Good afternoon, everyone, and welcome to the BGSF, Inc. First Quarter 2021 Financial Results Conference Call. As a reminder, this conference call is being recorded. Now I will turn the call over to Hala Elsherbini, Investor Relations, to provide introductions and read the safe harbor statement. Please go ahead..

Thank you and thank you for joining us to discuss BGSF's first quarter 2021 earnings results conference call. Joining me on the call are Beth Garvey, President and CEO and Dan Hollenbach, Chief Financial Officer. After the speakers' opening remarks, there will be a Q&A session. As noted, today's call is being recorded and webcast live.

A replay will be available later today and archived for 90 days on the company's Investor Relations page. Now for the safe harbor statement.

Discussions today will include forward-looking statements, which 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 the quarterly report on Form 10-Q 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 new information becomes available in the future. This broadcast is covered by US Copyright Laws and any use or rebroadcast of all or any portion of this conference call may only be done with the company's expressed written permission.

During the call, management will reference certain non-GAAP financial measures, which management believes can be useful in evaluating the company's operating activities and business trends related to the financial condition 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.

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are provided in today's earnings release posted on the company's website. I'll now turn the call over to Beth Garvey.

Beth?.

Thank you, Hala, and thank you to everyone for joining today's call. Although we are already one-year into the pandemic and still being impacted, we remain focused on our key priorities of serving our field talent and client partners while maintaining the health and safety of our team members.

I'll begin today's call with a review of our operational highlights and segment performance. And then I'll turn the call over to Dan to discuss our financial results. And I'll wrap up the call with some closing remarks on our general outlook and strategy.

Our team has managed well through the ongoing effects of the pandemic and the weather-related disruptions in Texas from the severe winter storms in February. While first quarter results were mixed, order activity has picked up significantly across our division.

We continue to build on the progress made over the past year through our business process investments and organizational restructure efforts, which were largely completed in the fourth quarter.

Through these initiatives, we are streamlining our operations to drive efficiencies and capitalizing on realigned leadership and cross selling efforts to continue to scale our business. Our teams have built a meaningful pipeline, and we are seeing positive sequential trends, giving us confidence in our long-term outlook.

Our remaining IT road map projects, focused on front office related digital upgrades, include payroll, HRIS, CRM and applicant tracking systems, progressing well and on schedule for an April 2022 launch.

At a time when virtual connections are the norm, we are innovating new ways to engage with our team members, field talent, client partners through cross sell measures [ph], new marketing and career programs in addition to strategic customer placements to drive our sales engine. BGSF has matured significantly as a company over the past few years.

And our diversified revenue model has been a key differentiator. Let's take a close look at the division, beginning with Real Estate. As you may have seen yesterday, a federal judge invalidated the national eviction moratorium that was extended from March to June.

While there is a short hold on the ruling, giving the US Justice Department an opportunity to appeal, it is too early to know the impact. But we remain optimistic and well positioned to meet demand. Sequentially, we continue to see improvements and we are executing several market relaunches with two initiated in the first quarter.

Through our talent acquisition center, we are in the process of lining up several market reopenings in the second quarter in anticipation of a rebound during the latter part of the year, which is historically strongest quarter for the Real Estate division.

Additionally, the recently passed $25 billion in federal rent relief should provide additional positivity to our offers. Our Professional segment saw strong demand in our IT Consulting practice with several new placements quarter-over-quarter. Cybersecurity projects through L.J. Kushner rebounded from the initial pandemic impact.

And as previously discussed, several infrastructure and development projects that were initiated in mid-2020 ended during the fourth quarter. In addition, several of our client partners with multi-year contracts have not rebounded from COVID-19 as quickly as we initially expected.

However, we saw a nice jump in starts late in the quarter and new logos are being added, which should provide momentum for the remainder of the year. Our entry into Canada is progressing well with our first win during the quarter, and we have a solid pipeline of opportunities in that market.

Additionally, with our February acquisition of Momentum Solutionz largely integrated, active new client introductions are now taking place, which will drive cross sell and new managed service opportunities. Overall, we are seeing strong demand for resources across all areas of our Professional group.

