Q2 2020 BG Staffing Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the BG staffing second quarter 2020 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 to join the question Q You May Press Star then one on your telephone keypad should you need assistance during the conference call you May say going operator by pressing star and zero.
I'd now like to turn the conference over to Terry Mcinnes, Vice President of Investor Relations Epic often Mckenna Inc. Please go ahead.
Thank you operator, it's my pleasure to welcome you to the BG staffing conference call to discuss Q2, six month financial and operating results and an update on operations Cobot 19 environment.
With me today on our call. This batch Garvey, President and CEO, Dan Hollenbach, Chief Financial Officer.
A question answer session will follow their prepared remarks.
This morning sheets release announcing the Companys financial results is available in the Investor Relations section on BGSS website at B G staffing dot com.
Our call today is being webcast life 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.
Discussions today includes forward looking statements.
Which are based on certain assumptions made by BGSS based on and I made under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Companies actual results could differ materially from the syndicated by the forward looking statements because of various risks and uncertainties, including those listed in item one.
Of the company's annual report on form 10-K.
The quarterly reports on form 10-Q, and then the Companys other filings and reports with the Securities Exchange Commission.
Oh risks and uncertainties are beyond the ability of the company to control and in many cases, a company cannot predict the risks and uncertainties that could cause actual results could differ materially unless indicated by the forward looking statements.
Forward looking statements are made actually the date of this call MPG assumes no obligation to update you statements publicly even if new information becomes available in the future.
This broadcast is covered by U.S. copyright laws and any use rebroadcast or any portion of this conference call may only be done with the Companys expressed written permission.
During our call we will discuss some non-GAAP measures, which we use for internal evaluation and should report the results of the business as useful information to management, our board of directors and investors of our operating activities and this is trends related to our financial condition and results of operation.
Yes.
These non-GAAP measures are intended to supplement GAAP financial information.
It should not be considered in isolation as a substitute or superior to financial measures calculated in accordance with gap.
For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Please see today's news release posted on the company's website.
It's now my pleasure to turn the call over to Dan Hollenbach, Chief Financial Officer, Dan.
Hey, Thank you Terry good afternoon, everyone. We appreciate your interest in Bgs up.
First of all I'd say.
We normally go to file our 10-Q of this morning.
The additional review disclosures required for the impairment swap accounting were new to us and we wanted to ensure they were complete and you spoke a leader we're planning on filing tomorrow.
Okay. Good last quarter, when it's probably pipe and then make descended upon us all I'd like to start todays call by acknowledging our except shopping.
It's due in large part do their job he responsiveness and hard work and we were able to continue to keep everyone site, while working remotely.
Oh, Wow consistently providing the highest kilowatts terrorist support to all of our stakeholders and Cheryl.
The actions taken earlier this year in response to the growing impact of the CRO, but back to Europe right has served us well.
Organic selling crop cost decreased 12.4% and recurring home office costs decreased 16.7% sequentially from Q1.
We are closely scrutinizing all facets of the current environment and are ready to take further actually but alter our business operations.
No state and local authorities may require.
While returning capital to shareholders remains an important part of our capital allocation framework, maintaining a strong balance sheet is primary remain cautious the board has approved a five cents quarterly dividend for Q2.
We are encouraged body consistent week over week sequential growth in our business.
Well the last week a June overall revenue was at 91% appropriate levels.
Three weeks.
March 1st first three weeks of March is what we measure buyer.
From 71% at our low point and that April.
Industrial goes back to pre cobot revenue numbers and in fact in July was over their peak over them.
Although virus is fired up and in fact, the various reasons across the U.S., we're not seen any particular geographic pressure on business as a result.
And now for our Q2 numbers.
Revenues for 2020 were 62.6 million down 15.2% in Q2 19.
Gross profit was 16.9 million down 19%.
The overall decrease in revenues was fueled by 52% decline in real estate offset by 9.8 million from our two recent acquisitions.
Gross profit percent of 27% was down from 28.2% of 19.
Impacted by 52% decline in Perm placement and the decrease in real estate.
We incurred a net loss for the quarter do the impairment of certain intangible assets, a 5.4 million that attacks and our finance and accounting Division.
