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spk03: Good day and welcome to the Staffing 360 Solutions Q2 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Terry McGinnis, VP of IR at Biblicoff and McGinnis. Please go ahead. Thank you, Operator. Greetings to all and welcome to the Staffing 360 Solutions Fiscal Q2 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 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, 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 the company's actual results to differ from those contained in our forward-looking statements. All forward-looking statements are made as of today, August 24, 2022, and Staffing 360 Solutions expressly disclaims any obligation to revise or to update any forward-looking statement after the date of this conference call. During these prepared remarks, the company may make reference to certain non-GAAP measures, such as adjusted EBITDA. Where 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 Flood, Chairman, President, and Chief Executive Officer of Staffing 360 Solutions. Brendan, please begin.
spk01: Thank you, Terry. And welcome to everyone who has joined our call. I'm joined today by Alicia Barker, our Chief Operating Officer, who will give us an update on progress with the acquisition made in mid-May, Headway Workforce Solutions, Inc. I will begin with a high-level summary overview of our Q2 and year-to-date financial results. More details are available in the news release and form 10Q published yesterday. Then I will hand the call over to Alicia, after which I will give an update on trading and answer some questions that have arrived by email. There are various moving parts in these results, not least of which are the inclusion of headway for six weeks and the material impact of the movement in the exchange rate between the US dollar and the pound sterling which has adversely impacted the translation of the results of our UK business into the group consolidation. As mentioned from time to time, almost all of our invoicing and our operating expense payments in the UK are in local currency, so these impacts are non-cash translation impacts rather than transactional in any material way. The further down the P&L account we look, the lesser the impact, to the point where, at an adjusted EBITDA level,
spk00: the impact was a reduction of $54,000 related to this currency translation.
spk01: As outlined in our Q2 financial release, our revenue for the quarter was $59.1 million, which was 16.9% up year-on-year. On a constant currency basis, the revenue increase was 20.3%. For the six months, our revenue was $108.9 million, up 9.5% year on year. At the gross profit level, we generated $10.5 million in the quarter, up 16.6% year over year, and 19.9% on a constant currency basis. For the six months, gross profit was $19 million, up 11.7% year over year, or 13.9% on a constant currency basis. Headway contributed 11.5 million of revenue and 1.3 million of gross profit in Q2, and the same on a year-to-date basis. At an adjusted EBITDA level, we delivered 1.438 million, an increase from 1.372 million last year, of which Headway provided 140,000. For the six months, our adjusted EBITDA was 2.246 million against 2.5 million last year, including a negative impact of 54,000 for currency fluctuation. In the second quarter of 2021, we had the benefit of 10.1 million of the PPP loan forgiveness. Excluding this, our net income loss of 2.264 million was flat against last year, having absorbed a P&L charge of $566,000 for the revaluation of the loan between the parent and the UK subsidiary, a non-cash item. For the six months ended July 2nd, taking the same view on the forgiveness of the PPP loan, the net income loss of 4.6 million was 0.6 of a million unfavorable to 2021, having absorbed a $1.1 million adverse movement for the same revaluation.
spk00: Moving to cash flow, our total cash usage for the six months was $2.7 million.
spk01: Included within this was a pickup of cash from the acquisition of $0.7 million and a pay down of debt of $1.9 million in the UK. Excluding these items, our movement in cash was a decrease of 1.475 million for the six months, of which 1.435 million occurred in the first quarter. Our total adjusted cash movement in the second quarter was $40,000. With that, I will hand the call over to Alicia Barker, Chief Operating Officer. for an overview on the integration process and advantages of our May 22 acquisition of Headway Workforce Solutions. Alicia?
