Q2 2021 BGSF Inc Earnings Call
Good afternoon, everyone welcome to the BG S. S Inc. Second quarter 2021 financial results conference call.
As a reminder, on this call is being recorded now I will turn the call over to Hello, Hello, Sabini Investor Relations provide introductions and range of Safe Harbor statement. Please go ahead.
Thank you and thank you for joining us to discuss B G. S. Second quarter 2021 earnings results Conference call. Joining me on the call today are Beth Garvey, President and CEO and Dan Hollenbach, Chief Financial Officer. After the Speakers' opening remarks, there will be a Q&A session.
As noted that today's call is being recorded and webcast live a replay will be available later today and archive for 90 days on the Companys Investor Relations page now for the Safe Harbor statement.
Discussions today will include forward looking statements, which are based on certain assumptions made by BG S. US 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..1 day of the company's annual report on form 10-K, and the quarterly reports on form 10-Q and in the Companys 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 on this call and D. G. S that assumes no on.
Obligation to update these statements publicly even if new information becomes available in the future net broadcast is covered by U S copyright laws and any use useful or rebroadcast of all or any portion of this conference call may only be done with the Companys Express written permission.
During the call management will reference certain non-GAAP financial measures, which management believes can be useful in evaluating the company's operating activities and business trends related to on financial condition 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.
Reconciliations of non cash non-GAAP measures to the most directly comparable GAAP measures are provided in today's earnings release posted on the company's website on.
I'll now turn the call over to Beth Garvey, President and CEO Beth.
Thank you Holly and thank you to everyone for joining today's call.
As much as we want to for it to be behind us. The COVID-19 pandemic continues to affect us all personally and professionally.
And we'll remain highly focused on our key priorities of serving our field talent and client partners, while maintaining the health and safety of our team members.
With that said the majority of our teams have returned to the office on a hybrid basis as we continue to monitor the ongoing pandemic.
Now moving on to the results second quarter finished strong and our overall first half of 2021 results improved both sequentially and on a year over year basis, our strategic restructuring efforts and ongoing improvement strategy are driving momentum across all of our business segments and positioning us for continued growth and profitability.
We are still on target with our remaining I T roadmap project, including payroll HR I S CRM and applicant tracking system.
We were able to return to some of our traditional ways of doing business. We believe virtual connections are here to stay it's a hybrid approach combined with the digital transformation and innovative client and talent engagement will drive ourselves and delivery engine.
Beginning with real estate results were better than expected given the slow start to the second quarter, but we continue to see progressive climbs in revenues during the quarter to finish with an impressive 80 per cent increase.
Our board focuses on talent attraction and retention coming into the second half of this year as backlog starts to unwind in the real estate segment.
Several market reopening share taking place at a steady cadence we are intently focused on optimizing our relaunches and establishing a centralized hub to support our regional markets to bolster collaborative collaboration and recruiting and placement efforts.
We anticipate a strong return to normal in the beginning of 2022.
As I mentioned earlier, our tank our teams are in the office on a hybrid basis and are focused on capturing pent up demand.
I expect this process to be positive overall, but do you anticipate some lumpiness as we phase in new markets and manage to the labor shortages as well as new COVID-19 restrictions for the remainder of the year.
Our professional segment performed well with our I T consulting brands being the biggest highlight in the group, which exceeded the 6 month targets, we've seen a nice rebound in finance and accounting and our cyber business is tracking towards pre pandemic levels.
Infrastructure and development saw a growth during the quarter, although at a slower pace, which continues to impact our results.
Momentum solutions, our latest acquisition has brought many benefits to our business new client introductions have taken place and we're executing on numerous managed services opportunities building, a strong pipeline through cross selling and strategic customers.
Our cross selling efforts are starting to ramp up through our cross divisional 1 D. G. S. F approach and we are seeing solid contributions and wins from our strategic customer programs.
We saw a nice lift in starts late in the quarter. However, we still have several of our client partners that have been slow to return.
We expect this will continue to drive demand in the third and fourth quarter and overall, we're seeing strong demand for resources across all areas within the professional segment.
Light industrial continued to show strong growth and demand remains high even though we continue to manage through industry wide labor shortages.
Although we typically see a softer first half followed by continued momentum in the second half of the year, primarily driven by holiday shopping the strength continues and we are optimistic about our full year numbers in that segment.
It appears the uplift from the significant shift to online shopping is not showing any signs of slowing down.
