BGSF, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our accompanying Unaudited Consolidated Financial Statements and related notes thereto and our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 . Comparative segment revenues and related financial information are discussed herein and are presented in Note 13 to our Unaudited Consolidated Financial Statements. See "Forward Looking Statements" on page 3 of this report and "Risk Factors" included in our filings with theSEC , including our Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 , for a description of important factors that could cause actual results to differ from expected results. Overview We are a leading national provider of professional workforce solutions and have completed a series of acquisitions including the acquisition ofBG Personnel, LP andB G Staff Services Inc. inJune 2010 , and substantially all of the assets ofJNA Staffing, Inc. inDecember 2010 ,Extrinsic, LLC inDecember 2011 ,American Partners, Inc. inDecember 2012 ,InStaff Holding Corporation andInStaff Personnel, LLC inJune 2013 ,D&W Talent, LLC inMarch 2015 ,Vision Technology Services, Inc. ,Vision Technology Services, LLC , andVTS-VM, LLC inOctober 2015 ,Zycron, Inc. inApril 2017 ,Smart Resources, Inc. andAccountable Search, LLC inSeptember 2017 , and LJK inDecember 2019 , and 100% of the equity ofEdgeRock inFebruary 2020 . We operate within three industry segments: Real Estate, Professional, andLight Industrial . We provide services to client partners primarily withinthe United States of America . We now operate through 91 branch offices and 12 on-site locations located across 46 states and D.C.The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 36 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. Our Real Estate segment operates through two divisions, BG Multifamily and BG Talent. The Professional segment provides skilled field talent on a nationwide basis for information technology ("IT") and finance, accounting, legal and human resource client partner projects. Our Professional segment operates through various divisions including Extrinsic,American Partners , Donovan & Watkins, Vision Technology Services,Zycron , Smart Resources,L.J. Kushner & Associates , andEdgeRock Technology Partners .The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states. OurLight Industrial segment operates through ourInStaff division. Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our client partners' business. Demand for our Real Estate staffing services typically increase in the second and is highest during the third quarter of the year due to the increased turns in multifamily units during the summer months when schools are not in session. Demand for ourLight Industrial staffing services typically increases during the third quarter of the year and peaks in the fourth quarter due to increases in the demand for holiday help. Overall demand can be affected by adverse weather conditions in the winter months as well as fluctuations in client partner demand. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes. Normal seasonal demand has been significantly affected by COVID-19. Impact of COVID-19 We continue to observe the impact of the COVID-19 outbreak on our consolidated operating results, our candidate and field talent supply chain, and our client partners demand in all segments. We expect that the social distancing measures, the changing operational status of our client partners, production levels at client partners facilities, and general business uncertainty will continue to effect demand in all our segments. During this uncertain time, our critical priorities are the health and safety of our team members, field talent, candidates and client partners. Starting inMarch 2020 , we took several cost containment and liquidity actions, which we do not believe have materially adversely impacted our internal controls, financial reporting systems or our operations. Our business, results of operations, and financial condition have been, and may continue to be, adversely impacted in material respects by COVID-19 and by related government actions, non-governmental organization recommendations, and public perceptions, all of which have led and may continue to lead to disruption in global economic and labor markets. These effects have had a significant impact on our business, including reduced demand for our services and workforce solutions, early terminations or reductions in projects, and hiring freezes, and a shift of a majority of our workforce to remote operations, all of 26 -------------------------------------------------------------------------------- which have contributed to a decline in revenues and other significant adverse impacts on our financial results. Other potential impacts of COVID-19 may include continued or expanded closures or reductions of operations with respect to our client partners' operations or facilities, the possibility our client partners will not be able to pay for our services or workforce solutions, or that they will attempt to defer payments owed to us, either of which could materially impact our liquidity, the possibility that the uncertain nature of the pandemic may not yield the increase in certain of our workforce solutions that we have historically observed during periods of economic downturn, and the possibility that various government-sponsored programs to provide economic relief may be inadequate. Further, we may continue to experience adverse financial impacts, some of which may be material, if we cannot offset revenue declines with cost savings through expense-related initiatives, human capital management initiatives, or otherwise. As a result of these observed and potential developments, we expect our business, results of operations, and financial condition to continue to be negatively affected. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our team members, field talent, client partners, and stockholders. The potential effects are not clear for any such alterations or modifications on our business, our client partners, candidates, vendors, or on our financial results.