Light Industrial delivered a strong start to the year, beating last year's first quarter results while managing through severe industry wide labor shortages. We expected a sequential decline coming off a strong fourth quarter as online shopping and warehouse needs normalize at the end of the holiday season.

However, as strong demand continues, and like many in our industry, our challenge is candidate flows, which has significantly tapered off, primarily due to the latest stimulus three package.

We are intently focused on several initiatives to educate our clients with hiring data insights, training, virtual recruiting and ways to create a new mix of work shift. Lastly, we continue to make progress on our sustainability initiatives.

And I'm proud to share that we renamed our DEI Council the VIIBE, which stand for Voices Inspiring Inclusion, Belonging and Equity. Our council, made up of more than 40 people with broad perspectives, is energized and mobilizing efforts across our company to enrich learning, development and continue to build a strong culture.

Later in the year, we expect to form an employee research group, which will be called Infinity Group [ph]. In addition, we launched an employee recognition platform as well as Philanthropy Cloud to support our efforts in laying a foundation of being a business for the force of good, further enhancing our corporate social responsibility efforts.

I'm truly excited about these important initiatives to not only strengthen our team culture. But to also support and build strong community demand [ph].

Before I turn the call over to Dan to discuss the financials, I'd like to give a big shout out and congratulate Dan on being honored last night at the D CEO Financial Executive Awards as the winner in the category of mid-sized public companies..

Thanks, Beth, and good afternoon, everyone. Thank you for joining us today. This morning, we filed our Form 10-K for the first quarter ended March 28, 2021. And so I'll focus my remarks on the key financial highlights presented there. Let me first add my well wishes that you and your families are staying healthy.

Consolidated first quarter revenues declined by 8.6% to $67.7 million compared with Q1 2020.

Revenues were impacted by a 14.3% decline in Professional, primarily the Infrastructure & Development division, and a 7.1% decline in Real Estate, offset by a 1.5% increase the Light Industrial division and a $3.9 million contribution from the EdgeRock and Momentum Solutionz acquisitions in the Professional division.

Please note that Q1 revenues in Real Estate and Light Industrial were impacted negatively by approximately $1.3 million due to the Texas freeze in February. Placement fees overall were lower by $0.2 million, $200,000, compared to the same quarter last year.

Overall, first quarter results were muted on a year-over-year comparative basis, given that Q1 2020 was a strong quarter for us relative to the COVID-19 impact that started late in the quarter and for the remainder of 2020 and now in Q1 of this year.

Additionally, while the first quarter is typically softer in a normalized environment, the pandemic related disruptions further pressured results. However, our realigning and restructuring efforts are supporting a recovery across our businesses.

Sequentially, we saw continued stabilization in consolidated Q1 revenues, down 3.1% versus a 6.6% sequential decline in 2020 as adjusted for acquisitions. This was supported by Real Estate delivering a 4.6% sequential increase versus a 14.3% decrease in 2020 despite the moratorium extension on evictions.

As we noted during our fourth quarter earnings call, we anticipate that for our first half of 2020 - sorry, in 2020 for Real Estate relative to the second half of 2020. With anticipated improvement coming in the second half of this year as backlog starts to unwind.

As Beth mentioned, the decline in Professional was largely impacted by expected completion of several projects initiated last year and delayed headcount replacement, specifically in our Infrastructure & Development division. Our pipeline of new starts in the I&D were slower than anticipated early in the quarter.

Of note, our February 2021 acquisition of Momentum Solutionz brought an increase of 9.2% in average bill rate. Overall, we saw a sequential 1.3% decline in Professional.

Our cross-selling efforts for Professional represented 5.8% of revenues and 6.9% of gross profit as we continue to make progress toward a goal of 8% of revenues from cross selling, yielding a 10% gross profit.

As mentioned, Light Industrial revenues improved by 1.5% over last year but were down sequentially by 12.7%, coming off a strong fourth quarter with a significant shift to online shopping as well as seasonal lift to the holidays. For the quarter, consolidated gross profit declined by 7.2% to $18.8 million compared with Q1 2020.

