BGSF, Inc. (BGSF) research, news, and more from GeoInvesting

Company description

Tue, 06 Oct 2015 12:26:44 GMT

BG Staffing, Inc. operates as a temporary staffing company in the United States. It operates through three segments: Light Industrial, Multifamily, and IT Staffing. The Light Industrial segment offers temporary workers for various skilled and unskilled positions primarily to distribution and logistics customers in Illinois, Wisconsin, Texas, Tennessee, and Mississippi. The Multifamily segment provides front office and maintenance personnel on a temporary basis to various apartment communities in Texas and other states. The IT Staffing segment offers skilled contract labor for IT implementations and maintenance projects. The company also provides temporary and full-time staffing services of accounting and finance personnel, and secretarial and administrative personnel to customers. BG Staffing, Inc. is headquartered in Plano, Texas.

Research

Thu, 06 Apr 2017 15:02:29 GMT

BGSF ($14.05) announced this morning that it completed the acquisition of Zycrop, Inc., for $19 million in cash and $1 million in stock. The market has been waiting for the company to make an acquisition since organic growth was slowing down.

Since 1991, Zycron has been a leading regional provider of IT temporary staffing talent to companies throughout the southeastern U.S. region and selected markets across the country both with Fortune 500 companies and governmental entities. Zycron had revenues of approximately $38.3 million for the year ended December 31, 2016. Management commented:

"The completion of the Zycron acquisition in the Professional segment fits perfectly into our growth and expansion plans. This most recent acquisition is accretive to value and allows us to enhance the cash flow we are building for our shareholders. With the addition of Zycron offices in Nashville, Memphis, and Chattanooga, BG now has operations in 56 offices and 25 states."

Research

Tue, 01 Nov 2016 15:20:24 GMT

BGSF ($14.26) announced Q3 2016 results:

Sales of $67.4 million vs $60.2 million in the prior year; below analyst estimates of $72.2 million
Non-GAAP EPS of $0.40 vs $0.43 in the prior year and below analyst estimates of $0.42.

Recall, on August 2, 2016 we closed out our long position in BGSF due to its Q2 2016 results. We stated we believe there is headline confusion over analysts and the company conveying conflicting non-GAAP numbers to investors. We did not feel comfortable holding into Q3 earnings.

Research

Fri, 21 Oct 2016 14:32:25 GMT

Closed BGSF long position

As a reminder in our August 2, 2016 we stated we were moving on from BGSF due to its Q2 2016 results. The stock has come down sharply since then. On October 6, 2015 we disclosed our long position at $13.35. We looked at BGSF as a growth + value opportunity due it dividend yield of 7%.

On May 9, 2016 we disclosed we were taking some profit off the table after the stock reached $16.00

On May 27, 2016 we added to our position @ $14.00 when the stock got slammed on news of a secondary offering to pay down debt. The stock went on to reach new highs, hitting $21.75 in early July 2016.

There certainly seemed to be headline confusion surrounding its Q2 results. A main issue surrounding the BGSF story is that it seems the analyst covering the stock and the Company itself have been calculating non-GAAP earnings completely different, creating a major disconnect with investors. This confusion could potentially lead to another information arbitrage opportunity. We will look closely at the Company’s Q3 2016 results. We do not feel comfortable having a long position into earnings.

Research

Tue, 02 Aug 2016 14:30:18 GMT

BGSF ($21.01) reported Q2 2016 results:

Sales of $62.6 million vs $49.8 million in the prior year
Company provided non-GAAP EPS of $0.29 vs $0.31 in the prior year (Seems the Company failed to add back the $0.05 for the one-time debt extinguishment expense)
GeoTeam calculated non-GAAP EPS $0.24 vs $0.20

Quotes from management:

L. Allen Baker, Jr., President and CEO, stated, "As evidenced by the continued strong growth in each of our three business segments, we continue to build upon our foundation combining organic growth and disciplined, accretive acquisitions."

"While net income and EPS were negatively impacted as the result of a $404,000 ($0.05 per diluted share) one-time debt extinguishment expense, this early elimination of high interest debt will result in less interest expense going forward. We continue our geographic and industry expansion plans and expect to finish 2016 as our strongest," Baker concluded.