Net loss for Q2, 20 was 4.8 million or minus 47 cents per diluted share compared with net income of 3.8 now young were 37 cents per diluted share and my team. It should be noted that net income before the impact of the impairment was $600000.
Our effective tax rate was 25.9% versus 22.8% last year.
Adjusted EBITDA was 3.3 million down from 6.9 million last year.
After that he has decreased to 16 cents from 44 cents last year.
Our SDN.
<unk> expenses for the quarter were flat and 19 due primarily to 2.6 million dollar decrease and legacy organic costs offset by our two acquisitions.
404000 dollar increase related to the IP roadmap and they should get started in Q2 19.
Sorry, Hannah I.
I break out to various DNA for both the Q and year to date are included in the management discussion section of our quarterly report on form 10-Q.
And now for year to date.
Revenues for the year, where 136.7 million down 4.2% from banking why gross profit was 37.2 million down 5.4%.
The overall decrease in revenues was fueled by a 27% decline in real estate offset by 16.7 million from our two recent acquisitions.
Gross profit percent up 27.2% was down slightly from by acting impacted by a 24% decline and per placements that decline real estate.
We incurred a net loss for the year due to impairment.
That was 3.3 million or minus 32% 32 cents per diluted share compared with net income of 6.3 million or 61 cents per diluted share in 19.
Our effective tax rate was 22.8% for both periods.
Net income before the impact to the impairment was 2.1 million.
Adjusted EBITDA was 8.5 million versus 12 million, a 19 and adjusted earnings per share decreased to 51 cents versus 76 cents and Nike.
Our S.G. and <unk> expenses for the year increased 2.7 million.
Primarily due to our acquisitions.
Hundred 63000 dollar increase in the I'd roadmap initiative and 532000 dollar increase in transaction fees.
Offset by $3 million decrease in legacy organic costs.
Although we have delayed new initiatives on our IP roadmap, we continue to spend on projects that were active as we feel they are critical to our success in the short term and Beth will comment on those later.
Cash generated from operations increased 5.9 million over 19, primarily the result of increased receivable collections offset would decrease sales.
Days sales outstanding at the end of June was 51 days versus 50 at March.
Please note that our balance sheet remains strong.
Tableau senior debt was just under 40 million and we have 24.6 million available under our revolver our debt to pro forma adjusted trailing 12 month EBITDA at the end of Q2 was 1.7 <unk>.
Finally, we entered into a three year fixed rate swap on an initial notional amount of 25 million dollar for our debt in early June.
This completes my financial review before I turn the call over back to take them all at the welcome our two newest board members announced.
Our CEO back RV and set the set Marshall the currency all the Dallas Mavericks.
I have joined the board supporting diversity and inclusion throughout Bgs App is essential to our board and these two appointments are significant from all the governance and corporate culture perspective.
And of course, I don't want to Miss the opportunity congratulate back on recently being named a finalist in the Eli entrepreneur or the your 2020 award from southwest region.
This is the world's most prestigious awards program for arch whenever we're proud of you back and we're looking forward to the contributions humans and bring to the BGF Barbara.
I'd now turn the call over Tibet.
Thank you damn.
Good afternoon, everyone I hope you and your loved ones are saying healthy insight as Dan said sense or beginning of Cobot 19 pandemic. Our first priority had been a health and safety of our team.
Continuing to support our clients who are also navigating these uncertain waters.
I actually want to take a minute 12 of our newest board members that Marshall, we our workforce solutions provider, finding 28000 people jobs, a year and I feel like that is in fact men based on our 36 year career at 80 empty, including her final rule as senior VP and human resources and she's diversity officer will help strengthen it.
Yes, its foundation for years.
I am very grateful to have such a dynamic woman and business later join our team.
As Weve navigated our business operations during this economic disruption over the past several months I have to commend our team as well as our client partners for their resilience important shape identification of the business community to come together to support each other and shared lessons learned has made a better leaders.
Our team is kept their finger on the cost of the community and the business any Bob and I believe that that has helped position ourselves to offer new services provide thought leadership and relevant content your webinars, social media education and outreach.
