Q3 2021 BGSF Inc Earnings Call
Good morning, everyone and welcome to the BG F F incorporated third quarter 2021 financial results Conference call.
As a reminder, this call is being recorded.
Oh called upon over to Steven Hooser, Investor Relations for artisan instructions and read the Safe Harbor statement.
Go ahead.
Okay.
Thank you operator, and thank you to everyone for joining us to discuss D. G. S apps third quarter 2021 earnings results. Joining me on the call is Dan Hollenbach, Chief Financial Officer.
Garvey, President and CEO. Unfortunately has laryngitis and is unable to make this morning's call. However.
She is going to do her best to join us for the Q&A session.
Dan will cover operational and financial highlights for this call.
After Dan's review there will be a Q&A session. As noted today's call is being recorded and webcast live a replay will be available later today and archived for 90 days on the company's Investor Relations page.
Now want to take a moment to remind you that today's discussion will include forward looking statements, which are based on certain assumptions made by BG S. F. Based on and are made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
The company's actual results may differ materially from those indicated by the forward looking statements because of various risks and uncertainties.
Including those listed in item one a of the Companys annual report on Form 10-K quarterly reports on Form 10-Q, and other company 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 and time of this call B.
P. G. S. F assumes no obligation to update these statements publicly even if new information becomes available in the future.
This broadcast is covered by U S copyright laws and any use or rebroadcast of all or any portion of this conference call may only be done with the companies.
Express written permission.
During the call management will also reference certain non-GAAP financial measures, which management believes can be useful in evaluating the comfort companies operating activities and business trends related to financial conditions and results of operations.
These non-GAAP measures are intended to supplement GAAP financial information and not <unk>.
Be consistent in isolation as a substitute for or superior to financial measures calculated in accordance with GAAP <unk>.
A reconciliation of non-GAAP measures.
To the most direct comparable GAAP measures are provided in today's earnings release posted on the company's website with that I'll now turn the call over to Dan Hollenbach, Chief Financial Officer, Dan.
Thank you Stephen and thank you to everyone for joining today's call.
I'll begin with a review of our operational highlights and segment performance I will then discuss our financial results in more detail before wrapping up the call with some closing remarks.
Overall as we reflect on our third quarter and the first nine months of 'twenty. One our momentum is best defined as progressive improvement across the board.
Our team members in all three segments have done an exceptional job of elevating our client and talent engagement to unlock new opportunities through our realigned sales strategy optimized and strengthened leadership structure and digital transformation.
Our remaining I T roadmap projects are set for an April 2022 launch with new payroll HR I S. C. R M and applicant tracking systems, we look forward to the expected benefit from greater process efficiencies and to providing a better foundation for our teams to work across a single source of truth.
Moving to our results we.
We are pleased with our third quarter performance, having posted both sequential and year over year growth across our key financial measures. In fact, the third quarter is a continuation of both top and bottom line sequential growth in each of our quarterly results for the 21 nine months period. Additionally, cross selling efforts are gaining further momentum and becoming a <unk>.
I'll, let contributor to our results third quarter consolidated revenue increased 15% compared to the 2020.
A quarter with net income up significantly by 80%.
More detail on the numbers shortly.
Turning to segment highlights we continue to see positive trends across our end markets with real estate joined progress from a market recovery and pent up demand.
During the quarters, the CDC eviction moratorium expired with rent relief funding slowly funneling through but has a long way to go.
We are taking a measured approach to market relaunches and real estate, while managing through the tight labor market.
You can see in the multifamily real estate market are at historic lows and demand for new inventory is that an incredible high both of which lead to increased demand for labor in the market.
We are accelerating and improving our recruiting efforts through our talent acquisition group, which is focused on new initiatives to attract incentivize and retain field talent.
We are also making tangible progress with our move to a centralized operational hub that includes training and ongoing employee development market outlook and sector tailwind remain positive, but we expect this segment to continue at a slow and steadily improving pace.
Professional benefited from an increase in permanent placement and strong activity in our it consulting division.
Overall, we saw sequential strength and solid performance across our professional divisions.