We had great run with BGSF, but we will be looking into lock gains and move on to new opportunities we are seeing after reading Q2 press releases, conference call transcripts and SEC filings. We plan to be on the BGSF earnings conference call at 1:00 PM EST later today.

Timeline of Calls to action

On October 6, 2015 we disclosed our long position @ $13.35. We looked at BGSF as a growth + value opportunity due it dividend yield of 7%.
On February 17, 2016 we reiterated our optimism based on our pro-forma modeling of financials taking into account recent acquisitions that analysts had not fully baked into estimates.
On May 9, 2016 we disclosed we were taking some profit off the table after the stock reached $16.00
On May 27, 2016 we added to our position @ $14.00 when the stock got slammed on news of a secondary offering to pay down debt. See our article here.

Research

Tue, 05 Jul 2016 15:00:46 GMT

BGSF ($18.50) - Shares were briefly marked up on this temporary staffing company to a new high in premarket trading, likely a result from a “Buy” rating issued from Louis Navellier. BGSF is one of the stocks highlighted in this article from InvestorPlace, “7 A-Plus Stocks to Buy for the Rest of 2016”.

Recall, we have been long BGSF since October 6, 2015 @ $13.3 and recently highlighted in our Mock “Buy on PUllback” portfolio 2.0. We stated:

“After a nice run, the stock traded down 17.3% to close at $13.53 on Friday May 27, 2015 after announcing the public offering of 1,075,000 newly issued shares of common stock priced at $14.00 per share...

We believe shares should fully recovery to recent highs, possibly higher assuming the Company continues its current growth trajectory.”

Research

Tue, 31 May 2016 13:12:20 GMT

Game On

What is worse than seeing a big chunk of your profits in a stock you are long disappear in one trading session? Not seizing the moment to add to your position if the story has actually improved!

We have been long temporary staffing company BG Staffing Inc (NYSE:BGSF) since October 6, 2015 @ $13.35. The stock traded down 17.3% to close at $13.53 on Friday May 27, 2016 after announcing the public offering of 1,075,000 newly issued shares of common stock priced at $14.00 per share. Prior to the offering BGSF had 7.1 million shares outstanding. The newly issued shares will account for 13% of the total shares outstanding after the offering. Roth Capital Partners and Taglich Brothers, Inc . are book running the offering. Roth already has coverage on BGSF, but Taglich is new to the story, meaning that they are probably going to take advantage of the drop in shares to initiate coverage, recommending that their retail client base buy the dip.

The company targets three areas of the temporary staffing industry:

The Light Industrial segment provides temporary workers to primarily distribution and logistics customers needing a flexible workforce.
The Multifamily segment is a leading provider of front office and maintenance personnel to the multifamily housing industry.
The IT Staffing segment provides highly skilled IT professionals with expertise in SAP ERP, SAP BI, Hyperion, Oracle ERP, Oracle BI and Peoplesoft.

Before BGSF got slammed, the stock was in striking distance of its 52 week high of $17.00 reached on May 23, 2016 and matched on May 26, 2016. We view the drop in BGSF shares as a classic information arbitrage opportunity that we are looking to profit from after investors put two and two together and realize that the offering, in our opinion, reduces the risk profile of the company while at the same time being accretive to earnings per share.

In addition to BGSF fitting our information arbitrage theme, the company also embodies one of the growth + value propositions we look for: fat dividend + sales, EBITDA and EPS growth, selling at too low of a valuation. BGSF is rewarding its shareholders with regular quarterly dividends along with organic and acquisition driven growth:

	GeoInvesting 2016 EST.	2015	2014	2013	2012
Rev	$260.5 est	$217.5	$172.8	$151.7	$76.7
Non-GAAP EPS	$1.22 est	$0.83	$0.51	$0.28	$(0.28)
EBITDA	$22.5 est	$17.9	$11.6	$10.8	$5.5
Dividend per share	$1.00 est	$1.00	$0.15	$0.00	$0.00

At its current price, BGSF’s dividend is yielding 7.4%, while shares, based on our upwardly revised estimates ($1.29 for fiscal 2016), are trading at a forward P/E and EV/EBITDA multiple of just 11.1 and 5.5 respectively.

We are baffled that the stock traded down $2.83, closing below the offering price of $14.00. Ultimately, we believe the stock should trade back up and surpass to its previous high of 17 once investors realize the offering is slightly accretive and not dilutive.

