Thank you for standing by. This is the conference operator. Welcome to the BG Staffing 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 at Bibicoff and MacInnis. Please go ahead..

Thank you, Saviz. It's my pleasure to welcome you to the BG Staffing conference call to discuss Q4 and year end financial and operating results and a progress report on the company's business strategy. With me today on our call is Beth Garvey, President and CEO; and Dan Hollenbach, Chief Financial Officer.

A question-and-answer session will follow their prepared remarks. A copy of this morning's news release announcing the company's financial results as well as the Form 10-K are available in the Investor Relations section on BG's website at bgstaffing.com. Our call today is being webcast live and recorded.

A replay will be available later today on the company's website and will remain available for at least 90 days following the call. Our discussions today include forward-looking statements.

These statements are based on certain assumptions made by BGSF 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 Securities and Exchange Commission.

All 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 BGSF assumes no obligation to update these statements publicly, even if the 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 condition and results of operations.

Additionally, the financial covenants in BGSF's credit agreement are based on adjusted EBITDA. 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 reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see today's earnings release and Form 10-Q posted on the company's website. It's now my pleasure to turn the call over to Dan Hollenbach, Chief Financial Officer.

Dan?.

Thanks, Terri, and good afternoon to everyone. We appreciate your interest in BGSF. First, I'd like to address the recent stock market volatility and the decline in our stock price. As we're all painfully aware, the markets are being materially impacted by both the coronavirus pandemic and the oil production pricing and production issues.

We do track our stock alongside many of our peers and unfortunately we have all been impacted negatively by the decline in our sector over the past three months. Despite strong job market growth over the last three months, we are diligently vigilant, I can't say that word.

We are really working on monitoring the uncertainty in the market around the impact and the duration of the coronavirus outbreak. Our fiscal 2019 results did not include any material impact from the virus. The impact of the outbreak on the labor market will depend among other things on the length of time that disrupts the economic activity.

The effect over the next few months may be reflected in a drop in hours worked and reduced hiring. However, the disruption continues longer and the impacted companies are likely to reduce their workforce including layoffs, especially to those unable to work remotely.

We've outlined these risks and uncertainties in our annual report on Form 10-K filed earlier today. It's simply too early to have disability about the potential impacts from disruptions to the labor market and business operations. No determination to the impact on our financial condition and our results of operations can be made at this time.

We continue to be in close contact with our team members, clients, partners, and field talent while watchfully monitoring this fluid situation, Beth will chat a little bit more about this later. We are pleased with the growth of BGSF top line numbers and our initiatives started for 2019 – in 2019.

And I would like to start by taking a moment to acknowledge all of our team members at each of our BGSF business units for their hard work and dedication to our company's continued success and strong gross profit margin. Their contributions are vitally important and we are very proud of the job they continue to do for us.

We welcome our new team members at L.J. Kushner and EdgeRock Technology Partners and are confident they will add to our growth story in 2020 and beyond. I'd also like to take a minute to congratulate Beth Garvey on the four awards she received since the end of Q3.

Beth was recognized as the leader in the Staffing Industry Analysts, or SIAs, Global Power 150 Women in Staffing also in D CEO Magazine Dallas 500 most powerful business leaders in Dallas-Fort Worth, and was one of the Women of the Year honored by The Family Place Texas Trailblazer Awards.

Most recently, we are proud that Beth was also named of the SIA 2020 Staffing 100 list. Great work Beth. We here at BGSF appreciate with an outstanding job Beth does for us and it's great to see her knowledge outside of our company.

As a reminder, BGSF operates three segments currently through 83 offices, 15 onsite locations, servicing 43 States in the District of Columbia. Our Real Estate segment opened seven new offices in 2019. Beth will discuss our plans for 2020 in her remarks. I will review our financial results for the fourth quarter and fiscal year 2019.

Before turning the call over to Beth for her comments on the reporting periods just ended in addition to our company’s strategy and execution, outlook on the current industry conditions and our plans for 2020 and beyond.

A more complete discussion of our 2019 financial condition and results of operations, including segment information is included in our annual report on Form 10-K. And now to the numbers, revenues for Q4 2019 were $72.3 million, up four tenths of – 4% just under 5% from Q4 2018, while gross profit increased to $0.5 million, up 26.6%.

Our gross profit percentage was 26.6% was up from 26% for the fourth quarter of 2018. Both our Real Estate and Professional segments had growth led by our Real Estate Group at 11.3%. Net income for Q4 2019 was $2.7 million, or $0.26 per diluted share compared with net income of $4.8 million, or $0.47 per diluted share for Q4 2018.

