Q1 2022 BGSF Inc Earnings Call
Yes.
Thank you Sandy and thank you to everyone for joining us on today's call I'll begin today's call with a few comments regarding the recent sale of our light Industrial segment announced March one 2022 and review operational highlights for our first quarter results, then I will turn the call over to Dan to provide more detail.
About our Q1 results and the company's financial position.
Finally, I will come back to discuss our 2022 strategic initiatives, including an update of the company's enterprise wide CRM HR payroll and workforce management software platform upgrade.
Our March 21, we closed on the sale of our light industrial segment for $32 3 million, which equates to evaluation at seven five times by our adjusted EBITDA.
As I mentioned last quarter. This divestiture fully aligns with management long term strategic goals of expanding our higher margin businesses and growing into new revenue streams within our professional and real estate segment.
The completion of this transaction allows our teams to concentrate on professional consulting build on momentum we have with our project based opportunities in managed services and make progress on further development of our real estate segment.
Despite continued macroeconomic pressures in 2022, we are confident of our ability to grow market share and expand these businesses in a significant way over the next several years.
Turning to the quarter's results, we experienced growing momentum that improved sequentially throughout the quarter and the first quarter revenues exceeded our expectations in both segments expanded by 37, 8% over a year ago.
The important realignments that we've made in both segments. During the pandemic are continuing to produce the desired results.
Also we are very impressed with momentum solutions business and although this was a small acquisition the growth trajectory is excellent.
We are optimistic and confident about the future opportunities in the real estate segment, and we will continue to carefully monitored labor shortages as well as inflation with a total addressable market for the U S staffing projected to grow to over 163 billion in 2022, we believe the company is well positioned.
To continue to gain market share and meet or exceed our full year goals in both the professional and real estate segments.
And professional our business pipeline is active and we are securing deals in the consulting and managed services for this segment we.
We expect this continued benefit from cross selling and intentional broadening of our geographic reach given.
Given the strong performance in fourth quarter from pent up demand showing up with budget spending at the end of the year. We are pleased with the continued strength in 2022.
Turning to the real estate segment, our teams continued to execute well on our strategic partner programs as well as moving forward on new market expansion recruiting and direct hire placements were areas of strength that we believe will continue to experience tailwind in the current year with that I would now like to turn the call over to Dan to discuss attempt.
<unk> financial results in more detail Dan.
Thank you Beth and good morning, everyone before I walk through the first quarter results.
Best commentary on the sale of our industrial segment late.
Late in the first quarter, we completed the previously announced sale.
Approximately $30 3 million cash plus an additional 2 million due at the one year anniversary in March 2023, and any working capital adjustments.
The net proceeds were used to pay down debt, allowing us to invest in the business for growth as.
As a result of our financial results from continuing operations.
Jeff were noted.
The operating results.
Industrial segment for all periods presented.
For additional details on the sale transaction. Please refer to our form 8-K filed on March 24.
Moving to our financial highlights from our continuing operations.
As Beth mentioned first quarter revenues were strong growing 37, 8% to $68 5 million compared to the year ago quarter.
The real estate segment extended at 39% and professional segment increased 37%.
Momentum from last year carried into the first quarter with positive impacts from better efficiencies and to metals and improved pricing both quarter over quarter and sequentially.
The professional segment was positively impacted by strength in finance and accounting and consulting ERP in cloud migration projects as well as the continued ramp up of the 2021 acquisition of momentum solutions.
Gross profit grew by 44, 5% compared to the prior year quarter to $23 4 million driven by revenue expansion increased spread in real estate and a 46% increase in placement fees.
As a percent of revenue gross profit increased 160 basis points to 34, 2% compared to 32, 6% in the year ago period.
Operating leverage in selling general and administrative cost improved by 200 basis points to 28, 8% of revenue compared to 38% last year.
SG&A dollars increased $4 4 million or 28, 8%, which compared favorably to total revenue growth.
Professional segment cross selling continues to be strong and represented 24% of revenues and gross profit in 2002. This is up from five 4% of revenues and 6% of gross profit and 21 sequentially strong momentum carrying into 'twenty two for professional with Q1 revenues up five 8%.
Q4, 'twenty one right.
<unk> estate following an exceptionally strong Q4 was down five 4% better than the 18 19 decline of eight 7% in the 2021 declined 14, 3%.
First quarter net income from continuing operations was $2 4 million or <unk> 22 per diluted share compared to a net loss from continuing operations of 212000 or a net loss of <unk> <unk> per diluted share in the same quarter a year ago.
Overall net income was $15 5 million or $1 48 per diluted share and included a $12 2 million net of tax gain on the sale.
