Staffing 360 Solutions, Inc. (NASDAQ:STAF) is a public company in the domestic staffing sector facing significant challenges. The company's business model is based on acquiring suitable, mature, profitable, operating, U.S.-based staffing companies. Staffing 360 Solutions' targeted consolidation model focuses specifically on the accounting and finance, information technology (IT), engineering, administration (Professional), and light industrial (Commercial) disciplines.

Financials

For the fiscal year ended December 30, 2023, Staffing 360 Solutions reported annual revenue of $190,876,000 and a net loss of $26,041,000. The company's annual operating cash flow was -$12,890,000, and its annual free cash flow was -$13,210,000.

In the first quarter of 2024, the company generated revenue of $41,444,000, a 13.0% decrease compared to the prior-year period. Gross profit for the quarter was $5,310,000, with a gross margin of 12.8%. The company reported a net loss of $2,556,000 for the quarter.

Staffing 360 Solutions' revenue is primarily derived from two main sources: temporary contractor revenue and permanent placement revenue. For the first quarter of 2024, temporary contractor revenue accounted for $41,170,000, or 99.3% of total revenue, while permanent placement revenue was $274,000, or 0.7% of total revenue. This represents a shift from the prior-year period, where temporary contractor revenue was $47,124,000, or 99.0% of total revenue, and permanent placement revenue was $500,000, or 1.0% of total revenue.

The decline in revenue was more prevalent in the Commercial Staffing segment, which saw a 15.5% decrease in revenue compared to the prior-year period. The Professional Staffing segment also experienced a 10.5% decline in revenue. Management attributes the challenging U.S. operating environment as the primary driver of the revenue decline.

Gross profit margin decreased from 15.7% in the first quarter of 2023 to 12.8% in the first quarter of 2024, primarily due to an increase in the proportion of revenue derived from lower-margin Employer of Record (EOR) services, which accounted for 38.6% of total revenue in the first quarter of 2024 compared to 32.1% in the prior-year period.

Operating expenses for the first quarter of 2024 were $7,575,000, a decrease of 8.5% from $8,280,000 in the prior-year period. The decrease in operating expenses was driven primarily by reductions in force implemented in May 2023 and February 2024.

Staffing 360 Solutions reported a net loss of $2,556,000 for the first quarter of 2024, compared to a net loss of $2,855,000 in the prior-year period. The company's effective tax rate for the quarter was -2.00%, compared to -0.79% in the prior-year period.

The company's balance sheet as of March 30, 2024, showed total assets of $62,162,000 and total liabilities of $72,342,000, resulting in a stockholders' deficit of $10,180,000. Cash and cash equivalents were $437,000, and the company had $19,116,000 in total debt, net of discounts and deferred financing costs.

Liquidity

Staffing 360 Solutions' liquidity position remains a concern, as the company had a working capital deficit of $46,965,000 as of March 30, 2024. The company has historically funded its operations through a combination of cash flows from operating activities, term loans, promissory notes, convertible notes, private placement offerings, and sales of equity. However, the company's ability to continue as a going concern is subject to substantial doubt, as it may not be able to obtain additional capital or meet its contractual obligations.

Recent Developments

In December 2023, Staffing 360 Solutions' stockholders approved a proposal to effect a reverse stock split of the company's common stock in a ratio ranging from 1-for-2 to 1-for-20, with the exact ratio to be determined by the board of directors. On May 28, 2024, the board approved a 1-for-10 reverse stock split, which was effective on June 25, 2024.

The company has also faced challenges in maintaining compliance with the Nasdaq Capital Market's listing requirements. In July 2023, Staffing 360 Solutions received a notice from Nasdaq indicating that the company did not meet the minimum bid price of $1.00 per share required for continued listing. The company was granted a compliance period until January 15, 2024, and later qualified for an additional 180 calendar days to regain compliance, bringing the deadline to July 15, 2024. Following the reverse stock split, the company regained compliance with the minimum bid price requirement.

In addition, on June 20, 2024, the company received a letter from Nasdaq regarding its non-compliance with the minimum stockholders' equity requirement of $2.5 million. Staffing 360 Solutions has 45 calendar days to submit a plan to regain compliance, and if the plan is accepted, Nasdaq can grant an extension of up to 180 calendar days to evidence compliance.

The company's board of directors has been reviewing strategic options to advance the business and address the ongoing compliance issues with Nasdaq. In February 2024, the company appointed Transact Capital Securities LLC to develop and introduce a strategic event that may include the sale of the company.

Conclusion

In summary, Staffing 360 Solutions has faced a challenging operating environment, leading to declines in revenue and profitability. The company's liquidity position remains a concern, and it continues to navigate compliance issues with Nasdaq. While the company has taken steps to improve operational efficiency, such as implementing workforce reductions, its long-term viability remains uncertain. Investors should closely monitor the company's progress in addressing its financial and operational challenges, as well as any developments regarding potential strategic alternatives.