Q4 2019 included transaction fees and IT roadmap expenses $655,000 greater than last year. Additionally, Q4 2018 was bolstered by $1.6 million gain on contingent consideration. Finally, our tax rate in 2019 was 28.8% while 18.9% in 2018. Adjusted EBITDA for Q4 2019 was $6.3 million slightly lower than $6.4 million in 2018.

Adjusted EPS in 2019 decreased to $0.37 versus $0.41 in 2018 both impacted by the decrease in the Light Industrial segment contribution for the quarter versus last year. Turning to year-end results, revenues for 2019 were $294.3 million, an increase of $7.5 million, or 2.6%, compared with 2018.

Both our Real Estate and Professional segments has growth led by Real Estate at 11%. For the year, gross profit increased $4.1 million, or 5.3%, to $80.7 million, and gross profit percentage increased to 27.4 million compared with 26.7 last year.

We reported net income of $13.2 million or 1.28 per diluted share for 2019 compared with net income of $17.5 million, or 1.79 per diluted share in 2018. 2019 included transaction fees and IT roadmap expenses $647,000 greater than last year.

Additionally, 2018 was bolstered by $3.8 million gains on contingent consideration and an effective tax rate of 18% versus 24.5% for 2019. Our two acquisitions had combined revenues of approximately $43 million in 2019, none of which is included in our 2019 results.

Adjusted EBITDA for the year was $26.6 million, or 9% of revenues in 2019 compared with $27.1 million or 9.4% of revenues in 2018.

Adjusted EPS in 2019 decreased to 1.67 from 1.79 in 2018, primarily due to the decrease in the Light Industrial contribution for the year versus last year as well as increases in our home office support team related to HR and IT headcount that we added this year.

Our SG&A expenses increased approximately $5.1 million, or 10%, over 2018 due primarily to our growth in Real Estate segment, which comprised $2.3 million of the increase or 13% consistent with the revenue growth and office expansion in that segment. We also had 721,000 related to the IT roadmap initiatives started this year.

A breakout of our SG&A by major group is included in the management discussion section of our annual report on Form 10-K. Our effective income tax rate was 24.5% for 2019 compared with 18% for 2018.

Contributing to lower tax rate in 2018 was the deduction attributable to the cancellation of outstanding stock options held by our chairman in connection with the company's successful public stock offering in May of 2018. We currently estimate a 24.5% effective rate for 2020.

We continue to generate robust operating cash flows as a result of our strong balance sheet, effective working capital management and solid earnings allowing us to reduce the operating debt while at the same time keep returning capital to our shareholders in the form of regular quarterly dividends, currently set at $0.30 per share, an approximate yield of 11% as of today's close.

We have now paid a quarterly dividend for 21 consecutive quarters. Our debt to pro forma adjusted trailing 12 month EBITDA at the end of 2019 was slightly over 1 at 1.02. Adjusted for the EdgeRock acquisition, debt to pro forma adjusted EBITDA, trailing 12-months of EBITDA – at year end was 1.53.

Explanations of our used and reconciliations of adjusted EBITDA and net income as well as adjusted EPS are available in our latest annual report on Form 10-K and in our earnings release, both of which are available on our website. This completes my financial review. And I now turn the call over to Beth..

Thanks, Dan. Good afternoon everyone. Despite the volatility in today's choppy stock market, I'm happy you're joining us for our review in the 2019 operating results and our overall performance. I'm pleased to note that in 2019 organic revenue growth continued as we grew gross profit and successfully expanded our cross-sell efforts.

I continue to be incredibly proud of the team's hard work, including the continued implementation of our technology roadmap and our successful market expansion with the addition of seven new offices in 2019, which helps to drive our success.

I'd like to update you on the progress of our three 2019 initiatives, which we discussed in last quarter's call. As a reminder, they are the entry into the California market, our technology enhancement and building a company culture supporting our overall values to corporate citizenship efforts.

We opened our first BG Multifamily sales office in California late in Q1 and I'm happy to report that the business is doing well and continues to meet our targeted plan.

Our 2020 goal is to open two additional offices in that state for the Real Estate Division and we are closely monitoring any kind of impact that coronavirus may have in the markets that we've identified. In addition, our IT expansion is on track with four of our specialty brands billing in California as well.

Our ongoing technology enhancement initiative continues to be on target. Of our 26 projects, we have completed 10 and have 10 in current production.