Results of Operations
The following tables summarize key components of our results of operations for
the periods indicated, both in dollars and as a percentage of revenues, and have
been derived from our unaudited consolidated financial statements.
Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, September 29, September 27, September 29,
2020 2019 2020 2019
(dollars in thousands)
Revenues $ 71,519 $ 79,364 $ 208,192 $ 221,998
Cost of services 51,807 57,188 151,299 160,520
Gross profit 19,712 22,176 56,893 61,478
Selling, general and administrative expenses 14,869 14,502 45,379 42,360
Gain on contingent consideration (76) - (76) -
Impairment losses - - 7,240 -
Depreciation and amortization 1,271 1,197 4,130 3,633
Operating income 3,648 6,477 220 15,485
Loss on extinguishment of debt - 541 - 541
Interest expense, net 360 395 1,245 1,245
Income (Loss) before income tax 3,288 5,541 (1,025) 13,699
Income tax expense (benefit) 723 1,334 (260) 3,194
Net income (loss) $ 2,566 $ 4,207 $ (765) $ 10,505
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Thirteen Weeks Ended Thirty-nine Weeks Ended
September 27, September 29, September 27, September 29,
2020 2019 2020 2019
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of services 72.4 % 72.1 % 72.7 % 72.3 %
Gross profit 27.6 % 27.9 % 27.3 % 27.7 %
Selling, general and administrative expenses 20.8 % 18.3 % 21.8 % 19.1 %
Gain on contingent consideration (0.1) % - % - % - %
Impairment losses - % - % 3.5 % - %
Depreciation and amortization 1.8 % 1.5 % 2.0 % 1.6 %
Operating income 5.1 % 8.2 % 0.1 % 7.0 %
Loss on extinguishment of debt - % 0.7 % - % 0.2 %
Interest expense, net 0.5 % 0.5 % 0.6 % 0.6 %
Income (Loss) before income tax 4.6 % 7.0 % (0.5) % 6.2 %
Income tax expense (benefit) 1.0 % 1.7 % (0.1) % 1.4 %
Net income (loss) 3.6 % 5.3 % (0.4) % 4.7 %
Thirteen Week Fiscal Period Ended
Revenues: Thirteen Weeks Ended
September 27, September 29,
2020 2019
(dollars in thousands)
Revenues by segment:
Real Estate $ 19,156 26.8 % $ 29,470 37.1 %
Professional 34,042 47.6 % 31,506 39.7 %
Light Industrial 18,321 25.6 % 18,388 23.2 %
Total Revenues $ 71,519 100.0 % $ 79,364 100.0 %
Real Estate Revenues: Real Estate revenues decreased approximately $10.3 million
(35.0%), due to the effects of the COVID-19 pandemic. The decrease was due to a
37.7% decrease in billed hours, which was offset by a 4.2% increase in average
bill rate. Revenue from new offices was $0.4 million .
Professional Revenues: Professional revenues increased approximately $2.5
million (8.0%), primarily from LJK and EdgeRock acquisitions, which contributed
$9.5 million of new revenues. The remaining professional group decreased $7.0
million , due to the effects of the COVID-19 pandemic. The overall increase was
due to a 12.6% increase in average bill rate, and $0.3 million of an increase in
permanent placements, which were offset by a 1.6% decrease in billed hours.
Light Industrial Revenues: Light Industrial revenues decreased approximately
$0.1 million (0.4%), due to the effects of the COVID-19 pandemic. The overall
revenue decrease was affected by a 7.3% decrease in billed hours, which was
offset by an 7.5% increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses,
which consist of payroll, payroll taxes, payroll-related insurance, field talent
costs, and reimbursable costs.
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Thirteen Weeks Ended
September 27 , September 29,
2020 2019
(dollars in thousands)Gross Profit by segment:
Real Estate $ 7,145 36.3 % $ 11,265 50.8 %
Professional 9,978 50.6 % 8,264 37.3 %
Light Industrial 2,589 13.1 % 2,647 11.9 %
Total Gross Profit $ 19,712 100.0 % $ 22,176 100.0 %
Thirteen Weeks Ended
September 27, September 29,
2020 2019Gross Profit Percentage by segment:
Real Estate 37.3 % 38.2 %
Professional 29.3 % 26.2 %
Light Industrial 14.1 % 14.4 %
Company Gross Profit 27.6 % 27.9 %
Overall, our gross profit decreased approximately $2.4 million (11.1%). As a
percentage of revenue, gross profit has decreased to 27.6% from 27.9% due to
decline in our Real Estate segment from COVID-19 pandemic.
