Terri Macinnis - Vice President of Investor Relations of Bibicoff and MacInnis, Inc. Allen Baker - President, Chief Executive Officer, Director Dan Hollenbach - Chief Financial Officer, Secretary.

Sarra Schuster - ROTH Capital Partners Howard Halpern - Taglich Brothers John Rolfe - Argand Capital.

Thank you for standing by. This is the conference operator. Welcome to the BG Staffing fourth quarter and fiscal year end 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 of Bibicoff and MacInnis, Inc. Please go ahead..

Thank you operator and good afternoon everyone. It's my pleasure to welcome you to the company's conference call to discuss Q4 and year-end financial and operating results and provide a progress report on the company's business strategy. With me today on the call is Allen Baker, Chief Executive Officer and Dan Hollenbach, Chief Financial Officer.

This morning's news release announcing BG's record Q4 and year-end 2017 financial results can be found on the Investor Relations page 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 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 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 today's earnings release posted on BG's website. I will now turn our call over to Dan Hollenbach, BG Staffing's Chief Financial Officer.

Dan?.

Thank you Terri. Good afternoon everyone and thank you for joining us today. Financially, 2017 was a terrific year for BG Staffing as our focus on maximizing gross profit margin resulted in our first ever annual gross profit margin above 25%.

We believe our ability to increase our gross profit margin was made possible by the significant investments we have made in value added businesses to provide our customers with superior services in combination with our pricing discipline.

Maximizing gross profit margin has always been a priority of BG Staffing, but over the past few years, we have placed a renewed focus on the businesses that we believe will drive growth and profitability on a sustained basis. We seek to continue our growth both organically and through accretive acquisitions in those businesses.

BG Staffing provides temporary staffing services to a variety of industries through its various divisions, and we have integrated several regional and national brands into our platform.

We provide these temp staffing services within three industry segments, multifamily, professional, and commercial through 65 branches and 15 on-site locations in 26 states.

Growth in our multifamily segment has given us what we believe is a market leading position in a business segment where we foresaw significant growth for our new, complementary, and highly profitable service category. We believe we have the largest multifamily staffing business in the U.S.

This rapidly growing segment provides temporary staffing needed to run apartment complexes, namely office and maintenance personnel. We generated $71.8 million annual 2017 revenues in this segment. Approximately, a third of our revenue in multifamily comes from the office leasing side and the other two-third comes from various maintenance activities.

Most of our clients are asset management companies who manage the apartment complexes for the owners. Multifamily is our highest gross profit percent segment, and we believe it is a specialty niche as defined by staffing industry analysts. In our professional segment, we offer primarily two skill sets.

The first is IT and the second is finance and accounting. Professional is our highest revenue segment. Our commercial business segment, which was our first business segment provides temporary workers and managed on-site services for light manufacturing, logistics, and call center operations.

While commercial was 100% of our revenue stream when Allen joined the company as CEO in 2009, it now represent approximately 27% of revenues as a result of our strategic diversification objective as a means to increase company value and increase stability. I will now discuss our results of operations. First I will address our fourth quarter results.

Revenues for Q4 2017 were $75.7 million, an increase of $11.4 million or 17.8% when compared with revenues of Q4 2016 of $64.3 million. Our 2017 acquisitions of Zycron and Smart Resources contributed $9.4 million and $3 million, respectively to Q4 revenues.

Gross profit increased $12.1 million to $19.3 million in Q4 2017 and gross profit percent increased by 1.9% to 25.4% for Q4 2017 versus Q4 2016. The company reported a net loss of $875,000 or a loss of $0.10 per diluted share for Q4 2017, compared with net income of $2.3 million or earnings of $0.26 per diluted share for Q4 of 2016.

During the fourth quarter, the company recorded the impact of Tax Cuts and Jobs Act resulting in a re-measurement of its net deferred tax assets. The amount of the company's non-cash, write-down recorded in the fourth quarter was $3.3 million which is why we reported a loss for the fourth quarter even though business actually improved.

