Staffing 360 Solutions, Inc.
Q4 2020 Earnings Call Transcript

Published: 21 Apr 2021

[Operator:]

Greetings everyone and welcome to the Staffing 360 Solutions Fiscal 2020 Year-End 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. . As a reminder, this conference 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 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.

[Brendan Flood:]

Thank you, operator, and thank you to everyone who has joined us for Staffing 360's fiscal full-year 2020 and fourth quarter financial results conference call. I'm joined today by Khalid Anwar, our Principal Accounting and Principal Financial Officer. I'll begin my remarks by saying that I hope everyone is staying healthy and safe. We're excited about and encouraged by the COVID-19 vaccine progress. The wellbeing of our staff, contractors and clients continues to be our key priority during this worldwide outbreak. As we look forward, we can start to see an end to this crisis and the beginnings of recovery in our two core markets of the United States and United Kingdom. While safety will always be at the forefront, the growth and health of our business is our focus as we look towards 2021. During my remarks, I'll outline how this pandemic has impacted us and how we're positioned as we make our way through what is hopefully the exit. I'll now give an overview of our financial and operational performance covering the full-year 2020 before commenting on the fourth quarter's performance. Then I will hand the call over to Khalid for additional details in our financial statements. After which I'll conclude by outlining what we're seeing operationally in the early part of 2021, and what our near-term plans are in relation to our acquisition strategy and our intended continuing refinancing of our business. The line will then be opened by the operator for questions. Our full-year revenue for 2020 was $204.5 million, a 26.6% decrease from 2019 and in line with what we had earlier preannounced. Gross profit of $34.8 million was down 28% from the prior-year. In addition to the impact of the pandemic, there were a number of events in 2020 that are worthy of note. In late March, early April, we made bold moves on our cost base and took $5.5 million of overhead out on an annualized basis, mostly people, and took a further $1 million out as we entered the fourth quarter. This resulted in a leaner organization and allowed us to manage against the worst impact of the pandemic into what we're cautiously optimistic is a recovery phase.

[Khalid Anwar:]

Thank you, Brendan. Good morning everyone. As Brendan mentioned, our revenues for the fourth quarter of 2020 were $53.8 million, a decline of approximately 15% over the prior period of $63.8 million. Q4 revenues comprised of $52.9 million of contract revenue and $0.9 million of permanent placement revenue. The temporary contract revenue is now approximately $3.8 million per week down from approximately $4.2 million from prior-year excluding the disposed business. The average headcount of 4,000 at year-end compared with approximately 4,300 in the prior-year. The decline of $10 million in revenues was driven by a combination of IR35 in the UK and the decline in sales, due to continued impact in our business from the COVID-19 pandemic offset by favorable foreign exchange of $0.4 million. Excluding the disposed business, the decline was approximately 11%. Compared with Q3, revenues have increased from $48.6 million to $53.8 million, an increase of approximately 11%. Excluding the disposed business, revenues increased by more than 15% from Q3. The increase in revenues of $5.2 million is due to continued recovery from the pandemic and our core customers, as well as from new customers acquired during the pandemic. Q4 gross profit of $8.3 million was unfavorable to prior year by approximately 29%. The decline of $3.3 million was primarily due to IR35 and impact of COVID-19 pandemic. Excluding disposed business, gross profit declined approximately 15%. Q4 gross profit of $8.3 million was flat versus Q3 2020. Excluding the disposed business, Q4 gross profit increased by approximately 11% from the previous quarter, again showing strong improvement in sequential quarter-over-quarter. For the full-year fiscal 2020, the revenues decreased by 26.6% from $204.5 million as compared with $278 million for fiscal 2019. This decline was driven by a combination of IR35 in UK and also declines. Our payrolling business in UK and a client in the U.S. that filed for Chapter 11 bankruptcy, for which we recognized a bad debt expense of approximately $880,000. The remainder of the decline in sales was due to the impact of our business from the COVID-19 pandemic offset by a favorable foreign exchange of $0.4 million.

[Brendan Flood:]

Thank you, Khalid. In relation to business flow, what we have seen in the early part of the year is that there is a pent-up demand for our services that translates to positivity that 2021 is going to be a strong year for our industry and for our company. Business in Q1 is right in line with where we expected it to be. We're seeing the usual seasonal decline in overall commercial staffing revenues. But it is not as impactful as in the past.

[Operator:]

Thank you. . Thank you. We'll now take our first question from William Gregozeski of Greenridge Global. Please go ahead.

[William Gregozeski:]

Hey, Brendan. You talked about the loss of the large payrolling client in the IR35 impact on the UK, what's kind of -- of the $67 million you reported for the year, what would be kind of a baseline that you're starting at going forward for that business?

[Brendan Flood:]

So it's pretty close to that, William. What we're seeing is that the vast majority of the impact that we had in 2020, we either experienced in the back half of 2019, or we experienced it in the first quarter of 2020. So the damage was pretty well done. So what we're seeing now is that there are a number of pitches that are being made. So similar to the sales capability in the commercial staffing business growing, our market aim in the UK has been to move to larger and larger clients. So we have a number of pitches out that we feel very confident that the $67 million will improve materially across 2021. So the damage was done very early in the year. So the number that we have for the entire year is pretty well to the base number that we're starting from.

[William Gregozeski:]

Okay. And then looking in the U.S. the Commercial side, you really didn't get hit as bad just the foodservice clients and everything. How do you see that that looking for 2021?

