Margin Weakness Continues In Q1. Last week, Staffing 360 reported its first quarter results with Revenue of $63.1 million, a $13.2 million improvement from the year ago period. The improvement was due to the Headway acquisition, which accounted for $20.1 million, while existing operations experienced a decline of $6.9 million, of which $1.6 million was related to currency translation. Professional Staffing in both the US and UK was roughly flat year-over-year, adjusting for currency translation. Reflective of the general economy, the Commercial segment continued to see weakness, with Revenue of $23.2 million, a $5.3 million decline from the year ago period. Gross margins declined to its lowest point in over a year on a weaker Headway margin quarter and less permanent placement business in the UK. SG&A was as expected at $10.9 million, while Interest Expense came in at $1.3 million. Net Loss for the quarter was $2.85 million, or $0.90 per share, however Adjusted EBITDA was $1.33 million, short of our estimate due to the gross margin weakness.
Warrant Inducement Financing. On September 1, the Company entered into a warrant inducement agreement with a warrant holder to purchase 2,761,170 shares of common through the exercise of previously issued warrants at a reduced exercise price of $0.83 per share. The investor would also be issued 5,522,340 five-year warrants exercisable at $0.83 per share. Its placement agent, H.C. Wainwright would be issued 207,088 warrants exercisable at $1.0375. Due to the issuance being more than 20% of the shares outstanding, the deal requires shareholder approval. A Special Meeting of Stockholders will be held tomorrow, October 24, to hold a vote to approve the warrant inducement financing deal. Proceeds from the financing were used to pay down the MidCap facility (roughly $1.3 million) and JIG notes (roughly $700,000).
Rscube Financing & Merger Interest. On August 10, Rscube Investment LLC became a 5% filer, and has continued building its position from there, most recently filing that it owned 14.9% of STAF (642,342 shares). Rscube disclosed that it sought a copy of the stockholder list for the purpose of contacting shareholders to sell their shares to Rscube, which was denied by the Company. It sent another letter on September 15, noting it also wanted to discuss tomorrow’s vote on the warrant inducement, as well as its interest in acquiring shares from STAF at similar terms as the warrant inducement (2,761,170 shares at $0.83 per share). Rscube also noted it had related ownership to 22nd Century Technologies, Inc, which offers staffing services to government-related entities, and is interested in discussing a possible business combination. At the present time, it is unclear if Rscube will issue an offer and seek to acquire STAF, or if it is looking to have 22nd Century be acquired by STAF.
Rights Plan. On October 2, the Company announced it would enact a Rights Plan that would require the Board to evaluate any and all offers to the Company, including those looking to transact a merger or acquisition. The Plan triggers when an investor owns over 10% of the voting stock, or 20% in the case of certain passive investors. Shareholders will receive one right per share of common and 0.3889 rights for each share of Series H Preferred.