spk02: Thanks, Brendan. Good morning, everyone. We closed the Headway Workforce Solutions acquisition on May 22, and as we've said previously, the acquisition of Headway is a game-changer for us on several levels. As of today, we've realized $1.8 million of integration savings, and that will flow through the second half of the year and beyond. These savings are a result of very aggressive efforts to consolidate our insurance policies and integrate support functions, which has reduced the need for personnel in the departments of human resources, compliance, finance and accounting, payroll and billing, compliance, and IT. While the savings to date are $1.8 million, we fully expect we'll see even more savings after a full quarter of working together and integrating more systems and vendors. The addition of Headway strengthens our internal departments in several areas, including project management, process quality control, and technical IT expertise. We fundamentally understand where we are in our digital journey and the type of transformation that needs to occur to enable the kind of digital innovation that is going to be fundamental to our success. Our organizational cultures and agile teams are remarkably similar, and the integration process is progressing nicely on schedule. We're looking at our technology and architecture and trying to ensure that every aspect of our business is operating at an optimal level. The headway acquisition provides a catalyst to incorporate data and technology to improve and enhance our ability to find, attract, and onboard candidates for our clients. So simultaneously for the integration exercise, we are in the process of implementing a single CRM platform in the U.S. And that will give every employee in our organization access to every individual candidate across all four of our U.S. brands. This implementation alone more than doubles our candidate database within a single click of going live. We've chosen Aviante Bold as our partner, and we're operating under aggressive go-live dates for all of our U.S. brands. So as an additional cost savings initiative, we're also reducing our brick and mortar presence in favor of central hub locations and remote onboarding tools wherever we can without interfering with the high level of account management client service that our partners have come to expect. Additionally, we're continuing to focus on our cross-selling, and we're already working on two multi-brand opportunities with Headway. I'm pleased to note that we've recently been asked by our largest UK clients to demonstrate our US capabilities to service a well-known multi-brand portfolio. We continue to look at additional ways to be a value-add service provider to our large clients and to be a resource for staffing, payroll, and benefits in a way that saves them considerable overhead dollars. We know that we have an appealing proposition and we expect to see the bottom line impact of those initiatives in 2023. It's very clear to us that the combined organizations will have a powerful market presence and high value offerings. Brendan, I'll now turn the call back over to you.
spk00: Thank you.
spk01: As we've now moved into the third quarter, We are beginning the period that is seasonally the highest point in the year for both staffing 360 solutions and for the headway workforce solutions acquisition. As you heard from Alicia, the integration plan is running at a strong pace. There is a lot to get done, but there is a lot that has already happened. As we exited quarter two, the weekly gross profit run rate in the month of June, the first full month post acquisition, was in excess of 30% up year on year and we expect to see this replicated across all of Q3, with Q4 probably even higher still. The pipeline of activity is very strong, and our teams are prepared and committed to delivering on that pipeline. As you know, we have concentrated, as did Headway pre-acquisition, on improving our tool structure and strengthening our balance sheet. This will continue as we move through the third quarter and set ourselves in a position to continue with our acquisition program and move towards our stated aim of being a profitable $500 million revenue business. Beginning next month and across the remainder of the year, JP Sakey, former chairman and CEO of Headway Workforce Solutions, and I will embark on an active investor awareness program to outline where and how our combined businesses
spk00: add meaningful strength to our client delivery and ability to generate shareholder returns. Now I would like to answer some of your questions submitted via email, after which I will end our call with a brief closing statement.
spk01: Several of your questions were answered in our prepared remarks and others were duplicative or have been combined. If I just take a moment to put them in order and then I will rejoin you.
spk04: Okay, our first question.
spk01: Temp revenue is down over $3 million in the UK from the year-ago period. What's driving that lower number, and how and when will it be reversed? Firstly, we need to recognize that our UK business is transacted in pounds sterling. The exchange rate between the US dollar and the UK pound has created an adverse movement as far as translating the results of our UK operation is concerned. Of the $3 million questioned, 1.7 million of it relates to foreign currency translation and is a non-cash reduction. As for the other 1.3 million, I attended several UK meetings in the past two weeks, both looking at the profitability of the UK business, and we've taken out approximately 500,000 pounds sterling of annualized cost in the past two months or so, and at the productivity of the business. There are two clients in the UK that have slowed, one evaluating the progress of its projects and the other dependent upon government contracts which are still pending. The evaluating client has been reinvigorated and the other client is still waiting.