Excluding the effect of this non-cash charge, the company generated net income of $2.4 million or earnings of $0.27 per diluted share for the fourth quarter of 2017. Although the charge drove [ph] the company to a loss for the quarter and impacted our full year profit as well, we expect the company to benefit in the long run from the lowst U.S.

corporate tax rate in 8 decades providing additional cash flow and new flexibility on how we invest in the business and returning capital to our shareholders. Our expected effective tax rate for 2018 is 25.7%. And now for year-to-date results.

Revenues for 2017 were a record $272.6 million, an increase of $18.7 million or 7.4% when compared with revenues in 2016 of $253.9 million. Our 2017 acquisitions of Zycron and Smart contributed $27.1 million and $3.2 million respectively. Gross profit increased $8.3 million to $68.4 million for 2017, a 13.9% increase over 2016.

Gross profit percent increased by 1.4% to 25.1% for 2017, compared with 2016 of 23.7%. The company reported net income of $5.8 million, or $0.65 per diluted share for 2017, compared with net income of $6.9 million or $0.82 per diluted share for 2016.

Excluding the effect of the $3.3 million non-cash charge related to the tax legislation, the company generated net income of $9.2 million, or $1.01 per diluted share for 2017, representing an increase of $2.3 million or 33.1% over 2016.

Multifamily revenues increased $13.8 million or 23.8% year-over-year due to our continued focus on expanding the highest margin segment of our business. Professional revenues increased $19.6 million or 18.3%, primarily as a result of the Zycron and Smart acquisitions.

Commercial revenues decreased $14.7 million or approximately 16.5%, reflecting our continued shift away from this low margin business. Gross profit dollars increased in our multifamily and professional segment. These increases were partially offset by decline in gross profit dollars in our commercial segment.

Multifamily increased 25.9%, professional 19% and commercial decreased 16.9%. Selling expenses increased $5.7 million over 2016, due primarily to the growth in multifamily of $2.8 million, of which $764,000 was in new offices and the addition of Zycron and Smart, which added $3.7 million. Other F&A division's selling expenses increased $812,000.

Our other IT divisions decreased $1.4 million and commercial decreased $611,000. General and administrative expenses were up $703,000 compared with 2016 and were approximately 2% of revenues in both 2017 and 2016. The increase was primarily the result of higher compensation as well as transaction costs associated with our two acquisitions.

We almost double cash flow from operations in 2017, generating $18 million, compared to $9.5 million in 2016.

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 a more complete understanding of factors and trends affecting our business than measures under GAAP alone can provide.

In addition, the financial covenants of our credit agreement are based on adjusted EBITDA as defined in those agreements. Adjusted EBITDA was $24.5 million or 9% of revenues for 2017, an increase of $1.9 million or 8.1%, compared with $22.6 million or 8.9% of revenues in 2016.

Reconciliations of adjusted EBITDA to net income are available in our latest annual report on Form 10-K and in this morning's news release both of which are available on website.

I will close my comments by mentioning that Staffing Industry Analysts, a global adviser on contingent work, recently named Allen Baker, our President and CEO to the 2018 Staffing 100 List which recognizes the top influencers in the staffing industry. This is the second straight year Allen has been named to this prestigious group.

We are extremely proud of Allen's many contributions towards the growth and success of our industry. I will now turn the call over to Allen. At the conclusion of Allen's remarks, we will open the call for our Q&A session.

Allen ?.

Thanks Dan. I appreciate your effort. I am obviously pleased that we finished 2017 as our highest revenue year and more importantly our highest gross profit percentage year in the company's history.

Our 2017 results are a reflection of BG Staffing's unique value proposition, the solid performance from our recent acquisition and our disciplined approach to cost control. We believe we have been able to continue growing our market share through our unique diversification strategy.

