Q4 2019 Earnings Call
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[music] welcome.
The Conference Center.
Welcome to the come for incentive which coal would you like to join.
I would like to Jennifer Beese staffing incorporated.
Thank you and your name plate.
Firstly, David last name Brown.
On the telephone number you're calling in from.
Two until late 203697.
Thank you and the company you're calling from.
IRA.
I'm, sorry, what was that.
IRA A.I.E.R.A.
Okay.
Thank you and your email address place.
David.
And I are identical.
Okay.
Okay, great. Thank you all journeys straight through.
Thank you.
Any material impacts on virus.
The impact to the outbreak on the labor market will depend among other things on the length of time that disrupts economic activity in fact over the next few months may be reflected in a dog man hours worked and reduced hiring.
However, the disruption continues longer than the impacted companies, you're likely to reduce their workforce, including layoffs, especially those unable to work remotely.
We've outlined these risks and uncertainties in our annual report on form 10-K filed earlier today.
It seems like too early to have visibility about the potential impact from disruptions to the labor market and business operations.
Determination that the impact on our financial condition or results of operations can be made at this time, we continue to be in close contact with our team members client partners and field talent, while watch fully monitoring is fluid situation ratable jag a little bit more about this later.
We are pleased with the growth of Bgs topline numbers and our initiatives started for 2019.
In 19, and I would like to start by taking a moment to acknowledge all of our team members at each of our Bgs business units for their hard work and dedication to our company's continued success and strong gross profit margins. Their contributions are vital importance and we're very proud.
For the job they continue to do for US we welcome our new team members at Lj questioner 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 back RV.
Forward she received since the end of Q3.
This is recognized as a leader in the staffing industry analysts or Sian Global power 150, women and stacking also in the CEO magazines, Dallas 500, most powerful business leaders in Dallas Fort Worth and was one of the women the year honored by the family pipes, Texas Trailblazer Awards.
Most recently, we are proud that that was also named to the Sri 820, 20, stacking 100 west great work there.
We hear VGF appreciate what an outstanding job that does for us and it's great to see her knowledge outside of our company.
As a reminder, VGF operates three segments. Currently grew 83 offices 15 onsite locations servicing 43 states in the district of Columbia.
Our real estate segment opened seven new offices in 2019.
Ben will discuss our plans for 2020 in her remarks.
I will review our financial results for the fourth quarter in fiscal year 2019.
Before turning the call over to bad for her comments on the reporting periods. Just ended in addition to our company 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 results of operations, including segment information is included in our annual report on form 10-K.
And now for the numbers.
Revenues for Q4, 2019 were 72.3 million up four cents Oh soon.
I just under half percent from Q4 2018, while gross profit increased a half a million up 2.6%.
Our gross profit percentage of 26.6% was up from 26% for the fourth quarter 18.
Both our real estate and professional segments had growth led by our real estate group at 11.3%.
Net income net income for Q4, 19 was 2.7 million or 26 cents per diluted share compared with net income of 4.8 million or 47 cents per diluted share for Q4 2018.
Q4, 19 included transaction fees, and erode magic expenses 655000 greater than last year.
Additionally, Q4, 18 was bolstered by a $1.6 million gain on contingent consideration finally, our tax rate in 2019 was 28.8% well 18.9% in 2018.
Adjusted EBITDA for Q4, 19 was 6.3 million slightly lower than 6.4 million in 18, adjusted EPS, a 19 decreased to 37 cents versus 41 cents in 18, 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 in professional segment had growth led by real estate is 11%.
The year gross profit increased 4.1 million or 5.3% the 80.7.
Gross profit percentage increased to 27.4 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 179 per diluted share. In 18 19 included transaction fees and I'd roadmap expenses 647000 greater than last year. Additionally, 18.
In was bolstered by a three point by $3.8 million and 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 19, compared with 27.1 million or 9.4% of revenues in 2018.
Adjusted EPS in 19 decreased to 167 from 179 in 18, 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 the HR and headcount that we added this year.
Our SGN 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 721000 related to the IP roadmap initiative started this year.
A breakout over SGN 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 19 was the deduction attributable to the cancellation of outstanding stock options held by our chairman in connection with the company successful public stock offering in May at 18, we currently estimate at 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 operating debt, while same time keep returning capital to our shareholders in the form a regular quarterly dividends currently set at 30 cents per share.
At approximately yield of 11% as of today is closed.
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 one at 1.0 to adjusted for the drug acquisition debt to pro forma adjusted EBITDA trailing 12 months of EBITDA sorry.
At year end was one point by three.
Explanations of our use and recognized reconciliations of adjusted EBITDA net income as well as adjusted EPS are available on our latest annual report on form 10-K, and on our earnings release, both of which are available on our website.