Confusion Leads to Information Arbitrage Opportunity

What is information arbitrage? An arbitrage exists when a disconnect between stock prices and available public information on a company is noticeable, and monetarily worth pursuing. Sometimes the mispricing is due to investors misinterpreting company developments, as we believe to be the case with BGSF. We think the confusion has to do with investors not fully grasping how management will deploy the offering proceeds and the extent to which all shareholders will benefit going forward.

Let’s look at what management stated it would use the public offering proceeds for as outlined in the press release issued by the company regarding the offering:

"The Company intends to use the net proceeds received from the sale of the common stock to reduce outstanding indebtedness."

Notice that management did not provide any clarity on how much debt it was paying down, what pieces of debt it was paying down and if the overall transaction would be accretive or dilutive to earnings per share. So we think it’s possible that investors decided to assume the worst case scenario of dilution, perhaps until management offers more “obvious” clarity on the impact of the transaction to earnings per share.

However, investors that made the effort to read the “use of proceeds” section of the public offering prospectus disclosed in Form 424B5 , page S-10, already know the answer to some of the “information gaps” in the press release.

The company’s preliminary prospectus states the net proceeds from the offering will be used to pay off ALL (not some) of its high cost debt:

“We intend to use all of the net proceeds from this offering to pay off the indebtedness outstanding under our senior subordinated credit agreement with Patriot Capital III SBIC, L.P. and Patriot Capital III, L.P. (collectively, "Patriot") and to temporarily reduce outstanding indebtedness under our revolving credit facility with Texas Capital Bank, National Association (“TCB”). None of these lenders will be participating in this offering in any capacity.”

The senior subordinated debt to be paid was approximately $14.7 million as of March 27, 2016, and bears an annual interest rate of 13%:

“The PC Subordinated Debt bears interest at 10% per annum, paid quarterly plus a compounding deferred interest of 3% per annum. Additionally, we pay an unused commitment fee of 0.25% per annum on the unfunded portion of the revolving credit facility. Repayment under the subordinated credit agreement is subject to an early repayment fee of 2% of the original principal amount of the related notes.”

Reduction of debt and interest expense is accretive to EPS

We estimate the reduction of debt will save BGSF over $1.9 million annualized interest expense. The benefit in the first year will be reduced by an early repayment fee of 2% but still totals around $1.0 million net of income taxes or $0.12 per share based on the estimated shares outstanding after the offering ($0.14 in future years without early repayment fee):

The benefit of lower interest expense more than offsets the dilutive effect of the offering. The following chart assumes the annualized net benefit of reduced interest costs and issuance of 1,075,000 new shares as of the beginning of 2015. Note the dilutive effect of the newly issued shares is around $0.10 but the benefit of reduced interest expense is $0.12, making the offering and reduction of debt accretive.

We think that, at a minimum, BGSF should have held its pre-offering price as the benefits of reduced interest expense are accretive to EPS and offsets the impact of dilution.

Proceeds from offering and reduction of debt shores up balance sheet making dividend policy more secure

Investors should also note that the offering markedly increases BGSF’s net tangible book value per share from a deficit of ($1.66) before the offering to an estimated $0.15 after the offering.

Also, the company’s debt to equity ratio drops from around 1.20 to 0.40. We think it is possible that the company’s improved balance sheet could lead to an expansion in its valuation multiples, while providing the company with increased flexibility to pursue its acquisition driven growth strategy.

Placing Some Faith in Taglich Brothers

We have had some decent success investing in stocks that Taglich covers, especially when they have skin in the game. In February 2009 coming out of the global recession we coded Orchids Paper Products Company (NYSE:TIS) as a GeoBargain, taking a sizeable position at $10.00. Taglich had about a 14% stake in TIS at this juncture. TIS embodied a similar growth + value story as BGSF in that the company was paying a fat dividend (which it was increasing) and growing its earnings and EBITDA. Although we sold the stock around $18.25 in February 2010, at its current price of $31.60 TIS is trading near its all-time highs of $34.20. In the case of BGSF, Taglich also has some significant skin in the game. Affiliates of Taglich Brothers beneficially own more than 10% of the stock.