Lastly, we continue to make good progress on our corporate responsibility initiatives, particularly in leadership training and community work during the quarter. All senior leaders successfully completed a 3 day inclusive leadership training or by the Council has identified next steps to support our DNI pillars for the remainder of 2021 and into 2022.
In addition, we are seeing a lot of engagement across our teams through our employee recognition platform and the philanthropy cloud is being well utilized.
I'm truly excited about these important initiatives to not only strength in our team and culture, but it also continues to support and build strong communities around us.
As we continue to navigate these rapidly changing times, our diversified revenue model continues to be a key differentiator for BG at that and with that I will turn it over to Dan.
Thank you Beth and good afternoon, everyone. Thank you again for joining US today. This morning, we filed our form 10-Q for the second quarter ended June 27, 2021, and I'll focus my remarks on key financial highlights.
Second quarter revenues increased by 18, 8% to $74.4 million compared to $62.6 million in Q2 of 'twenty.
Most notably Q2 revenues benefited from a significant increase from 81% and real estate.
Light industrial also reported higher revenues up 19, 9%, while professional revenues were tempered with a 1.3% decline as the infrastructure on development group down 24% slowly recovers from pandemic effects of last year higher permanent placement fees of $1 million.
And on $800000 contribution from the momentum solutions acquisition helped to offset this decline in professional.
As we noted last quarter on the professional segment did not experience the full impact from the Covid pandemic until Q3 of 'twenty due to large long term projects that were already in place.
Sequentially, we saw momentum build with Q2 revenues up 9.9%. This was supported by a rebound in real estate with a 14% sequential increase despite continuing labor challenges. We are seeing some pandemic recovery efforts start to take hold in real estate. So we could see volatility during the second half of it here as we work to secure.
Our talent and as market re launches continue to come on line.
Professional increased by 16, 2% as our it consulting group continues to perform well we are quite pleased to see the tremendous success of our cross selling efforts and professional which represented a 16, 4% of revenues in Q2, and 11, 4% year to date.
As a percentage of gross profit cross selling efforts represented 16, 4% in Q2, and 11, 7% year to date.
As mentioned light industrial revenues increased 19, 9% over last year, but were down sequentially by 5 point.
4% this was consistent with 2019.
On the quarter gross profit increased by.
28, 9% to $21.8 million compared to a year ago quarter as a percentage of revenue gross profit increased by 2.3% to 29, 3% and benefited from a 310 basis point increase across our professional segment.
Light industrial gross profit improved slightly and real estate was down slightly.
SG&A expenses increased by $3.5 million or 24, 2%, primarily due to additional compensation in line with increased revenues and the addition of momentum solutions as a percentage of revenue SG&A expense for Q2 was 24% versus 23% last year a detail of SG&A for.
Quarter end per year to day is included in the MD&A section of our 10-Q.
Second quarter net income was $3.4 million or <unk> 33 per diluted share compared with a net loss of $4.8 million or negative <unk> 47 per cent per diluted share in the same quarter a year ago of note Q2, 'twenty..1 included a $1 million adjustment net of tax related to contingent consideration in Q2.
On to 'twenty included an impairment of goodwill on certain intangible assets of $5.4 million net of tax which was recognized in our finance and accounting Division.
Adjusted EBITDA was $4.8 million or <unk> 33 per diluted share compared to $3.3 million or <unk> 16 per diluted share in the same quarter last year.
Turning to our 6 months results revenues increased by 4% per $142.1 million versus $136.7 million in 'twenty and gross profit increased by 9.2% to $40.6 million.
Higher gross profit contributions across our professional segment contributed to gross margin improvement to 28, 6% versus 27, 2% last year on.
Our effective tax rate was 16, 1% from 6 months' period compared to 22, 8% in 'twenty.
Net income was $4.2 million or <unk> 40 per diluted share versus a loss of $3.3 million or negative <unk> 32.
Per share in 'twenty.
Both were impacted by the gain in 'twenty, 1 and the impairment in 'twenty as discussed.
<unk> EBITDA was $7.7 million versus $8.5 million in 'twenty and adjusted earnings per share increase.
Changed to 49 cents versus <unk> 51 in 2000.
SG&A for the first half of 'twenty, 1 increased by $4 million driven by compensation related to higher revenues additional cost incurred from our Ed Dragon momentum solution acquisitions additional software cost these were offset by lower occupancy and transition fees.
Overall, we generated strong gross profit margins and our liquidity position remains strong dsos at quarter end improved to 54 days versus 58 days at the end of 'twenty.
