Terri Macinnis – Vice President-Investor Relations, Bibicoff and MacInnis Nicole Phelan – Corporate Controller Allen Baker – Chief Executive Officer.

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

Thank you for standing by. This is the conference operator. Welcome to the BG Staffing Third Quarter 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 conference over to Terri Macinnis, Vice President of Investor Relations at Bibicoff and MacInnis. 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 record Q3 and nine-months 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 Nicole Phelan, Corporate Controller; the call is sitting in for Dan Hollenbach, CFO, who is not on today’s call as he is on medical leave of absence.

Yesterday’s news release announcing BG Staffing’s 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 U.S.

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 yesterday’s earnings release as posted on BG’s website. Now I’ll turn our call over to Nicole..

Multifamily, Professional and Commercial. Today, we have approximately 63 branches and 15 on-site locations in 26 states. I’ll now discuss our consolidated and segment results from operations. First, our third quarter results. Revenues for Q3 2017 were $71.3 million, up $3.9 million, an increase of 5.7%.

Revenues were affected slightly by the two hurricanes in our Houston and Florida markets. We estimate that total decrease was approximately $200,000 and expected to be made up in the increased demand for multifamily support going forward. Multifamily grew organically 15.2% both from existing offices and our continuing expansion plan.

Professional increased 22.9%, primarily related to the acquisition of Zycron, which contributed $9 million. Our other IT branches were down $2.1 million, finance and accounting was off 900,000 and commercial decreased 21.6%.

While revenue grew 5.7%, gross profit dollars increased to $1.8 million, or 11.1%, and gross profit percent increased by 1.2% to 25.6%, as a result of our focus on growing the professional business segments as a percent of our revenue. Multifamily contributed $1.2 million of the increase and Zycron contributed $1.8 million.

Our other IT branches decreased to 313,000, commercial decreased 662,000. The other IT decreases were primarily due to a reduction in two customers, both of which were expected. The finance and accounting decreases were from expected falloff from a large-long term contracts.

The commercial decreases were primarily due to decreased usage of four customers consistent with previous periods. The company reported net income of $3.1 million, a 33.6% increase over 2016. Diluted earnings per share were $0.35, a 34.6% increase over 2016.

Selling expenses increased $828,000 over 2016, due primarily due to the growth in Multifamily of $486,000, of which $348,000 was in new offices and the addition of Zycron, which incurred $926,000. Other IT branches decreased $618,000, commercial decreased $338,000 while finance and accounting group increased $253,000.

It should be noted that we have already opened seven new multifamily offices this year and seek to open three more by year-end. General and administrative expenses were up slightly compared with 2016, and were 2% of revenues in 2017 and 2.1% in 2016. And now for the year-to-date results.

Revenues for the nine months 2017 were $196.9 million, up $7.3 million, an increase of 3.9%. Multifamily grew organically 18.1%, professional increased 13.5%, primarily related to the acquisition of Zycron, which contributed $17.6 million.

Our other IT branches were down $5.1 million, finance and accounting was off $1.6 million and commercial was down 17.6%. While revenue grew 3.9%, gross profit dollars increased to $4.2 million, or 9.3%, and gross profit percent increased by 1.3% to 25%. Multifamily contributed $3.3 million of the increase and Zycron contributed $3.8 million.

However, these increases were partially offsets by decreases for IT branches of $0.9 million and commercial of $1.7 million. The decreases for the nine month period were due to the same clients mentioned previously in the Q3 discussion. The company reported net income of $6.7 million, a 46.9% increase over 2016.

Diluted earnings per share was $0.75, a 33.9% increase over 2016. Selling expenses increased $2.9 million over 2016, primarily due to the growth of multifamily of $1.7 million, of which $694,000 was in new offices and the addition of Zycron, which incurred $1.8 million. Our other IT branches decreased selling expense by $1.2 million.