Michael N. Taglich, who beneficially owns approximately 8.4% of our common stock, is a principal and the president and chairman of Taglich Brothers
Robert F. Taglich, who beneficially owns approximately 6.4% of our common stock, is a principal and a managing director of Taglich Brothers
Douglas E. Hailey, an employee of Taglich Brothers who owns 80% of the equity of Taglich Private Equity LLC, and Richard L. Baum, Jr., an independent contractor for Taglich Private Equity LLC who owns 10% of the equity of Taglich Private Equity LLC, are members of our board of directors

Needless to say, we don't think Taglich would approve or support a move that would be detrimental to the company or jeopardize the dividend policy.

Positive Industry Tailwinds

The temporary staffing growth rate in the United States has outpaced growth in GDP and overall employment post the Great Recession.

A major factor fueling the temporary staffing industry is that the amount of employee turnover, the rate at which incoming employees replace outgoing employees over the course of a year, has been high. As an economy improves people have more job options to choose from and more offers coming their way. Furthermore, the inability of the economy to gain consistent traction is forcing companies to hold off on long-term commitments, so they turn to temporary staffing over permanent placement decisions.

“Businesses seem to be adjusting their employment strategies to better weather the economic volatility. In addition to directly hiring permanent employees, companies are increasingly turning to staffing services to augment their workforces and enhance their flexibility and agility in accord with the ebb and flow of the economy.”

“These trends suggest that a fundamental, or secular, shift is helping to drive demand. And, at least until the next economic downturn occurs, the staffing and recruiting industry is forecasted to continue growing faster than the economy and overall employment—creating an abundance of temporary, contract, and permanent employment opportunities for job seekers.”

Conclusion:

In our view the market overreacted to BGSF’s offering by marking the shares down without regard to the benefits of using equity to pay off high cost debt which offsets the dilutive impact of the newly issued shares. Once investors digest the implications of the company’s reduced debt and related interest expense, we expect the shares to recapture the value lost, and then some, following the completion of public offering (June 2, 2016).

Caveats:

The company still has $14.9 million outstanding on its line of credit
In order to maintain its current dividend payout the company will end up spending more money on dividends because of the increase in shares outstanding. Some investors may want to have more assurance that the company will continue to maintain a healthy payout ratio, something we will know soon at the end of June 2016. But we do know from verbiage in the prospectus that the company does plan to continue paying dividends.
As usual, a growth model fueled by acquisitions can run into execution problems.
Even though the temporary staffing trends have been positive for several years and are expected to remain positive going forward in 2016, the U.S. economy is still walking a fine line. Any derailment in economic progress could affect investor sentiment for staffing companies.

Research

Fri, 27 May 2016 16:02:58 GMT

Shares of BGSF ($15.00) are marked down 9% in the pre-market on the announcement of a share offering. We believe there is an information arbitrage opportunity after reading the details of the filing. The filing states the proceeds will be used to pay down high interest debt, therefore possibly being accretive to earnings as the the Company’s interest expense will be drastically lowered.

Heading into a rising rate environment, we find the company issuing equity near highs to pay off its debt as a forward thinking move.

All and all we view this as positive news for the Company, which will lead to more flexibility as they pursue further acquisitions and offers more assurance it can maintain its generous dividend policy. Furthermore, the reduction in debt combined with the increase in EPS and EBITDA could lead to an expansion of its valuation multiples.

Research

Mon, 09 May 2016 14:45:03 GMT

BGSF ($15.70) is a staffing company. BGSF reported strongQ1 2016 results on April 29, 2016, reporting a 140% increase in EPS. The Company continues to outperform analyst expectations, which we stated in manyprior updates, failed to take into account the full positive impact of acquisitions made in 2015. We highlighted this information arbitrage opportunity in our February 17, 2016research note. We originally liked the BGSF story because through its fat dividend yield (7.0% at this time), it offered a unique growth and value investment opportunity. We have taken a little bit of our position off the table, but still hold a decent sized position. BGSF is up 17.6% since we initiated our position in early October.

Research

Fri, 29 Apr 2016 14:51:23 GMT

BGSF ($14.60) - In our February 17, 2016 research note, we stated that our analysis led us to believe that pro-forma 2016 sales and EPS could exceed analyst estimates, after factoring in the D&W (February 27, 2015) and VTS (September 28, 2015) acquisitions and management’s growth assumptions.