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit: Real Estate gross profit decreased approximately
Professional Gross Profit: Professional gross profit increased approximately$1.7 million (20.7%) consistent with the increase in revenue, primarily from LJK andEdgeRock acquisitions, which contributed$3.2 million of gross profit. The overall increase in gross profit was affected by a 15.3% increase in average spread.
Light Industrial Gross Profit:
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately$0.4 million (2.5%), primarily related from LJK andEdgeRock acquisitions, which contributed$2.4 million of new expense that was offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March related to the COVID-19 pandemic to reduce actual and planned operating costs as detailed in the following table. 29 --------------------------------------------------------------------------------
Thirteen Weeks Ended
September 27, September 29,
2020 2019
$ %
Amount % of Revenue Amount % of Revenue Change Change
(dollars in thousands)
Compensation and related $ 11,313 16 % $ 10,584 13 % $ 729 7 %
Advertising and recruitment 377 1 % 466 1 % (89) (19) %
Occupancy and office operations 939 1 % 1,039 1 % (100) (10) %
Client engagement 28 - % 351 - % (323) (92) %
Software 665 1 % 457 1 % 209 46 %
Professional fees 208 - % 315 - % (107) (34) %
Public company related costs 180 - % 180 - % - - %
Bad debt 54 - % 35 - % 19 54 %
Share-based compensation 245 - % 244 - % 1 - %
Transaction fees 15 - % 37 - % (22) (59) %
IT roadmap 401 1 % 341 - % 60 - %
Other 444 1 % 453 1 % (10) (2) %
$ 14,869 21 % $ 14,502 18 % $ 367 3 %
Depreciation and Amortization: Depreciation and amortization charges increased
approximately $0.1 million (6.2%). The increase in depreciation and amortization
is primarily due to the Professional segment with increases related to the 2019
LJK and 2020 EdgeRock acquisitions that are offset by decreases related to the
2015 D&W Talent and 2017 Smart Resources acquisitions.
Interest Expense, net: Interest expense, net was lower primarily due to the
decrease in the bank unused fee, and net decrease in interest on our revolving
credit facility and term loan, which was offset by the increase in amortization
of contingent consideration discounts related to the 2019 LJK acquisition.
Income Tax Expense (Benefit): Income tax expense (benefit) decreased
approximately $0.6 million (45.8%) primarily due to lower pre-tax 2020 income,
and the Work Opportunity Tax Credit which resulted in a lower 2020 effective
rate.
Thirty-nine Week Fiscal Period Ended September 27, 2020 ("Fiscal 2020") Compared
with Thirty-nine Week Fiscal Period Ended September 29, 2019 ("Fiscal 2019")
Revenues: Thirty-nine Weeks Ended
September 27, September 29,
2020 2019
(dollars in thousands)
Revenues by segment:
Real Estate $ 50,965 24.5 % $ 73,043 32.9 %
Professional 107,035 51.4 % 93,421 42.1 %
Light Industrial 50,192 24.1 % 55,534 25.0 %
Total Revenues $ 208,192 100.0 % $ 221,998 100.0 %
Real Estate Revenues: Real Estate revenues decreased approximately $22.0 million
(30.2%) due to the effects of COVID-19 pandemic. The decrease was due to a 33.1%
decrease in billed hours, which was offset by a 4.0% increase in average bill
rate. Revenue from new offices was $0.7 million .
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Professional Revenues: Professional revenues increased approximately $13.6
million (14.6%), primarily from LJK and EdgeRock acquisitions, which contributed
$26.2 million of new revenues. The remaining professional group decreased $12.6
million . The overall increase was due to an increase of 18.9% in average bill
rate, which was offset by a 3.8% decrease in billed hours.
Light Industrial Revenues: Light Industrial revenues decreased approximately
$5.3 million (9.6%), due to the effects of the COVID-19 pandemic. The decrease
was effected by a 15.2% decrease in billed hours that was offset by a 6.5%
increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses,
which consist of payroll, payroll taxes, payroll-related insurance, field talent
costs, and reimbursable costs.