922000 of net income.
From discontinued operations.
Compared with 712000 or <unk> <unk> per diluted share in 'twenty one.
Adjusted EBITDA from continuing operations was $3 9 million or five 7% of revenues compared to $1 3 million or two 6% of revenues in 'twenty one.
Our Q1 effective tax rate was 25, 3% and 22 compared to 16, 8% last year as.
As we discussed during our year end call 2022 represents the third year of the Companys IP investment roadmap overhauling all of our IP infrastructure and wrapping up with an enterprise wide CRM HR payroll and workforce management software platform.
We expect significant productivity improvements and competitive advantages in our business from this platform upgrade.
And assuming a modest 5% efficiency and order fulfillment.
Projected payback period for the roadmap is approximately three years.
Future it spend will represent incremental enhancements to improve systems, providing a more robust platform to grow and scale our business.
Moving to our financial position.
The company's balance sheet is strong and we continue to maintain a prudent and conservative liquidity position.
<unk> improved by four days from year end and our working capital ratio increased to two <unk> from $1 95.
After we pay down debt our leverage ratio of funded debt to trailing 12 months adjusted EBITDA from continuing operations was <unk> eight X <unk>.
March balance sheet date.
Finally, the board of directors approved a 30th consecutive quarterly dividend payment of <unk> 15 per share in support of our strategic initiatives.
Our balance sheet position and deleverage efforts are expected to continue to provide ample flexibility to fund our operations.
While investing for future growth as well as a return to our shareholders.
I will now turn the call back over to Beth. Thanks.
Thanks, Dan although the staffing industry can be a leading indicator of a U S. Based recession. We also know that short term inflation trends to be a net positive for our industry data library inflation translates to higher pricing in certain cases.
We will continue to remain cautious on our outlook and our teams will stay resilient as we look for changing trends in the labor market. Our goal is to gain market share through high value customer service and flexibility during these periods.
Last quarter, we discussed our it infrastructure investments, which included our plan to launch the company enterprise level CRM payroll HR and workforce management platforms in late March and mid March we were within a week of finalizing our work, but decided to delay the system go lives to ensure that.
<unk> mission critical elements were fully tested and operational.
As you May know system implementations that involve payroll must be cut in at the beginning of a quarter. Therefore, our new projected go live will be the beginning of Q3.
In doing this we use the extra time to include several phase II enhancement. So the system implementation in late June is expected to include a much more robust version of the system modules.
Regarding future M&A activity, we continue to work an active amount of deal flow and we plan to carefully evaluate how a potential acquisition fits into our strategic growth initiatives to augment the company's organic growth plans.
As we have discussed in the past, we do not need to chase deals and we will continue to be patient and opportunistic in our evaluation. Our capital allocation strategy has not changed and we will watch for valuations that meet our criteria in 2022 and into 2023.
With that said, we would like to open the call up for questions.
Operator.
Thank you very much Beth if anyone would like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star flip I too.
Preparing to ask your question. Please ensure you Amit you likely Connie please only ask one question and one follow up after which you may rejoin the queue.
Our first question is from Brian singer from Alliance Global Partners. Brian . Your line is open. Please go ahead.
Hi, great. Thanks for taking my questions quickly on the last comments there.
Your balance sheet too much stronger.
But also the environment.
Just a lot of pros and cons right now so maybe how are you thinking about M&A is it a high priority are low and then you talked about valuation evaluations right now in line with what the company's goals are in the middle of to pay for acquisitions.
Hi, Brian how are you.
I would say that our M&A strategy.
<unk> is really.
It is now my priority right now, we're very comfortable with where we are right now and with as you pointed out the.
Uncertainty in certain things that are going on in the world We are not looking.
Really big.
Big M&A sector, but if something comes along that is just a rock star of a deal then we would consider it.
And then as far as valuations we are seeing that they are.
I'll, let Dan kind of handle that because where we are seeing that they are going that valuations are.
And when we were looking at deals in the latter part of last year, we had noticed.
The turn was up a half a point to one turn from pre COVID-19 numbers in that range that we've typically sort of look at that sort of 5 million 10 million EBITDA.
Company.
Okay very good.
A follow up.
Came out.
They were north of 10 times.
Okay.
Well that was going to be my next question is I follow a lot of it services firms digital transformation seems to be driving excess demand.
There's obviously also a shortage of employees, that's increasing pricing as well so I guess I'm wondering what percentage of your professional is staffing.
Staffing.
But the primary.
Growth opportunity for your company in 2022 on the professional services side.
Yes.
Probably about 95%.
Yes.
Growth is our F&I group does a wonderful job of sort of provides.
And our opportunity to two.