Over the past nine years, our business plan to diversify by segment and by geography has paid dividends as our exposure to more profitable market segments in multifamily, IT and finance and accounting has significantly mitigated the anticipated declines in commercial.

On the cost side, we separate selling cost from general and administrative costs for internal financial reporting purposes. Selling relates to the field production of revenue and gross margin while G&A consists of back-office costs.

This separation allows us to analyze contribution margin or how much each of our businesses is contributing to the coverage of overhead. We consistently target G&A expense to be approximately 2% to 2.5% of revenues and I am pleased to note that once again we achieved this goal in 2017.

During 2017, we opened 11 new multifamily offices contributing to our organic growth which is consistent with our belief that generally speaking, it is more advantageous to open new multifamily offices than to buy them.

Our expectation is that multifamily offices deliver 15% contribution to overhead and start positive cash flow within 90 days of opening the office. In 2018, our plan, as usual, is to open five new multifamily offices. Turning to M&A. In 2017, we completed two acquisitions increasing our total to nine companies since I took over as CEO in 2009.

Since joining the BG Staffing family, each of these two acquisitions have performed in line with our expectations. These companies Zycron and Smart Resources fit our acquisition strategy of growth and high margin services in IT and finance and accounting, respectively and were both immediately accretive to earnings.

We believe we have succeeded in designing and adhering to a highly disciplined customized acquisition strategy aligned with the company's key objectives and based on a proactive and highly selective approach to the market. Looking ahead at 2018. The acquisition pipeline remains active and our two-pronged growth strategy remains unchanged.

We will continue to focus on organic growth and we are always interested in and continuously evaluating well-run companies where our competitive standing is strongest and whether and where further market penetration and service diversification would realize the greatest returns.

Our acquisition criteria include increased margins through operational synergies, enhanced in-house management capability, immediate earnings accretion and typically includes companies that are generating somewhere in the neighborhood of $5 million of EBITDA. On a macro level, the general consensus in the temp staffing industry is one of optimism.

With employment continuing to decline and labor markets tightening, temporary penetration levels have increased. With incremental spending on temporary staffing on the upswing, we expect overall demand in the U.S. to improve which ultimately will benefit BG Staffing. A quick word about seasonality.

Historically, our business cycle yields our best performance in Q3, with Q1 being the lowest in which -- that's when our payroll taxes are the highest. I am pleased to reaffirm that our Board is committed to maintaining our quarterly dividend payout presently at $0.25 per share per quarter which provides a current almost 6% yield to our shareholders.

Our strong cash flow generation has enabled us to grow booth organically and through acquisitions, while also returning cash to our shareholders through regular quarterly dividends.

In summary, 2017 was a solid year for BG Staffing, we cannot be more pleased with strong operational performance by our managers in the field and I would like to thank them for their contribution to our many successes in 2017 and particularly our enhanced gross profit margin.

Our team's ability to grow the business through expanding market share, superior customer service, pricing discipline and expense management enables BG Staffing to thrive during 2017 and I am very proud of these achievements.

We look forward to 2018, which we expect will feature a continued enthusiasm for spending on temporary staffing and we believe that BG Staffing is well-positioned to capitalize on these opportunities. I will now hand over the call to the operator to open the question-and-answer session..

[Operator Instructions]. Our first question comes from Jeff Martin of ROTH Capital Partners..

Hello. This is Sarra Schuster, calling in on behalf of Jeff Martin. Last quarter, you mentioned that BG is exploring the commercial markets with a strategy similar to the multifamily segment.

Can you outline what the initiative entails over the course of the first couple of years? And do you have a targeted launch for the commercial market?.

We are going to do that, I hope, sometime this year and it has a performance criteria that it has to hit. We have currently got working in that section about 40 people. We would like to have a few more than that. But I am seeing that it's doing well and we are looking forward to do about $6 million in revenue this year..

Okay. Thank you. And last quarter was too soon to comment on the Smart acquisition.

