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Good morning, everyone. Welcome to the BGSF, Inc. Fiscal 2024 Second Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. Now, I would like to turn the call over to Sandy Martin, Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today for BGSF second quarter 2024 earnings conference call. With me on the call are Beth Garvey, Chair, President and Chief Executive Officer; and John Barnett, Chief Financial Officer. After our prepared remarks, there will be a Q&A session. As noted, today’s call is being webcast live. A replay will be available later today and archived on the company’s Investor Relations page at investor.bgsf.com. Today’s discussion will include forward-looking statements, which are based on certain assumptions made by the company under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including those listed in the company’s filings with the Securities and Exchange Commission. Management’s statements are made as of today, and the company assumes no obligation to update these statements publicly, even if new information becomes available in the future. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company’s operations related to the financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. GAAP and non-GAAP measures are reconciled in today’s earnings press release. I’ll now turn the call over to Beth Garvey.

Thank you, Sandy, and thank you all for joining us. Welcome to our second quarter earnings conference call. In May, we announced a review of strategic alternatives and as part of that ongoing process to maximize shareholder value, the Board and I will continue to evaluate all options. While I cannot provide an update today, the process is ongoing and we look forward to sharing the results in the future. Also, we will not take questions regarding the strategic alternatives or our process in today’s Q&A. Thank you so much for understanding. Before we cover our results, I am pleased to share that we have been recognized by Staffing Industry Analysts naming us the 49th largest IT staffing firm in the U.S., an improvement from 52nd as well as the 97th largest staffing firm, an improvement from 121st place in 2023. Moving up in SIA’s annual rankings is an important milestone recognizing our teams hard work and dedication to delivering value and excellence to our customers and strategic partners. Over the last 12 months, challenging macro pressures have significantly impacted our entire industry due to higher interest rates and inflationary pressures that have negatively impacted most businesses in the U.S. For the second quarter, our total revenues were $68 million, comprised of approximately $26 million for Property Management and $42 million for the Professional segment. Year-over-year comparisons, although still meaningful, may not measure our incremental progress this year, compared to sequential comparisons. Property Management revenues were down year-over-year and up sequentially compared to the first quarter. Although we’ve not yet returned to normal seasonality, albeit trending in the right direction, we were pleased to report a sequential sales lift in the second quarter of 4.8% versus the first quarter. In the Professional segment, revenues declined in the second quarter over both the sequential and year-over-year periods, mainly because project ends exceeded project starts. However, business indicators began to shift on positive momentum in the quarter. Notably, new contract wins outpaced contract ends by approximately 25% through June. This sustained acceleration was primarily seen in the IT workforce solutions, managed solutions, and near and offshore engagements. These projects will generate revenue and cash flow in the second half of the year. This is very encouraging and I will speak more about our outlook in a moment. We continue to manage costs and took prudent action in the second quarter to reduce headcount and lower fixed costs. These actions will benefit our short-term profitability goals while supporting our strategic growth plans. After John walks through the detailed financial results for the quarter, I will return to discuss significant operational initiatives and our outlook. John?

Thank you, Beth, and good morning, everyone. As Beth mentioned, the challenging environment impacting our industry has made year-over-year financial comparisons more difficult to see our progress. Although year-over-year comparisons are important, I plan to focus on a few sequential comparisons to highlight current trends. Second quarter revenues were $68.1 million versus $80.8 million in the prior year quarter and flat sequentially. On a sequential basis, Property Management revenues reflected seasonal lift with an increase of 4.8% from the first quarter of 2024. For the second quarter, revenues in our Professional segment remained soft compared to the first quarter and were down in line with competitors versus the prior year period. However, as Beth mentioned, we are seeing sequential improvement in new contract wins. Professional project wins in the second quarter will begin to show up in revenue in the third and fourth quarters. We are encouraged by an improving demand environment, an uptick in contract wins and are cautiously optimistic that BGSF and perhaps the industry are nearing a positive inflection. Gross profit and margins in the second quarter were $23.6 million and 34.7% compared to $29.6 million and 36.6% in the prior year period. The year-over-year decrease in gross profit margin is attributed to lower margins and Property Management driven by market competition and lower permanent placement which has no cost of sales. Compared to the first quarter, gross profit margins improved by 60 basis points. As we discussed last quarter, we expect Professional segment gross margins to improve sequentially due to actions we were taking. SG&A expenses for the second quarter were $21.6 million compared to $21 million in the first quarter and $22.6 million in the prior year's quarter. With top line sales compression persisting, we continue to manage our cost structure, reducing fixed costs where it is prudent, balancing short-term gains and long-term benefits. Second quarter adjusted EBITDA was $2.6 million or 3.8% of revenue sequentially compared to $2.7 million or 3.9% in the first quarter. The 2023 second quarter adjusted EBITDA was $7.5 million or 9.3% of revenue. We reported adjusted earnings of $0.07 per diluted share even with $0.07 per share in the 2024 first quarter, which compares to $0.37 per share in the second quarter of 2023. We generated cash from operating activities for the first six months of $14.7 million, which enabled us to reduce funded debt from $63 million at the end of 2023 to $52 million at the end of the second quarter. Capital expenditures were $1 million for the first half and reflects our expected run rate spend. At June 30th our funded debt to trailing 12-month pro forma adjusted EBITDA was 2.8 times. With that, I would like to turn the call back to Beth.

