Q3 2020 BG Staffing Inc Earnings Call

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Good afternoon, everyone welcome to the BG staffing third quarter 2020 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 providing introductions and read the safe Harbor statement. Please go ahead.

Thank you.

Welcome to the Beach staffing third quarter 2020 earnings result conference call with me today are back Garden, President and CEO and Dan Hollenbach, Chief Financial Officer. After the speakers opening remarks, there will be a key when a session as noted in today's call is being recorded and webcast.

Slide eight.

A replay will be available later today, an archived for 90 days on the Companys website.

Now for the Safe Harbor statement.

Discussions today will include 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.

The company's actual results could differ materially from those indicated by the forward looking statements because of various risks and uncertainties.

Putting those listed in item one a of the company's annual report on form 10-K, and quarterly reports on form 10-Q and in the company's other filings and reports with the Securities and Exchange Commission.

Thank you too, replacing our legacy system, we're saying the benefits of a recently launched power B I platform that is creating improved data analytics for better reporting and development metrics.

Our website up right have doubled the speed and increase the flow of applicants seeking work.

As we noted last quarter, we launch the new automated timecard system in real estate, and we're saying positive engagement as adoption continues to bill.

<unk> technology enhancements will significantly improve operating and order management efficiency streamlined and simplified our workflow and drive further capabilities to ultimately enhanced marching dollars.

Shifting to division performances during the quarter, we restructured our business primarily in real estate by integrating or multifamily and talent leadership team.

This is opening up new markets and business opportunities to equip are highly talented professionals with better processes training tracking and improved all audit policies that we believe will ultimately drive sales growth and continued our first class service clients.

We further strategically integrated are professional division post or recent acquisitions to <unk> and their service offering vertical enabling more synergies between a recognized brands overall I believe our diversification has helped to mitigate pressure on our results.

In activity and during the quarter, we further integrated our recent acquisitions through reorganization as mentioned earlier.

Our brand verticals are now approved under IP consulting, which encompasses extrinsic American partners and Ed drops.

And for infrastructure and development is icon and vision technologies are now collaborating.

Slide cushion there are recent our cyber security acquisitions touches all areas of our operations regardless of the segments.

Lastly, Weve also March leadership within finance and accounting groups history, My reporting and marketing efforts.

We'll expect to see cost synergies meaningful efficiencies and elevated cross selling opportunities across all BGSS brands professional division teams continue to host frequent cross selling blips to events that also generate wins for real estate and light industrial divisions.

And we are also seeing this professional division is benefiting from higher demand on client partners moving into the cloud.

The sales pipeline remains very active and the outlook moving forward looks very strong.

Great continues to do an amazing job in managing the Ed and educating our client partners on benefits of a national talent pool available to them virtually.

Light industrials most exciting if we were pleased with the rebound in activity, we saw a nice lift in our overall performance delivering better than expected results given the tailwind in warehouse labor shortages.

Keep in mind that this division is heavily weighted in warehouse logistics and fulfillment needs and we've seen an uptick in activity for these positions, resulting from the significant shift to online shopping during the pandemic.

Slide industrial sales are back to pre covered levels and we anticipate a strong finish to the year with stable margins.

Our diversification across client partners brand solutions and markets helped to mitigate the impact on our overall results.

Strategically we are spending more time working on the business by reinvesting in our people and technologies to strengthen our position as the market recovers. We remain focused on our previously discussed IP roadmap and expect these initiatives to greatly impact future efficiencies and drive sales growth going forward.

As we discussed in the past people are our most important asset a key priority, creating and empowered to culture, which includes actionable initiatives toward diversity equity and inflation.

During the quarter, we established at the Council developed our D pillars of excellence as well as our strategic initiatives and Capex guidance.

Overall these initiatives will foster diversity education training and engagement as we do more to drive an open supported and inclusive culture across our company and the communities, where we work and live.

Lastly, I'm encouraged to see the industry outlook remains positive for each of our segments with the lightest staffing industry analysts that Tinder September report forecasting a 12% overall industry growth rate for 2021.

We remain well positioned and I'm confident that we are taking the right steps to take advantage of opportunities for sustained long term growth.

With that I'll turn the call over to Dan to discuss the financials. Thank you Beth and good afternoon, everyone. Thank you for joining us today and I hope everyone is continuing stable.

I Echo best remark from extend my gratitude to our entire team who continue to show great resolve and resiliency as we navigate the evolving environment.

We filed our 10-Q.

For the third quarter ended September 27, 2020 early this morning, So I'll focus my remarks on key financial highlights for the quarter and the nine month period.

During the quarter, we continued to maintain and targeted companywide expense controls and manage our IP roadmap toward capital projects already underway.

To automate business processes and further improve cost efficiencies.

Pacing strength as economic conditions remain uncertain, we continue to take an offensive posture through proactive measures and realigning our division leadership structure as Scott discussed.

We expect these initiatives will greatly enhance our cross selling efforts.

On a sequential basis.

Q3 cross selling efforts for the professional group represented 8% of revenue and 10% of gross profit compared to 7% of revenue and a half retail gross profit in Q2.

Overall third quarter consolidated revenues declined by 9.9% this only $1.5 million compared to Q3 last year.

Revenues were negatively impacted by 35% decline in real estate offset by nine and a half million of revenue contributed from our two acquisitions and the professional division.

On a sequential basis, we saw tremendous improvement in real estate with a 62.6% increase over Q2 and light industrial delivered a 29.2% sequential gain.

While professional legacy revenues were lower by 8.8% sequentially Lj questioner poster remarkable sequential increase.