Year over year, I T consulting accounting and finance and L. J Kushner drove most of the growth as we are seeing high demand from cloud transitions within consulting and accounting and finance.
While infrastructure and development has been slower to rebound, we expect to see improvements longer term.
RFP activity with strategic clients is robust with active discussions taking place for our higher margin managed service projects were.
We're pleased to see a productive sales pipeline taking place as well.
While light industrial is managing through an increased wage pressure amid labor shortages. The team performed well reporting a solid quarter compared to 20 results were essentially flat year over year. However, we were working on a solid opportunity pipeline going into a seasonally stronger holiday season for warehouse logistics and fulfillment needs.
We are seeing a mix of clients adopting to increased pay rates to attract candidates in some cases, where the primary workforce solutions provider given our ability to fill placement orders.
As a reminder, we have an extremely high client retention with over 70% of our relationships being onsite managed programs.
A man remains extremely high and we are focused on finding creative ways to combat the labor shortage.
We are a stronger organization now with an even more agile team than we were prior to the pandemic equally important through the significant transformative efforts and investments in technology, we are well positioned to keep building on our brand and client partner strikes to maximize the long term success.
P G S F.
Okay.
And now for the third quarter financial highlights we filed our Form 10-Q for the third quarter ended September 26, 2021 yesterday afternoon. So I'll focus my remarks on key financial highlights for the quarter and nine months period.
Consolidated third quarter revenues increased 15, 1% to $82 4 million.
We had notable revenue growth in real estate up 29, 4%.
While professional posted a 15, 7% increase.
Real estate benefited from market Relaunches and it turned toward overall market recovery.
The professional segment benefited from higher permanent placement fees, and a $1 $1 million contribution from our momentum solutions acquisition, partially offset by a decline in our infrastructure and development group.
I N D has seen a slower recovery pace from pandemic effects.
Light industrial revenues moderated and were down slightly <unk>, 8% against a strong Q3 2020 in comparison that benefited from peak online ordering activity during the pandemic environment.
On a sequential basis momentum continued with consolidated Q3 revenues up 10, 7%.
From a segment breakdown all three segments show Progressive improvement with real estate up 16, 9%, while professional revenues increased eight 9%.
Cross selling efforts continue to make a meaningful contribution and professional which represented 22% of revenues in Q3 of 'twenty, one versus 7% in Q3 of 'twenty.
Light industrial continued at a good pace with a six 9% sequential gain we are moving into our historical seasonally strong fourth quarter for light industrial with warehouse and logistics demand on the rise for the holiday season.
However, labor shortages and supply chain issues may dampen our results for this quarter.
From a margin perspective consolidated gross profit increased by 25, 1% to $24 7 million as a percentage of revenue gross margin increased two 4% to 30% benefiting from higher gross profit and our professional segment up 250 basis points and increased real estate contribution.
Up 108 basis points.
Light industrial was also up slightly.
SG&A expenses increased by $3 6 million or 24% due to additional compensation in line with higher gross profit and the addition of momentum solutions.
As a percent of revenue consolidated SG&A expense for Q3 was 22%.
Versus 21% last year, a comparison of quarter to date.
SG&A is provided in the MD&A section of our 10-Q.
The effective tax rate was 19, 4% versus 22% last year.
Third quarter net income increased $4 6 million or <unk> 45 cents per diluted share compared with net income of $2 6 million or 25 cents per diluted share in the same quarter a year ago.
Of note Q3, 'twenty one included a $1 million gain net of tax due to a contingent consideration adjustment related to our 2019 L. J Kushner acquisition.
Adjusted EBITDA was $7 million or 43 cents per diluted share compared to adjusted EBITDA of $5 5 million or <unk> 35 per diluted share in the year ago period.
For the nine month period revenues were $224 5 million up seven 8% year over year, while gross profit was $65 3 million an increase of 14, 7%.
Our gross profit contributions across our three segments drove a 180 basis point gross margin increase to 29, 1% versus 27, 3% last year.
Our effective tax rate was 17, 9% versus 25, 4% for the nine months period.
Net income.
It was $8 8 million or <unk> 85 cents per diluted share compared to a net loss of <unk> 8 million or negative seven cents per diluted share in 2020.