Leverage as measured by debt to adjusted trailing 12 month EBITDA was $2.3 at quarter end.
We are pleased to say that the board of directors approved our 27th consecutive quarterly dividend raising it 20% to <unk> 12 per share.
I will now turn the call back to Beth for closing remarks, and a general outlook for the remainder of the year.
Thanks, Dan.
Place would have the entire company continues to execute and rides vacation. We continue to manage the key areas of our business and with out of the box thinking flexibility and being able to adapt quickly to our changing macro and operating environment, we focused our attention on cost efficiencies strategic realignment.
Cross selling strategies and digital investments into the business that are paying off to bolster future growth and profitability, we're seeing a recovery in real estate higher margin activity in professional and light industrial demands remain strong on.
On the M&A front, we remain highly engaged with our broker partners seeking the right acquisitions to augment our organic growth. The M&A landscape has started to flow and valuations continue to increase but we expect to see a resurgence in activity in the second half of the year.
As always our focus is on geographic and brand diversification into new or complementary high growth areas that are synergistic to margin enhancement quickly accretive to EBITDA and our strong cultural fit and.
In summary, we are seeing positive impacts from our strategic changes in each segment continued on minimum from pent up demand and positive outlook across each 1 of our business units.
As always I'd like to thank all of our team members for continued hard work and dedication in building long term shareholder value with that said I'll turn the call over to the operator for questions.
Okay.
Thank you we will now begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad.
If you are using a speakerphone, please pick up the handset before pressing the keys.
To withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
The first question comes from Jeff Martin from Roth Capital. Please go ahead.
Thanks, Good afternoon back and then hope Youre doing well Hey, Jeff.
I wanted to get a sense of it.
I'm good thanks, I wanted to get some detail around the reopening of various markets within real estate, how many markets total if you could remind us how many of those are.
Hope and then maybe give us a sense of the cadence.
The second quarter and maybe through July in terms of market reopening Sir.
And if you recall, we had 18 multifamily markets that had paused in 2026 commercial and to date, we have reopened.
Okay.
8 out of the multifamily.
And 3 of the commercial.
Okay and then.
With respect to the unwinding as pent up demand how would you characterize how far along we are either on a percentage basis or or a baseball analogy, maybe what inning are we on it.
Servicing that pent up demand.
I'm not a baseball fan so I'm not sure.
Good morning.
I know I know, but I do like basketball.
Well I would not say, we're where we wanted to be in real estate, yet I think that we're are doing very well in the professional segment I think what industrial you know everybody's having issues right now with finding.
Finding talent.
And we.
Still have somewhat of a mixed bag in real estate, but we are seeing a daily increase in there on head count which is is super positive. So we think that there are things happening up there. We are also seeing things in the real estate segment, where they are starting to do on events again and as.
As a reminder, that division is very baseboard. So they are very much a part of their sales arm is being in front of the customer and go on to these association event and we are seeing some of those to pick back up. So we're optimistic about that but if I was to put it in baseball we might be in the.
I don't know that we've made it to the seventh day new stretch it.
Okay.
We're taking a stab at that.
When you look at it.
Yes.
[laughter] you did you nailed it.
When you reference that.
That's great and Lumpiness in real estate for the balance of this year.
What exactly do I know, what you mean by that but what is what are the sources and remedies.
Remedies to that Lumpiness.
Part of it is gonna be how quickly we can get these markets opened and you know and also as a reminder, getting on market opened is hiring a salesperson in there and sometimes it can take on 60 to 90 day used to really get their feet wet to get things moving and where do we need it to be and so it depends on how quickly they get engaged.
And then the other part of it is you know as as we're starting to see some of this this COVID-19 resurgence with them with the new Delta variant come back we are seeing a little bit of hesitation in some areas as well. So we didn't do that kind of Lumpiness is we're just sitting back to anticipate what that's going to look like for us.
Sure sure. Okay that makes sense and then is there anything you're doing strategically to combat the tightness on the labor market.
In particular, they with light industrial.
And we're doing a lot we are.
We're doing a lot of education, we do have some resources to be able to day market surveys for our customers and educating them on on what the.
On the moving prices and what they need to pay people you know for example.
If I look back to the beginning of the year overall the pay increases have really started to move for light industrial they are up year over year by a dollar but in July they are all up almost $2 and so going in and really educating our customers on on here's what's happening around you and if you want to be competitive here's what youre going to need.