This completes our financial review and I now turn the call over the back.
Thanks, and good afternoon, everyone. Despite the volatility in today's topic.
I am happy you're joining us for R&D, and 29 pain operating ourselves and our overall.
I'm pleased to note that in 2019 organic revenue growth continued actually increase gross profit on successfully expanded across our efforts that continued to be incredibly proud of it teams hard work, including the continued implementation of our technology Mad Max and our successful market expansion with the addition of seven new offices and 29.
Which helps to drive our success.
I'd like to update you on the progress of our 320 19 initiatives, which we discussed on last quarter's call. As a reminder, there to enter into the California market, our technology enhancement and building a company culture supporting our overall values and corporate citizenship efforts.
We opened our first aging multifamily fell conference on California in late in Q1, and I'm happy to report that the business is doing well and continues to me I targeted planning.
Our 2020 goal is to open two additional offices in that state for any real estate Division.
Closely monitoring any kind of impact decrement virus may have and then markets we've identified.
In addition, our IP expansion is on track with four of our specialty brands billion in California as flat.
Our ongoing technology enhancement initiative continues to be on target of our 26 projects. We anticipated Pan am have turned on current productions initiative with the biggest impact to our stakeholders as the new website that includes capabilities from client Onboarding, which will be going live at the end of next month.
Body automated time hard collection process that will be launching in June.
This investment and leveraging technology will benefit our team and evaluating a wide range of significant metrics and processes.
Friends farms have performance increases our value proposition and drive operational efficiencies and lower costs are.
So we believe the efficiencies we gain what based performance increasing the overall customer experience and increased talent and client loyalty.
Company culture in his role in our corporate Jason efforts also remains a focus we strive to continue to build people centric culture with a moral conference to attract the best in the understates over the last 12 months, we've restructured our health benefits, resulting on a decrease in cost of the company as well as to our team members, we rolled out tighten maternity.
Terminal and short term disability as well as chief I Volunteer days a year. So our team members can support the causes that are important to them. In addition, we are offering intuition reimbursement plan supporting and teams education certification efforts and 2020 were launching the BG green team to address environmental issues as well as the diverse.
The integration effort led by our VP of people.
On the in a nine frac, even after making two acquisitions in the last formats. Our pipeline is still very filling up that staffing industry M&A activity in 29, peanuts reporting by Houlihan Lokey saw a total of 144 staffing transactions up from 139 in 2018.
Our acquisition focus has remained given professional segment due to the growth efficiency of our real estate Division. However, if there were to be something that come up in California, and new real estate sector, we would definitely take a look at it.
On the subject of acquisitions in December 2019, we acquired Lj Cushioning associates, a record later and information and cyber security retained search.
Weve long appreciated the increasing demand for cyber security related services across virtually all of our recruiting environment.
The addition of this operation supports our vision of the teacher and allows us to provide more holistic solution to our client partners.
When the early stages of an ongoing integration with the goal of building on a complementary consulting practice, but this is great.
In February we further extended our service offerings with the acquisition of Edgerock technology to park.
Algae partnering partners are 11 acquisitions since 2009, Edgerock is a leader in IP consulting and managed services and has a very strong internal training platform that will allow us to bring in top college recruits, giving him training and career path for the future I'm happy to also report we are already approved.
I'd many great synergies within this group, including early cross sell activity.
Turning toward our industry outlook for 2020.
You asked temporary penetration rate was 2% on December 2019 above its averaging 1.85% since 2000. The strong February job report noted employers added 273000 position.
For the Corona virus outbreak banana suite the nation.
Labor Department recorded last week at the unemployment rate fell to 3.5% matching 50 year low.
Second industry analysts job reported earlier. This week now does that in February temporary help services lost 3300 jobs and then that's an attempt staff penetration rates went to 1.93%.
Level since 2013.
Well no one can now be linked or depth of this credit with 19 health crisis, I have confidence our company and our team's ability to adapt and emerge from this emergency and the subsequent isn't an economic outcome.
Notwithstanding notwithstanding these unknown consequences my on very guarded optimism is supported by the healthy fourth quarter operating results ongoing customer demand and a vision for our company into the future.
I'm proud of our team and very claims that we reported 26.6% consolidated quarterly gross profit our 11th consecutive quarter with consolidated gross profit percentage is an excess of 25%, which I'm pleased to point out its outstanding for our industry.
We continue to make strides in our mission to build value and grow revenue, while realizing benefits from cross sales growth in our new markets, our new acquisition partners and our technology initiatives and now I'll turn the call back over to the operator to begin acumen.
Thank you.
I will now.