As a percent of revenue, gross profit increased by 40 basis points to 27.8%, benefiting from a 220 basis point increase across our Professional segment.

SG&A expenses increased $0.5 million or 3.2% compared to the same quarter last year, primarily due to the additional expenses from our EdgeRock acquisition completed in Q1 of last year and our recent acquisition of Momentum Solutionz closed in February this year.

The increase in SG&A was offset by our reductions in legacy division costs and lower transaction fees. As a percent of revenue, consolidated SG&A expenses for the first quarter was 24.7% versus 21.9% last year, reflecting the deleveraging impact of revenue declines discussed earlier.

First quarter net income was $712,000 or $0.07 per diluted share compared with net income of $1.5 million or $0.14 per diluted share in the same quarter a year ago. Adjusted EBITDA was $2.9 million or $0.16 per diluted share compared with $5.3 million or $0.28 per diluted share in the same quarter a year ago.

We generated steady margins continued to produce solid cash flow and our liquidity position remains strong. Cash generated from operations decreased by 4.7%, primarily due to lower net income and increase in accounts receivable versus Q1 2020, which is offset by increased accrued payroll expenses.

Days sales outstanding at quarter end improved to 53 days versus 58 days at the end of 2020. Leverage, as measured by debt to adjusted trailing 12-month EBITDA, was 2.4% at March 28, 2021. During the quarter, we paid $3.8 million to fund the Momentum Solutionz acquisition using our revolver and reduced our term debt by $375,000.

We invested $547,000 in CapEx primarily for projects and the IT road map. We were pleased to see Board of Directors approve our 26th consecutive quarterly dividend payment of $0.10 per share. The Board continues to view our sustainable recurring dividend as an important component of BGSF's capital allocation and value proposition.

I will now turn the call back over to Beth for closing remarks and the general outlook for 2021..

Thanks, Dan. I'm pleased with how our entire company continues to execute. Although first quarter got off to slower than expected start, we are beginning to see the fruits of our labor off the hard work we completed last year. We saw recovery signs in Real Estate, activity picked up in Professional and Light Industrial demands remain strong.

The cost efficiencies, realignment and cross selling strategies and investments into the business should start to be realized as we drive further growth and profitability throughout the remainder of the year.

From an industry perspective, higher rates of vaccinations and COVID related restrictions being lifted point to a strong year of double-digit expansion across most segments of the workforce solutions industry.

Within workforce solutions, the US Bureau of Labor Statistics reported a strong temporary penetration rate of 1.92% from March of 2021 compared to the April 2020 drop of 1.57% and the February 2020 pre-pandemic level of 1.93%.

The April 2021 Staffing Industry Analysts forecast maintains a 12% growth rate for the overall industry Within US temporary staffing, growth is projected at 11%, surpassing 2019 levels and a record high. Within our focus industries, IT is projected to grow 9% and industrial is forecasted to grow by 16%.

Additionally, the National Apartment Association released its March 2021 economic and industry update with trends for renter demand outpacing that of a typical Q1. As the trends continue, rent growth is expected to surpass 6%.

These indicators point to multifamily turning the corner, and we expect to have an improved second half of the year for Real Estate. We are very well positioned to increase our market share as we relaunch markets paused during the pandemic.

We remain highly engaged with our broker partners as we continue to take on intentional focus on exploring select acquisition opportunities to augment our organic growth strategy. We are seeing a steady flow of opportunities after the slowdown caused by the pandemic.

As a reminder, we seek geographic and brand diversification into new or complementary high growth areas that are synergistic, margin enhancements, quickly accretive to EBITDA and our strong cash flow [ph]. From an outlook perspective, I remain highly confident in our strategic position for the remainder of the year and beyond.

Each of our segments are positioned to be stronger supported by much enhanced digital infrastructure. As the country continues to reopen, we should see momentum in our Real Estate and Professional segments while making progress on employee adds to address the continued demand for Light Industrial.

