.
We will also continue to keep you apprised of our progress as we get closer to uplisting, which will be a major benefit to our loyal shareholders and prospective investors alike.
At this stage, Stacy, I would like to hand the call over to Q&A. After the Q&A, we will provide some closing comments. Stacy?
Operator
Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question please press *1 on your telephone keypad. A confirmation tone will indicate your line’s in the question queue. You may press *2 if you’d like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Marco Rodriguez with Stonegate Securities. Please proceed.
<Q>: Good morning and thank you for taking my questions. Real quick, I just wanted some clarification on the profitability discussion. Is that calendar ‘15 or your fiscal ‘15?
Brendan Flood – Executive Chairman
Jeff, let me take that, as it was me who said it. This is Brendan. We will get into adjusted EBITDA profitability during the course of our fiscal 2015 period, which is the year-ended in May. It will not be for the entirety of the year but we will break through the breakeven point.
<Q>: Got it, and what sort of revenue level will you need to hit that adjusted EBITDA breakeven?
Brendan Flood – Executive Chairman
If I told you that number right now, then I would be effectively declaring the guidance that we’re going to issue in about a week or so time. We have $33.4 million that we delivered in Q1, and we made a $400,000 adjusted EBITDA loss; so based on our $5.9 million of gross profit, our gross profit only needs to increase by about 7% or 8% in order to get to a zero breakeven position. We're probably looking at about $6.3 million to $6.4 million of gross profit.
Operator
Thank you. (Operator instructions.) Our next question comes from Keaton Ross, private investor. Please proceed.
<Q>: Hello there this is Keaton. I appreciate you taking the time to answer a few questions. I wonder if you could speak a little bit more—you had mentioned briefly and you had a PR a month or so ago—about the GSA contract. I was wondering if you could speak a little bit more about that, especially with regard to the potential revenue that you could see coming from those contracts.
Matt Briand – Chief Executive Officer
Sure, I can handle that. As far as the potential revenue, that's still undecided. I can tell you that the GSA does offer unlimited upside for us over the next few years. Each government agency has contract opportunities which represent multi-year and multi-million dollar efforts. As we did indicate, Cyber 360 has been awarded a five-year contract. The government has issued releases that they expect to triple the cyber workforce by 2016, creating tremendous upside over the next 12 to 18 months. We are currently working on two proposals as we speak, although their terms and conditions remain confidential.
Operator
(Operator instructions.) Gentlemen, there are no further questions at this time.
Brendan Flood – Executive Chairman
Okay, thank you, Stacy. Thank you all for taking the time to join us today. I hope that what you have heard about our latest quarterly results will assure you that Staffing 360 Solutions represents a tremendous opportunity for rapid growth in both the United States and around the world. As we continue to implement Staffing 360’s high-growth acquisition model, we remain committed to growth in revenues, growth in earnings, and growth in shareholder value. Operator, that is the end of our call. Thank you all again.