To do and we're really seeing some of our customers jump on that as well as offering them sign on bonuses. We had a couple of customers that are doing bonuses. If they start and then another bone in fact at day 90 day, Mark and so and a lot of creativity on that side, but a lot of it is education on our side and feeding our client.
What information they need to be competitive and.
Competitive.
Okay, Great and then could you remind us.
On the spend on the technology Road map.
We've got a good sense for the balance on this year, but what does that look like next year.
Well I think that you know, we keep talking about being a roadmap and the roadmap to get us with a foundation. So I don't anticipate that there'll be a lot of change in what our percentage of spend will be for <unk>.
Technology I think it will just fall into different buckets, but we had such technology debt to get us where we needed to be that but when we go live with all of our new technology in April that will just be getting the foundation of why we need to be after we get that done then we get to start building on top.
Those things and we're little bit behind in that part of it but we had to get the foundation done as well. So I think the buckets will fall it differently, whether or not it be on capex or in it have a P&L impact and that.
But I still think we'll kind of be in that same kind of area of what we're targeting on that.
That's helpful. Thanks for taking my question.
Sure.
Thank you. The next question is from Howard Halpern from Toggling from Baird. Please go ahead.
On graduations on a great quarter guys.
Great. Thanks Art.
Okay.
I guess to go back and reference I guess from last quarter, you talked about being.
Close to like 1200 openings between the 2 different subsidiaries has that eased at all or is that still at that level.
And it's come down in terms on the light industrial side.
The benefit to the unemployment benefits extended unemployment benefits and some of the markets has been helpful. But so we have seen it drop on the line industrial side, it's dropped a little on multifamily, but not as much as we would like for it to have in that area, but it is we are seeing a little bit of movement in.
Down on that.
Okay and.
Can you talk a little bit about I guess, the gross margins in the quarter, but really really solid.
Is that attributable to.
The acquisition some of the cross selling.
Is that momentum going on being able to be held together going forward.
Additional services.
Yes, so part of it was helped slightly by momentum it's Scott.
Wonderful gross margin percent up on the upper Forty's, so that helped a little bit of a $1 million.
Increase in the Perm placement that flows through at a 100% the larger portion of the business being in the consulting side, which has a higher margin also contributes to that that professional switch so.
Real estate, while it was down a little bit probably more of a mix of business than pricing.
Based on what we heard yesterday from the Division President Okay.
Okay.
And can you talk a little bit about how you're on the cross selling program is growing it's obviously picking up sequentially.
How do you see that continuing as we move forward.
I think part of it how are they come from you know we started the cross sell that you know in 2018, I think we had 1% of our business in 2018, and if that is right at.
Due to cross sell but when we kicked off this year and decided to do it cross divisional Lee and we've started to see a lot of different things along those sites on 1 of our biggest customers in real estate now has several resources there that are out of our it group and we didn't have that cross divisional sales going on so when we we've talked about.
In the past about what where our targets we wanted our targets to be it was really the professional division tossing it to the professional division. So the I T group, giving it to the F&I growth or the cyber group, giving it to the I T consulting group.
But now that we've got the 1 BG SaaS launch.
I think we haven't.
Set a new target from what we wanted it to be but we are seeing it there's a lot of momentum and the divisions are doing an amazing job in working together and understanding each 1 of the business units right now.
They have the division presidents get together once a month and they talk about you know who they are talking to and what they're doing and it's just really served as an eye opening experience for for everybody in the organization. So it's been fun to watch.
How much have you talked about getting you know that.
Allergy Foundation started in April how much of that is helping battle profit.
With a long on the highway.
Back on that helped.
You know our leverage costs, I guess or expenses as we move forward into the mix.
Yeah.
So Howard I just to make sure the.
Investing in the infrastructure how is it going to help.
Is that is that infrastructure is going to help with the cross selling process and.
Yeah absolutely.
With operating efficiencies as we get further down the road in the next couple of years.
Yes, I'll, let Phil let me I just came out of I don't know if you all heard all that noise going on when we first started but we had the 20. Some people here that isn't a I T and work and we had meetings just kind of doing report outs on what's happening in the system. So we decided to go with sales force across the organization for our CRM and Etfs were going to build our back office applicant tracking system, but what it's going to do it.
We're building it wide open so instead of us having 3 different segments, where people don't know where the customers are where they can.
