Staffing 360 Solutions, Inc.

Everyone, and welcome to the Staffing 360 Solutions Fiscal 2021 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. This conference call will contain forward-looking statements within the meaning of the U.S. Federal Security's Laws Concerning Staffing 360 Solutions, Inc. 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 Staffing360 Solutions' actual results to differ from those contained in our forward-looking statements. All forward-looking statements are made as of today, April 21, 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 comments, the company may make reference to a certain non-GAAP measure, such as adjusted EBITDA, which, where applicable, reconciliations have been provided for these non-GAAP measures to the most directly comparable GAAP measure. It is now my pleasure to introduce Brendan Flood, Chairman and Chief Executive Officer of Staffing 360 Solutions. Mr. Flood, you may begin.

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 Khaled Anwar, our principal accounting and principal financial officer. I begin my remarks by saying that I hope everyone is staying healthy and safe. We are 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 the 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 will outline how this pandemic has impacted us and how we are 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 are 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 pre-announced. 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 are cautiously optimistic is a recovery phase. In December 2019, we had 282 internal employees. And in December 2020, we had 196 employees. In the past 12 months, we have closed three of our branch locations and relocated the client activity from them to other branches. These were all opportunities to exit leases and save additional overhead. As we see the recovery coming, we will have a stronger business base with which to execute on growth. During the month of May, we qualified for and received $19.4 million of Paycheck Protection Program monies from the Small Business Administration. We used these loans for the purposes for which they were intended and are now going through the forgiveness process. At this moment in time, we have not received forgiveness on any of the loans. In September 2020, we disposed of, to its management, the first pro business in Atlanta, Georgia. Including the intangibles impairment that we recognized in Q1, we had overall a hit of approximately $3 million to our P&L for this business in 2020. Our press release on Monday has outlined the fourth quarter performance with and without this business, and I will reiterate those statistics shortly. Our cash management was very strong across the year. We recognized early the potential impact that the pandemic might have and swiftly tightened our controls over receivables during Q1 and onwards, particularly in the UK where we reduced our DSOs materially. We had only one bad debt during the year. A US client took a hit from the closure of the restaurant trade and filed for Chapter 11. As a result, we experienced a $900,000 bad debt. This cash management, allied to the stimulus programs in both the United States, particularly the FICA deferral program, and the United Kingdom, allowed us to manage our debt balances and we further managed them with the capital raises in December and February, resulting in our debts, including outstanding interests and the redemption of convertible preference shares, being reduced by 55% from June 2020. The introduction of the IR35 tax legislation in the UK had a material impact on our contracting business in that market. Over the course of a three-month period, we had approximately 100 UK contractors changed their status from temporary contractors to permanent employees, often without a conversion fee as they had been contracting for a significant period of time. The largest part of this impact was felt in the first quarter of 2020, but the deferred start date of the legislation to 2021 meant that the uncertainty surrounding it stayed with us longer than we had hoped or expected. Our UK contract revenue in 2020 was 26.4% below 2019, and this legislation, allied to the loss of a payroll inclined in July 2019, accounted for the majority of this loss. Adjusted EBITDA for the year was $4.7 million, a decrease of $5.1 million from the $9.8 million we achieved in 2019. Our net loss from operations of $8.8 million was materially down from the $623,000 profit from the previous year, driven by the reduction in gross profit, the impairment in First Pro, and the pandemic-related bad debt. When we look at quarter four, given the items just mentioned, it is more meaningful to look at the sequential movements we are seeing. Quarter four revenue was $53.8 million, which, excluding the disposal, was a gain of 15.3% over Q3, with gross profit being up 11%, excluding the disposal. Our adjusted EBITDA on Q4 was $1.7 million, against $1.2 million in the third quarter, or $1.1 million, excluding the disposed business. Our press release contains a table showing the trailing 12 months performance. I will now hand the call over to Khaled for a further update.

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 $53.8 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%. Including 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 at 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 the 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. showing strong improvement in sequential quarter over quarter. For the full year fiscal 2020, 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 the U.K. and loss of key clients. a payrolling business in the UK, and a client in the US 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. Gross profit for fiscal 2020 was $34.8 million, down versus fiscal 2019 of $48.3 million, representing gross margin of 17% and 17.3% for each period respectively. The gross profit decline was approximately 28% due to lower permanent hiring fees compared with prior year, a 44% decline. At the same time, Contract business declined by approximately 23% due to the impact of IR35 in the UK and COVID-19 pandemic. Operating expenses for fiscal 2020 were $43.6 million, a decrease of approximately 9% over $47.7 million for fiscal 2019. As mentioned earlier, the company aggressively reduced headcount and other discretionary costs, travel, projects, etc., to bring the business to a sustainable level during the pandemic. SG&A, for example, decreased by approximately 6.8 million, or 15.4% from the prior year. Other expenses for fiscal 2020 was a $3 million goodwill impairment charge to first-row business that was sold during the year. Interest expense for fiscal 2020 declined by $433,000 for fiscal 2019, as the company restructured its debt with Jackson Investment Group, extending it out via two more years. The net loss for fiscal 2020 came to $15.6 million as compared with a net loss of $4.9 million for fiscal 2019, a decline of $10.7 million in net loss. As Brendan mentioned earlier, the company raised new capital in the market first in December 2020, and then in February 2021, and used the proceeds to reduce the Jackson debt and preferred shareholders. This brought the total owed to Jackson from June 2020 of $35.7 million to the current level of $19.2 million, a decrease of $16.5 million. Furthermore, CDZ preferred shares were reduced from a June balance of $13 million to a current balance of $6.2 million, a decrease of 52.5%. The company's balance sheet has strengthened considerably in its networking capital position, that is, current liabilities minus current assets, which has improved by 20.8 million from fiscal 2019. Cash balance of 10.3 million has improved from 1.2 million at the end of fiscal 2019, an increase of 9.1 million. I will now turn the call back to Brendan.