In summary, we are seeing positive trends developing across our business and industry sectors. We have revitalized our business and our teams are well positioned to execute our growth strategy. As always, I would like to thank all of our team members for their continued hard work and dedication in building long-term shareholder and stakeholder value.

With that said, I'll turn the call over to Chris, the operator..

[Operator Instructions] Today's first question comes from Mike Taglich with Taglich Brothers..

Congratulations. Dan, congratulations on your award.

A quick question, what are your thoughts about when we see a breakout in Real Estate? Or is that the right word to ascribe to it? Do you want to give us some color about what you're seeing, we're into May, we're into the Q2? What are your thoughts on this?.

Good question, Mike. We are seeing activity in that division that we feel very positive about. The only thing we're fighting right now is what everybody is fighting, and that is people not wanting to go to work because of stimulus packages. But we still feel optimistic that, that division picks up in the third quarter.

So we're still feeling optimistic about that. And with the NAA giving out their projections that they had an active Q1 with people moving, I think that, that bodes well for that division. Keep in mind that people didn't move last year. So if people start moving, that's a good thing for us.

And so if the industry is already seeing that, then we feel optimistic about it. But again, we usually see that in the third and fourth quarter. And right now, we have no reason to believe that we've locked these positions well..

Are you seeing any of it this month or last month? Or should it be a sequential burn up? Or is it going to be a hockey stick if you had to guess? Or what's your opinion?.

I think it will be a sequential burn up. I don't anticipate a hockey stick, would love to have some, but I don't anticipate that right now. And I think there's just so much that's still uncertain. For the first - I will say for the first time over a year, we feel very optimistic about the activity we're seeing..

We have a substantial number of open orders, Mike. And as mentioned, just trying to find the people to go to work..

Yes. As of this morning, I had 600 positions that were open. And we didn't have the kind of people, so we didn't create in that aspect. The jobs are there, we just got to get people..

All right. Thanks. I'll let somebody else ask more questions. Keep up the good work guys..

The next question comes from Sarra Schuster with ROTH Capital Partners..

Dan, congratulations on your award. I'm calling in on behalf of Jeff Martin. A couple of questions here. The performance of the Real Estate segment was slightly better than we had modeled in light of the severe storms in Texas during the quarter.

Are you able to provide an estimate of the revenue impact from the storms? And was there actually recovery related work from the storms that perhaps aided the performance of Real Estate in the quarter?.

Yes. So we had over $0.5 million that was impacting just in Real Estate because of the storms here. Once people got electricity again, we actually had people from all over the US that started helping us make calls to people within Texas to do what's called fire watch.

So if you saw the news across the country, you saw all of these buildings that had broken pipes and water flowing throughout the building through the parking garages. That's actually fire watch positions for us. So what we would do is go in and make sure that the pipes in the fire systems weren't breaking and then we'll let people know.

We did see a big jump on that, which helped us. So that was about a two-week bump on that. But it is revenue in general that about affected that over-happening..

Okay. Thank you.

With respect to your outlook for Real Estate, what are the key factors that you foresee between now and the end of the year that will most influence the rebound for the business?.

[Indiscernible] the same thing, we just talked about with Mike. I mean, it's just making sure that we get out there. As cities start to reopen, I think a lot of it has to do with people are ready to make moves. They didn't move last year. So we see some activity in that.

And then if the rent release packages, if there's more education that goes on with the renters right now to be able to let people know if they do need assistance, how to apply for that assistance and then that will give the management companies the relief that they need to be able to move [indiscernible] stream..

Next question, the Professional segment had some project completions last year. Based on your commentary and your press release this morning, it appears new long-term contracts are ramping up.

Can you provide some specifics with respect to timing and impact of these contracts relative to the project completions last year?.

Sure. I think we've talked about the fact that there's been a lot of RFP activity out there right now for the Professional division. We've had several wins in the past three to four weeks. But unlike a win in Light Industrial or win in Real Estate, those aren't immediately jobs that you bill.