It's too early to have reliable visibility in the potential impacts from the disruptions to the labor market business operation and we can't and now with the full impact at the financial conditions results of operations will be this gives us yet another reason to remain in close regular contact with our team members and client partner soft carefully monitoring.
And managing the split situation.
As most of our teams have 10 accustomed to working Matt there have been.
We have been able to virtually coming together to complete several initiatives in Q2 that will continue to support our platform of growth for the teacher as you recall, we launched the and I T Road map. Many of those initiatives went live in Q2, and and I'd like to highlight some of that.
We have a launch of the new ERP system that went live in July.
We had implementation of a power B. I told for better reporting and development metric.
A new client contract management system that will increase the speed and compliance in which new business contracts are executed.
We completed the integration of our lightest acquisitions with Eltek questionnaire dropped technology.
We launched our automated time car solution for the real estate Division, we developed at backs the office Kogan playbook, and we established a diversity equity and inclusion.
[noise] managing 89 branches branch offices in 12 onsite locations and 44 sites in the district of Columbia. During this time has its own challenges.
Dan already talked about the numbers, so I'd like to make some overall observations about our business divisions age, which continued to be impacted in various degree.
Our professional division, who lost their strategic account came mid last year has continued to see their efforts reports. This team worked across all the BGSS brands offer solutions and cross sell opportunities. They oversee 33% at the professional division revenues and is instrumental and the success of our cross.
So efforts, which made up 7% of revenues and 8.5% of gross profit in Q2.
Entire division has done an excellent job an ending a man managing.
And educating our clients partners on benefits of National talent call a base available to them virtually.
The finance and accounting segment is maintaining the temporary southwest we spoke of in Q1 business from a client supporting the Sta long process and has recently expanded their relationship to support our client who was awarded a contract from the U.F.D.A. to deploy a digital records management system.
In addition, many of the efforts from a strategic accounts team has opened doors for additional roles in M&A in companies that historically saw asked is only IP solutions provider.
Yeah, I'd say segment of professional remain strong, especially in ERP and CPM initiative, we have seen a rise in order to service now cloud migration and cyber security Lord largely due to the Webinars and white papers the team lots during the quarter.
We now have very active sales pipeline in professional and are cautiously optimistic that subject to inherent uncertainties as a tepid knocking environment. This division to close with a really strong year.
Even though the majority of our clients in light industrial division were being the essential we did experience limited orders as a result of cobot 19, particularly early in the quarter. Thanks, Jane we're seeing increased sales activity in many of our client partners have returned to pre Tobin numbers and in some cases have exceeded now with a shortage of available.
Boy East for variety of reasons I'm pleased to not sophistication has reached pretty tepid revenue as Dan pointed out in July.
Our real estate Division, which operates two brands has felt the greatest impact as a result.
Right.
Multifamily community shifted nonemergency magnets support as well as providing berchtold leasing options.
Following was BG tell us immediate decline as many companies shifted to remote work and office buildings for glass relatively empty.
In response to the decline attained launch new services, including many talk to your offering social did the same monitors needed for public spaces, such as Paul said, yes.
Additionally, there was a shift in expense management my consolidation of management team delay new office expansion and holding back on open orders opening.
Internal orders.
In mid June we began to see an increase in orders, which resulted in a division due in a companywide sales in recruiting lift is which they continue to do and has successfully.
The real estate Division has not come back as anticipated in Q2, there a variety of factors affecting a slower recovery, including their start just with the virus and resulting in government restrictions.
Abatement moratorium on eviction fewer people are moving and complex is generally have less money for capex expenditures.
On a consolidated based on a consolidated business level across all divisions, we continue to see sequential movement in the right direction and are hopeful that we've seen the bar.
Well, we easily white, our economy to rebound BGSS is resolved and diligently protect our current financial stability and say resilient and prepare to quickly respond to opportunities as business returns to the Chicago.
We are laser focused on the business in hand, and we're still actively evaluating the landscape for future prospects to open new markets HSS M&A opportunities.
And now area I will turn it back over to you for question and answers.
Thank you.
I'll begin the car they want my third question.
