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S3

Staffing 360 Solutions, Inc. (STAF)·Q2 2021 Earnings Summary

Executive Summary

  • Q2 2021 revenue grew 16.5% year over year to $50.5M, gross profit rose 19.4% to $9.0M, and Adjusted EBITDA increased to $1.4M (+160% YoY), with a swing to net income of $7.8M largely driven by PPP loan forgiveness and lower interest expense .
  • Sequential improvement versus Q1: revenue $50.5M vs $49.0M, gross profit $9.0M vs $8.0M, Adjusted EBITDA $1.4M vs $1.1M .
  • Management guided directionally to a “significant” beat of 2H 2020 revenue ($102.5M; $100.5M ex-firstPRO) and gross profit ($15.8M ex-firstPRO) without providing specific ranges; expects improved revenue and gross profit in Q3 on pent-up demand and the end of U.S. unemployment stimulus .
  • Wall Street consensus estimates from S&P Global for Q2 2021 were unavailable due to mapping limitations; no formal beat/miss vs Street can be stated. Values from S&P Global were unavailable.

What Went Well and What Went Wrong

What Went Well

  • Strong YoY recovery: revenue +16.5% to $50.5M, gross profit +19.4% to $9.0M; Adjusted EBITDA up to $1.4M (+160%) and EBITDA to $9.7M from a loss last year .
  • Net income positive ($7.8M) vs a ($3.8M) loss last year, aided by $10.0M PPP forgiveness for Monroe Staffing and lower interest burden after significant debt/preferred reduction; “[interest] burden has been reduced by 50% from where it was a year ago” .
  • Strategic wins and cross-selling momentum: “exclusive MSP position” for a major UK client’s global IT recruitment and ~12 new commercial customers per month; cross-brand placements, e.g., Lighthouse with UK clients; permanent placement gross profit +52% YoY and expected to remain strong .

What Went Wrong

  • Operating loss persisted: loss from operations narrowed to ($1.1M), but OpEx increased due to commissions (growth), bad debt from a customer bankruptcy, legal/consulting fees for S-1/S-3, and higher insurance costs .
  • COVID-related bad debt of $239K in the U.S. was recorded at quarter-end; candidate supply constrained by unemployment stimulus, slowing temporary staffing recovery .
  • No quantitative guidance; reliance on macro improvements and PPP/financing benefits to sustain momentum, which could concern investors seeking precise targets .

Financial Results

Consolidated Performance vs Prior Periods

MetricQ4 2020Q1 2021Q2 2021
Revenue ($USD Millions)$53.8 $49.0 $50.5
Gross Profit ($USD Millions)$8.3 $8.0 $9.0
Gross Margin (%)N/A16.4% 17.8%
EBITDA ($USD Millions)N/A$0.321 $9.7
Adjusted EBITDA ($USD Millions)$1.7 $1.1 $1.4
Net Income ($USD Millions)N/A($1.7) $7.8
Basic EPS ($USD)N/AN/A$0.75

Year-over-Year (Q2 2021 vs Q2 2020)

MetricQ2 2020Q2 2021YoY Change
Revenue ($USD Millions)$43.4 $50.5 +16.5%
Gross Profit ($USD Millions)$7.6 $9.0 +19.4%
Loss from Operations ($USD Millions)($1.5) ($1.1) Improved
Net Income ($USD Millions)($3.8) $7.8 Swing to profit
EBITDA ($USD Millions)($0.8) $9.7 Improved
Adjusted EBITDA ($USD Millions)($0.5) $1.4 +160%
Basic EPS ($USD)($3.55) $0.75 Swing to profit
Adjusted EBITDA Margin (%)1.2% 2.7% +150 bps

Segment/Revenue Mix

Revenue MixQ4 2020Q1 2021Q2 2021
Temporary/Contract ($USD Millions)$52.9 $48.0 $49.2
Permanent Placement ($USD Millions)$0.9 $1.0 $1.3

KPIs

KPIQ1 2021Q2 2021Commentary
Temporary contractor revenue per week ($USD)~$3,700 ~$3,800 Up vs Q1; +22% YoY vs ~$3,100 in Q2’20 (ex-divestiture)
Temporary workers (approx.)~3,500 ~3,500 Utilization uptick
Permanent placement gross profit YoYN/A+52% Higher-margin mix benefits