The initiative with the biggest impact to our stakeholders is the new website that includes capabilities for a client on-boarding, which will be going live at the end of this month followed by the automated timecard collection process that we’ll be launching in June.

This investment in leveraging technology will benefit our team in evaluating a wide range of significant metrics and processes. It transforms our performance, increases our value proposition and drives operational efficiencies to lower our cost to serve.

Also, we believe the efficiencies we gain will boost performance, improve the overall customer experience and increase talent and client loyalty. Company culture and its role in our corporate citizen experts also remain a focus. We strive to continue to build a people centric culture with the moral concept to attract the best in the industry.

Over the last 12 months, we have restructured our health benefits resulting in a decrease in cost to the company, as well as to our team members. We rolled out paid maternity, paternal and short term disability, as well as two paid volunteer days a year so our team members can support the causes that are important to them.

In addition, we are offering a tuition reimbursement plan supporting the team's education certification efforts. In 2020 we're launching the BG Green Team to address environmental issues as well as the diversity and inclusion effort led by our VP of People.

On the M&A front, even after making two acquisitions in the last four months, our pipeline is still very full and active. Staffing industry M&A activity in 2019, as reported by Houlihan Lokey, saw a total of 144 staffing transactions up from 139 in 2018.

Our acquisition focus has remained in Professional segment due to the growth efficiency of our Real Estate Division. However, if they were to have to see something that come up in California in the Real Estate sector, we would definitely take a look at it. On the subject of acquisitions, in December of 2019 we acquired L.J.

Kushner & Associates, a record leader in information and cybersecurity retained search. We've long appreciated the increasing demand for cybersecurity related services across virtually all of our recruitment verticals.

The addition of this operation supports our vision of the future and allows us to provide a more holistic solution to our client partners.

We’re in the early stages of an ongoing integration with the goal of building on a complimentary consulting practice with this group In February we further extended our service offerings with the acquisition of EdgeRock Technology Partners, our 11th acquisition since 2009.

EdgeRock is a leader in IT consulting and managed services and has a very strong internal training platform that will allow us to bring in top college recruit, giving them training and a career path for the teacher. I'm happy to also report we are already appreciating many great synergies within this group, including early cross-sale activity.

Turning toward our industry outlook for 2020 which the U.S. temporary penetration rate was 2% in December of 2019 above its average of 1.85% since 2000. The strong February job report noted employers added 273,000 position before the coronavirus outbreak began to sweep the nation.

Labor department reported last week that the unemployment rate fell to 3.5% matching a 50-year low. Staffing industry analyst job report from earlier this week noted that in February temporary health services lost 3,300 jobs in a month and temp staff penetration rates split to 1.93% in its lowest level since 2013.

While no one can know the length or depth of this COVID-19 health crisis, I have confidence in our company and our team's ability to adapt and emerge from this emergency and the subsequent business and economic outcomes.

Notwithstanding these unknown consequences on the regarded optimism is recorded healthy fourth quarter operating results, ongoing customer demand and envision for our company into the future. I’m proud of our team.

I’m very pleased that we reported 26.6% consolidated quarterly gross profit, our 11th consecutive quarter with consolidated gross profit percentages in excess of 25%, which I’m pleased to point is outstanding for our industry.

We continue to make strides in our mission to build value and grow revenue, while realizing benefits from cross-sells, growth in our new markets, our new acquisition partners and our technology initiative. And now I’ll turn the call back over to the operator to begin the Q&A.

Thank you. We will now being the question-and-answer session. [Operator Instructions] Our first question comes from Jeff Martin with Roth Capital Partners. Please go ahead..

Thanks. Good afternoon Beth and Dan. And thank you for hosting the call during a very challenging time for all of us here.

Wanted to get a sense of what some of your clients are saying what you're hearing from them and what some of the responses that you may be contemplating or enacting as a result of kind of the environment that everybody is facing today?.

Great question. When we first – this situation first started rearing its head, I immediately went into the team and started having them ask questions divisionally about how, what the impact would be. In the Professional Division most of the clients we’re hearing that they realize business has continued to go.

They are all very much open to working remotely. We have our largest client actually that just sent a notice out yesterday that said that they would be doing remote next week and all of our people are going with them and they're supplying all the resources to be able to do that.

In addition to that, we've been working with our IT department to be able to go in and be able to deploy resources, computers, printers, screens along those lines, in the event we have people in the Professional Division that need to be able to – where we need to be able to supply equipment.

