Terri Macinnis - VP of Investor Relations at Bibicoff and MacInnis, Inc. Allen Baker - CEO Dan Hollenbach - CFO.

Jeff Martin - ROTH Capital Partners Howard Halpern - Taglich Brothers John Rolfe - Argon Capital.

Welcome to the BG Staffing Q1 Results Conference Call. As a reminder all participants are in listen-only-mode, and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

[Operator Instructions] I would now like to turn the call over to Terri Macinnis, VP of Investor Relations at Bibicoff and MacInnis, Inc. Please go ahead..

Thank you operator, and good afternoon everyone. As VP of Investor Relations representing BG Staffing it's my pleasure to welcome you to the Company's conference call to discuss Q1 operating results and to provide a progress report on the company's business strategy.

With me today on our call is Allen Baker, Chief Executive Officer; and Dan Hollenbach, Chief Financial Officer. This morning’s news release announcing BG’s Q1 financial results and the company’s quarterly report on Form 10-Q can be found on the Investor Relations section on BG’s website at bgstaffing.com.

Today’s call is being webcast live and recorded. A replay of the event will be available later today on the company’s website and will remain available for at least 90 days following the call. I remind you that our discussions today include forward-looking statements.

These statements are based on certain assumptions made by BG Staffing based on and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The Company’s actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including those listed in Item 1A of the Company’s Annual Report on Form 10-K and in the Company’s other filings and reports with the SEC.

All of the risks and uncertainties are beyond the ability of the Company to control, and in many cases, the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.

These forward-looking statements are made as of the date of this call and BG Staffing assumes no obligation to update these statements publicly, even if new information becomes available in the future.

This broadcast is covered by US Copyright Laws and any use or rebroadcast of all or any portion of this conference call may only be done with the company’s express written permission.

During our call, we will discuss some non-GAAP measures which we use for internal evaluation and to report the results of the business as useful information to management, our Board of Directors and investors about our operating activities and business trends related to our financial conditions and results of operations.

These non-GAAP measures are intended to supplement GAAP financial information and should not be considered in isolation, as a substitute for or as superior to financial measures calculated in accordance with GAAP.

For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures please see this morning’s earnings release as posted on BG’s website. I will now turn the call over to Dan Hollenbach, CFO..

Thanks Terri. As evidenced in the financials contained in our Quarterly Report on Form 10-Q filing this morning, we are pleased with the increase in our gross profit, net income and earnings per share results for the first quarter ended March 16, 2017.

As a reminder, BG Staffing provide staffing services to a variety of industries through its various divisions, and we’ve integrated several regional and national brands into our platform.

We provide these staffing services within three industry segments, multifamily, professional and commercial today through approximately 57 branches and 17 on-site locations in 26 states.

Historically, our business cycle yields our best performance in Q3, with Q1 being the lowest due to seasonal fluctuations in both multifamily and commercial, and in which our payroll burdens are the highest. Revenues for Q1 2017 were $56.8 million, a decrease of 4.5%. Multifamily grew organically 21.9% due to our continuing expansion plan.

Professional’s decrease was 6.5%, of which approximately half was related to the one-time conversion of 17 consultants at the end of Q2 2016. Commercial was down 15.4%, primarily due to decreased usage at four large customers. While revenues were down, gross profit dollars increased $325,000 and gross profit percent increased by 1.7% to 24.1%.

The company reported net income of $1.3 million, a 56.3% increase over 2016. Diluted earnings per share was $0.15, a 36.4% increase over 2016. Selling expenses increased 844,000 over Q1 2016 primarily due to the growth of multifamily. Just under 50% of the increase was due to new multifamily offices as we continue to aggressively grow this segment.

We have already opened four new offices this year and expect to open at least three more in 2017. General and administrative expenses decreased by 141,000 primarily related to reduced professional fees and transaction costs.

Our cash flow from operations of $6.5 million allowed us to fund our quarterly dividend, while reducing our revolver by $4 million. Our dividend cover is currently 2.5. In April, in conjunction with the Zycron acquisition, we borrowed $20 million on a five-year term note, and issued $1 million of our stock, 70,670 shares.

We believe the adjusted EBITDA is the 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 alone can provide.