Thank you, John. As expected, we communicated last quarter. The first half of 2024 was difficult, but we began seeing positive momentum late in the second quarter, that should improve our results starting in the third quarter. We expect our fourth quarter revenues to increase compared to fourth quarter of 2023. Although macro headwinds and recession fears continue to challenge our industry, we are cautiously optimistic given our developing backlog of professional projects and early traction in property management. We are actively preparing for a return to elevated seasonal work with our property management teams. With a more robust sales enablement process bolstered by our system upgrades, we have been able to strategically target properties with targeted campaigns around our customers operating realities. Driving leads to the sales teams, increasing relationship touch points and closing deals. This year unit owners and property management groups felt rate and occupancy pressures as well as increased operating expense. As a result, several property management groups are opting for a short list of preferred dependable suppliers rather than a larger pool of vendors. As a leader in the industry with a reputation of delivering exceptional talent, our strategic sales team has been able to secure positions on these lists as a private provider; this is a win-win for our client partners as well as for us. The industry shift to a narrow list of trusted property management suppliers allows our teams to showcase our people and culture as a competitive advantage at BGSF. In the industry last year, the multifamily sector experienced higher M&A of property management companies, which created delays in capital decisions and higher deferred maintenance levels. We believe this was created a backlog on repairs and capital improvements which will benefit us in the second half of 2024, especially as the Fed lowers interest rates as expected. For property management we also see measurable traction as we executed our territory mapping strategy in an effort to increase market share. Our pilot market saw a 19% increase in revenue year-over-year and we are actively rolling out the process in additional markets. In addition, as our strategic partnerships gained traction, we aligned management to strengthen those relationships and brought on a seasoned SVP of sales to lead the local sales teams in the market. Andrew Hill joined us in June and has strong track record of building powerful sales teams in a competitive environment. Andrew's expertise, coupled with our enhanced efforts around sales training and development will improve the effectiveness and speed with which we onboard and train our sales teams. As discussed last quarter, we know this industry is evolving and changing and we are proud to be on the leading edge of innovation with an expanding industry of apartments, luxury communities and commercial conversions to residential. On the professional side, we began to see declines in customer spending in the first quarter of last year that accelerated for the remainder of 2023. Typical engagements with three or four resources tighten to one or two, with project ends exceeding project starts almost every quarter starting with Q3 in 2023. Despite these trends, our strategic IT partnerships and software development opportunity pipelines began to expand, accelerating project quotes and awards related to managed services and IT consulting engagements. As I mentioned earlier, project wins exceeded project ends starting in the last few weeks of the second quarter. We also won the most significant project in our company's history, a major IT transformation project for a large international client which will begin contributing to our financials in Q3. We are actively deploying project teams to many engagements are more encouraged about the revenue outlook for the professional division than we have been in more than a year. While our first half results do not fully capture the momentum from these recent business wins, we anticipate a strong revenue ramp up in the professional division starting in the third quarter and continuing with more client engagements and billable work in the fourth quarter. In addition, we are seeing an increase in our perm placement activity for finance and accounting services with recent double-digit growth sequentially, which we know is a positive signal about hiring for the U.S. businesses. Our industry has indicated that businesses that operate in a more consultive versus staffing manner in IT services will benefit in the long-term, which aligns with the strategic shift we put into play over two years ago. Our collective IT expertise in BGSF is highly valuable to our clients as we bring an unbiased approach to every part of the tech cycle. Our recent technology partnerships with Workday, SAP and others has bolstered our reputation in the market, which will continue to benefit us in the second half of 2024 and beyond. Managed solutions continues to grow and innovate with our Arroyo teams, which delivers onshore and offshore work, important AI solutions, and valuable ERP connector products. This is an exciting area for us with software engineers delivering intelligence, product development, cloud initiatives and delivery excellence. I am pleased with BGSF's near-term growth prospects. We will continue to focus on reducing and optimizing costs to drive higher profitability and improve our structural margins. We know we have work to do, but we are relentlessly focused on sales, profitability and cash flow growth. Thank you for your time today. I want to thank all of our stakeholders, employees, clients, partners and investors for their continued support and belief in our vision at BGSF. We would now like to open the call for questions. Operator?