Commercial decreased by $502,000, while finance and accounting increased $719,000. General and administrative expenses decreased by $29,000, primarily related to reduced professional fees and compensation expenses, offset by higher transaction costs and were 2.3% of revenues in both 2017 and 2016.

Cash flow from operations of $11.9 million allowed us to fund our three quarterly dividends while reducing our revolver by $3.5 million. Our dividend cover is 2.74X calculated by dividing adjusted trailing 12-month EBITDA of $24 million by our current annual dividend of $8.76 million.

In April, in conjunction with the Zycron acquisition, we borrowed $20 million on a five-year term note and issued $1 million of worth, or 70,670 shares of our stock. In September, in conjunction with the Smart acquisition, we borrowed an additional $5 million under our term note.

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 that measures under GAAP can provide alone.

In addition, the financial covenants in our credit agreement are based on adjusted EBITDA. Adjusted EBITDA for the nine months was $17.9 million, or 9.1% of revenues, an 8.4% increase over 2016.

A reconciliation of adjusted EBITDA to net income is available in our latest Form 10-Q, or in yesterday’s news release, both of which are available on our website. Now with the financial reviews completed, I’ll turn the call over to Allen to talk a little about our strategy, plans to continue to grow the company and our outlook for 2018..

Good afternoon everyone and thanks you Nicole. I'll start by saying that I'm obviously pleased with the increases in bottom line results for Q3 and for the first nine months of 2017. Our Multifamily segment continues to distinguish our staffing company in the marketplace and we look forward to yet another year of strong growth in 2018.

After a great deal of research and evaluation, we've determined that multifamily will not seek to enter the California market. It's just to employee friendly and the owners’ onerous regulatory paperwork and potential liability outweighs the benefit. We still have more than plenty of new markets and geographies to conquer.

Right now, Multifamily only services residential buildings. We have been exploring the opportunity in the commercial buildings market and we'll keep you updated on that thought process. Looking at the professional segment, I'm especially pleased with our recent acquisition of Zycron and Smart.

We acquired Zycron with the expectation that it would have a run rate of about $4 million of annual EBITDA, which we’ve referred to as contribution to overhead. We are pleased that Zycron has contributed a little over $2 million for the 25-weeks just reported.

Obviously, it is too soon to comment on the results of Smart as that acquisition closed just six-weeks ago. Our business plan has and continues to be adding more skill sets to our offerings and to do so in more geographies in the United States both organically and through acquisition.

That plan continues to deliver and accomplish exactly what it was designed to do, which is to say keep top-line charges – changes minimal while improving margins. Our commercial segment, which was our first business division, was 100% of our revenue stream when I joined the company in 2009.

For the first nine months of 2017, commercial represents 27.3% of our revenues, a result of our successful diversification plan. Our current target for adjusted EBITDA as a percent of annual revenue remains at 10%. Gross profit and adjusted EBITDA, both improved as we continue to execute on our strategy.

We continue to see high demand for our service offerings even though our operating teams report an ongoing tight market for skilled resource. We are in an excellent position to help our customers find that hidden talent. It's what we do all day, every day. Regarding the subject of acquisitions, deal flow continues to be good.

We are seeking targets with gross margins equal to or greater than the mid 20s and we are actively involved in assessing opportunities. Before turning our Q&A session, we would like to once again thank our many loyal, dedicated and talented employees whose efforts have allowed us to progress to where we are today.

Historically, our collective performance each year has been better than the one before and I expect next year to be better than this year. I'd also like to note that our board is committed to maintaining our quarterly dividend program, which is presently set at $0.25 per share per quarter and provides a current 5.5% yield.

Our dividend coverage is solid, roughly 2.7 times adjusted trailing twelve month EBITDA of $24 million. Cash flow from operations of $12 million allowed us to fund our three quarterly dividends while reducing our revolver by $3.5 million. At this time, I would like to ask that our operator begin the question-and-answer session..