Consultant fit everyone across the organization will be able to have visibility into that that's going to be a game changer in many many ways. So and we think that you know if somebody goes into the system and says Hey, I know somebody I say youre working on ex customer right I know somebody there. Let me hook you up so we think that that's going to be a very significant in the future and then as far.
As the efficiencies, we think because we'll be able to speed the process, along and we will have a high and the ability to be able to get people placed a lot faster.
And tightened that time between the time that they apply to the time, we actually get the bill for them that'll shorten and then that'll help build our efficiencies and profitability.
Okay, Okay, guys keep up the great work.
Alright, Thank you Sir.
Thank you once again, if you wish to ask a question. Please press Star then 1.
Your next question is from Bryan Kipp singular from Allianz Global partners. Please go ahead.
Hi, Ben Hi, Dan how are you thanks for taking my questions.
Okay. So.
Sorry, I joined late so I hope I don't kick the capex, you've already answered, but it sounds like trends have gotten better in light industrial for hiring maybe not so much in professional real estate. So as you look on your crystal ball on that.
When do you think hiring eases in professional real estate and what are the triggering events that you think will be the catalyst to improved hiring trends.
I think that's kind of backward, Brian we have we're having a harder time in light industrial and real estate professional we're not having as much problem.
And we've identified a lot of it in in the real estate sector, just as pay right. So it really is about getting these.
Pay rates right, you know because of candidates or there is king right now and and there they were able to drive out costs and we're having to continue to educate our customers on where on how that looks and I think that that's that's just something that I don't see going away in the very near future.
So it's essentially.
Convincing the real estate customer, they're going to have to pay a little bit more which right now they might be a little bit reluctant towards given moratorium given the difficulties they are facing but maybe once that eases, maybe president Biden doesn't Scott and maybe that would be the time that they might accept and could afford a higher.
Pay rate is that right.
And I think that our customers are open to at all right now and we have not had much pushback from our customers. When we give them data. So when you go around and say here is what you know and a maintenance tech a year ago. It would cost you.
$18, an hour and now it costs you $22 an hour and we go to the management company and tell them that they're going to have to pay more. So it is an education side of it and as far as it more torreon goes yes, we do feel that there's going to be some purse strings that that end up getting loosened up on that but.
Can you know keeping in mind that there was you know 46 billion and rental.
Assistance that was.
Put out there, but theres only been 1.5 billion of that spent so theres still a lot of money on it it's not hitting these management companies to give them that relate so it's pushing that out there and and and until that starts to break free but I will tell you that the apartment Association itself. It is super bullish on the fact that there they think.
They're going to be able to buy the moratorium has been lifted if they don't put it I think there's yeah as of yesterday. There were some communities that were talking about putting it back in based off of the Delta variant. So they there may be some pockets, where the moratorium ends up getting price back in so we're watching that.
And then the light industrial side is it still pay rates and as we come to the end of.
Increased unemployment benefits is it just that they're used to making so much more for doing so little is that how we should think about it and so it's it's kind of going to take time to reset their expectations. I mean, how do you think about that.
And I think that's part of it but I don't know if you heard the number I gave earlier in the year over year. The light industrial pay rates have gone up a lot from our kpis by a dollar $1.8 but in July itself. The pay rates went up $1.93. So we're seeing big pushes in just in the last month you know 4.
Those pay rates Institute to increase and I I, just you know.
The problem right. Now is you know we get people in and we get them a job and then you know their next door neighbor cut client comes in and says Hey, We just did a dollar increase and so we have a lot of hop it and we have a lot of people that are hopping around because they can and so you'll start at 1 company and then they get on you know they they change jobs for 50 cents more so we are seeing a lot of that happening.
So it's just a matter of.
Trying to stay ahead of it.
And lastly on M&A I don't know if you've talked about it I'll say on your if you had questions on it but I take it obviously other staffing firms are facing the same obstacles. You are so can you talk about your thoughts and strategy in the near term on M&A and then from a valuation standpoint, our private valuations generally very high or are they generally very low.
Given the current environment.
So we are seeing activities, we saw about 24 deals in Q2.
Word on the street is from what from our M&A partners is that.
Q3 should be a little bit more active as Q2 rolled off of everybody's trailing 12 numbers.
And in the deals that we've had discussions with over the last couple of 2 or 3 months.
And remember, we sort of play on that 5 million EBIT range plus or minus.
I remember safe and healthy.
Thank you.
Thank you. This does conclude I'll conference full today. Thank you for participating you may now disconnect.
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