Now that you have had the business under BG for five months, can you provide a status report on the acquisition, specifically regarding the broader strategy and the firm taking additional skill sets to more geographies?.

I would say that it's still too soon to comment on it, mainly because it's a small operation and I just haven't had time to look at it. So next call we will have something for you..

Okay. Thank you.

And lastly, in the professional segment, could you please provide an update regarding your expectation for growth as it pertains to the IT component of the segment as well as finance and accounting for 2018?.

It's probably going to grow about $2 million, that would be IT..

Okay..

And finance and accounting is probably going to grow, we are just talking revenue growth here, probably substantially more than that, say $4 million..

Okay. Thank you very much..

Thank you..

Our next question comes from Howard Halpern of Taglich Brothers..

Congratulations. Great quarter, great end to the year. First question is with regard to multifamily.

How many existing offices accounted for the nice revenue in 2017?.

Wow, we don't look at it..

I know you had 11 new offices, you said.

So I don't know how many it has to be 30 or more?.

Well, we have got over 40 offices in multifamily. And so how many of them contributed, I don't know. They are not all growing at the same pace. I think we had growth in multifamily about 23% growth, it looks like, almost 24%. So I don't know --.

Was the fourth quarter growth a little bit of an anomaly or was it pretty substantial year-over-year?.

No. It was a small anomaly. But I would not say that -- I haven't had a chance, Howard, to look into that. I am sorry. I will get that for you..

Okay. And you did talk about the seasonality.

But is there any change to the magnitude in it due to the tax reform that went on?.

The magnitude in what?.

In the bump in the payroll – in the expenses for the payroll taxes in Q1 normally?.

Those were all corporate income taxes, not payroll taxes..

Okay.

And in terms of Zycron, are you seeing growth in the Zycron business itself?.

Right now, we have got another two, three months to go on their earnout period. I am just looking for $4 million in revenue and I think we are going to hit that and that's a contribution number I am giving you..

Okay..

So we will just see if that works out, and if does, I am going to call that a success..

Okay. And one last one.

You talked about 2018, five new multifamily, is that five brand new ones or does that include maybe a split or two of an existing office?.

It's five brand new ones according to plan..

Okay. Thanks and keep up the great work..

All right. Appreciate it. Thank you Howard..

Our next question comes from John Rolfe of Argand Capital..

Hi guys. Just a couple of quick questions for you.

One, I just wanted to confirm, did you say that your expectation on the consolidated tax rate was 25.7% for 2018?.

Yes, sir..

Okay. Great. And it looked like SG&A ticked up about $1.5 million sequentially from 3Q from $11.2 million to $12.8 million despite it being, I guess, often a seasonally weaker quarter.

What were sort of the pieces of that? And was there anything unusual in the SG&A line item for the fourth quarter?.

So you had a full quarter of Smart in there, which is about $800,000..

Okay..

And a little bit of rent increase on the multifamily side, and I would say, a little bit of bad debt adjustments in the fourth quarter. But primarily, it was the Smart. You had a full quarter of that SG&A in there..

Okay.

So would you expect, and then lastly, I guess on the commercial side, I mean I know you guys have been sort of culling some business there that doesn't meet your internal bogey from a margin or profitability standpoint, but would you expect the declines in commercial to abate this year? Do you think on a full-year basis, commercial will grow once again or how should we be thinking about sort of your focus on that business and what revenue might look like?.

My view is, it's going to stay about flat, probably about $77 million of revenue..

Okay. Great. Thanks guys. Appreciate it..

Thank you..

We have no more questions at this time. I would like to turn the conference back over to Mr. Allen Baker for any closing remarks..

Thanks operator. On behalf of our entire team here at BG Staffing, I would like to thank all of you for participating in today's call. I would also want to thank all of our loyal employees, customers, and stockholders for their continued support and commitment, which has helped shape BG Staffing into the strong company that it is today.

We look forward to a productive 2018. Have a great day and thanks again for joining us..

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