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeff Martin with ROTH Capital Partners. Please go ahead..

Thanks. Hi, Allen. Hi, Nicole..

Hi, Jeff.

How you’re doing?.

Good afternoon..

I am good. I am good. First, I want to say I hope Dan is okay. I wasn’t aware he is on medical leave. I don’t know if he can provide any commentary around that, but I hope he will be well and will be back..

He is doing well and we’re looking forward to having him back and that’s all about all we can say due to the HIPAA laws and we’re having to comply with..

Fair enough. Allen, I was hoping you could expand a little bit on your declaration of the commercial real estate market. I guess you can't call that multifamily.

But what are some of the factors you're evaluating and any idea how big the size of that market is relative to the multifamily market as you serve it today?.

Kind of what we're – we're trying to figure all that out. We've done some experimentation. We've sent about 20 of our sales people out to 20 different markets just to see if people would be interested. Our idea is to take people that we normally place in the multifamily sector and just simply place them in these commercial buildings.

So as far as how big the market is and that kind of thing, we don't really know yet, but we're sticking our toe in the water and it looks promising..

Okay. Any idea on timing of when you have that vetted if it does come to get some opportunities….

It’s just probably going to take – it’s probably going to take till roughly the end of 2018 before we really do know, but it's an idea that the guy that run multifamily for us came up with. It sounded pretty good. And so we were given a shot..

Okay, great.

And then in terms of 2018 for the multifamily business as it stands today, do you have a plan for how many new branches you’ll open next year at this point?.

I like to always say that we're going to try to open five a year, sometimes it's more, sometimes it's less, but we'll budget for five and we’ll see what happen..

Okay, all right. And then shifting gears to the commercial segment. I was looking at the results of the past several quarters in that segment. It looks like you may be coming close to anniversarying the decline in those four customers.

Is that safe to say that will – you'll reach the anniversary point on that before the end of the year?.

All right, did you mean in our commercial segment, Jeff?.

Yes..

Yeah. Wow, I would say it’s going to go all the way till the end of the year because we didn't really see a heavy decline until January of this year. So that would be my expectation..

Okay.

So the next year should be back to a more normal flat to up a couple percent if you can kind of maintain and maybe add a few customers?.

I'm going to say yes to that. It's probably going to be flat, but that would be my guess..

Okay, okay. And then on the IT side of professional, I was curious if most of the decline there is coming from the VTS business or if it’s in other parts of IT as well? Maybe you kind of help us to get on that….

It’s primarily going to be an Extrinsic, an American partner, and the reason….

Okay..

For that is we've made a lot of changes and American part – our Extrinsic is catching on and things are coming up slightly, but of course depending on how far you want to go back that contract from the company that owned Extrinsic. They – I think we had a three year deal with them.

And the thing was priced a little more in our favor, so we had extra, I'll call it, gross margin. However, when the company found that out, they found other ways to get around it and then we sort of paid a penalty to them because to keep them on that contract was renewed, but it was at a different gross margin.

And so, now, we're just about done with them and we really don't plan to go back and use them and we’ve got a bunch of new people in there that are really growing in business nicely. As far as American partners goes, they’re still in a change mode and they're just kind of cranking out their normal $30 million to $32 million a year in revenue.

And that's probably going to go on for some time until we get that picks. We just made a couple of changes recently there and I feel really good about the people we have there now..

Okay..

We’ll need to go and take time. Yeah, we need to go for sometime..

Got it, got it. Okay, thank you, Allen. I appreciate it..

You bet..

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

Hi, guys. Hi..

Hi.

How you’re doing?.

Hello..

Okay, I am doing well, doing well. In the multifamily, you talked about 2018 and you’re budgeting for five.

But are you planning on expanding into different states or an additional state or two next year?.

Howard, I want to be honest with you. I never try to control what they expanded into. I was highly in favor of not expanding into California, but I was really glad as a matter of fact that they found that out on their own. But it’s – the plan is put five new offices in the budget and then we'll open them wherever there's an opportunity.

