BGSF, Inc.

Thank you for standing by. This is the conference operator. Welcome to the BG Staffing year-end results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Terry McKinnon. VP of IR with Bibicoff and McKinnon. Please go ahead.

Thank you, Ben. It's my pleasure to welcome you to the BG Staffing Conference Call to discuss Q4 and year-end financial and operating results and a progress report on the company's business strategy. With me today on our call is Beth Garvey, President and CEO, and Dan Hollenbach, Chief Financial Officer. By now you should have seen a copy of this morning's press release, announcing BG's Q4 year-end financial results, as well as the Form 10-K. If you do not have a copy of the press release for Form 10-K, you can find it in the investor relations section on BG's website at bgstaffing.com. I remind you that this call is being webcast live and recorded. A replay of the event will be available later today on the company's website and will remain available for at least 90 days following the call. I'd also like to remind you that our discussions today include forward-looking statements. These statements are based on certain assumptions made by BG Staffing 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 1A of the company's annual report on Form 10-K and in the company's 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 statement. These forward-looking statements are made as of the date of this call and BG staffing 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 company's express written permission. During our call, we will discuss some non-GAAP measures, which we use for internal evaluation and to report the results of the business as useful information to management, our board of directors and investors about our operating activities and business trends related to our 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 as superior to financial measures calculated in accordance with GAAP. For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see today's earnings release posted on the company's website. I'll now turn the call over to Dan Hollenbach, BG Staffing's Chief Financial Officer. Dan?