So they are launched up and ready to go to be able to meet that need as well. In the Real Estate Division, I talked to the division president, she feels like they will be fine because people if they do have to be home, they're going to be home and that's what they do. They hang out in their apartments.

And so she feels like they're going to be fine from that sector. She feels like there could be some interesting things in the Talent side for commercial buildings that right now we have not seen anything along those lines.

And then in the Light Industrial Group the only thing we are seeing right now is a little bit of slow down from any of the supply chain that has come in from China. And what that has done is just resulted in some of our customers who – who typically worked a lot of overtime.

They're kind of working normal hours right now while that supply chain gets ramped back up..

Okay.

Does this disrupt your ability to continue with your IT improvement plan? Does it put things on hold at all or are you able to continue to move forward with that?.

Right now, no. But I think that a lot of these things that we're doing in the technology side will help reinforce us if we do end up having to go full on work from home. So a lot of those things right now help support that initiative. And I think that there's no reason for us to stop at this point..

We will look at initiatives that have not started and determine whether we can – depending on what happens over the next two, to three or four months whether we can push those out to the led that cost. It's part of initiative that Beth is leading now and especially over the next couple of days with her leadership team..

We've gone through with all of this with our leadership team saying, hey, this is where we are today, but, worst case scenario, how would you respond? And so we're putting together a business continuity plan right now and how we would respond to something in the event that it becomes a little bit more severe..

Okay. And then in terms of capital availability and capital allocation, could you Dan give us a sense of what is available on your credit facility today? And two if there's a potential scenario that the Board may reevaluate dividends versus share repurchases given the recent decline..

Yes, so currently we have about – we have $15 million available on our revolver. We have $20 million outstanding on a $35 million revolver. Just got confirmation from the bank today that they will support us in this endeavor. We have not had discussions with the Board concerning the ongoing dividends or any share back opportunities.

We do have restrictions within our credit agreement on buyback, so that would have to go by the bank first..

Okay. Okay, great. Thanks for answering my questions..

You bet..

Thanks Jeff..

Our next question is from Michael Taglich with Taglich Brothers. Please go ahead..

I just want to say Beth great job and I'm looking forward to your working way through this crisis, see you all in May. Thanks..

Thank you, Mike..

Thank you, sir..

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

Good afternoon guys..

Good afternoon.

Hi Howard..

Hi.

In terms of the acquisitions could you, I guess, talk a little bit about what you saw is the strategic importance to those? And also if you could just say, how does that fit in the gross margin in the Professional segment going forward?.

Both of them are very creative to the margins, the cybersecurity group they're 100% since it's direct hire kind of retained search that definitely is going to give them a higher margin boost. That was something as we've talked about in the past we really wanted to get into the cybersecurity world. L.J.

Kushner [ph] has a incredible reputation in the industry and the leader of that group has relationships with some of the top CSOs in the nation. And so we feel like as we continue to build that out and start to support him up with some contingent or consulting labor underneath it that there are some great possibilities for that group in the future.

As far as EdgeRock goes, EdgeRock is similar to American Partners and Extrinsic in the fact that these are people where they are technology experts, so they run higher margins and they actually float out throughout the U.S.

So we looked at them, we looked to see if we had any customers that we would share that would make it kind of not something that would be appealing to us, but what we found is there were very few customers that we shared which really gave us an opportunity to kind of lean out and blossom that support of that expert type IT consultant person..

Okay.

And at the end of the year how many offices in Multifamily Talent combined did you have?.

End of the year..

A lot..

We were right at 50 at the end of the year..

Yes..

Okay..

We have 50 Multifamily branches and six Talent offices..

Okay. And the expansion in Q1 adds one to that.

And then are you planning on expanding Talent offices or do you just all going to let that grow from where it currently stands?.

We've opened two new offices already and Multifamily this year. And I’ll let Beth talk now..

We have scheduled for 2020 four new offices for Talent and six for Multifamily..

Okay.

And just lastly in terms of, I guess, the acquisitions and the borrowing, what is the interest rate now combined with the term loan that you have?.

We're on the last reset, probably weighted average about 4%, rough numbers..

Okay. Okay well….

So think of Dan next time you read that, yes. Right, yes..

Yes, okay, it’s tied to the LIBOR correct?.

A good portion of it is tied to the LIBOR and our liquidity is tied to prime..

Okay. Okay, keep up the good work guys..

Great, thanks..

Thank you..

Our next question is from Darryl Davis, a Private Investor. Please go ahead..

Hey Beth, hey Dan, congrats on another good quarter. .

Thanks Darryl..

Thanks Darryl..