We will now begin the question and answer sessions to join the question Q You May Press Star one on your telephone keypad, you will hear atone acknowledging your request if you're using a speakerphone. Please pick up your handset before pricing any key to withdraw your question. Please press star to once again to ask a question at this time.
Please press star one we will pause for a moment as colors join the queue.
Our first question comes from Jeff Martin with Roth Capital Partners. Please go ahead.
Thanks, Good afternoon, bets 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 seeing from them.
And what some of the responses that you may be contemplating or an acting as a result of kind of the environment that everybody is facing today.
Great question when we first.
Situation first our gearing its head I immediately went into the payments started having them ask questions on divisionally about how what the impact would be in that professional division on most of the clients. We're hearing that they realize business has continued to go and they are all very much open to a working.
Remotely we have our largest client actually that just saying I noticed the out on yesterday that said that they would be going remote next week and all of our people are going with them and their supply chain on all the resources to be able to do that in.
In addition to that we've been working with arm I T department to be able to go in and be able to deploy resources.
Peter Screeners screens, along those lines in the event, we have people and 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.
That need as well I'm in the real estate Division I talked to the division President she feels like they will be fine because on people. If they do have to be homebuyer Derby home and that's what they do they hang out never 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 cloud for commercial buildings, but right now we have not seen anything along those lines and then in a lot industrial group on the only thing we're saying right now is a little bit a slow down from any of US applied China has come in from China and on what that has done is just resulted in some of our customers who who typically.
We worked a lot of overtime, there kind of work in normal hours right now wide that supply change on gets ramped back up.
Okay.
Does does this disrupt your ability to continue with your with your ATM improvement plan.
Just things unfold it 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 them in a technology side will help reinforce that if we do end up having to go full on work from home.
So that a lot of those things right now and helps support that initiative and I think that there's no reason for us to stop at this point, we will look at initiatives that has not started.
And determine whether.
You know weekend.
Depending on what happens over the next two to three or four months, whether we can push those out to the led that cost as part of.
Initiative, the best is leading.
Now and especially over the next couple of days with our leadership team.
We've gone through with all of the release contains scion high given this is where we are today, but you know worst case scenario, how would you respond and so we're putting together a business continuity plan right now in how we would respond to something in the back then 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 scenarios at the board me reevaluate dividends versus share repurchases given that this stuff.
Recent.
Decline.
Yes. So currently we have about 30, we have throughout 15 million available on our revolver. We have 20 outstanding on a $35 million re Barbara.
Just got confirmation from the bank today that there they will support us.
In this endeavor.
We have not had discussions with the board.
Concerning the ongoing dividend.
Or any share back opportunities, we do have restrictions within our credit agreement on on buyback. So that would have to go by the bank first.
Okay. Okay.
Great. Thanks for answering my questions.
You bet Thanks, Jeff.
Okay.
Our next question is from Michael Hi, Glitch with Taglich Brothers. Please go ahead.
I just wanted to say that great job and I'm looking forward to like your work your way through this crisis senior hopefully you may thanks.
Thank you thank you Sir.
Our next question is from Howard Halpern with tax Pega, which.
Others. Please go ahead.
Hi, good afternoon guys.
Okay.
Hi.
Turning to the acquisitions could you I guess talk a little bit about what you saw worries dish strategic importance to those and also if you could you say how does that fit in.
Gross margin in the professional segment going forward.
And.
Both of our very accretive to the margin and they.
Cyber security group, they're 100% since its.
Direct hire kind of retained search that definitely is going to given the higher margin boost.
That was something as we've talked about in the past, we really wanted to get into the cyber security World.
Joe Fisher has a credible reputation in the industry and the leader of that group had relationships with some of the top csos in a nation and so we feel like as we continue to build that out and start to support him up with some contingent let our consulting labor underneath it.
And that they are some great pop possibilities for that group in the future as far as Edgerock guys and Edgerock is similar to American partners and extrinsic in the fact that these are people were there.
Technology experts, so they run a higher margin and they actually flowed out throughout the U.S. So when we looked at them, we'd look to save we had any cross.
Customers that we would share that would make it.
Not something that would be appealing to us, but what we found that there were very few customers that we shared which really gives an opportunity to kind of blaine out and blossom that support of that expert type tea and consultant person.
Okay.
And.
At the end of year, how many offices in multifamily talent combined did you have.
[noise] before the end of year.
Hello, Hello [laughter].
Right.
Right at 50.
Yeah.
Okay.
We had 50 multifamily branches at six talent office so okay.
And and the expansion in in Q1.
It's one to that and then.
Are you planning on expanding Weve talent, the offices, where do you just going to let that grow from where it currently stands.
We've broken we've opened two new offices already.
In multifamily this year.
And our best talked about.
We have scheduled for 2024, new offices for talent and six for real or not.
Okay.
And just.
