BGSF Inc. Q1 2023 Earnings Call
Speaker 1: Good morning, everyone. Welcome to the BGSF Risk Co. 2020 Free Press Court of Financial Results Conference call. After the speakers remark, there will be a question and answer sessions. If you would like to ask a question during this time, simply press star one on a tap on keypad. If you would like to withdraw your questions, please press...
Speaker 1: Star 2. As a reminder, this conference call is being recorded now.
Speaker 1: I will turn the conference call over to Sandy Martin, three-part advisor. Please go ahead.
Speaker 2: Thank you. Good morning and welcome to the BGSF 2023 first quarter earnings conference call. With me on the call today are Beth Garvey, Chair, President and Chief Executive Officer and John Barnett, Chief Financial Officer.
Speaker 2: After our prepared remarks, there will be a question and answer session.
Speaker 2: As noted, today's call is being webcast live. A replay will be available later today and also archived on the company's investor relations page. Today's discussion will include forward-looking statements which are based on certain assumptions made by BGSF under the Safe Harbor provisions of the Private Securities Litigation Reform Act.
Speaker 2: of 1995. Actual results may differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including those listed in the company's filings with the Securities and Exchange Commission.
Speaker 2: Management statements are made as of today and the company assumes no obligation to update these statements publicly, even if new information becomes available in the future.
Speaker 2: During the call, management will also reference certain non- GAAP financial measures, which can be useful in evaluating the company's operations related to the financial condition and results. These non- GAAP measures are intended to supplement, GAAP financial information and should not be considered a substitute.
Speaker 2: Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.
Speaker 2: I'll now turn the call over to Beth Garvey. Beth?
Speaker 3: Thank you, Sandy, and thank you for joining us today for our first quarter earnings discussion.
Speaker 3: In late April , we announced our acquisition of Arroyo Consulting. I'm excited about the strategic and high-value addition to our offerings.
Speaker 3: We believe that Arroyo strengthens our go-to-market cross-sell efforts by providing current and future clients with cost-effective alternatives through nearshore and offshore IT resources.
Speaker 3: capabilities and expands our IT talent recruitment reach as well.
Speaker 3: reach or a strategic imperative and we are encouraged by our client's responses to the addition.
Speaker 3: Turning to our quarter results, first quarter results were in line with our expectations for both professional and real estate. As you can see in our release, the professional segment benefited from incremental revenues related to our acquisition of Horn Solutions. And we are excited about the cross-selling and expanded wallet share opportunities it will provide. For more information, visit Trademark Joey at Third
Speaker 3: We are cycling against tougher sales comparisons this year as our team is highly focused on pricing, spreads, and overall cost structure as market dynamics involve. Since the fourth quarter of last year, we have seen longer decision timeframes in the selling cycle which impacts our professional side. However, we continue to see solid demand for ERP and cloud migration services.
Speaker 3: And importantly, we have consulting and managed service specialties in pop enterprise-wide technologies. Today, we reported revenue of 75.3 million at 9.9 percent, and we also expanded Gross margins to 35.6 percent.
Speaker 3: Delivering margin expansion was at the core of our professional growth strategy as we journey from a staffing company to a high-value consulting and managed services business, delivering expertise to our clients, while also maintaining our solid margin profile in our real estate sector. Now I will turn the call over to John after he covers our financial stuff.
Speaker 4: The purchase price was 8 million and provides for earn out payments up to an aggregate of 8.5 million based on agreed-upon performance targets.
Speaker 4: obligations. Thank you.
Speaker 4: We will be thrilled if we pay the all-in purchase price of 16.5 million.
Speaker 4: Turning to our first quarter results, total revenues were $75.3 million.
Speaker 4: The real estate segment was up 9.6% compared to the prior year quarter, and the professional segment increased 10.1%, which included incremental revenue from the Horn Solutions acquisition that closed in December of last year.
Speaker 4: Excluding horn solutions, the professional segment was down 5.9% compared to the prior year quarter.
Speaker 4: and lengthening timelines related to budgets and new project starts.
Speaker 4: quarter. We believe that companies in general will prioritize capital spending on ERP implementation and cloud migration work, which aligns with our specialization. As Beth mentioned, total revenues for the first quarter met our expectations, especially given the tougher comparisons in 2022.
Speaker 4: First quarter gross profit margins expanded by 140 basis points to 35.6% compared to the prior year quarter. From a segment perspective, professional grew 130 basis points to 32.9% and real estate was up 150 basis points to 39.9%.
Speaker 4: The margin increase in the professional segment was entirely driven by the addition of horn solutions.