Yesterday after the close BGSF reported Q1 2016 results:

Sales of $59.6 million vs $40.9 million in the prior year and slightly ahead of analyst estimates of $58.3 million
Non-GAAP EPS of $0.24 vs $0.10 in the prior year and crushed analyst estimates of $0.08

Quotes from management:

"The execution of our acquisition and organic growth strategy business plan, which was initiated in 2009, laid the foundation for a record first quarter of 2016. Results were bolstered by our 2015 acquisitions and the strong growth in each of our three segments.

We look forward to continuing our momentum in the second quarter and throughout 2016 to build a diversified staffing solution company, expanding geographically and expanding the industries we service. We anticipate finishing 2016 as our strongest year on record"

We believe BGSF is a strong value + growth play and remain long shares. The Company has a healthy 7% dividend yield, and continues to grow organically and through acquisition.

Research

Mon, 07 Mar 2016 16:42:01 GMT

BGSF ($13.18) announced fiscal fourth quarter and full year 2015 results (results were pre-announced on February 1, 2016)

Revenues were $217.5 million a 25.9% increase over 2014 and ahead of analyst estimates of $208.5 million
Pro Forma* revenues were $245.8 million compared with $223.7 million in 2014.
Adjusted EBITDA was $17.9 million a 53.6% increase over 2014.
Q4 revenues 66.7 million ahead of consensus analyst estimates of $57.7 million
Full year EPS of $0.73 vs loss of $0.08 in the prior year
Q4 EPS of $0.20 vs $0.08 in the prior year

Quotes from management:

"While there may be uncertainty in the general market and overall economy, our business outlook is good. In the fourth quarter we strengthened our back office staff to support continued growth. I look forward to a year of increasing revenues, improving profitability while looking to build on our track record of accretive acquisitions."

Baker continued, "According to Staffing Industry Analysts ("SIA"), it expects that our industry will grow by approximately 6% during 2016. Our pro forma revenue results for 2015, including the benefit of two acquisitions, were $245.8 million*. Consistent with the SIA perspective, I am comfortable that we can achieve 6% growth over our 2015 pro forma revenue in 2016."

For a complete look at our financial modeling for BGSF pro-forma results and 2016 projections,go here.

Research

Wed, 17 Feb 2016 14:34:38 GMT

BGSF - Pro forma combined results for 2015 and estimated 2016

In our February 9, 2016 email we stated we were working on financial modeling for $BGSF ($12.50), taking into account the company’s last earnings report and the full impact of the company’s recent acquisition of D&W (February 27, 2015) and VTS (September 28, 2015) . Our analysis, after factoring in these acquisitions and management's growth assumptions, lead us to believe that pro-forma 2016 sales and EPS could exceed analyst estimates. In this update, our model confirms that analyst estimates will likely need to be increased for 2016. Current estimates for 2016 sales and EPS are for $249.0 million and $1.05 EPS respectively. Our estimates for sales and EPS in 2016 are $260.5 million and $1.26 respectively compared to 2015 gaap results of $217.5 million in sales and EPS of $0.70.

BGSF pre announced unaudited financial results for the fiscal year ended December 27, 2015, on February 1, 2016. The company’s press release included combined results for BG including two companies acquired during 2015, D&W (February 27, 2015) and VTS (September 28, 2015). The release also included pro forma combined results for 2015 and 2014 for BG with separate breakouts of results for D&W (2 months) and VTS (9 months) that took place in 2015 prior to the acquisitions. The financial data provided by the company included revenue and a reconciliation of pro forma Net Income to EBITDA. The reconciliation included an income tax provision for BG but not for D&W and VTS. We therefore allocated the tax provision pro rata to the three companies based on their respective revenues.

The following chart reflects BG, as preannounced for fiscal 2015 (column 1) together with an estimated breakout (column 2) of D&W (10 months) and VTS (three months) for results recorded during the year after the acquisitions. The impact of the pro forma contributions of D&W and VTS during 2015 prior to the acquisitions is reflected in column 4 with pro forma combined results for 2015 in column 5. Estimated results for fiscal 2016 using the company’s assumed revenue growth rate of 6% and estimated EBITDA and net income ratios based on 2015 results. Note, we used an effective tax rate in line with the pro forma combined data provided by the company for 2015.