So when we get a win in Professional, then you go in and you have discovery meetings and you figure out what your timing is going to be. So all of that to say is we do have some positive wins on RFPs, but sometimes it can take about four to six weeks for those to ramp.

So we're seeing some of that will probably start getting off at the end of May and into June..

One last question here. For Light Industrial and the logistics demand you're seeing, it appears bill rates are up nicely while hours worked are down about 6%.

Is there more work than you have labor for? And if so, are there ways to increase your labor capacity to continue to grow the Light Industrial segment?.

We are doing everything we want [indiscernible]. So the answer is yes. So bill rates are up, and I think customers are seeing that they're having to really go in and paying more to get more. We're seeing bonus programs put into place. We're seeing sign on bonuses being put into place.

So when a client in Light Industrial increases their bill rates, that's a good thing for us because in that division, paying bill rates are dictated. So if they have to give more on an hourly pay rates, then that helps us on the bill rates.

They're down because we expected it to be down in the first quarter because fourth quarter is always a busy quarter to begin because of the holidays. So we weren't surprised by that. But I will say that again we have about 600 positions that were open in the Real Estate. We also had about 600 positions that were opened in Light Industrial.

And we're doing a lot of different things to educate our clients in regards to doing surveys, research for what their pay rates are compared to what they should be for the region and really just going in and saying. If you need people, you are way under market and here's what you need to pay.

So there's a lot of education going into making sure our clients have the data to be able to make good decisions. And we're being as creative as we can to try to make sure that we support it, so we're all in the same boat.

But it's nice to see some of the clients really starting to engage in understanding that they're going to have to pay some bonuses and sign on things and increase their pay rates. So that is a good thing for us..

Great. Well, thank you very much and again, congratulations on the quarter and just look forward to have a follow-up call tomorrow..

[Operator Instructions] The next question comes from Howard Halpern with Taglich Brothers..

I'll go back to Real Estate for a second. You talked about reopening some offices in Q1 and Q2.

Could you give us the locations? And is there any incremental costs of reopening those offices?.

Well, Howard, I'm not going to tell you locations because that's intel. And I don't know who's on the call. But I will say we opened up two in first quarter. We had five scheduled for second quarter and five scheduled for third quarter.

And keeping in mind when we open a market in Real Estate, it is not anything more than people, so it's a salesperson and a recruiter in that market. So that is what our expenses would be to open those markets. But I'm hoping it sounds clearer when we talk tomorrow..

Okay.

And in terms of the growth potential in Real Estate, are you going to see the new business that comes in again as a little bit higher margin to get the overall gross margin back to that 38% plus level?.

We don't think so. There is some pricing pressure that we have seen in previous years. So I think we're in a range right now that's not going to shuttle too much..

Okay. And in terms of talking about gross margins, the gross margin was nice in professional services.

And with the wins that you talk about, are you going to keep the margins up towards the high 20s, low 30s, in that area?.

I don't expect that probably to stay up there. With L.J. Kushner, their [indiscernible] of 100% gross margin, so that's good for us. And the addition of Momentum Solutionz, which ran higher gross margins to begin with. And then EdgeRock ran higher than our legacy stuff as well.

So I think we've got a nice little trend going with businesses that are extremely complementary to our gross margin profile..

Okay.

And just on a relative basis going forward, you're pretty happy with the SG&A level that you're at right now?.

I think in terms of dollars, yes, I think we'll get the deleveraging effect as we move into Q3 and Q4, when revenues start to - we anticipate get back to April [ph] in more normalized level..

Okay.

And with that more overall normalized level, for modeling purposes, what would be a good overall tax rate for the year?.

Well, we don't give that out..

Okay, well you guys keep up the good work and we'll talk..

At this time, there are no further questioners in the queue. And this concludes the question-and-answer session. I would now like to turn the conference back over to Beth Garvey for closing remarks..

Thank you, Chris. We appreciate you taking time to join us for our call today, and we appreciate your continued support. We look forward to updating you on our second quarter results in August. Stay safe and healthy, and we'll talk to you soon..

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect..