BGSF Inc. Q3 2023 Earnings Call
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Good morning, everyone and welcome to the BG S S Inc. Fiscal 2023 third quarter financial.
Results Conference call all participants will be in a listen only mode should you need assistance. Please send me like coffee specialists by pressing Star then zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two as a reminder, this conference is being recorded.
I would like to turn the call over to Sandy Martin.
<unk> advisors. Please go ahead. Thank you good morning, and welcome to the B G. S. F. 2023 third 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. After our prepared remarks, there will be a Q&A session as note.
Today's call is being webcast live.
Replay will be available later today and archived on the company's Investor Relations page at Investor Dot D. G. S F Dot com.
Today's discussion will include forward looking statements, which are based on certain assumptions made by the company under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995 actual results may materially differ from those indicated by the forward looking statements because of various risks and uncertainties include.
Those listed in the company's filings with the Securities and Exchange Commission.
Management's 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. 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 conditions and.
Results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release, I'll now turn the call over to Beth Garvey Beth.
Thank you Sandy and thank you everyone for joining us today for our third quarter earnings discussion Arkansas.
Our performance for the third quarter reflects continued progress on our long term strategic initiatives our goals are to grow through organic and inorganic revenues and by diversification actions through higher value and specialized offerings in both segments proper.
Property management solutions, and our professional consulting and project work continue to enhance consolidated gross margins and companies return profile.
Our third quarter performance reflects this progress with sales growth of six 3% that resulted in total revenues of $83 5 million. We grew by 8% on the property management segment and 5% in the professional segment. Despite pockets of weakness mainly in the ERP related consulting area.
The effects of the economic uncertainties and high interest rate to 2023 continue to cloud our industry and create a choppy demand environment, we believe that our unique offerings across our two segments as well as good diversification of clients and end markets position us well in this environment.
Our strategic investments in people process and technology over the last three years have given us more stability and capabilities to succeed than three years ago.
The professional segment is in the early stages of realizing benefits from recently added or acquired workforce solution competencies. This includes our nearshore and offshore capabilities from the acquisition of a royal consulting earlier. This year, our full suite of professional services and solutions includes our acquisitions have strengthened our go to market value delivery proposition.
This includes added global I T resources and capabilities with AI capabilities projects and customer solutions with that I'll turn the call over to John to cover the detailed financial results.
Thank you Beth and good morning, everyone.
Third quarter total revenues grew to $83 5 million up six 3% from the prior year quarter.
The property management segment, all organic continued to show strength and grew revenues by eight 2% in the third quarter.
This growth was on top of 34, 1% revenue expansion in the third quarter of last year.
This translates to a cumulative two year revenue growth of over 42% compared to 2021.
Apartment turnover make ready demand in the second and third quarters continues to advance the property management Division.
Professional segment's quarterly revenues increased by 5% driven by recent acquisitions.
Organic sales in professional declined by 26% in the third quarter versus the prior year quarter.
The third quarter was going up again against difficult prior year comparisons that was aided by a macro tailwind is driving up sales by 14, 9% in the prior year quarter.
Sales softness in this year's third quarter was primary related to staff augmentation placements.
And technology implementation starts.
We are benefiting from new service and solution offerings from our acquired businesses and we are pleased to have invested in these differentiated businesses that offer nearshore and offshore I T capabilities, and higher and finance and accounting solutions.
The third quarter gross profit margins expanded to 35, 9% up from 35, 7% in the prior year quarter.
Property management gross margins were 39, 5% compared to 48% in the prior year quarter.
Due to lower permanent placement proper.
Property management permanent placement was relatively flat on a sequential quarter basis, but was up against tough comps from the prior year quarter.
The professional segment gross margins were 33.2% up 130 basis points due to the acquired businesses and continued shift away from low margin <unk> placements.
SG&A expenses for the third quarter were $22 7 million essentially flat compared to the second quarter <unk>.
Non recurring transaction fees for the quarter were $149000.
Third quarter, adjusted EBITDA was $7 9 million or nine 4% of revenue, which was sequentially higher in terms of dollars and margin percentage than the second quarter, adjusted EBITDA of $7 5 million or nine 3%.
We reported adjusted earnings of 36 cents per diluted share compared to 37 cents per share for the second quarter, which was lower primarily due to the impact of more interest expense this quarter.
We are prudently managing our balance sheet, focusing on working capital efficiencies we.
We have continued to pay down debt.
Our bank covenant ratio of funded debt to trailing 12 months pro forma adjusted EBITDA increased to 2.5 times from two three times as the reduction in debt did not offset the decline in pro forma adjusted EBITDA.
We are in the process of refinancing our credit facility, we have a great group of banks committed to participate in the refinancing and we are working through the details to get an agreement executed.