Placements improved 8.6% versus Q2.

We look to be in a strong trajectory as we move toward Q4 and 2021.

Although third quarter year over year consolidated results decline, we were pleased to see better than expected results in light industrial as revenues and margins were largely in line with last years third quarter.

As noted our acquisitions added $900 million of revenue, yielding an overall, 8% increase in professional revenues.

While third quarter typically peaks for real estate division continued to be challenged by pandemic related disruptions and the subsequent slowdown in multifamily community maintenance and commercial building needs.

From a margin perspective consolidated gross profit declined by 11.1% to 19.7 million.

As a percent of revenue gross margin was down slightly at 27.6% yes.

Benefiting from an improvement in average spreads offset by lower revenues in the real estate group.

SGN expenses remain relatively flat largely due to expenses incurred from our two recent acquisitions offset by our cost mitigating actions taken.

In our legacy divisions at the onset of the pandemic.

As a percent of revenue consolidated SGN expenses for the third quarter were 20.8% versus 18.3% last year, reflecting the revenues impacted.

Pat discussed earlier.

Third quarter net income decreased to 2.6 million or 25 cents per diluted share compared with net income of $4.2 million or 41 cents per diluted share in the year ago quarter, our effective tax rate was 22% versus 24.1 per sales next year.

Adjusted EBITDA was $5.5 million or 35 cents per diluted share compared to adjusted EBITDA of $8.3 million or 54 cents per diluted share in the year ago period.

For the nine month period revenues were $208.2 million down 6.2% year over year, while gross profit was 56.9 million down 7.5%.

The impact on revenues was driven by a 30.2% decline in real estate offset by 26.2 million revenue contributed from our two acquisitions.

Great.

Gross margin percent was relatively flat at 27.3%.

This is 27.7%.

In Q3 of 19.

For the year to date period, we incurred a net loss of $765000 or negative seven cents per diluted share compared.

Compared to net income of $10.5 million or a dollar and a penny for another good share in 2019.

The net loss for the year included an impairment of certain intangible assets.

$5.4 million net of tax that was recognized in the second quarter and our financing guarantee division.

Our effective tax rate was 25.4%.

For the 2029 month period compared to 23.3%.

In 2019.

Sustainable recurring dividend has been a cornerstone of our capital deployment philosophy. Our goal is to maintain ample flexibility, while executing our strategic plan reengaging opportunistic acquisitions and successfully navigate navigate changing market conditions. While we believe we will allow us to emerge even stronger.

[laughter].

So I'm I'm pleased with how our teams are executing our internal teams Ocala consultants are all showing tremendous resolve and collaborations seeking opportunities to maintain our consistently high level of service, while others, while supporting our community on.

The first question will be from just Martin of Roth capital.

Hi, Beth Hi, Dan This is Sarah Schuster, calling in on behalf them, Jeff Martin.

Damn I hope, you're feeling a little bit better I had the biggest allergy attack. This morning myself and it was.

Fast.

Oh man.

[laughter] congratulations on the corner.

Some of the questions for today cross selling has been a strong point could be G. Over the past year, how has that held up over the past quarter and what are some of the elements of the strategy that are successful.

Automated time card system, and how that's going to affect the future and speed as profits is that and I think as we've launched them and they are really kind of get me getting traction in the fun to see how they turn out in Q4 and into to 2021.

Thank you.

And last question recognizing that BG does not provide guidance.

Could you walk us through qualitatively, how you see each of your three segments fairing as we merely are entering 2021.

Yes, so we're a lot on the real estate side, we are seeing.

And we have what the merging of the leadership team now with talent kind of merging the multifamily leadership team there right at 57.

Ana.

We're always looking to open an office, but we will be cautiously optimistic of how that looks going forward, but we have identified potential markets in the event, we want to pull the triggers on those that can be ready to be able to do that.

Okay.

And I don't know if you've discussed a little bit about.

The acquisition is that two most recent acquisitions that were made.

And then you just mentioned, Dan just mentioned and how things are.

A little bit on fire into professional services.

Those two acquisitions driving that or is it overall professional services that are doing very well.

I think it's over all along and I will say that they I'm. So happy we did these two acquisitions. They are so complimentary to what we do and they did nothing but help us in propping up that division, but I think that they've got a really good job in merging that management team and.

Getting to know each other so to speak and so they all play very nice in the sandbox and really had been doing pretty strong in that but those two acquisitions I'm incredibly thankful for that they were really really good ones for us, but the whole division it's done well.

Okay, and then on the white industrial side.

I know you talked about business, you know strengthening the cost of the pandemic in the logistical and you know warehouses, but are you going to be able to maintain.

Gross margin in that.

In that segment.

We're actually seeing an improvement in margin on the things that we are selling right now and what she is always positive, but I think that the companies are having to realize that they're having to up their game. Because there is kind of a shortage in that area between people, who don't necessarily want to go to work in a warehouse to.

And the fact that everybody needs people in warehouses right now, but we are at the team has done an amazing job in being able to up sell our services. They can get a very nice margin percentage out of it.

Okay and one final one this is a little bit going forward, but what.

What do you hope to achieve in you know using.

Your level of debt over the next 12 months.

Well that would be giving forward looking numbers [laughter] power.

Our Oh, yes.

Yeah, sorry.

Okay, I thought I'd ask keep up the good work guys.

All right. Thanks.

All industry as a whole is really behind us and taking.

Taking a eight A.H. Belo response to what they think is going to happen.

Mhm.

Is the is there a lack of evictions or moving because of that.

Cause some pent up demand do you suspect or.

Do you see people.

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