Cross sell within our existing client base.
Great. Thank you.
Okay.
Thank you. Our next question is from Howard Halpern from <unk> Brothers Howard. Your line is open. Please go ahead.
Congratulations guys on a great quarter.
Thank you Eric.
The momentum that you talked about seeing.
Within the quarter is that continued so far in the first month.
The new quarter.
We are not seeing a slowdown now or things are things are are holding steady, which we are very happy to see.
Okay.
And then are you seeing or have you begun to see.
Opportunities I think last time, you talked about expansion in Q.
Indian market.
<unk> seen any opportunities there.
And we're still on target to go into Canada in July .
July .
Okay and just one last question how are.
Are you back to where you were in a number of real estate.
Offices open.
And again, if you could reiterate what the plan is to open new offices.
We are back to pre Covid numbers and we had.
Targeted six new open six new markets for this year.
Okay. Okay. Thanks.
Youre welcome.
Thank you our.
Our next question is from Jeff Martin from Roth Capital Partners. Jeff. Your line is open. Please go ahead.
Thanks, Good morning, Jeff and Dan I apologize I hopped on the call.
Part three of your prepared remarks. So this question might be a little bit redundant whats. This.
If you could characterize the strengthen professional during the quarter.
Or are there specific drivers.
Coming back and how is the sales pipeline and conversion versus ramp up projects.
<unk> been progressing.
Yes.
We just we just have a very strong.
<unk>.
Machine right now and the Iot World.
It's definitely coming back we're seeing them, Mike have some momentum in the first quarter and going into the second quarter.
And there's just a lot of deal flow right now the sales team has got a very strong pipeline and they are closing deals left and right and that that's exactly what we wanted to see and I think a lot of that has to do with our strategic initiatives.
Initiatives that we did last year with aligning all of that.
Our sales teams within the verticals and they're just they're just really.
Barry there well oiled machine right now, they're doing very very well.
Yeah.
Alright, and then Beth congratulations on your industry award by the way.
I was just curious if you could if you could give.
Some perspective on the real estate market, how far back to kind of normal levels, if theres things within real estate that are different now versus.
Pre COVID-19 that are beneficial to the model. Thanks.
And they're back to their pre Covid numbers in there there is actually tracking higher and which is great and then theres a few new revenue streams that we've been able to tap into and those things are starting to.
Develop nicely and the team is really <unk>.
Managing their pricing, which is helping to drive the increased margins.
Yes, I think just everybody everybody is just really rock solid right now.
Great to see.
Okay.
Thank you.
As a reminder, if anyone would like to register a question. Please press star followed by one on your telephone keypad.
We have a follow up from Bryan Bryan. Your line is open. Please go ahead.
Great. Thanks, Pat.
The last four or five quarters, we've talked about it and maybe I missed it but talk about.
Your ability to fill open positions.
How that's improving or.
Giving harder compared to maybe a quarter or two ago.
And how are you incentivizing people to come aboard.
Envelope.
There's no doubt, it's a tough market right now, but the team does a really good job on making sure that they understand when an assignment is going to end. So they can go ahead and get them lined up for a new one.
And it's easier for us to continue to redeploy the people that we have in the queue.
<unk> been it is for us to go out and try and try to find new talent. So we're all the time trying to pay attention to keeping people that are.
<unk> to begin with to stay of each year and we do a lot of things to try to help those relationships build those strong relationships with with the consultants and move them through the pipeline. So they always know no matter, what we're going to get them back on the redeployment is everything and we work really hard on that and then the teams do a really good.
<unk> at reaching out through associations to try to get.
New talent in the door as well.
Okay. I guess, just one last follow up is hiring an inhibitor to growth right now what I mean by that is if you could hire.
Good hiring wasn't an issue of general items would.
Would there be a higher growth rate right now and if so by how many points of just hurting us.
Okay.
Okay.
Okay.
We do have.
Strong.
There are several open orders right now and if we could go in and close that gap and I think we would all.
Maybe we can make more money.
And that I think I was on the call yesterday with our division President for the real estate, Greg When you were talking about open orders and they've got a whole campaign that they're working on right now that we are hoping to see that that open order number go down and we just worked really diligently to try to make that happen.
Great. Thanks, guys.
Yeah.
Thank you.
As a final reminder, if anyone would like to register a question. Please press star followed by one on your telephone keypad.
We have no further questions. So I'll hand back over to Beth for any closing remarks.
Thank you for joining our call today and we thank you for joining our call today and we appreciate your continued support and look forward to updating you on our second quarter results in August have a great day.
Okay.
Thank you everyone for joining today's call you may now disconnect your lines and have a lovely day.