Thirty-nine Weeks Ended
September 27, September 29,
2020 2019
(dollars in thousands)
Gross Profit by segment:
Real Estate $ 19,220 33.8 % $ 28,038 45.6 %
Professional 30,506 53.6 % 25,334 41.2 %
Light Industrial 7,167 12.6 % 8,106 13.2 %
Total Gross Profit $ 56,893 100.0 % $ 61,478 100.0 %
Thirty-nine Weeks Ended
September 27, September 29,
2020 2019Gross Profit Percentage by segment:
Real Estate 37.7 % 38.4 %
Professional 28.5 % 27.1 %
Light Industrial 14.3 % 14.6 %
Company Gross Profit 27.3 % 27.7 %
Overall, our gross profit decreased approximately
We determine spread as the difference between average bill rate and average pay rate.
Real Estate Gross Profit: Real Estate gross profit decreased approximately$8.8 million (31.5%) consistent with the decrease in revenue which was offset by a 2.3% increase in average spread. Professional Gross Profit: Professional gross profit increased approximately$5.1 million (20.4%) consistent with the increase in revenue, primarily from LJK andEdgeRock acquisitions, which contributed$8.6 million of gross profit. The overall increase in gross profit was affected by 19.2% increase in average spread.
Light Industrial Gross Profit:
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately$3.0 million (7.1%), primarily from LJK andEdgeRock acquisitions, which contributed$7.0 million of new expense, and additional IT roadmap and transaction fees. These increases were offset by reduced compensation costs from the decline in gross profit and by many of our actions taken starting in March related to the COVID-19 pandemic to reduce actual and planned operating costs as detailed in the following table. 31 --------------------------------------------------------------------------------
Thirty-nine Weeks Ended
September 27, September 29,
2020 2019
$ %
Amount % of Revenue Amount % of Revenue Change Change
(dollars in thousands)
Compensation and related $ 34,184 16 % $ 31,517 14 % $ 2,667 8 %
Advertising and recruitment 1,214 1 % 1,527 1 % (313) (20) %
Occupancy and office operations 3,051 1 % 2,996 1 % 55 2 %
Client engagement 328 - % 1,123 1 % (795) (71) %
Software 1,705 1 % 1,475 1 % 229 16 %
Professional fees 881 - % 1,029 - % (148) (14) %
Public company related costs 443 - % 533 - % (90) (17) %
Bad debt 154 - % 6 - % 148 2,467 %
Share-based compensation 631 - % 751 - % (120) (16) %
Transaction fees 605 - % 94 - % 511 544 %
IT roadmap 1,292 1 % 369 - % 923 250 %
Workers' compensation loss retention
return (464) - % (348) - % (117) 34 %
Other 1,358 1 % 1,289 1 % 69 5 %
$ 45,379 22 % $ 42,360 19 % $ 3,019 7 %
Depreciation and Amortization: Depreciation and amortization charges increased
approximately $0.5 million (13.7%). The increase in depreciation and
amortization is primarily due to the Professional segment with increases related
to the 2019 LJK and 2020 EdgeRock acquisitions that are offset by decreases
related to the 2015 D&W Talent and 2017 Smart Resources acquisitions.
Impairment loss: As a result of the certain business developments and changes in
the Company's long-term projections, the Company calculated the quantitative
impairment test of the finance and accounting group using the relief from
royalty method for the indefinite-lived intangible assets and residual method
for the definite-lived intangible assets by asset group. In the professional
segment. The Company recognized a $3.7 million trade name impairment loss and a
$3.5 million client partner list impairment loss.
Interest Expense, net: Interest expense, net was flat due to the increased
borrowings under our credit agreement and decrease in interest income from our
workers' compensation loss retention program that were offset by decreases in
the deferred financing fees and unused fee.
Income Tax Expense (Benefit): Income tax expense (benefit) decreased
approximately $3.5 million (108.1%) primarily due to lower pre-tax 2020 income
and intangible impairment losses, which were partially offset by non-deductible
fees related to the 2020 EdgeRock transaction.
Use of Non-GAAP Financial Measures
We present Adjusted EBITDA (defined below), a measure that is not in accordance
with generally accepted accounting principles ("non-GAAP"), in this Quarterly
Report to provide investors with a supplemental measure of our operating
performance. We believe that Adjusted EBITDA is a useful performance measure and
is used by us to facilitate a comparison of our operating performance on a
consistent basis from period-to-period and to provide for a more complete
understanding of factors and trends affecting our business than measures under
GAAP can provide alone. Our board and management also use Adjusted EBITDA as one
of the primary methods for planning and forecasting overall expected performance
and for evaluating on a quarterly and annual basis actual results against such
expectations, and as a performance evaluation metric in determining achievement
of certain compensation programs and plans for our management. In addition, the
financial covenants in our credit agreement are based on EBITDA as defined in
the credit agreement.