In addition, the financial covenants in our credit agreement are based upon adjusted EBITDA. Adjusted EBITDA for the quarter was $4.1 million or 7.3% of revenues, down slightly from $4.5 million in 2016, primarily as a result of the decrease in our commercial segment and our investment in multifamily expansion. I will now turn the call over to Allen.

At the conclusion of his comments, we will open the call for our Q&A session.

Allen?.

Thanks, Dan. I'm pleased with the increases in the bottom line results for Q1 of 2017. We continue to focus our ability to produce improving results on how well we manage improving our margins. This is an important metric by which we measure our success, and we are pleased with the results this focus continues to yield.

Over the past eight years, our business plan to diversify by geography and by skill sets offered both organically and through acquisition continues to deliver and accomplish exactly what it was designed to do, keep our top line changes minimal, while improving margins.

I am pleased by the fact that in the eight years that I have been the CEO, we have now completed and successfully integrated eight acquisitions. I'm especially pleased with our recent acquisition of Zycron, which I will review for you now.

Zycron has been a leading provider of IT outsourcing and temporary staffing talent to companies throughout the Southeastern US region and selected markets across the country with both Fortune 500 companies and governmental entities since 1991. A little bit about the company. Annual revenues in 2016 were in excess of $38 million.

The seasoned leadership team is remaining, and fits well with our team. It is vertically oriented around IT in the healthcare, local and state government, logistics, manufacturing and utilities segments. Zycron focuses on multi-year and long-term assignments with average length of assignments in excess of three years.

The average hourly bill rate is approximately $70. Finally, it broadens both our geographic footprint and IT skill set offerings. As is our custom, we are swiftly completing a smooth integration. In fact we processed our first Zycron payroll one week after closing. And as is our standard process, we are swiftly absorbing their back-office functions.

Regarding acquisitions in general, deal flow continues to be good and we do not have a target number of acquisitions in mind for any given period of time. We seek targets with gross margins equal to or greater than the mid-20s, and we are actively involved in assessing opportunities.

We have been proactive and are well positioned to be an opportunist and nimble acquirer. We have a clean balance sheet, plenty of back-office capacity and we also believe we can accommodate a revenue ramp up to about $500 million with only a few back-office headcount additions.

As Dan mentioned, in conjunction with the Zycron acquisition, we amended our bank agreement by adding a term loan of $20 million, as well as a $20 million accordion, and two new club deal bank partners.

We completed the successful rollout of the Erecruit front office software platform to our professional segment to share real-time information, which is expected to facilitate cross-selling opportunities.

Before we move to our Q&A session I would like to reaffirm to you that our board is committed to maintaining our quarterly dividend program, presently set at $0.25 per share per quarter, which provides a current yield in the high 6% to low 7% return to our investors.

At this time I would like to ask the operator to open the question-and-answer session..

[Operator Instructions] The first question is from Jeff Martin with ROTH Capital Partners. Please go ahead..

Thanks.

Good afternoon Allen and Dan, how are you?.

We are pretty good.

How are you Jeff?.

Doing well, thanks.

Allen, I was wondering if you could talk about your margin, I was impressed to see margins in two of the three segments up despite the revenue declines which tells me you are having your people focused on good margin business, I was just wondering if you could comment on that?.

Yes. I mean, the margins in our three segments are quite different. Professional is mid-20s, multifamily is probably middle to upper 30s, and commercial is certainly our lowest margin segment. We are not as concerned when we are going through some changes in customer mix in the commercial segment, and that is pretty much it.

We just manage emotions and keep people calm..

Okay, and then could you provide us an update, I know you had some management changes at the branch level in the commercial and professional segments, I was just curious if you could shed some insight on how those transitions are going?.

Yes, let me first of all say that the management in multifamily is continuing to remain stable. The management in professional has changed. I think we actually had all of those completed by the end of the year last year, if I am not mistaken. And we are now going to really bear-down or see what we can do in the commercial segment. We had a person leave.

That person was the head of that segment, and the Chief Operating Officer, whose name is Beth Garvey, is assuming those roles because she had occupied that role for many years, including prior to it being acquired by us herself, and she's going to focus on either promoting someone from within or finding the right person from outside..

Okay, and I know it is difficult to foresee growth in those segments necessarily to what degree and what timing, but would you – is it unreasonable to assume that commercial and professional have the potential to grow in the second half of this year?.