Although the company did not pre announce 2015 EPS, using BG net income included in the data provided in its pro forma combined presentation of $5.3 million and the shares outstanding in Q3, we derived 2015 EPS of $.70. On a pro forma combined basis, we estimate EPS would have been $1.13 had the acquisitions of D&W and VTS taken place effective at the beginning of fiscal 2015. Finally, if revenues grow at 6% in 2016 and the 2015 ratios of EBITDA, effective income tax rate and net income are consistent with 2015’s performance, the company should generate around $1.26 EPS in fiscal 2016.

Research

Tue, 09 Feb 2016 15:41:34 GMT

We are working on several pro-forma financial models, including one for $BGSF ($12.51), taking into account the company’s last earnings report and the full impact of the company’s recent acquisition. It appears after consummating this acquisition, 2016 analyst EPS estimates of $1.05 could be far too low. Stay tuned for a full financial analysis coming soon, available to you only.

Research

Mon, 01 Feb 2016 16:06:47 GMT

BGSF ($13.60) preannounced 2015 year end results:

Revenues were $217.5 million a 25.9% increase over 2014 and ahead of analyst estimates of $208.5 million
Pro Forma* revenues were $245.8 million compared with $223.7 million in 2014.
Adjusted EBITDA was $17.9 million a 53.6% increase over 2014.
Q4 revenues 66.7 million ahead of consensus analyst estimates of $57.7 million

Quotes from management:

L. Allen Baker Jr., CEO said, "I am pleased to report these record results and very proud of the outstanding work our staff did in order to achieve them. In business, I believe the numbers speak for themselves and our numbers say, loud and clear, that we continue to deliver significant results for our shareholders...

Baker continued, "According to Staffing Industry Analysts, it is expected that our industry will grow by approximately 6% during 2016. We expect our growth will be in line with that."

We believe the way the company presented its results could lead to confusion with some investors. When looking at the pro forma results of $245.8 million which included 2 months revenue contribution from D&W Talent and 9 months contribution of Vision Technology Services, BGSF sales easily surpass the $208.5 million analyst estimate. Assuming no growth, but full contribution from the two acquisitions, revenues would be $269 million. The 6% growth rate managment states on this number would lead to 2016 revenues of $285 million well ahead of analyst estimates of $249.0 million. We are continuing our analysis to determine if our assumptions are correct.

Research

Tue, 01 Dec 2015 19:24:13 GMT

Roth Capital Initiates Coverage on BGSF with a “Buy” and $18 Price Target

In our October 6, 2015 e-mail, we stated we were making a pre-earnings bet on $BGSF ($13.86). We stated we believed that BGSF presented a unique opportunity, similar to Educational Development Corporation (NASDAQ:EDUC) in that it is paying a high dividend yield ( 7%) and is in the midst of a strong growth phase. BGSF ended up reporting strong Q3 2015 financial results on November 2, 2015. See our full note here. We are maintaining our long position in BGSF.

Research

Mon, 02 Nov 2015 15:46:22 GMT

Maintaining Our Long In BGSF; May Look To ADD

In our October 6, 2015 e-mail, we stated we were making a pre-earnings bet on BGSF. We stated we believed that BGSF presented a unique opportunity, similar to Educational Development Corporation (NASDAQ:EDUC) in that it is paying a high dividend yield ( 7%) and is in the midst of a strong growth phase. BGSF is growing organically and through acquisitions. Today, BGSF reported strong Q3 2015 results:

Revenues of $60.2 million vs $48.0 million in the prior year
EPS of $0.29 vs $0.06 in the prior year

Here is some of the bullish commentary from management:

"Our momentum is building as we continued to make important progress in executing our business plan on all fronts during the third quarter of 2015," said L. Allen Baker, Jr., President and CEO.

The recent acquisition of Vision Technology Services (closed in Q4) continues our momentum in building a diversified staffing solution company and we look forward to continuing execution of our business plan in the fourth quarter of 2015 and throughout 2016, added Baker.

Our results were bolstered by the March acquisition of D&W Talent in the attractive staffing niche of finance and accounting, and strong growth in all of our segments. We are very pleased with the results of the third quarter, our best ever, and look forward to finishing 2015 as our strongest year on record," Baker concluded.

We will be on the conference call this afternoon to see if management gives any more color on the rest of fiscal 2015 or fiscal 2016.