21 included a $2 million adjustment net of tax due to a contingent consideration adjustment related to the L. J Kushner acquisition.
And that 'twenty period net loss included an impairment of certain intangible assets and goodwill of $5 4 million net of tax recognized in Q2 of 'twenty and our finance and accounting Division.
Net income before the impact of the impairment was $4 7 million.
Adjusted EBITDA was $14 6 million versus $14 million in 'twenty and adjusted earnings per share increased to 92.
Versus 82.
Our SG&A expenses for the nine month period increased by $7 6 million, primarily due to compensation related to higher gross profit reopening of real estate locations and additional costs associated with our recent acquisitions.
A comparison of year to date SG&A is provided in the MD&A section of our 10-Q.
We continue to prudently manage our cash flow and strengthen our balance sheet and overall liquidity position our debt leverage improved with a debt to adjusted trailing 12 month EBITDA of $2 one at quarter end.
We were pleased to see the board of directors has approved our 28th consecutive quarterly dividend of <unk> 12 cents per share.
We continue to maintain strong financial flexibility, while executing our strategic plan evaluating opportunistic acquisitions and successfully navigate changing market conditions, which we believe will allow us to emerge stronger.
Overall, we're tracking well toward a solid finish throughout 2020 and the first half of 'twenty. One we were keenly focused on cost efficiencies strategic realignments.
Our selling strategies and key investments into the business.
Moving forward, we are stepping up all efforts to accelerate growth across our diversified client base.
<unk> solutions in markets.
The industry outlook is supporting a strong recovery in the coming year, and we're positioned well in high growth sectors.
The latest S. I a September 2021 report is forecasting record growth of 16% for staffing solutions overall in 2021.
With the surge in professional talent needs, an I T growth factor for this sector is forecasted at 7%.
Strategically we are executing well, making key investments in our people and infrastructure. Our team is empowered to deliver the absolute best client service and provide critical support to our talent partners.
On the M&A front, we continue to evaluate opportunities and remain engaged with our M&A partners. The current activity levels remains slow, but we continue to seek the right partner that provides a geographic and brand virtualization into new or complementary high growth areas that are synergistic to margin.
Enhancement quickly accretive to EBITDA and are a strong cultural fit.
We continue to be grateful to our entire team for their passion and diligence in maintaining exceptional levels of service.
With that I'd like to open the call for your questions operator.
Thank you.
I'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
This time, we'll pause momentarily to assemble the roster.
First question comes from Brian Pitz Linger wind Global partners. Please go ahead.
Hi, This is Matt Tampa shallow in for Brian. Thank you for taking my question. So in terms of labor challenges would you say its gotten better worse or the same as <unk> 'twenty one.
I think it's tougher right now.
Across all of the all the divisions. The open orders that we have are probably as high as they've ever been.
So it's a good news bad thing news right demand is outstanding.
It's just a matter of finding the talent to go out their wages are going up demand across all.
Across all of the companies is out there and everybody is having a harder time finding the people. So I would say harder across the board.
Okay. Thank you and.
Another one how.
How much benefit to revenue was there in September quarter, if any related to the fallout of the eviction moratorium and have you seen increased demand related to them so hard during that fourth quarter.
Yes. So so demand was up we think the moratorium helped.
And we're continuing to see strength in the real estate sector as we move into October so.
Okay. Thank you.
And our next question is from Jeff Martin of Roth Capital. Please go ahead.
Thanks, Good morning, Dan.
Hey, Jeff.
I'm doing well thanks, how are you.
Good thank you.
You mentioned in your prepared remarks.
You are using creative ways to combat the labor shortage was just curious if you could elaborate on that.
Well.
I think there are.
They're reaching out to other sources that they've used before I give you. An example, we as you know we do a lot of work in El Paso.
Peso has a cross border opportunity and for the very first time I think in Q I don't know if its starting Q2 early Q3.
We actually did some recruiting across the border.
And so you know try to try to develop some.
Worker base and the El Paso area, So just expanding out to different ways different sources.
Certainly looking at our compensation levels to try and be competitive.
Okay, Great and then on the real estate side.