And so an opportunity to me is going to be there's a customer that’s asking us to say hey we'd like to have your help over here and that would be one way to get an opportunity. Another way is gee whiz one of our very good people says I'd like to live in this area and oh by the way look at all these apartments we got around here.

So they can go both ways and we'd like to keep that as flexible as possible. My experience has been the more rigid I make that, the less productive they are..

Okay. In terms of the Smart acquisition, what do they really – that you see they bring to the table and is there’s some seasonality in their business that I know I guess you have said in the release that they earned – they generated $13 million in revenues, in big teen.

So, is there any seasonality to that revenue?.

It’s really too early for me to comment on seasonality under our structure. But the reason for the acquisition was primarily it was strategic in nature. The Chicago market is a little unique in that. They don't like anybody that doesn't live in Chicago.

So we felt pleased that we were able to get into this and this is going to help us to build out so to speak the northern piece of where we would like to operate finance and accounting. So it's a little early to tell how well they're going to do. It’s a small acquisition. It’s a small northern office for us.

But hopefully we’ll see that that goes well and we're – I'm optimistic still..

Okay. So, you could actually see this if it goes well, this could be a platform for growth in Chicago area..

I hope so..

Okay. And one modeling question for Nicole, if she [indiscernible] about.

What would be an appropriate I guess tax rate with – for the full year to 2017?.

It’s a very good question, Howard. We’re going to have to review that. I don't know at this point..

Okay, okay. Thanks and keep up the good work..

Okay..

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

Hey, guys. So it sounds like there is some moving pieces in the professional segment with Extrinsic and American Partners and you've got the Smart acquisition. You know sort of putting all that together, can you help me understand I mean the segment did see here pretty [indiscernible] what should we expect….

I am sorry. I can’t hear..

John….

You’re kind of cutting out there.

Could you ask that question again?.

I am on remote.

Can you hear me better now?.

Yes, we can..

Okay, okay. So [indiscernible] professional segment with two clients that you have mentioned some changes undergoing there you do with the Smart acquisition as well starting to go roll in now. For all that together and help me understand I mean are we informed where [indiscernible]....

Let me – I think I know what you're trying to ask. You're still cutting out quite a bit. But first of all Zycron is a very important acquisition that we did this year and that is basically replacing gross margin. It's very accretive to our business.

But the gross margin that we presumably have lost in commercial will replace this revenue at a higher margin business. So that's the strategy there. Extrinsic and American Partners, I mean they were purchased back in 2011 and 2012.

And so, they've consistently except for Extrinsic, American Partners has consistently generated about $30 million in revenue per year. I would say that Extrinsic is down to about – I'm going to say half. It might be a little better than that, I don't know.

But what's important there is we're selling business that is high margin business and so their margins are improving. So on Smart like I've said it's way too early to comment on that as far as how it's impacting our numbers, but we have high hopes for it..

Okay, thank you..

Okay..

This concludes the question-and-answer session. I would like to turn the conference back over to Allen Baker for any closing remarks..

Thank you, operator, and thanks again to all of you for joining our call today. Although the GDP growth in the United States has been sluggish, the overall business outlook remains strong for staffing. We continue to believe that our scale and breadth of services has us well positioned to take advantage of the expected growth in the staffing industry.

A few key takeaways for you today is that we continue to expect a robust year again in 2017. We look forward to finishing this year as our strongest on record and we expect another strong year in 2018. We are focused on improving business in all of our segments and firmly manage our corporate costs.

We have a target of 2% to 2.5% of revenue and our centralized back office. We've built an organization to achieve our goal of generating $500 million in revenue with $50 million in EBITDA and we're all anticipating how quickly we can get there.

I'm looking forward to reporting our progress and speaking with you again when we report our year end results. Good bye 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..