Terri Macinnis - VP, IR of Bibicoff and MacInnis, Inc. Allen Baker - President & CEO Dan Hollenbach - CFO.

Jeff Martin - ROTH Capital Partners Michael Taglich - Taglich Brothers.

Greetings and welcome to the BG Staffing Q1 Results Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded.

I would now like to turn the conference over to your host Terri Macinnis, VP Investor Relations..

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

With me today on the call is; Dan Hollenbach, Chief Financial Officer and Allen Baker, President and CEO. By now you should have seen a copy of the press release announcing BG’s Q1 2018 financial results. If you do not have a copy of the press release you can find it in the Investor Relations section on BG's website at bgstaffing.com.

I remind you that call is being webcast live and recorded. A replay of the event will be available later today on the BG’s and will remain available for at least 90 days following the call. I would also like to 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 report with the Securities and Exchange Commission.

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 expressed 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 our earnings release posted on BG's website. I will now turn our call over to Dan Hollenbach, BG Staffing's Chief Financial Officer.

Dan?.

multifamily revenues increased 4.9 million or 37.8% over Q1 2017, which was all organic growth. Multifamily goes profit percentage for Q1 2018 was 38.1% in line with the same period last year. Multifamily opened seven new offices and split 4 during 2017. Our expectations are to open at least five this year.

Our professional segment’s revenues increased approximately 5.3 million or 20.4% compared with Q1 2017 with gross profit percentages for the professional segment coming in at 25.3% for Q1 2018, which compares to 24% for the same period last year.

These results reflect a full quarter of both Zycron and Smart, partially offset by some project specific variances that negatively impacted Q1 2018 results. First, a large project within our F&A division is currently winding down. We generated 1.9 million less revenue, 384,000 less gross profit attributed to that project in Q1 18 versus Q1 17.

We expected these declines and did not include any revenues from this project in our 2018 planning. Our commercial segment revenues decreased $188,000 or 1% from Q1 17.

Commercial gross profit percentage was 14.4% for Q1 18 compared with 13.8 % for Q1 2017, reflecting strong execution and pricing discipline by our managers in this segment of our business taking advantage of the improved business environment that began early last year and carried forward into the first quarter of ‘18.

Selling and expenses increased approximately 2.2 million or 27.1% over Q1 17 due primarily to the growth in multifamily of 973,000, of which 328,000 was attributable to the new offices and addition of Zycron and Smart which added 1.7 million to our professional segment.

Our other IT and F&A division selling expenses decreased 459,000 and our commercial segment decreased 93,000. Our G&A expenses were 2.4% of sales for the first quarter of ’18, down slightly from 2.5% for the first quarter of 2017. Our effective income tax rate for the first quarter of 2018 was 22.1% compared with 39% in first quarter of 2017.

First quarter tax rate is significantly lower to the newest tax legislation passed in December as well as higher work opportunity tax credits generated than we were expecting. We’re currently keeping our estimate for the remaining quarters’ effective income tax rate at approximately 25.7%.

Cash flow is good allowing us to pay down both our revolver and term debt as well as pay a dividend to our shareholders.

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 provide a more complete understanding of factors and trends affecting our business.

We also believe that investors, analysts, and other interested parties view our ability to generate adjusted EBITDA as an important measure of operating performance and as for other companies in our industry. Adjusted EBITDA was 5.4 million or 8.1% of revenues in Q1 ‘18 compared to 4.1 million or 7.3% of revenues in Q1 ‘17.

Reconciliations of adjusted EBITDA are available in our current report on Form 10-Q and in our earnings release both of which are available on our website. Allen..

Thanks Dan. Good afternoon everyone, and thank you for joining us today. I'm very pleased to review our strong first quarter results with you. Improved demand, a 17.6 increase in revenue and continued solid execution resulted in record results in every profit category.

In terms of capital allocation, we also continue to return cash to our shareholders through quarterly dividends and I'm also pleased that the board increased our quarterly dividend from $0.25 to $0.30 per share per quarter. BG Staffing has now been paying regular quarterly dividends for 14 consecutive quarters.