Speaker 4: which has a higher growth profit margin profile than the existing professional business.
Speaker 4: SGNA expenses for the first quarter were 23.2 million, up 3.5 million, of the 3.5 million.
Speaker 4: selling expenses were $2.7 million of the increase, of which Horn Solutions selling expenses were $2.2 million. As previously mentioned, Horn Solutions has a higher growth profit margin than the existing professional business. Horn Solutions also has a higher selling expense.
Speaker 4: as a percentage of revenue. Transaction costs were approximately $300,000 in the quarter and the remaining increase represents investments in people and technology.
Speaker 4: As we messaged last quarter, operating results for the first quarter included a non-cash charge related to the rebranding and subsequent intangible asset impairment of trade names that we used in the business.
Speaker 4: During the first quarter, we wrote off trade name intangibles of $22.5 million, which negatively impacted net income by $16.9 million, or $1.58 per share.
Speaker 4: Our non-GAAP adjusted measures for EBITDA and earnings per share exclude the impact of acquisition amortization.
Speaker 4: the trade name impairment charge, and acquisition transaction costs.
Speaker 4: Adjusted EVA-DA for the first quarter was $4.3 million compared to $3.9 million in the prior year quarter. Adjusted earnings per diluted share was $0.16 compared to $0.23 in the prior year quarter.
Speaker 4: The difference in adjusted earnings for share is largely driven by higher interest expense in the current quarter related to horn solutions acquisition financing and higher interest rate.
Speaker 4: At the end of the first quarter, accounts receivable totaled $62.5 million, with day's sales outstanding remaining consistent with the end of last year.
Speaker 4: Our working capital ratio strengthened from 2.7 at year end to 2.9. And our leverage ratio of funded debt to trailing 12 months pro forma adjusted EBITDA was 2.6 times.
Speaker 4: We returned capital to shareholders in the first quarter via a cash dividend and announced our 34th consecutive cash dividend late last week. With that, I will turn the call back to Beth.
Speaker 3: Thank you, John .
Speaker 5: Last quarter we talked about our four strategic initiatives for 2023, which included M&A growth, the rebranding project, as well as process improvements and shared services, which I will address more fully on future calls.
Speaker 6: I am pleased to report that the branding of all our trade names to BGSS is well underway. We believe that one brand voice may enhance our brand power, but even more importantly, we believe that it cuts out confusion in the marketplace.
Speaker 7: Going to market as BGSF, a single brand platform, should be an enabler as we continue to expand our offerings on a global stage. The cost to transition to a single brand is minimal.
Speaker 8: We continue to move forward with our technology efforts, moving from our go-live with a minimal viable product focused on payroll and billing into operational enhancements to benefit the sales and recruiting sides of our business. Commenting our recent acquisition activity, we are pleased and excited about our recent transactions with our customers.
Speaker 9: for deals that are accretive, add to our client base, talent resource footprint, and or expand our expertise.
Speaker 10: The pipeline continues to be active and M&A remains an important component of our long-term growth strategy.
Speaker 11: Based on our outlook for 2023, we expect to continue to see normalization of our revenue seasonality.
Speaker 12: First quarter is typically a low point for a revenue standpoint for a normal year, and we are starting to see consulting projects ramp in the second quarter.
Speaker 13: Real estate is expected to grow this year and we anticipate some macro headwinds on the professional side but expect our high-value consulting business practices and managed services to be resilient and grow in 2023.
Speaker 14: Finally, as John mentioned, we are up against difficult comparisons in the second quarter with revenues up 29% last year versus 2021. We remain realistic around the growth rates and will carefully manage expenses to align with our business growth. With that said, we can open the call up for questions. Operator? Watch it every once in a while. It's just real. I can't wait for the half hour and I'm very excited today.
Speaker 15: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on type on keypad now.
Speaker 16: When preparing to ask your question, please ensure your phone is muted locally.
Speaker 17: Our first question comes from Howard Harpen from Taglish Brothers.
Speaker 18: How would your eyes now open? Congratulations, nice start to the year guys. Thanks, Howard. In terms of the recent acquisition, the recent acquisition of Arroyo, could you talk a little bit more about, I guess their gross margin profile and if there's any, if there tends to be any seasonality in their business?
Speaker 19: Um, they, they are.
Speaker 20: You talked a little bit about cross-selling. What type of activity has just started and what type of goals do you have over the next 12 to 18 months to, I guess, educate your own client based on what you could do for them? I think from the Horn Solutions perspective, they have a lot of accounting, finance, managed services offerings, which we didn't have before. And so those are things that actually fit very well into our profiles as we go in and implement an ERP system on the IT side and then move it over into the accounting reporting side. So that's a very good fit for us from across field.
