BGSF, Inc.
Q1 2018 Earnings Call Transcript

Published: 11 May 2018

[Operator:]

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.

[Terri Macinnis:]

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?

[Dan Hollenbach:]

Thank you Terri. Good afternoon everyone and thank you for joining us and thank you for your interest in BG Staffing. We're pleased with the performance of BG Staffing for the first quarter of 2018. And I would like to start by taking a moment to recognize our people at each of the BG Staffing business units for their hardwork and dedication to the company's continued success and strong gross profit margins. We are very proud of the job they have done. BG Staffing provides temporary staffing services within three industry segments; multifamily, professional, and commercial. As we will discuss in Q1 2018, we achieved our highest quarterly consolidated gross profit percentage in the company's history at 25.9% and our fourth consecutive quarter with consolidated gross profit percentage greater than 25%. I will spend a few minutes commenting on BG Staffing’s financial results and then turn the call over to Allen Baker for his comments on the quarter, the current state of the company, as well as the industry. Our revenues for the first quarter of 2018 were 66.9 million up 17.6 % from the first quarter of 2017 with our gross profit percentage at 25.9% up from 24.1 % for the first quarter of 2017. Net income for the first quarter was 2.5 million or $0.27 per diluted share compared with net income of 1.3 million or $0.15 per diluted share for Q1 2017. Improved customer settlement lead overall demand to continue to be strong across all of our segments, and our Q1 2018 gross profit percentage exceeded expectations. Now looking at our segment results

[Allen Baker:]

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.

[Operator:]

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.

[Jeff Martin:]

Thank you. Good morning Allen. And Dan how are you?

[Dan Hollenbach:]

We’re good. How are you doing Jeff?

[Jeff Martin:]

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?

[Dan Hollenbach:]

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.

[Jeff Martin:]

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

[Dan Hollenbach:]

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

[Jeff Martin:]

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

[Dan Hollenbach:]

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.

[Jeff Martin:]

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?

[Dan Hollenbach:]

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.

[Jeff Martin:]

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

[Dan Hollenbach:]

Thanks.

[Operator:]

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

[Michael Taglich:]

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?

[Allen Baker:]

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?

[Michael Taglich:]

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

[Allen Baker:]

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.

[Michael Taglich:]

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?

[Dan Hollenbach:]

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.

[Michael Taglich:]

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

[Allen Baker:]

There will easily be the multifamily level margin.

[Michael Taglich:]

And how bigger market is commercial versus multifamily?

[Allen Baker:]

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?

[Michael Taglich:]

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?

[Allen Baker:]

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?

[Michael Taglich:]

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

[Allen Baker:]

Appreciate it…

[Michael Taglich:]

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?

[Allen Baker:]

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

[Michael Taglich:]

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

[Allen Baker:]

Thanks.

[Operator:]

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

[Allen Baker:]

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.

[Operator:]

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