Sticking with the the Multifamily office certainly I am curious about Talent as well. But sticking with the Multifamily is it – is my memory correct, it takes about 18 months for those to get sort of ramped up to either 90%, or 95% or 100%..

Yes, that's a good memory, yes. Correct..

I'm trying to remember you said there was how many in 2019 and again, just a Multifamily was there seven?.

There were seven..

New openings, yes..

And then I want to say if we go back to like Q4 of 2018, wasn't there like two or three more? And I know this is going back in time, so you may not have it off top of your head..

They’ve averaged anywhere between five and nine a year. And just depending on the need, because I mean if you recall a lot of big expansion in Real Estate and Multifamily has to do with a Property Manager who is then promoted to a Regional Manager, who is then promoted to a District Manager and then takes it with them.

So there's a lot of that that kind of goes on with that. So I think from that perspective we usually try to target five a year and we usually see that based off the clients asking us to go with them..

Yes, Darryl in 2018 [indiscernible] four new locations and split three offices..

Got you. Okay. I'm just trying to get sort of a feel of when they roll up to be where we hope. And Beth you had said that so far, so good in California. I know you came up with some targets and maybe you have a low end target and medium end target and medium target, nice target.

But so far, so good on what the newer offices are contributing especially in California..

Yes, they probably started out a little bit slower than what we anticipated, but when they finally got their feet really planted firmly, they've done a really, really good job, exceeded what we thought..

Very good. That takes care of my questions. Thank you..

Thank you, sir..

Thank you..

Our next question is from George Melas with MKH Management. Please go ahead..

Good afternoon, Beth and Dan. And congratulations on the work that you've done. It seems like company is in good hands in the primetime..

Thank you, George..

Thank you, George..

You are welcome. I have a question on the Real Estate side.

Can you just give us a little bit more color on Multifamily versus the Talent side, may be on what some of the trends were in the fourth quarter? I just sort of plugged in a few numbers from the K in my model, and it seems like everything was quite good, the growth was, I think, 12% in the quarter, margins were strong.

But give us a bit more color also maybe on build hours rate and kind of how things develop there?.

Not quite sure what you're asking for George, I apologize..

Yes, no, I'm just trying maybe I'm just trying to get some color on the Real Estate side, maybe talking about Multifamily versus Talent. How the two are fairing? What are some of the – what you've seen in the Talent side because it's so new.

And I'm trying to understand some of the trends related to, I know revenue was up roughly 12% in the quarter, but how much was build hours, how much was rate, how much was the contribution from Talent, sort of anything you can give us help understand that two segments..

Okay. Don’t have that at my finger tip I could certainly follow-up with you, that’s okay..

Okay. Okay that’s it thank you..

George I will add that the Real Estate Division, that Multifamily Group really is strong in the day to day temporary side of it. Whereas the Talent side has got a stronger presence in direct hires, so they have a higher margin. So they kind of complement each other in those areas. And then Dan can give you the specifics around that separately..

So maybe he may give me that side. I think you said you’re planning to open four offices for Talent in 2020..

Correct. .

That suggests that you are comfortable with the model and the execution of the model if you are opening four offices.

So maybe tell us a little bit – but what you've learned in 2019? And how your vision of that business has evolved during that period of time?.

Well if you recall Charity Ellis took over that division back in April of last year. And since then, we’ve combined the management team where we had Talent kind of run by itself – and then multi-family ran by itself.

So what Charity has done is gone through and take it because there's many, many lessons that you learn in the Multifamily side that can be taught in the Talent side. So we now have a management team that crosses both of the brands and that's been very helpful.

We've identified some things that we feel will be helpful, being able to give them a little bit, some support that they didn't have before.

And we also believe that one of the things that they've learned is if they go into a market that we need to be in a city that has, I think, it's six stories for it to be a market that makes sense for the Talent Group when you are talking about commercial buildings.

So the expansion is not as many places because we've learned that it doesn't make sense if there's not the right type of buildings there, just like when we go in and expand the Real Estate and Multifamily, we know how many units make sense for us to be in there. So those are the things that we're learning right now.

But I think the biggest change that we've seen in this past year has been the fact that we now have shared management between both of the brands. And I think that that's going to support and prop them up to be able to move forward..

Okay, great. Thanks for that..

There are no more questions at this time. I would like to turn the conference back over to Beth Garvey for any closing remarks..

Thank you. And thanks to all of you for joining our call today. As we close the books on a productive 2019, I'm looking forward to updating you in May with our Q1 results. Have a great rest of your day..

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