Thank you. [Operator Instructions] Our first question will be from Jeff Martin from Roth Capital. Please go ahead.

Thanks. Good morning Beth and John. Beth, I missed your comments about the third and fourth quarter by real estate and professional. I did catch that you expect fourth quarter to be up year-over-year, but if you could just repeat those comments, I apologize. I missed them?

In regards to property management?

Professional and property management third and fourth quarter?

We believe that the second half of the year is going to be far better than the first half of the year in both segments. We've got a lot of positive momentum going on in the professional side in regards to wins that we won in May and June. Start dates kind of stagger out between starting in August, September and October. So we see those things coming in and then property management goes into their normal seasonality uptick. And coupled with the building out of this territory mapping tool that we've seen success in, we think the quarter is going to the end of the year is definitely going to be better than the first half of the year.

Great. And then you talked about some large contracts. Last quarter there was an SAP cloud contract and I think a couple of divestitures. Just curious if those are off and running or if those were delayed a little bit in the second quarter in terms of start?

Some of them have started running, but the big one that we've been working on, I think our teams right now are actually doing discovery this week. And so we shall start seeing some of that revenue coming in, in late August and into September, we start ramping up.

Okay. Great. And then with respect to the new wins exceeding project ends, you mentioned that started late in the quarter, but how does that dovetail with the 25% higher wind versus end state?

The wind's going into – into the second half of the year. Again, they sprinkle in we have many customers, Jeff, that we – when is basically, we've signed the paper, and so some of them start in August, some start in September, some start in October. So it's just a matter of when those start dates get implemented. We haven't seen anything push from the initial agreements that we have. So that's a positive sign right now, so they're just getting ramped up.

Yes. Jeff, we haven't seen this consistency on a weekly basis, right. That we are consistently winning more contracts than we're seeing end, and we haven't seen that in quite a while. So what we've seen in the quarter has been encouraging and continued through this beginning of this quarter.

Yes. Yes. Okay. That's helpful. Makes a lot of sense. And then just curious on, in terms of working capital, you've generated quite a bit of operating cash flow first half of the year, mainly due to collection of receivables. Just curious, your comfort with your capital availability as things ramp back up and you start to build that working capital again?

Yes. We feel comfortable with where we are today. I think, well, we've worked very hard on in our accounts receivable team has done a great job over the last year. We've really focused on structure of the organization, training and then we also implemented [indiscernible], which is a really helpful tool to automate a lot of the AR functions and then also just provide a daily guide for what we should be doing and a lot more visibility into our AR balances. And so that's really allowed us to accelerate collections, which is the decline in AR is a combination of the revenue, less revenue, less AR but also we made great strides to push down our DSO.

That's helpful. Thank you.

And the next question will be from Howard Halpern from Taglich Brothers. Please go ahead.

Good morning, guys.

Good morning, Howard.

If you could talk a little bit about, I guess, the pipeline that you have and the type of verticals that the projects you'll be engaging in?

Mostly in our technology space, so it's a lot of managed solutions and bringing in Arroyo. As we talked about getting Arroyo up to speed and integrated, we've got more and more deals where we're doing what we call a plus one campaign, which means that we have customers that are buying one thing from us, and so we're going out and asking them to buy other types of services from us. Since we launched that in 11 months, I think we started it 11 months ago, we were about 12. We had 69 customers now that are buying multiple services from us. So it's those kinds of engagements.