Could you give us an update on markets reopening.
Where are you at with respect to all markets being reopened are there certain geographies that are opening.
Yeah, more quickly and having greater progress than others and then if you could touch on.
On where you think real estate is currently relative to say.
Running at full capacity.
Yeah. So I do apologize I do not have the locations that we've opened but I can certainly get those for you later on.
I think across the board.
Based on feedback from our division President the openings have been successful.
We're certainly seeing the numbers rise.
We're so Q3, they did $25 million if you go back to.
2019, which is probably the last time, we sort of measure them against the they were on a $100 million run rate. So Q3.
It looks good relative to where we are in 2019.
I think theyre looking forward to a very positive 22.
I will get the information on the on the locations for you I apologize.
Great Great and then if you could touch on how wage inflation either benefits or hurts. The model obviously as wages rise people are more willing to work in an open orders can get felt just as curious if you're seeing clients.
More accepting.
The notion that they're going to have to raise wages and.
Yes, generally speaking how that may benefit.
The model for for VTS, Yeah, Yeah.
Yeah, Yeah, absolutely so in light industrial.
Light industrial is done based on our markup business right. So as wages go up we make more money. So it's very beneficial to us and <unk> and.
And wages are actually up almost.
Probably close to $2 an hour from a year ago. So that clearly benefits us clients are recognizing that our wages are are having to go up.
They may or may not be happy about it but they recognize that to get resources they have to do it.
Real estate.
As our margins have gone up as well.
And we've been we've been telling our customers.
We have to pay the wages to get the resources doesn't seem to be a lot of resistance there on the professional side.
Those wages tend to be high anyway, so probably not the impact that we feel in the other two divisions.
Great well please.
Just pass along the path of Hep C.
Quick recovery.
Thank you I appreciate it.
Thank you and again, if you'd like to ask a question. Please press Star then one.
Next question.
Oh Bern helped with Robert Please go ahead.
Congratulations guys great quarter.
Thanks, Eric.
Could you delve a little deeper into that the cross selling and the contributions made during the first nine months of the year.
Yeah. So so we've put a big effort on cross selling.
As you well know started that.
It's probably in mid to late 'twenty.
As the pandemic was their.
Primarily focus between the professional divisions, but.
But we brought in real estate and light industrial.
This slide this year.
Start with having.
The whole company.
What they call the big cross selling opportunities.
So again, you saw but you know the number 21% versus 8% of our on our cross selling opportunities. So that's one location finding an order now the location filling that which didn't happen.
Much before we started this process so.
21% of our professional numbers.
It is.
$10 million or so.
We're pleased I'm happy with the direction of that effort.
Okay.
I guess, you talked a little bit earlier about developing I guess I could training hub is that for all divisions.
Body in the company and what do you hope over the next years gained from that.
So in that type of.
Yeah.
No opportunity I guess.
Are you, taking a train or you're talking to recruiting hub.
Yeah, I think you talked about it training hub for employees that gas.
Our real estate is working on there on there on.
On the centralized recruiting hub so over the next probably three to four years.
<unk> group will be in Dallas are helping to support each other so you have backup and.
In support of this people are in and out.
I know, we're working on training opportunities.
You know for everybody. We started some leadership training, we're doing the Eni training, but I don't know.
Im not sure by the training.
Yes, the recruiting have the real estate group is working on.
Currently and will continue.
Over the next few years.
To make that happen as other leases expire so.
Okay.
And just one for me.
A modeling perspective.
Is that under.
One 8% tax rate you think that.
That will hold during the.
Quarter.
We do we do it yet okay and one final one but also.
Anticipate any additional.
Contingent adjustments in the fourth quarter or would that be.
During the quarter or is it.
We don't right now we don't expect any other adjustments.
Okay. Thanks continue the great work.
Great. Thank you Howard I appreciate it.
Thank you.
Concludes our question and answer session I would like to turn the conference back over to Mr. Mac for closing remarks. Please go ahead.
Thank you Nick we appreciate you all taking time to join us for our call today and we appreciate your continued support we look forward to updating you on our fourth quarter year end 2021 results in March please stay safe and healthy over the holiday season.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.