Thanks, Terri, and good afternoon to everyone. We appreciate your interest in BG Staffing. We are enormously pleased with the performance of BG Staffing in 2018, and I would like to start by again taking a moment to acknowledge all of our team members at each of our BG Staffing business units for their hard work, and dedication to our company's continued success and strong gross profit margins. Their contributions are vitally important, and we are very proud of the job they continue to do for us. BG Staffing provides contingent staffing services within three industry segments. Our real estate segment operates in apartments via BG Multifamily, and in commercial buildings via BG Talent. Our professional segment includes our finance and accounting and IT groups, and we have our light industrial segment. Today, BG Staffing operates 75 branch offices and 19 on-site locations across 27 states. Our real estate division opened three new offices and split four existing offices in 2018. We currently plan to open five new real estate offices in 2019 and expand into California. Beth will talk more about our initiative into California in her remarks. I review our financial results before turning the call over to Beth Garvey, our president and CEO, for her comments on the reporting periods just ended, in addition to our company's strategy, execution, and outlook on current industry conditions. I'll start by noting that fourth quarter 2018 results are for a 13-week period versus 14 weeks into December 2017, and the 2018 year-end results are for 52 weeks versus 53 weeks in 2017. We've provided reconciliations of these numbers on a same-day basis in both our earnings release and our annual report on 10-K. For the quarter, our revenues for Q4 2018 were $72 million, down 4.9% from Q4 2017, with gross profit percentage of 26%, from 25.4% for the fourth quarter of 2017. Please note that fourth quarter 2018 same day revenue grew 4%, same day gross profit grew 6%, and same day EBITDA grew 9%. Net income for Q4 2018 was 4.9 million or 47 cents per diluted chair compared with a net loss of 875,000 or 10 cents per diluted chair for Q4 2017. Consistent with Q3 2018, customer sentiment remained positive and demand momentum was steady as we moved sequentially from Q3 through Q4 and into 2019. A reconciliation of same-day calculations is again detailed in our news release and our annual report on Form 10-K. Turning to our year-end results, Remember, on a 52 versus 53-week basis. Revenues for 2018 were $286.9 million, an increase of $14.3 million, or 5.2%, compared with 2017. For the year, gross profit increased $8.2 million, or 12%, to $76.6 million. Gross profit percentage increased to 26.7% compared with 25.1% in previous year. The company produced robust net income of 17.6 million or $1.79 per diluted share for the year into 2018 compared with net income of 5.8 million or 65 cents per diluted share in 2017. Please note that 2018 Year-end same-day revenue grew 7%, same-day gross profit grew 14%, and same-day EBITDA grew 12%. Turning now to our annual segment results, which were reported on a gap basis and were impacted by inconsistent revenue days. 2018 real estate revenues, which are all from organic growth, increased 15.1 million, or 21%, to 86.9 million over 2017 years. as we continue to scale this highest profit margin segment of our business. Real estate gross profit percentage was 27.9% for 2018, up slightly over the same period in 2017. As a reminder, this segment operates through two divisions, BG Talent in commercial buildings, which was formed in 2018, and BG Multifamily, which operates in apartment communities. Talent contributed $2.7 million of the revenue increase and revenues from multifamily contributed 12.4. Field talent and the talent division typically have a higher skill set from which we generate higher margin revenues as compared with multifamily. Our growth plan is for talent to follow in the footsteps of multifamily markets. We believe the total opportunity for the talent segment can equal that on multifamily in terms of revenues and number of offices. Today, multifamily operates 45 offices and talent has six offices. Our professional segments revenues for the year were $119.3 million, a decrease of $7.3 million, or 5.8%, compared with 2017. Year-to-date gross profit percentage for this segment increased to $26.5 from $24.2 in the prior year. These 2018 results reflect a full year of both Cyclone and Smart acquisitions, whereas 2017 included 39 weeks of Zycron and 15 weeks of Smart. The Zycron acquisition contributed an additional 5.8 million, and the Smart acquisition contributed an additional 8.4 million increase over 2017. Consistent with the first three quarters of 2018, our professional segment revenues were negatively affected by a large F&A project. We generated 6 million less revenue and $1 million less gross profit attributed with that lower margin project in 2018 versus 2017. As we seek to replace that business, we find we are doing so with higher margin accounts. The large relocation project we have discussed on previous calls is in full swing and contributed $1.6 million in revenue for 2018 at a significantly higher gross profit percent. Light industrial segment year-to-date revenues increased $6.5 million to $80.6 million for 9% versus 2017, outperforming the industry average. Light industrial gross profit percentage was 15%, compared with 14.3% for the prior year-to-date period. We are very pleased to see both sequential and year-over-year improvements in gross margins in what is normally ours and the industry's lowest margin business, as demand for light industrial staffing continues to accelerate along with the overall economic activity. Turning now to selling expenses for 2018, which increased approximately $2.9 million, or 6.6% over 2017, due primarily to growth in our real estate segment of $2.5 million, or 16.4%, of which $100,000 was attributed to new offices. This growth was consistent with revenue growth and office expansion. Our professional segment expenses increased $2.6 million, with Cyclone increasing $1 million, and Smart contributed $2.4 million of the increase, reflecting the full year for both in 2018. Excluding Zychron and Smart, our other IT and finance and accounting group selling expenses decreased $782,000, while the light industrial segment increased $367,000, or 6.3%. Our corporate G&A expenses for Q4 2018 reflect a $1.6 million gain on contingent consideration for earnouts. Under U.S. GAAP accounting rules, we are required to revalue this liability for estimated contingent earnout payments with any revaluation recorded through the income statement. In effect, the revaluation of the earnout to its quarter in fair value is a reduction in the acquisition purchase price. Excluding the effect of the gain on earnout, our G&A expenses would have been $1.5 million an amount that is 2% of revenues for the fourth quarter of 2018, which compares with 1.9% for the fourth quarter of 2017. Our G&A expenses were down 46% for 2018 year-to-date period, primarily due to gain on earnouts of 3.8 million. Excluding the effect of the gain on earnouts, 2018 G&A expenses would have been 7 million, an increase of 12.4%, which is 2.4% of revenues versus 2.2% in 2017. The 0.2% increase was due to an increase in share-based compensation in 2018. Our effective income tax rate was 18% for 2018, compared with 59.7% for 2017. Contributing to the lower tax rate this year was the deduction attributable to the option buyback held by our chairman, Alan Baker, in connection with the company's successful public stock offering, that closed in May, increased WOTC credits, as well as the rate reduction tax legislation passed in December of 2017. The 2017 increase was primarily a result of a write-down of that deferred asset as a result of that tax change. We currently estimate a 23% effective rate for 2019. We continue to generate robust operating cash flows as a result of our strong balance sheet, effective working capital management, and solid earnings, allowing us to reduce debt while at the same time keep returning capital to our shareholders in the form of a regular quarter dividend, currently set at $0.30 per share with an approximate yield of 4.5%. BG Staffing has now paid a quarterly dividend for 17 consecutive quarters. Our current debt to adjusted trailing 12-month EBITDA is 0.74%. Adjusted EBITDA for the year was $27.1 million, or 9.4% of revenues in 2018, compared with $24.7 million, or 9.1% of revenues in 2017. We believe Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period to period and to provide a more complete understanding of factors and trends affecting our businesses. We also believe that investors, analysts, and other interested parties view our ability to generate adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Additionally, the financial covenants in our credit agreement are based on adjusted EBITDA as defined in that agreement. Reconciliations of adjusted EBITDA and net income were available in our latest annual report on Form 10-K and an earnings release both of which are available on our website. Before I turn the call over to her, we'd like to congratulate Beth and tell you that Staffing Industry Analysts recently named her one of the 2019 North American Staffing 100 and included her in the Global Power 150 Women in Staffing List for 2018, recognizing top influencers in the staffing industry. Congratulations, Beth.