We maintain a disciplined approach to our capital allocation strategy that includes growth investment debt Paydown and consistent capital return to shareholders through our quarterly cash dividend at an annualized yield of approximately six 4%.
Although we will continue to review the acquisition pipeline, we have no immediate plans for acquisitions in 'twenty twenty-three or early 'twenty 'twenty, four and with that I would like to turn the call back to Beth.
Thank you John like most businesses, we continue to navigate and manage to changing market dynamics. This year, we remain bullish on the company's prospects based on the significant progress of our strategic repositioning over the last several years, which includes higher value consulting managed solutions and a growing property management platform.
We are truly unique in the work force solutions space, Although our stock has traded down and it's mostly in line with the industry. We believe that we are better positioned for future growth higher gross margins and meaningful cash flow generation, leading to long term shareholder value.
We have made significant progress and changes in both segments and believe we are well positioned for profitable growth.
Property management, we had expanded across the U S and Canada over the last few years that are still small from the market penetration perspective compared to the addressable potential the.
The National apartment Association expects added capacity with approximately $4 3 million new apartment is planned to be built by 2035, and we plan to significantly benefit from this industry growth.
On the professional side, we have partnered with the world's leading technologies. According to Gartner 2023 cloud ERP report, which includes workday Oracle and SAP to name a few we also provide other high value I T consulting finance and accounting managed solutions and offshore I T Engineers building.
I projects for valuable long standing clients, our transformational plan to build a strategic workforce solutions business with two growing segments accelerated in the most recent years.
We plan to continue to make prudent decisions as we continue to build and during company that create sustainable long term shareholder value.
Looking at the fourth quarter, despite continuing difficult comps, we expect the professional segment to stabilize somewhat.
We plan to continue to focus on our strategic initiatives this year to expand our business improve profitability and generate cash flow.
Businesses are not recession proof, but we believe that they the segments in the diverse markets positions us to be more resistant to typical down cycles compared to others in the staffing industry.
For the remainder of 2023, we expect to see normal or normal seasonality in our property management and growth in the professional segment driven by our acquisitions I want to thank the entire B G. S. F team for their diligence and hard work in supporting the company's expansion plans acquisition integrations and profitability progress this year.
It is with great sadness that I shared that passing on Tuesday, as former chairman of the board President and CEO Allen Baker.
Allen was the person of integrity and afford thinking later he dedicated over a decade of his life to helping shape. The fabric of our company. His impact extends beyond D. G. S F, leaving an indelible mark on the industry and its legacy is marked by a steadfast commitment to excellence and a passion for driving success I know that many of you knew him. So.
I wanted to share this with you today for details on the Memorial service. Please go to dignity Memorial Dotcom.
Before we open the line for questions I wanted to mention that we will be presenting into southwest ideas conference in Dallas on November 15th with that operator, I would like to open up the call for questions.
We will 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.
Any time your question has been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from.
Jeff Martin from Roth.
Hey, Emma Please go ahead.
Thanks, Good morning, Beth and John My condolences on Allen Baker Sad to hear that.
Wondered if you could dive a little deeper on the ERP can fill team trends that you're experiencing now in the technology innovation starts being pushed out delayed or or not not happening how large of a piece is that of the professional segment and maybe just kind of give us a sense of.
How the progression.
Trend there.
Kurt.
Over the quarter and into the.
First half of fourth quarter.
Thanks, Jeff.
The first two months of the quarter really was slower we started to see a little bit of activity come in in September which was helpful. But you know we've been talking about and starts in ERP and area being pushed pretty much all year companies still have the need to be able to do it. They are just a little bit nervous.
I'm going to pull the trigger on those things. So we are hopeful that the.
Activity, we started to see in September and a little bit of life back into October will translate into a better fourth quarter.
Or at least flat.
Great.
And then you know the business is much different now than it even was a year ago with a royal and Horn, maybe could you give us an update of some of the progress since you've acquired those two businesses.
What strategically has has changed and how you're positioning the business now versus one or two years ago.
Good question and I would say that the one thing we have always strived to do through our acquisitions is to make sure that we can continue to add offerings to our customers that they.
I've asked us for you know we've talked in the past and we have the ability to be able to help somebody pick a software we have the ability to.
Customize it to get reporting out of it which encompasses all of our teams take that you take it from selection to the I T group to the accounting group, but not in that that circle has been a strategic path for us for many years, what what do we need to do to make sure that we don't break that circle and I think the two acquisitions.
Torn and Arroyo kind of helped with that last piece from the finance and accounting group. We did not have managed services in that F&I world and that has proved starting to prove out to be very beneficial for us and then the nearshore offshore opportunities we've talked about that over the last quarter that we had not in the past year had any any conversations with our customer.