Non-GAAP reconciliation and margin context provided in Exhibit 99.1 (Adjusted EBITDA Margin 2.7% in Q2’21; 1.2% in Q2’20) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue2H 2021None providedDirectional: expect to “significantly beat” 2H 2020 revenue $102.5M ($100.5M ex-firstPRO) Raised (directional)
Gross Profit2H 2021None providedDirectional: expect to “significantly beat” 2H 2020 GP $15.8M (ex-firstPRO) Raised (directional)
Revenue/Gross ProfitQ3 2021None providedExpect improved revenue and gross profit fueled by pent-up demand Raised (directional)
OpEx/OtherN/AN/ANo ranges provided; noted OpEx drivers (commissions, legal/consulting, insurance, bad debt) N/A
Tax rate/OI&EN/AN/APPP forgiveness and lower interest expense highlighted; no tax rate guidance N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2020, Q1 2021)Current Period (Q2 2021)Trend
Labor market & macro recoveryExpect strong 2H 2021 recovery; temp penetration to return; momentum building Cautiously optimistic; millions of vacancies; permanent placement outpacing temp; stimulus ending should boost temp Improving demand; temp constrained near-term by stimulus
Permanent placement strengthFaster recovery than temp; professional streams growing Permanent placement GP +52% YoY; higher-margin; already ahead of prior Q3 by mid-quarter Strengthening mix, margin accretive
PPP loans & financingApplied for $19.4M PPP; capital raises reduced debt/preferred $10.0M PPP forgiveness booked; remaining $9.4M forgiven in Q3; raised $11.2M; paid down $8.3M debt Balance sheet strengthened; interest burden halved
UK regulatory (IR35)Material UK impact in 2020; normalization expected UK client wins; exclusive MSP for global IT recruitment Transitioning from headwind to opportunity
Sales pipeline & cross-selling56 new contracts; inter-brand collaboration ~12 new customers/month; cross-selling examples; broader offerings to clients Building momentum
Workplace safety & vaccinationEncouraged vaccinations; focus on safety Mandated vaccination for internal employees with exemptions Formalized policy
M&A strategyRevisit in 2H 2021; deal flow strong Refocus on M&A in 2H; attractive multiples; fragmented market Accelerating as balance sheet improves

Management Commentary

  • “Interest burden has been reduced by 50% from where it was a year ago - which has led to $7.8 million in net income for the second quarter” .
  • “We expect improved revenue and gross profit in Q3 fueled by the pent-up demand we are experiencing” .
  • “Our permanent placement gross profit was up 52% Year-Over-Year in Q2 and we expect at least that same level of growth in Q3… permanent placement is a higher gross margin business” .
  • “We will begin to refocus on M&A in the second half of the year… the fragmented nature of the staffing market allows for accretive and attractively-priced acquisitions to be found” .

Q&A Highlights

  • Cross-selling momentum: Management detailed multi-brand collaboration (JM Longbridge, Lighthouse, CBS Butler, Monroe) and proactive client communication to expand services beyond temp staffing; expects meaningful uplift in direct hire GP from ~$3,000–$4,000 per annum historically to potentially ~$1.5M over the next year and beyond .
  • Limited Q&A depth: The session featured a single analyst question focused on cross-selling; no numeric guidance ranges were provided or clarified .

Estimates Context

  • Attempt to retrieve S&P Global consensus for Q2 2021 (Primary EPS Consensus Mean, Revenue Consensus Mean) failed due to missing CIQ mapping for STAF; Street consensus comparison is unavailable. Values from S&P Global were unavailable.
  • Given the lack of consensus data, investors should anchor on company-reported performance and directionally positive guidance commentary .

Key Takeaways for Investors

  • Mix improvement and margin potential: Permanent placement strength (+52% YoY GP) supports gross margin expansion; watch for continued mix shift as temp recovers post-stimulus .
  • Balance sheet de-risking is material: PPP forgiveness ($10.0M in Q2; $9.4M in Q3) and >$58.8M reduction in debt/preferred since June 2020 underpin lower interest expense and earnings leverage .
  • Near-term catalyst: End of U.S. unemployment stimulus (early September) should alleviate candidate constraints and accelerate temp staffing growth in Q3/Q4 .
  • Execution focus: Operating loss persists due to elevated OpEx (commissions, legal, insurance) and bad debt; monitor OpEx discipline and collections to translate top-line momentum into sustainable operating profitability .
  • M&A optionality: With improved capital access and lower leverage, management plans accretive M&A in a fragmented market—potential medium-term growth driver, but equity financing terms and integration risk merit scrutiny .
  • Trading implications: Absent Street estimates, stock reaction likely tied to headline growth, PPP-related earnings impact, and Q3/Q4 narrative; directional 2H beat vs 2H 2020 could be a positive sentiment driver if sequential trends persist .
  • Watch for quantification: Seek specific guidance ranges in subsequent updates (revenue, GP, margins) and segment KPIs to improve forecast precision; track UK wins and U.S. commercial contract conversions .