Overall, staffing demand remained robust throughout the first quarter of ’18, certainly as it relates to BG Staffing and customer sentiment was mostly positive. Our focus on maximizing gross profit margin resulted in our first ever annual gross profit margin of 25.9%.

We continue to sustain our gross profit margin percent as a result of the investments we are making in value added business segments.

We believe these investments have added scalability and flexibility to our business allowing us to serve additional customers at lower marginal cost providing us with a significant competitive advantage in segments that correlate with strong demand.

This ultimately leads to sustained and growing profitability for the company and significant value creation for investors. Because of these distinctive skills and assuming no significant changes in market conditions, we believe that we can sustain a gross profit margin within the range of 25% to 26% for the remainder of the year.

We currently anticipate customer demand levels will hold, with the potential for continued improvement as we move through 2018 for all our business segments. Further, if the economy continues to improve and labor markets continue to tight, we believe this will be a positive for BG Staffing overall.

In terms of acquisitions, we have previously discussed how we have designed our approach to hunting for new value-added businesses that are tailored to our unique circumstances. Our perspective is that diversification is intrinsically neither good nor bad.

It depends on whether we as the parent company can add more value to the businesses we buy than any other potential owner could. Historically, our acquisition strategy has included a willingness to make investments early before competitors and the market to see the potential of the target segment or company.

Based on our recent results and our results over the past several years, we believe we have taken advantage of an attractive industry structure and demonstrated a track record of creating a clear competitive advantage. In 2017, we completed two acquisitions Zycron and Smart. Both of which have been performing as expected.

We expect to continue to be a consolidator and a fragmented industry by making value creating acquisitions of profitable staffing companies with that markets that compliment our diversification strategy and meet our strategic objectives.

Although, we have not completed an acquisition yet in 2018, the pipeline remains very active and we continue to evaluate a wide range of opportunities. Organic investments primarily a new office pro [ph] relative to our multifamily segment will also continue to support our future growth.

Wrapping up my comments, 2018 is off to a good start and we have every reason to believe that our performance will continue to do well for the remainder of the year. Our business is performing well and we remain highly encouraged by the current economic environment.

We believe our future growth prospects are well supported by BG Staffing’s strong financial position and we believe that we can leverage our existing cost structure in periods of growth to produce higher earnings.

Our focus going forward will be to continue maximizing our gross profit margin while taking a disciplined approach to operating expense management to sustain our current trajectory of earnings growth. Now I would like to ask our operator to initiate the question and answer session..

Thank you. At this time we will be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Jeff Martin. Please proceed with your question. .

Thank you. Good morning Allen.

And Dan how are you?.

We’re good.

How are you doing Jeff?.

Doing well, thank you. Congrats on a nice quarter. I wanted to dive into multifamily a little bit, you said you'd open at least five new offices this year. Wondering how many you’ve opened to date? I was just asking to shed some color on the 38% growth number for a quarter.

Are you still seeing work from the hurricanes and is that a level that we should expect to continue in terms of the growth rate for the balance of the year?.

I have no idea what the answer to that question is, but I will say this that multifamily, we’ve worked on about three -- we are working on about three of the offices opening. We feel confident that they're going to be opened shortly. So that's three of the five, right there, and we're not even halfway through the year.

As far as 38% growth, that kind of surprised us a little bit. I don't know if that's what we're going to expect for the entire year or not, but it's going to be along those lines..

Okay great.

And then could you also talk about customer additions or deletions during the period?.

We haven't had any customer additions or deletions during this period of okay..

Okay.

And then could you provide an update for us on the IT and then finance and accounting?.

Yes. The professional division which is what you're relating to, we do look at it as though it's financial -- finance and accounting and IT. IT has taken a little hit, primarily in the amp, but they’re still recovering from the vast – we’ve laid off most of the people in that area. We’re changing their whole direction.