We define "Adjusted EBITDA" as earnings before interest expense, income taxes,
depreciation and amortization expense, intangible impairment losses, transaction
fees, and the non-capital information technology improvement project ("IT
roadmap")
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and certain non-cash expenses such as share-based compensation expense. Omitting
interest, taxes and the other items provides a financial measure that
facilitates comparisons of our results of operations with those of companies
having different capital structures. Since the levels of indebtedness and tax
structures that other companies have are different from ours, we omit these
amounts to facilitate investors' ability to make these comparisons. Similarly,
we omit depreciation and amortization because other companies may employ a
greater or lesser amount of property and intangible assets. We also believe that
investors, analysts and other interested parties view our ability to generate
Adjusted EBITDA as an important measure of our operating performance and that of
other companies in our industry. Adjusted EBITDA should not be considered as an
alternative to net income (loss) for the periods indicated as a measure of our
performance. Other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative measure.
The use of Adjusted EBITDA has limitations as an analytical tool, and you should
not consider this performance measure in isolation from, or as an alternative
to, GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of
liquidity under GAAP or otherwise, and is not an alternative to cash flow from
continuing operating activities. Our presentation of Adjusted EBITDA should not
be construed as an inference that our future results will be unaffected by the
expenses that are excluded from that term or by unusual or non-recurring items.
The limitations of Adjusted EBITDA include: (i) it does not reflect our cash
expenditures or future requirements for capital expenditures or contractual
commitments; (ii) it does not reflect changes in, or cash requirements for, our
working capital needs; (iii) it does not reflect income tax payments we may be
required to make; and (iv) it does not reflect the cash requirements necessary
to service interest or principal payments associated with indebtedness.
To properly and prudently evaluate our business, we encourage you to review our
unaudited consolidated financial statements included elsewhere in this report
and the reconciliation to Adjusted EBITDA from net income (loss), the most
directly comparable financial measure presented in accordance with GAAP, set
forth in the following table. All of the items included in the reconciliation
from net income (loss) to Adjusted EBITDA are either (i) non-cash items or (ii)
items that management does not consider in assessing our on-going operating
performance. In the case of the non-cash items, management believes that
investors may find it useful to assess our comparative operating performance
because the measures without such items are less susceptible to variances in
actual performance resulting from depreciation, amortization and other non-cash
charges and more reflective of other factors that affect operating performance.
In the case of the other items that management does not consider in assessing
our on-going operating performance, management believes that investors may find
it useful to assess our operating performance if the measures are presented
without these items because their financial impact may not reflect ongoing
operating performance.
Trailing
Twelve Months
Thirteen Weeks Ended Thirty-nine Weeks Ended Ended
September 27, September 29, September 27, September 29, September 27,
2020 2019 2020 2019 2020
(dollars in thousands)
Net income (loss) $ 2,566 $ 4,207 $ (765) $ 10,505 $ 1,977
Interest expense, net 360 395 1,245 1,245 1,569
Income tax expense (benefit) 723 1,334 (260) 3,194 851
Loss on extinguishment of debt - 541 - 541 - Operating income 3,649 6,477 220 15,485 4,397 Depreciation and amortization 1,271 1,197 4,130 3,633 5,318 Impairment losses - - 7,240 - 7,240 Contingent consideration adjustment (76) - (76) - (76) Share-based compensation 245 244 631 751 833 Transaction fees 15 37 605 94 945 IT roadmap 401 341 1,292 369 1,643 Adjusted EBITDA$ 5,505 $ 8,296 $ 14,042 $ 20,332 $ 20,300 33
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Liquidity and Capital Resources
Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth. Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement withBMO Harris Bank, N.A . ("BMO"), that provides for a revolving credit facility maturingJuly 16, 2024 (the "Revolving Facility"). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends, contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately$13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.
During this period of uncertainty of volatility related to COVID-19, we will continue to monitor our liquidity, particularly payments from our client partners.
