BGSF, Inc.
Q3 2019 Earnings Call Transcript

Published: 10 Nov 2019

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the BG Staffing, Third Quarter 2019 Financial 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 + MacInnis. Please go ahead.

[Terri MacInnis:]

Thank you, Areal. It’s my pleasure to welcome you to the BG Staffing conference call to discuss Q3 and nine months 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-Q 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 BG Staffing based on and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.The company’s actual results could differ materially from those indicated by the forward-looking statements, because of various risks and uncertainties, including those listed in Item 1A of the company’s Annual Report on Form 10-K and in the company’s other filings and reports with the 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 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 condition and results of operations.Additionally, the financial covenants in BG Staffing 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 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 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.

[Dan Hollenbach:]

Thanks Terri and good afternoon everyone. Thank you for joining us today and for your support of BG Staffing. We had a very day in the market today, so.I’d like to start our call by taking a moment to acknowledge all of our talented team members at each of our BG Staffing business units for their hard work and their dedication to our company’s continued success and our strong gross profit margin. Their contributions are vitally important, and we are truly proud of the job they continue to do for us.As a reminder, BG Staffing provides contingent staffing services within three industry segments

[Beth Garvey:]

Thank you, Dan. Good afternoon everyone and thank you for joining us today. As you can imagine, I'm very pleased with our solid operating results and overall performance, and continue to be optimistic about the runaway in front of us.I’ll begin my comment by noting at the end of Q3 marked one year since I stepped into my expanded role as President and CEO. When I look back over the last 12 months, I'm very proud of my team’s accomplishment, which included early success in initiates identified in our strategic planning, resulting in increased growth margin percentages, the development and launch at our technology roadmap that will have a positive impact on our internal and external spec covers.Our overall year-over-year organic growth, our expansion into five new markets in real estate, as well as our footprint in California in our professional and real-estate division; and lastly, our continued success in our cross-sell efforts across the company.I'd like to talk about the progress we're making in our Q3 2019 initiatives we launched late in first quarter; our entry into the California market, the technology enhancement and building a company culture supporting our corporate citizenship efforts.I’ll start with the opportunity that California represents for us. Since we opened our first BG’s multifamily sales office in California late in the first quarter, I'm pleased to say that to-date we have met our targeted plans in this new market and are very satisfied with the progress. And I recall that meaningful growth typically starts to come from new multi-family offices at the end of year one and carries into years two and three.It's interesting to note that the national average for new housing permit is for multi-family homes from 2006 to 2018 is 35%. In three California cities; Los Angeles, San Francisco, and San Diego, average number of permits in the same period of time was 64.5%. We believe this information supports our decision that the expansion into California will continue to provide opportunities for revenue growth and expansion into the state.To say I am enthusiastic about our ongoing technology enhancement initiative is an understatement. We have nine of our 23 projects in production with many at those client and talent facing initiatives going live in early Q1, 2020. Our decision to make this investment is important for many reasons, as it transforms our performance, increases value proposition and lowers our cost to service. In addition, the efficiencies we will gain will drive revenue, biz performance and increase our talent and client loyalty.In a business environment where technology continues to transform companies, I believe this investment will support the company now and build a platform needed to continue to innovate in the future, positioning us today for continued market share expansion.However, our surface remains clear; we are in the people business. Technology certainly is a vital enhancement of that process. It is evident to us that fee makes the personal interaction from our teams, resulting in most engaged talent resource and enhanced client experience.Company culture and its role in being socially responsible corporate citizen also remains a focus. We strive to continue to build a people centric culture with a moral compass the attracts the best in the industry. This focus is derived from the belief that a job starts a ripple effect that transforms lives, organizations and communicates that we have the honor to start.On the M&A front, our pipeline remains very full and active. As a disciplined buyer, we are always looking for acquisitions that are accretive to both EBITDA and valuation, as well as provide an opportunity to expand our footprint into new geographic market or provide a new complimentary skillset that helps to complete our fleet of talent offering.Moving on to our industry outlook for the remainder of this year, which is always subject to normal seasonal patterns, we remain positive as both the present economy and labor market remains strong for packaging staffing overall.The American Staffing Association recently released its finding that since The Great Depression staffing industry growth at 3.8% has consistently exceeded GDP growth up 2.2%. My continued confidence about what we see for the reminder of this year and next year is reported by our robust third quarter operating results and our vision for our company in 2020 and beyond.Again, I'm very proud of our team and very pleased that we reported 27.9% consolidated quarterly growth profit, a 10th consecutive quarter with consolidated gross profit percentages in excess of 25%, which by the way is at Fanny for our industry. I feel very good about the positive momentum in the operation side of our business. We continue to pursue our resolve to build value and grow revenue as we realize the benefit for cross selling revenues, growth in our new California market, potential new acquisition partners and the many lucrative benefits from our technology initiative.And now I’ll turn the call back over the operator for question-and-answers.