I think professional will. I'm not sure about commercial, and it all depends on what you mean by growth from where they are now. I don't see that until the second half of the year if at all..

Okay, great.

And then, I was curious if you could comment on the outlook in multifamily, I know that has been a fast growing segment for you, it is growing at 22% or so today, is 20% a reasonable growth estimate for this year for multifamily?.

I think so. 20% growth is nothing to sneeze at, but when you look at two prior years, it is 30% plus growth. It is a little disappointing, but I can't say that it is that disappointing. We will take 20% any day of the week. .

Right, and then Dan, could you provide us an update on the current total debt outstanding, you got the $20 million term and then, how much is drawn on the credit facility today, I mean we have the number for the end of the quarter.

But what does Zycron acquisition, I'm curious what the balance is today on it?.

Actually, as of this morning we are a little over $18 million..

Okay. Very good. Thanks guys and good to see you growing the bottom line..

Thanks..

The next question is from Howard Halpern with Taglich Brothers. Please go ahead. .

Congratulations. Good quarter guys. Great quarter.

the Zycron acquisition, in your commentary you talked about how they have stable long-term contracts, or long-term customer relationships, so we really shouldn't see too much in the way of seasonality in terms of their revenue mix?.

I would say that is correct..

Okay.

And prior to the acquisition, of course, you described that you had, I guess, the 17 consultants converted, so the comparison starting in the second quarter should be on apples to apples type of basis for a model going forward?.

It will be third quarter because they were let go at the end of the second quarter last year..

Okay, and in terms of the I guess, the Erecruit offering, or internal offering, when do you expect that to really start to kick in and have people in the organization start to look at it and be excited about it?.

Well, first of all I think you have two questions there. One was expectations on the operation, and the other one was are people excited about it. I think people are really excited about it. We have just implemented that. As far as expectations on sales, and what have you, I am a little pessimistic there.

To me the real excitement in the software implementation is more from a cost side, than it is a sales side, because it is going to make our back-office a little more streamlined, and then as far as the cross-selling goes, I guess my expectations there are probably a little longer term than they are short-term..

So, based on that you expect there is still – I don’t know you said were significant, but there is room to continue to improve your cost structure?.

There is always room for that, yes..

Okay. Okay, keep up the good work..

Okay, thank you. I appreciate it..

The next question is from John Rolfe with Argon Capital. Please go ahead..

Hi guys.

Just a quick clarification, when you said to the prior caller, maybe it was the first caller that you hope or thought you could get to growth in the professional segment in the back half of the year, is that growth on apples to apples basis without the benefit of the Zycron acquisition?.

Yes..

Okay, okay, great.

And could you just clarify for me, when you talk about the conversion of consultants what exactly are you talking about there?.

We had a client – one of our clients was actually with our Vision division, but periodically usually in December, he will hire 7 to 10 of our consultants on an annual basis. Last year in June, they did a second conversion of 17 more. It was not expected. But a decision they made; a long-term customer, and so we clearly allowed them to do that.

A significant headcount adjustment as you can well imagine. .

Okay, great.

And then lastly, you mentioned that there were four relatively large clients in commercial, which had driven the bulk of the declines in that segment, is there any sort of commonality in terms of industry that these four large clients come from, or are they relatively disparate in that regard, I mean, just from a sort of I don't know industry vertical macro perspective, what are driving those declines?.

Completely disparate – how do you say that word, disparate, both geographically and in terms of what we do. It was a combination of – one of them happens to be a very low margin business that we have been shedding for a while. One of their large clients had a disruption in business.

So, there was a short-term sort of cut down in employment, another one had to do with a certain skill set, so different things, different geographies, different industries..

Okay, great. Thanks very much guys. I appreciate it..

There are no more questions. This concludes the question-and-answer session. I would like to turn the conference back over to Allen Baker for any closing remarks..

Thanks operator, and thanks to all of you for joining our call today. I hope it is clear that we are focused on strong execution, and the growth and long-term success of our business. Our current goal for our company is to ultimately generate $500 million in revenue, and $50 million in adjusted EBITDA.

We will continue to keep doing what we have been doing and look forward to another great year in 2017. Thanks again and have a good afternoon..

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day..