They've only lost, I don't know 2 million, 3 million in sales because of that. However, the acquisition of Zycron has more than made up for that.

As far as finance and accounting goes, I think I think we're well on the way to seeing how the Smart acquisition is going to help that, and we're constantly in the marketplace looking for new acquisitions to bolster that business. As far as what it's going to do the remaining part of this year, it should be going up, but we'll just wait and see..

Okay great.

And then my last question is, could you talk about your capital availability to fund acquisitions, how you feel about your current access to capital and how you see funding that going forward?.

I feel really good about it. We've got our bank group structured in such a way that we can do some more acquisitions. All we've got to do is find one. So if it looks good enough to buy, I feel like we'll be able to buy it..

Okay great. Thanks and congratulations again on a nice quarter..

Thanks. .

Our next question comes from the line of Michael Taglich from Taglich Brothers. Please proceed with your question..

First of all, I want to congratulate on an excellent quarter. You’re great at producing very good results and very - always very shy about predicting future ones. So that's worked out well. Well shyness aside, the multifamily has obviously been a wildly successful acquisition.

Where do you see that business in 2, 3, 4, 5 years from now? And you want to talk about the opportunities there in the commercial segment? Give us an idea what your goals are for it?.

Yeah. We have -- probably multifamily just alone will be over 100 million. That should happen relatively easily, assuming there’s no bumps in the road. As far as the commercial segment, we're sticking our toe in the water this year. They've got to produce roughly 5 million, 6 million in revenues, and then we're going to turn them loose.

We are learning a lot about the market. I would say at this stage of the game, it’s looking pretty good to me even though we have been a little behind what we were expecting, but I think they'll do more than make up for that later on in the year.

So is that kind of what you're looking for?.

Well, yes.

Goals about where our commercial can be 2, 3, 4, 5 years from now?.

2, 3, 4, 5 years from now, I have no goals. I just want to see if it's going to be able to stand on its own two feet. So, this year's goal is to do 5 million or 6 million in revenue, if they do that then we'll talk about future goals..

And at the current level of what you learned on the commercial side of the business, do you feel you've got a business model that can match that you've done in multifamily?.

We do feel that way, but give us another - I don't know give us till the end of the year, frankly, because we're learning something new about this market every day, particularly the types of people that we thought we were going to be putting to work. They are different.

We thought they were going to be more similarly situated, but we feel like we should be able at this stage of the game to duplicate the revenue growth that we've seen in multifamily with this model..

What do you think the margins are going to be? Are they going to approach multifamilies, so they…>.

There will easily be the multifamily level margin..

And how bigger market is commercial versus multifamily?.

Well and our initial thoughts are, it should be bigger. But I don't really know. I just want to see it stick our toe in the water and do 5 million or 6 million in revenue this year. We does that, sky is the limit.

Will pull the sheets back and let the operations people tell us, what they think they can do?.

Now from a rollout standpoint, can you use the opposite – I assume you’d use the multifamily offices so you don't have much a way of marginal fixed expenses, right?.

That's correct. We're thinking about right now.

But like I said, I think we've got people active five or six of these offices currently as we're sticking our toe in the water, but we do plan to whether it's the same or different, it'll be the same profitability level, as multifamily, if you follow what I'm saying there?.

I get it. All right, thanks. Keep up the good work and good job on the dividend..

Appreciate it….

I have one more thing.

At this rate without any acquisitions you should be out of your term debt even with this dividend rate in a couple of years or so, right?.

Okay, I'll take your word for that. Dan is over here, shaking my head, yes, agree with you. .

Okay. All right great. Thanks. Keep up the good work..

Thanks..

There are no further questions at this time. And I will later turn the call back to Allen, closing comments..

Thank you operator and thanks to all of you for joining our call today. I'm looking forward to our next call that we report and anticipate that Q2 results should be solid. Have a good afternoon. Thanks..

This concludes today’s conference. You may disconnect your line at this time. Thank you for your participation..