[Operator:]

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

[Jeff Martin:]

Thanks. Good afternoon Beth and Dan. How are you?

[Beth Garvey:]

Hey Jeff.

[Jeff Martin:]

Beth, I was wondering if you could – glad to hear it. I was wondering if you could give kind of an update by segment in terms of your growth outlook perhaps for the next 12 months or so? If there's specific contracts coming onboard, if there's shifts in seasonality or any other factors that would be helpful for those of us that are trying to model out the growth for each of the segments going forward?

[Beth Garvey:]

Sure. I would say that we will continue to have you know kind of the historical growth that we've had in the real-estate division and we've identified our targets for next year and we've already started to prep work on the months that we would want to get those new operations opened. So I would say that they are going to be setting and strong as they always have been.Light Industrial is not having their best year this year. However, they had a stellar year last year, but that’s kind of what Light Industrial does and so they are kind of flat line and we expect them to stay in the 1% to 2% growth range, which is kind of what the industry expects of them overall.And then in our professional division, the technology division is just hot right now. They have got so many wonderful cross-sell initiatives going, new technology drives. The team is really expanding and leading the professional side with the, higher end type of business. So going in and asking people you know if they’re doing a SAP or a work day implementation and then following that with a cross sell. Because you know once you do an implementation in software, usually FX reporting which usually effects finance.So they have gotten in their groove right now on how to make sure that they are continuing to get the crops out of the way, but it is amazing to see how technology is really, really growing in our divisions right now. They are really having a great year and I don’t see that stopping anytime soon.

[Jeff Martin:]

Okay, great. And then on the M&A side, are you focused primarily on professional still with that or are there other areas you're looking at?

[Beth Garvey:]

We still are focused on professional. You know as we had something come up in California that maybe was in the real-estate sector, we would consider it. That’s for the most part; it's easier for us to open up a sales office in those markets than it is to drive something there. So all of our efforts are in the professional side, and we really don’t focus on a lot of the industrial side as far as M&A activity.

[Jeff Martin:]

Okay, and then on the real-estate side, I think your target was to open five new offices this year, which you’ve done. Are there any above and beyond that, that could come on before the end of the year and what’s your plan for 2020?

[Beth Garvey:]

We don’t have any plans between now and the end of the year, and Jeff, I think I know the number, but I don’t want to be quoted on it for offices for next year, but it will be a minimum of five.

[Jeff Martin:]

Okay, fair enough. And then the last question is on the California market. It sounds like you're off to a good start there. What should we expect maybe in 2020 or if it's worthwhile looking out beyond that in terms of its contribution to the overall growth of BG Staffing?

[Dan Hollenbach:]

I still think we are too early Jeff. We are only in one location, we're looking at some growth patterns right now, but I think we’ll have a better answer when we talk to you in March, April; whenever we talk to you again, so yeah.

[Jeff Martin:]

Okay, great. Well, thanks for taking my question.

[Dan Hollenbach:]

Yeah, we’re just not yet, it’s too early, so.

[Jeff Martin:]

Sounds good Dan. Thanks.

[Operator:]

The next question comes from Howard Halpern with Taglich Brothers.

[Howard Halpern:]

Congratulations guys!

[Beth Garvey:]

Thanks Howard.

[Dan Hollenbach:]

Thanks Howard.

[Howard Halpern:]

In the professional service, I mean you talked about how the technology, you know IT division is sort of red hot now. Is that going to help drive the gross margin going forward?