Okay. And in terms of, you're seeing the ramp-up, but you also, I guess, talked about in the press release, you right sized costs. And so are you leveraged enough now where you're not going to have to increase costs that much to accomplish the ramp in activity that's coming in the second half?

A lot of the activity we expect in the second half is actually under contract. Obviously, we have to continue to add to that. It's a matter of timing of the start of the projects and how fast they ramp-up.

Okay.

But yes, we don’t expect near term that we would add to our sales cost structure or G&A cost structure to deliver our expected second half results.

Okay. And then just one last one, at least the near term or initial trends in permanent placements. What does that look like and what does that indicate to you potentially for the upcoming quarters?

Perm placement is usually when the economy soft, something that is not very active. And we saw that last year. We’re seeing that pickup in our finance and accounting teams right now, which usually is an indicator that people have a little bit more confidence as they move into the quarters. And so we’re just following that. I think we had double-digit growth in sequential growth and what they had done the first six months of the year, the last six months of last year, and first six months of this year. So we just find that to be positive and usually trends with the industry. So, when perm’s down, you kind of things are tough, and when perm starts to come back, it’s a little bit, it’s a glimmer of hope.

Okay. Well, keep up the good work and look forward to the second half.

Thanks, Howard.

[Operator Instructions] The next question is from Bill [indiscernible] from Titan Capital. Please go ahead.

Thank you. I have a group of questions. First of all, what changed? And so in the spirit of why are you now seeing the wins ramping up?

I think there’s a change [indiscernible] the outlook. People held onto their cash last year, and at some point in these ERP systems, people actually end up saying, hey, we’ve held long enough, we have to move forward. And so I think we’re seeing that shift where people held last year. And people’s ERP systems are kind of an important part of their business. So since that’s where we play, we’re seeing a lot of that pent-up demand start to release.

And any further insight at why so much of that demand seemed to be released specifically in the second quarter, as opposed to maybe gradually coming back in?

I don’t know that we could speculate what the buyer is thinking, what’s happening in that regard. I just think our teams have done a really good job in nurturing these relationships and making sure that we’re reaching out and having our partnerships in place. And when they were ready, when our customers were ready to go, we were there to help.

On the Professional side of the business, these are long sales cycles, too, right. So we’ve been working on, yes, a lot of the wins that we had, we’ve been working on for some time. It’s just got to the point where our customers said, okay, let’s go, let’s move forward with this.

Great. Thank you. And then the large deal, I guess you said it was the largest in the firm’s history. Why did you win that versus the competition? And maybe you could lay out who the competition was?

I’m not sure who we were competing against. I know there was, it was an international company, so it was an international player. And we got called, we met the Chairman of their Board at an event that we were at and we’re talking to him about our capabilities and he wasn’t very happy with the incumbent and so he asked us to come in at the 11th hour and to present. And our team did an amazing job coming in and figuring out what the needs were and presenting the need. And it was a very, very long and tedious process for them. But we ended up beating out the incumbent and taking over the – and winning the deal, which was good. It was very – it’s the biggest one we’ve ever done and an international player too. So it’s very exciting. I’m very proud of the team for that.

And Beth, in that case, are you implementing for the U.S. operations? And so if you do meet their expectations that there would be other countries that you could then do implementations for or how do you see the opportunity for additional business with this customer?

It’s an international company, so we’re already going to be helping them in 19 countries. So I believe that there’s a – the team, when they met with the Chairman last week, I believe it was. We believe the deal we have now is just the beginning. We think it will definitely open the doors for more business with this customer in the future.

Great. Thank you. And then relative to the Property Management business, you referenced that the M&A had led to deferred maintenance. Are you finding that this year, with the pressure on rate and occupancy that that is leading to a continuation or additional maintenance deferral as they’re trying to preserve cash? What’s the dynamic that you’re sensing there?

There is a lot of cash being held in that segment and I think a lot of it has to do with. The property’s insurance is higher. All their operational costs are higher. So we definitely are seeing them hold cash. But at some point, again, people can only hold maintenance for a certain amount of time before they have to deal with it. And so we do believe that there’s lots of pent-up demand there that will eventually break free. We’re just not – it’s just not completely started yet.

Great. Thank you.

You’re welcome.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Beth Garvey for any closing remarks.

Thank you for your time today and we appreciate your continued support. We look forward to talking to you in November. Thanks.