Who joined the question Q you May Press Star then one on your telephone keypad, you'll hear a town acknowledging your request.
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Our first question comes from Jeff Martin of Roth Capital Partners. Please go ahead.
Hi, this is so she's for calling in on behalf of congratulations.
For the board appointment and being named the I 2020, staffing 100 Bliss, yeah for being a finalist in the white.
The year 2020 award for the South West region, that's a that's a lot of accomplishment congratulations.
Thank you so much.
With the recent acquisition of a drug and cushion or could you provide a sense of how those businesses are performing.
Absolutely and Edgerock. Thank God, we still believe are very good acquisitions for us Edgerock technologies is really kind of maintain where they work we didn't really see a dip in what they were doing their best objects. It didnt and when it has been hit and I've had a dynamic sales team that has.
A lot of things in the pipeline. So they remain strong Lj questionnaire took a bigger yet.
A lot of his on tax where in the New York region and so some of the.
Orders that he was working on any through time search business were put on hold. So he has now started to see activity be rebound on that and we feel good about where he's going to fall in.
In September for the rest of year.
Thank you could you please characterize each of the three segments in terms of the monthly progression from April through July and have you experienced restarts and pauses with these segments.
Yes, so I will give you the progression as mentioned earlier, we were tracking revenues against the first three weeks of March so what I'm going to give you as a percent for April May June and July of each of our three segments in order. So our light industrial segment in April.
That was 74%, but the 80 to 95 to one of five in July.
Our real estate 46 in April to 48 to 70 to 80.
86 in July.
And our professional was 89 in April 90, 91 follow up here in July at 86 are pretty consistent.
Thank you.
Let's see to the extent that you're seeing quite orders come back have you faced challenges and workers motivation to return to work environment, where unemployment benefits.
And disincentive to return to work.
We have but only in on the real estate in light industrial sectors. It really hasn't played a part in the professional brands, but we we are.
Struggling with the.
Extra unemployment benefits that are being tight right now.
When talking to be created companies or <unk> <unk>, I believe they're going now and raising their rates in our their pay rates to 'em. We're seeing some some of our customers do $234 an hour pay rights to try to Oh on it but we are seeing it could only in the end up.
Okay got it thank you okay.
Oh.
You historically have had a very high client retention of over 90% how much of that has shifted in the current environment and what does your outlook on how client retention.
Permanently shift that's a result this recession.
Yeah, absolutely so as of June our light industrial.
Had a 96% retention.
National Group had an 85% retention, we don't track real estate.
Because of UBS.
Drove the 8000 customers that we serve at every community in America.
Those numbers are consistent with prior periods.
And then one of our offices or weren't asking in the decline in retention. So.
Okay.
Oh, and and we don't experience, we don't expect we don't expect that that those percentages to change.
Because of this.
Okay got it thank you and then lastly.
Did you provide detail on what sectors triggered the impairment of intangible assets in the period.
Yeah. So so we do this test every quarter.
It's normally just a qualitative test and the past you've been able because the either where we were historically or where we were forecasting or where we work from a client retention standpoint.
Able to support the intangible values at the ended June.
It became apparent from the last 18 months, and our finance and accounting group.
And based on the retention factors for our smart acquisition.
The test it and given the forecasted though.
The next six to 18 months on those two divisions.
We we calculated based on various.
Fair value doctors.
And then determine you turned the write off from that so.
[noise] Smart I never say.
And I think I'll give you a history on smart so since we bought smart.
Three years ago.
Oh, yes.
We try and tried to change the direction that business.
Little bit more of an upper end then.
Which is driven a lot with the client change so when we bought an added 90% retention factor and so we expected that client base to last a while as we've now transitioning that business.
Moving to a different client base higher gross margins better business. So.
Well. Thank you for that explanation. Thank you Graham.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Miss RV for any closing remarks.
Thank you area and thanks for joining our call today I'll close with a thought that our people in our business. Our resilient we're leaning on the valuable experience earned by navigating through prior downturns and we remain grateful for the lessons learned that guidance today.
Appreciate your continued support and BGSS and we look forward to updating and your Kid you have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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