[Beth Garvey:]

It has up to this point. In the professional division we had seen higher margin business in that and as the use of shortage – there continues to be a shortage of people out there, you know the talent that we are pricing is actually driving a lot of that, especially with some of these technologies that are really being implemented such as the work day or there's a new technology called OneStream and those resources are in very big demand right now. So we've got resources now on our side that we’re just – you know they are expecting nine year – they are like the progressive pricing tool, nine year on price. So they are doing great and they are just like – you want me, you got to pay for me, so…

[Howard Halpern:]

Okay, and you seem very happy and you’ve done more cross selling opportunities that come throughout the whole company?

[Beth Garvey:]

I'm very happy with the way that we have done our cross-sell efforts. In the month of August we hired to strategic account manager and all he is doing right now is basically targeting our bigger customers and going in with who potentially had businesses across the U.S. but we're only in one of their locations.His entire job, and we put three of our key people up underneath him. He should be able to go in and identify strategic accounts and growth opportunities across the professional division for crop sales and he's already had some – you know right out of the gate he’s had some pretty good activity and some great meetings out of it, so we’re feeling really good about that.

[Howard Halpern:]

Okay, and one last one about I guess BG Talent; is it still a little bit early in the process and are you still seeing you know pretty long sales cycles to get in to where you want to be?

[Beth Garvey:]

We are seeing a longer sales cycle and one of the things that we find in that is in each city that we go to, it’s not like they have a universal national account in that site that we can find. So if you're going to like a CVRE, its not like we can go to one place and have their door open for us in all their market like we can in multi-family.So they're finding that they are having to go in and negotiate contracts in each market that we go to, which slows things down a bit. I will give Dan and his team kudos on that, because now that they've been looking at those and we understand that those are coming, they really are pushing those out quickly and making sure that we have redlined it and tried to get that moving as quickly as possible.It just is, it really is a different sale and its more of a hybrid hype growth between a professional and multi-family type style and they are still you know navigating through the waters on that, but I still think that it's a very viable and growth platform for us.

[Howard Halpern:]

Okay, well keep up the good work guys.

[Beth Garvey:]

Thank you.

[Operator:]

Our next question comes from Louis Moulder [ph] of [inaudible] Investors.

[Unidentified Analyst:]

Yeah hi, good job, a good job. I'm new having a stock in the company until today and to join the earnings report.

[Beth Garvey:]

Thank you.

[Unidentified Analyst:]

You’re welcome. I was just wondering where your emphasis is going to be? Where are you going to spend the most money; in which division? You mention technical as being outstanding. Is that where you're going to put more emphasis in your assets and dollars versus the other couple of divisions? And if so, how successful do you think you can be in that area?

[Dan Hollenbach:]

Yeah, so I think there's two sides of that. I think its best previously discussed our M&A dollars if you will, are going to be focused in the professional world, who should be IT and finance and accounting. Our expansion dollars to opening new offices will be in our real estate division, so…

[Unidentified Analyst:]

The company doesn't have that much visibility because of the low volume it does every day. However, I noticed because I follow your type of size companies over the years that if the word gets out that you people are doing as well as you seem to be, you get much more attention to your stocks. So do you do conferences and attend various venues that enable you to promote the company and do you do anything in terms of adding to your analyst roster?

[Dan Hollenbach:]

We do – we've probably been to 10 or 12 conferences this year and met with – Terri, what do you think; a couple of hundred investors?

[Terri MacInnis:]

It’s been a busy year.

[Dan Hollenbach:]

So yes, we do. We did do that; we’re on the road often. We've done a couple of you know non-deal road shows as well to introduce our stock just to some new investors, so we are working on it.

[Unidentified Analyst:]

You know one of the interesting things I’ve learned about the company is the level of dividend payment, which in today's market seems to be very difficult to obtain. So I would think that with the proper publicity, you could get many more new shareholders, so that's why I asked you that question, as to what kind of exposure you’re trying to promote for the company. And, that's it.

[Dan Hollenbach:]

Thank you. We appreciate the input though.

[Operator:]

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

[Beth Garvey:]

Thank you, Areal, and thanks to all of you for joining our call today. We've made a significant progress this year and I am enthusiastically ready for the positive outcome the next year – to see what the next year holds for us. We try each and every day to deliver returns for our shareholders and move forward with our vision to become a respected national leader in Staffing.We look forward to talking to you guys next quarter and thanks again for joining us.

[Operator:]

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