Speaker 21: And then in regards to Arroyo, you know, we've had customers for several years and really more so recently ask us for nearshore offshore capabilities so that they can get cost effectiveness out of it. And so this has been a really great opportunity for us to get the cost effectiveness out of it. And so this has been a really great opportunity for us to get the cost effectiveness out of it.
Speaker 22: I went to write word, popular with what our cut, when we've gone to market just in the baby two weeks we've had it now. So there is a lot of energy around the fact they want this business out there. So our customers are already very pleased that we made that acquisition. Okay, and within the real estate segment, you know, the growth that you're seeing, is it from expanding within your existing customer base? Or are you...
Speaker 23: or new customers, what kind of breakdown, I guess, would that be between, that is, propelling growth in that segment? Our customer advice pretty much remains consistent. There's a lot of buying and selling, so we are seeing some things where one of our customers got bought by another customer, and so there's move-in in those areas, but there's still...
Speaker 24: relatively the same customers that we have. But the growth is really around the markets that we opened, starting to get some traction, as well as we've talked about in the past that there's markets around the US that are starting to really start to rebound the way they were pre-COVID, and then there's other markets that are a little bit slower.
Speaker 25: to be a little bit of a bump up in G&A costs, transaction related costs from a loyal in Q2.
Speaker 26: There will be some cost in Q2.
Speaker 27: Okay, okay. Okay, congratulations and keep up the good work guys.
Speaker 28: Thanks, Howard.
Speaker 29: Thank you, Howard. We have our next question. It comes from Jeff Martin from RobMKM. Jeff, your line is now open. Thanks. Good morning, Beth and John .
Speaker 30: Thank you, Howard. Our next question comes from Jeff Martin from Rob MKM. Jeff, your line is now open. Thanks. Good morning, Beth and John . Morning. Good morning.
Speaker 31: Thank you.
Speaker 32: transaction appears highly strategic.
I want to get a sense of the potential to scale that business. I would imagine if you've got strong demand from your clients and they've been asking for it for years.
You're probably going to have a lot of demand there. How do you see the growth potential for Arroyo and how easy is it to scale that business?
Well, I have the benefit of—I just returned from Columbia to visit with the partners down in Latin America. And— Good afternoon.
They have got a model that allows them to be able to train people up pretty quickly. So we are being very strategic on how we go roll that out so that our customers are calling wanting the business, but we have to make sure that we successfully grow the business at a pace that is successful for everybody.
But they do have people in the wings ready to go and our customers, our professional team right now is in the process of getting ready to do an introduction and sales blitz across our current customer base in the next couple of weeks to talk and introduce the Royal to the client base we have right now. So.
Again, it's going to be a balancing act, but the initial out-of-the-gate comments that we've had from customers has been extremely positive. Great. And then you mentioned you're seeing good demand in ERP consulting.
and managed services, what percentage of the business, given you've layered in Horn recently, what percentage of the business does that represent of the professional segment? We don't have that track. We don't have it broke out that way.
Jeff, at the moment, I know that there's some efforts in trying to be able to start to push those things out as we get more involved in our system, but right now we don't track it by itself or what the offerings are.
Okay. And then you touched on it a little bit in your prepared remarks in terms of finance and accounting side of the professional projects coming back on, starting up. Yes.
In terms of just pure finance and accounting, what's your outlook in terms of year-over-year growth or comparison as we progress throughout the year for that part of professional? I believe that they'll stay in line with what our industry is saying. John and I were just talking this morning about whether or not our industry.
Based on comments over the last couple of calls on the real estate side of the business, the commercial has been...
a bit more choppy and isn't necessarily
right for growth currently? Maybe just give us an update with where the commercial side of your real estate segment is tracking. I think they're still where they have been. I mean, again, it's pockets, you know, pockets of success, but it just depends on the market. I know that they have slated to try to open two new markets this year on the commercial side of real estate.
But we're seeing consistency with what we've had talked about in the last couple of quarters.
That's it for me. Thank you.
That's it for me. Thank you. Thanks, Jeff. Thank you. Watch Free Superbu lasted a month while being almost dead and the difference was it came
Thank you, Jeff. We have no further questions on the line. I will now pass back to the management team for closing remarks.
Thank you all for your time today and we appreciate all your continued support. We look forward to updating you on our second quarter results in a few months. Have a great day!
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
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