Just lastly in terms of I guess, the acquisition and the borrowing at what what is the interest rate now combined with it.
Term loan thank you have.
We are on the last reset probably weighted average about 4% so.
With that works and so.
Okay, Okay well.
Thank you go down and it kind of next kind of reset so yeah right Yep Yep, Okay. It's tied to the why it's tied to LIBOR correct.
A good portion of its tied to LIBOR and our liquidity is tied to prime.
Okay, Okay keep up the good morning, guys.
Great. Thanks.
Our next question is from Daryl Davis, a private investor. Please go ahead.
Hey, Bassi, Dan Congrats on another good quarter.
Xcerra.
Sticking with the.
The multifamily office and I, certainly I'm curious about tell as well, but sticking with the multifamily.
If my memory correct takes about 18 months for those to get ramped up to either 90 or 95 or 100%.
Yes.
That's good that's.
Thats my memory [laughter] correct.
I'm trying to remember you said there were is how many 2019 and again just just a multifamily was there seven.
There were seven.
New openings, yes.
And then I would say if we go back to like Q4 of 18 wouldn't feel like two or three more and I know. This is go back in time, you may not have not stop your head.
Yeah.
Average split anywhere between.
Average anywhere between five and nine a year.
And just depending on.
The knee because I mean, if you recall lot of big expansion in and real estate in multifamily has to do at the property manager anything from out into a regional managers a dividend from 92 district manager and then take sets with them. So theres a lot of back to kind of goes on with that so and I think from that perspective, we usually try to target five.
A year and we usually see that based off the client and clients asking us to go with them.
Yes, there'll be an 808 day.
And.
For new locations and split three offices so.
Got you, Okay, I'm, just trying to get sort of a field of.
When they roll up to be where you where we hope and.
If you had said that so far so good and California, I know you come up with some targets and and.
Maybe you have a low end target and medium and target nine target, but so far so good on on what the newer offices or are contributing especially in California.
Yes.
Yeah, they probably started out of a little bit slower than what we anticipated but when they.
Finally got their feet really planted burnley they 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.
Our next question is from George Mila with M.K.H. management. Please go ahead.
Good afternoon isn't Dan and [noise].
Congratulations.
Work that you've done.
Seems that companies.
Good hands in the strength.
Oh, Thanks again.
Yes. Good question on the real estate I can you just give us a little bit more.
Hi, there the multifamily versus.
Maybe or what some of the transit where in the fourth quarter.
Just had just sort of good luck didn't a few numbers from decay in my model the seems like it we things like it's quite good growth was 12% in.
Margins with strong, but give us it will be Carlo will certainly be able to build out was raised it kind of how how things did that let's say or.
Okay.
Not quite sure what you're asking for Georgia, So I apologize so.
[laughter] Yeah, no I'm, just trying to keep us maybe I'm just trying to get some color.
On the real estate side, maybe talking about multifamily versus Dallas, how they too are failing muddied what are some of the what do you see independent side, because it's so when you 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 I was how much was.
How much was the contribution.
Alan.
Anything that can.
And the thing that key segments.
Don't have that my finger tips, but I could certainly follow up with you if thats. Okay. So yes.
Okay.
Okay and then okay. That's it.
George I will add that the real estate debate that multifamily group really is strong in a day to day temporary sided it where as the talent side is that a stronger presence and direct tires. So they have a higher margins. So then kind of complement each other and nodes.
Areas. So and then Dan can get you to specifics around that separately.
We can deliver maybe get does.
I think you said you're planning to open for office its fatality in.
In 2020 that suggest that.
Do you feel comfortable with the model indeed, the execution of the model if you like opening.
For office, just maybe give us a little bit, but what you've learned in 2019 and how how how your vision of that business has evolved during that period of time.
Well, if you recall, we charity L. A tick 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 related and then multifamily run by itself. So what charity is done its entrees and.
Because there's many many lessons that you learn in the multifamily sabic that can be taught and the talent side. So and 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 soon.
Support that they didn't have before and and we also believe that.
Yeah, what are the things that they've learned is you know if they go into a market that we need to be in a city. Then has I think it. It's I think at six stories for it to be a market that make sense for the talent group and when you're talking about commercial buildings. So the expansion is not as many places because we've learned that you know it doesn't make sense.
There's not a bright type buildings, there just like when we.
Go in and expand their real estate in multifamily we know how many I'm unit makes 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 I think if that's going to help support the drop them up to be able to move forward.
Okay, great. Thanks for that.
There are normal more questions at this time I would like to turn the conference back over to best Garvey for any closing remarks.
Thank you and thanks to all you for joining our call today as we closed the books on a productive 2019 I'm looking forward to updating you in may with our Q1 results have great rescue debt.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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