Chris you Didnt ask us if we were considering that so.
Those two companies get integrated in the organization and the sales teams and get more aligned and being able to cross sell those efforts, we expect those revenues to.
To increase and grow and actually make the offering that our customers won't have to go outside of but can continue to keep all the business with us.
Okay, Great and then you referenced Q4 for professionally you expect it to be up year over year, mainly from the acquisitions, but you know kind of an improvement on.
On the core organic maybe.
Give us a sense of what is driving that improvement on a sequential basis, because I'm looking you know last year, you still grew double digits in professional.
A year, so it's not necessarily an easy comp, but it does get a little easier.
Yes, sorry, a couple of a couple of things to comment one if you are looking at last quarter and Youre going to do our last year fourth quarter and Youre going to do a comparison to this year fourth quarter, which everybody will be doing including me sooner than later.
We did have 14 weeks in the fourth quarter of last year versus we will have our typical 13 weeks. This.
This year in the fourth quarter, so when I think when we talk about.
The fourth quarter, and what were expecting or what we're seeing so far it's kind of.
Aligned with <unk>.
We're adjusting the prior year for that extra week, and our expectations based on a comparable week quarter right. So.
I think we are seeing we did see some daylight in September for our core it group our core professional group.
We hate to say that you know for six weeks.
Stabilization, but we haven't seen that level off on a sequential week basis.
And we right now.
Looking at how that performance has been.
We are optimistic that the fourth quarter is going to continue.
Along those same lines.
With typical seasonality so.
If you look at our business you look at the last two years, it's tough to see the seasonality one because we were in a very aggressive growth market in general.
And two we had that extra week last year.
But if you go back before that right, you'll see that there is seasonality in the professional segment not as much as what you would see in the property management segment as we have really high demand in second and third quarters, but we do have holidays and.
A little more vacations.
That hit.
The fourth quarter.
Great and then last one if I could.
Could you.
Talk on what Youre seeing out there in terms of of wage rates and the trends are you seeing increased.
Competition on wage or any.
Any other factors you know competitively or on a rate basis that are worth noting.
I don't think there would be anything to note there specific.
Okay, Thanks, John and Beth.
Thanks, Jeff.
Our next question comes from Howard Halpern with <unk>.
Rich brothers. Please go ahead.
Congratulations guys.
Tough environments.
Question is regarding I guess the property segment.
How many are how many offices do you currently have open and what's the plan going forward in terms of opening new we're splitting existing locations.
I believe we're right at 64 markets and they are.
Property management sector at this point, but I would say that it's always we would love to double down on opening up quickly, but you know that cost that's a P&L hit so we manage those costs to make sure that we can growth to grow effectively and also not stress out the teams as they open up new markets, but as you know from our prior history, we've always.
<unk> opened up new markets every year and now that we have the new sales force marketing and territorial mapping tool that we've been able to utilize we anticipate that's going to allow us to really penetrate into these larger markets a lot better than what you had been able to in the past.
Okay.
In terms of I guess finding people.
To complete.
Your customers' request how it how is that going in terms of.
Educating I guess the potential client.
So are people, who will be deployed to your customers and you know what are you seeing in terms of that.
Yeah.
Finding talent is not as big of a problem as it had been in the past that.
But I think we've talked about this in the past, we strive to be a leader and attract the best talent and we do that through relationships and so we have a very big referral program within our organization. So you know if somebody's working forests, we asked them to bring their friends along and have found that to be probably our number one recruiting tool.
Okay and are there any additional internal technology projects that you are working on or most.
Most of it now.
Maintenance and just making sure everything is tightened up from what you had done in the past year or two.
As a reminder, we went live with the technologies on the N V. P. So we and they all were basically we wanted to make sure that we can pay them bill right out of the gate in that it wasn't disruptive to our.
Consultant or our customers and so we now have moved into the efficiency side of it so less things in regards to getting it actually implemented and cleaned up and more things into the efficiencies and we're starting to see that as well.
Okay, So we see and that should impact.
Maybe the fourth quarter, but really next year, we should see some of that on.
<unk>.
We've already started to say that internally, we track the contribution to overhead by employee and I think we had a target of getting 9% efficiencies.
And we've hit that this last quarter.
But keeping in mind that our third quarter is our highest quarter in revenue, we'd like we're going to wait to see what happens in December to see what how it stabilizes.
But thus far we've been pleased.
Okay, Thanks, and keep up the great work guys.
Alright.
Our next question comes from.
George Melas from MK H management. Please go ahead.
Thank you Hi, Bath and John Congrats on the good results in a tough environment.
Very general question, which is you did this rebranding.
I think it's already quite a few quarters ago, how do you manage the business differently now that you have that.