[Brendan Flood:]

So we were fortunate or otherwise that that 67% of our commercial staffing business was deemed to be essential, and therefore those clients didn't close down. We have been working towards through the back end of 2020 to beef up our sales function, and we hired a guy called Mike Ragone to come in as the Senior Vice President, looking after our sales, conversion, staffing. So the more rigor and focus that he has brought along with the Directors that run our day-to-day operations has led to those 56 additional contracts that have been signed since the 1st of January. So as I mentioned at the commentary, those 56 opportunities bring us anything from 500 contractors to 1,750 contractors all-in, it is our full expectation that we are going to sign some more contracts as the year unfolds. The challenge we have is that the stimulus program that still continues and is scheduled to continue for a number of months, pays additional unemployment benefit. So there are a number of people who are not returning to the market as quickly as we would expect them to do. But as that stimulus program reduces our ability to place temporary work that our clients grows fairly exponentially this year. So the only challenge we have right now is making sure that we can find sufficient candidates to fulfill our client needs because we have a lot of clients. We're not experiencing a client shortage.

[William Gregozeski:]

Okay. Okay. And then on the professional side in the U.S., it sounds like you mentioned, you're seeing more permanent placement now. Do you think at some point this year at all, kind of switch back into more normalized levels between temporary and permanent?

[Brendan Flood:]

So a lot of the permanent placement we're seeing in the UK professional stream as opposed to the U.S. professional stream. The U.S. professional stream is now our smallest business and it is made up of Lighthouse professional services. So we just have one brand between Connecticut and Massachusetts. That said, on the contracting side of that business, we had dropped from 225 early in 2020 -- 225 contractors early in 2020 to as low as 142 in, around the August timeframe, we're now up to about 185 to 190 and we expect to go over 200 again in the very near-term. So the contract recovery in the U.S. business has been quite spectacular. But the U.S. business has gained from a permanent perspective is the relationship that is developed with UK and specifically the JM Group's largest client which is Equiniti and we have been placing permanent employees for Equiniti in the UK, in Poland, and also in Minnesota. So there is a lot of inter brand action going on. I think one of the things which I may have mentioned on the previous call, it's a challenge working from home but when you have a lot of Zoom calls and you have a lot of Zoom calls and training calls and learning and development calls and people get to know each other significantly better than they ever knew each other before. And I would say that there isn't one person in our operation that doesn't know at least 20 or 30 people in other brands that they never knew before this happened. And all that getting to know you session has allowed our various brands to work far more intimately with each other than they were ever believed capable in the past. So there's a lot of work between the JM Group and Lighthouse, there's a lot of work between KRI and Monroe. There's a lot of work between Clement May and CBS Butler, there is a lot of work between Longbridge and Clement May, it's actually very pleasing to see the extent to which all of our management teams are truly working with each other collaboratively every single day of the week.

[William Gregozeski:]

Okay. And then last question, you mentioned having asking shareholders to vote which certainly everyone should vote their shares. Do you plan to have another meeting or what's your plan to get the authorized share issues taken care of so you guys can move forward?

[Brendan Flood:]

So we had a second adjourned meeting yesterday at which point we only had 48% of the shares voted still, that we didn't reach a quorum. So we're looking at our alternatives, we'll most likely set a new record date, and start all over again because the level of liquidity we have in our stock suggests that the vast majority of people who were or a lot of people who are holders of record on the 14th of February, no longer hold those shares. So we're discussing it internally, but most likely, we are going to have to set a new record date and try again.

[William Gregozeski:]

Okay, all right. Thanks very much.

[Brendan Flood:]

We will advertise the market a little bit stronger this time, because it's imperative that our shareholders understand that status strategic goal of making a $500 million profitable business, it requires an amount of stock to use as currency and to use as the ability to generate wealth in order to make those acquisitions that are required to get to $500 million.

[Operator:]

We'll now take a question from Mr. Ken Nitz. Please go ahead. Mr. Nitz, your line is open. We don't seem to have a response from Mr. Nitz. . And with no further questions at this time, I'd like to turn the call back to Mr. Flood for a brief closing comment. Thank you.

[Brendan Flood:]

Thank you, Operator. The entire staffing industry and the economies of our two main markets are making progress towards working through unprecedented and challenging times. I’m confident that we've been on the forefront of meeting those challenges, and only time will tell whether the challenges will become greater or subside. Our productivity remains strong, and our sales pipeline is active and looking robust. My confidence is still firm that we will come out of this downturn better and stronger than we went into it. I thank our entire team for working tirelessly throughout 2020 under extremely difficult circumstances. Their actions are responsible for seeing us through a very challenging year. In these unprecedented times, I also extend my appreciation and gratitude to all the stakeholders of Staffing 360 Solutions from our employees, to our customers, vendors, advisors and shareholders that helped us navigate throughout the year. As our industry continues to be committed to getting people back to work as quickly as possible, we're playing our part in that. We closed the books on 2020, having set ourselves up for a successful future and the planned recovery. We look forward to continuing to drive improvements in our operational performance and continuing to drive and maintain shareholder value as we progress on our path to build a profitable $500 million revenue company. I wish you good health and safety. Operator that is the end of our call.

[Operator:]

Thank you. Ladies and gentlemen, thank you for your participation. The presentation is now over. You may disconnect.