spk00: Outside of this, there are a number of interesting activities going on.
spk01: You heard from Alicia that the account management of our largest client has changed and a number of new opportunities have opened to us. and there is a renewed sense of optimism among the client base that we have about the future of the UK economy. Right now, I have very few concerns about recovering this shortfall, but it will take a couple of quarters.
spk00: Our next question is, most margins for headway were nearly 12%. What margin range would you expect going forward?
spk01: As mentioned, there is a level of seasonality to the business of headway, and during the summer months, certain contracts hibernate. For example, teacher roles in Chicago and other places. So the employer of record business delivers a smaller relative share of the pie during those months. These contracts are starting to reawaken, so I'd expect that the long-term average margin will be approximately 10%, which is what we included on our acquisition evaluation.
spk00: Next question. You have several debt items maturing in the near term. What is your plan for dealing with these?
spk01: At the point of the acquisition, the invoice financing of Headway was provided by White Oak, and for staffing 360 Solutions, it is MidCap Financial in the US and HSBC in the UK. All of these agreements have matured or are maturing. We are working with all parties but anyone who has ever worked on an asset-based lending facility will tell you that there is a lot of due diligence and a lot of paperwork. In the UK, we were required to file our statutory accounts with the UK government in order to move forward with HSBC. These were filed last week, so progress should be imminent. In the US, due diligence is nearing completion without any material findings, so we should see imminent progress there also. It should be noted that all facilities continue to run as normal.
spk00: However, within a few weeks, I would expect to announce greater positive clarity as to how we will move forward. The next question, will the company consider buying back shares?
spk01: At this point, the board believes that the public float is too low and any buyback would not improve liquidity
spk00: nor would it add any value at this time. Why aren't management and the board of directors buying shares in the open market?
spk01: I did respond to this question on our last call. The response hasn't changed. The response is broadly that management and directors are bound by insider 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 of the senior managers and directors were aware of and involved in this acquisition. While in possession of material non-public information, the purchase of shares is not allowed. As I've just mentioned also, we are currently working on all of our debt instruments. So again, there is material non-public information that is available to the board of directors and management, which would preclude them from buying any shares in the open market. Personally, I have historically gone to the market seven times to acquire stock, and these purchases are a matter of public record.
spk00: What is your strategy to improve the market capital of the company?
spk01: Our strategy to build a profitable company has several elements. including to continue to execute on our business plan, to find and make accretive acquisitions, and to launch an active investor relations program to both inform existing investors and to broaden our investor base to a new audience.
spk00: Our final question is, is the launch of your new brand, Butler Bridge in May, going as expected?
spk01: In July of Q3, we launched Butler Bridge in May, a new professional brand and the first organic brand launch in the UK. This partnership with our three existing UK brands was formed to respond to ongoing client demand for a broader range of services for professional administrative roles. Our new brand is initially focused on the placements of executive assistants, talent acquisition managers, and human resource professionals via contract or permanent engagement. The early results have been significantly better than expected, and Alicia and Alison Drake have provided a huge amount of impetus into this brand. Because it is an organic build with existing employees, the trust levels between the consultants of Butler Bridge and May and the existing brands have started out high and are driving success.
spk00: That said, it is very early,
spk01: And this brand will show greater promise over the coming couple of years, but it is a great addition to our portfolio. So that is the end of our question and answer session. I would like to commend, in closing, our employees and associates for the incredible hard work they've put into making this business what it is. the incredible hard work they will put into making this business what it will be, and the acquisition of Headway Workforce Solutions. I'd like to formally welcome every employee working in Raleigh, Durham, and beyond. We have a very exciting future ahead of us, and I look forward to talking to you all about it in quarter three and beyond. Operator, that is the end of our call. Thank you all for coming.
spk03: Thank you for your participation. You may now disconnect your lines
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