What does that enable you to do.
Great question, George Thank you for asking it so we did that in the second quarter and we what it allows us to be able to do is we had 13 different ways, we communicated out to them.
Public based off of the 13 different brands that we had centralizing that and having it all change over to B J S. F. We have had our.
Social presence increase.
Triple at this point and sometimes that five times, what it was before depending on the platforms that allows us to be able to do more targeted campaigns to be able to attract customers and candidates and I believe we had a report out this week that some of those initiatives have reported and we allow our customers to come in.
Direct lead into the platform now to supply order should give us an order and we've had 70 orders in the last few weeks have come in through the website because of the things that we've done.
So.
All about attraction of the candidate as well as the customer and and we track that very very closely to see how the initiatives are working within the new platforms.
Okay.
From a P&L.
From a reporting perspective, you had I can't remember even these brands had separate P&L clearly at one point. They did how do you manage that in the professional.
Segment.
George we're actually.
Internally that's right traditionally when we when we made acquisitions quite often there was an earn out attached to it and so we internally we did keep it as a separate P&L.
Now with acquisitions aside from Arroyo, which is really kind of different than what our traditional <unk> business is right. We.
We view that.
And really and then finance and accounting segments.
Now that we have added horn and we.
We will internally, we will start looking at the business from a house.
The traditional.
How is the traditional finance and accounting and then how is managed services performing.
Specific to both.
And financed but really managed services in total as that becomes also a bigger part of our business.
Okay.
Interesting.
Yeah.
And.
It seems like the property management was extremely strong it seems like it's your best quarter ever.
And it seems to be continued momentum there.
<unk>.
What makes it so successful because at one point it sounds like it was decelerating a little bit and now its really back on track and doing very well.
And when George they they really decelerated during Tobey that got hit very very hard but that team is amazingly engaged team and they they really.
She's great things within the industry as a reminder, they won the national supplier of the year for.
Core NII, which is amongst all suppliers to the apartment Association. So these are these this team shines bright and they that is a relationship business in hull and they the team does an amazing job in making sure that they are offering solutions to our customers and.
It turns into results in revenue.
Sounds good thanks for that.
Thanks George.
Yes.
Again I feel a question. Please press Star then one our next question comes from Mike Tag, which package brothers. Please go ahead.
Good morning, Beth good morning, guys.
Again, obviously condolences on Alan a terrific guy.
Most of my questions have been answered.
If I'm looking at.
Adjusted for the acquisition as of as of.
The beginning of this year, if I put it.
Yeah, and obviously horn was already in it what would buy nine month EBITDA number be the adjusted EBITDA number.
We don't separate.
Separate out all the way down to EBITDA.
Okay.
Yes.
So short answer.
Okay.
Okay.
No matter how much money do you expect to spend over the next year or so.
Opening new offices for real estate Division.
And we're in the budget process right now and.
As in the past, we've always opened up we've always budgeted maybe six ish and then ended up doing more we really are doubling down on this territory mapping and the larger markets and the early signs is that is going to be super successful. So.
That's probably a really good question for next quarter, when we have a better idea of how we're gonna be able to penetrate those markets that we're currently in is keep in mind that you know as a reminder, we'd have one salesperson and in Dallas and there's like.
15000 apartments here and one person can't do that so with this territory mapping tool will be able to take several more.
<unk> people and have a higher touch value to these customers and get out there more often so we think that we're going to get major benefits from that and we launched it in Houston and have already started to see a little bit of a movement in the right direction on that so I think next year is going to be a little bit more opening offices as well as penetration into the markets that we're already in right.
The faster we can do that the better we are and it's everybody's goal to go fast and make sure that we successfully.
If you had to.
Yes.
So if I'm hearing you correctly.
<unk>.
Okay.
Okay.
Better staffing somebody existing offices to flesh out the market opportunities in the area right correct going to be.
If you were spending money on growth initiatives would that be 70% versus open up another five six offices, which will be 30 or I mean, what are your thoughts on that but when I get a view on how much cheaper is that obviously you don't have to open up an office there.
None of these places have offices no there are no brick and mortar when we open a market. It's a salesperson. So this is all people. There there is no often associated with that so it's a matter of whether or not we're going to hire 10, salespeople, whether or not that's to new markets and eight people in existing markets that we're in it's just.
What we have to do from that perspective, but.
It's really just about being able to manage through that and like I said, we are just starting the budget process right now and they'll be able to better answer that.
Later, alright, thank you.
Thanks, Mike.
This concludes our question and answer session I would like to turn the conference back over to Beth Garvey for any closing remarks.
Thank you Scott. Thank you for your time today and we appreciate your continued support as always we are available for follow up calls and we look forward to updating you our fourth quarter results in March have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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