A summary of our operating, investing and financing activities are shown in the
following table:
Thirty-nine Weeks Ended
September 27, September 29,
2020 2019
(dollars in thousands)
Net cash provided by operating activities $ 18,288 $ 13,965
Net cash used in investing activities (23,618) (1,534)
Net cash provided by (used in) financing activities 5,330 (12,431)
Net change in cash and cash equivalents $ - $ -
Operating Activities
Cash provided by operating activities consists of net income (loss) adjusted for
non-cash items, including depreciation and amortization, share-based
compensation expense, intangible impairment losses, interest expense on
contingent consideration payable, gain on contingent consideration, loss on
extinguishment of debt, and the effect of working capital changes. The primary
drivers of cash inflows and outflows are accounts receivable, accrued payroll
and expenses, and other current and long-term liabilities.
During Fiscal 2020, net cash provided by operating activities was $18.3 million ,
an increase of $4.3 million compared with $14.0 million for Fiscal 2019. This
increase is primarily attributable to intangible impairment losses, payments on
accounts receivable, additional other long-term liabilities, and increase in
prepaid expenses and other current assets, which were offset by reduced deferred
income taxes, payments on accrued payroll, and lower other current liabilities.
Investing Activities
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
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In Fiscal 2020, we paid $21.7 million in connection with the EdgeRock
acquisition and we made capital expenditures of $2.0 million mainly related to
software and computer equipment purchased in the ordinary course of business and
for the IT roadmap. In Fiscal 2019, we made capital expenditures of $1.5 million
mainly related to software and computer equipment purchased in the ordinary
course of business and for the IT roadmap.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our credit agreement, payment of dividends and contingent consideration paid.
For Fiscal 2020, we borrowed$22.5 million on the Term Loan, described below, to fund theEdgeRock acquisition, we reduced$12.3 million on our Revolving Facility, paid$4.1 million in cash dividends on our common stock, and paid down$0.7 million on long-term debt. For Fiscal 2019, we paid down$10.1 million in principal payments on our term loan, we paid$9.2 million in cash dividends on our common stock, we borrowed on our revolving line of credit by$9.9 million , and we paid$2.7 million of contingent consideration related to theZycron acquisition.
Credit Agreements
OnJuly 16, 2019 , we entered into a Credit Agreement (the "Credit Agreement"), maturingJuly 16, 2024 , with BMO, as administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the "Revolving Facility") permitting us to borrow funds from time to time in an aggregate amount up to$35 million . The Credit Agreement also provided for a term loan commitment (the "Term Loan") permitting us to borrow funds from time to time in an aggregate amount not to exceed$30 million with principal paid quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement, all of which has been funded. We may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by$40 million , with minimum increases of$10 million . Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all our tangible and intangible property. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). We also pay an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan. The Credit Agreement contains customary affirmative covenants and negative covenants, including certain limitations on our ability to pay cash dividends. We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. InApril 2020 , we entered into a pay-fixed/receive-floating interest rate swap agreement with BMO that reduces the floating interest rate component on the Term Loan obligation. The$25.0 million notional amount was effective onJune 3, 2020 and designed as a cash flow hedge on the underlying variable rate interest payments against a fixed interest rate that terminates onJune 1, 2023 . In accordance with cash flow hedge accounting treatment, we have determined that the hedge is perfectly effective using the change-in-variable-cash-flow method.
Off-Balance Sheet Arrangements
Letter of Credit
InMarch 2020 , in conjunction with the 2020EdgeRock acquisition, we entered into a standby letter of credit arrangement, which expiresDecember 31, 2024 , for purposes of protecting a lessor against default on lease payments. As ofSeptember 27, 2020 , we had a maximum financial exposure from this standby letter of credit totaling$0.1 million , all of which is considered usage against our Revolving Facility.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In
connection with the preparation of our consolidated financial statements, we are
required to make assumptions and estimates about future events, and apply
judgments that affect the reported amount of assets, liabilities, revenue,
expenses and the related disclosures. We base our assumptions, estimates and
judgments on historical experience, current trends, and other factors that
management believes to be relevant at the time our consolidated financial
statements are prepared. On a regular basis, management reviews the accounting
policies, estimates, assumptions and judgments to ensure that our consolidated
financial statements are presented fairly and in accordance with GAAP. However,
because future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and such
differences could be material.
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Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Unaudited Consolidated Financial Statements included in "Item 1. Financial Statements." Please also refer to our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 for a more detailed discussion of our critical accounting policies. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year endedDecember 29, 2019 .
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