BGSF, Inc.

Thank you for standing by. This is the conference operator. Welcome to the BG Staffing Q2 2019 Financial 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 Terri McInnis, Vice President of Investor Relations with Bibigoff and McInnis. Please go ahead.

Thank you, Gaylene. It's my pleasure to welcome you to the BG Staffing Conference Call to discuss Q2 and six-month 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 Q2 and six-month financial results, as well as the Form 10Q. If you do not have a copy of either, 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 would 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 statements. 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. It's now my pleasure to turn the call over to Dan Hollenbach, BG Staffing's Chief Financial Officer. Dan?

Thanks, Terri, and good afternoon to everyone. I'm pleased to welcome you to our call today. I would like to start by again taking a moment to acknowledge all our team members and 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 truly proud of the job they continue to do for us. BG Staffing provides contingent staffing services within three industry segments. Our real estate division, which operates in apartments, communities via BG's multifamily, and in commercial buildings via BG Talent, our professional division, which includes our finance and accounting, IT and creative groups, and our third division, light industrial. Today, BG Staffing operates 79 branch offices and 15 on-site locations, providing services in 42 states and the District of Columbia. After I complete my review of our financial results, I'll turn the call over to Beth for her comments on the quarter and six-month period just ended, on our company's strategy, how we are executing on our business plan, and the outlook on current industry conditions. First are Q2 results. Consolidated revenues for Q2 2019 were $73.9 million, up 4.1% from Q2 2018. Gross profit increased $1.7 million, or 8.7%, with gross profit percentage of 28.2%, up from 27.1% for the second quarter of 2018. The increase in gross profit percent was led by our F&A division of 8.9 percent over 2018. This continues a string of quarterly increases in gross profit percent. Net income for Q2 2019 was $3.8 million versus $5.2 million in Q2 2018. 2018 was impacted positively by the recognition of a $1.1 million gain on contingent earn-out, and an effective tax rate of 11.4% due to the favorable tax treatment of the option buyback agreement. Diluted earnings per share were $0.37 versus $0.54 in 2018, while adjusted diluted earnings per share was $0.44 versus $0.46 in 2018. Adjusted EPS was normalized for amortization, the contingent gain, and the option cancellation tax impact. Now for your debate results. Consolidated revenues for the first six months of 2019 were 142.6 million, up 3.5 percent from 2018. Gross profit increased 2.8 million, or 7.7 percent, with gross profit percentage of 27.6, up from 26.5 last year. The increase in gross profit percent was led by our F&A division, up 6.8 percent over 2018. Net income for 2019 was $6.3 million versus $7.6 million in 2018. Again, year-to-date results were impacted in 2018 positively by the previously discussed gain and effective tax rate last year of 15.2%. Diluted earnings per share was $0.61 versus $0.82 in Q2 2018, while adjusted diluted earnings per share was $0.75 versus $0.83 in 2018. Adjusted EPS was normalized for the impact as described in the quarterly numbers. Looking at our segment results, Q2 2019 real estate revenues, which continue to be from organic growth, increased 3.1 million, or 14.6%, to 24.4 million, with talent contributing 1.3 million of the total. Gross profit increased 1.3 million, or 15.6%, to 9.4 million, Gross profit percentage was 38.5 for 2019, up from 38.1 for the same period in 2018. Operating income increased 10.8% to $4.1 million. Multifamily has opened seven new markets in the last three quarters. Today, Multifamily has reached a milestone and operates 50 offices, and Talent has six offices, together serving 29 states. Professional revenues for the quarter were $31.1 million, up $1.2 million, or 3.9%, compared with 2018. Our IT division produced the growth while F&A was flat. Gross profit increased $713,000, or 8.8%. Although F&A revenues were flat, GP dollars increased 20.5%. Gross profit percentage for the professional segment increased from 28.1% to 28.1%. from 26.8 percent in the prior year. Operating income increased 5.9 percent to 2.2 million. Light industrial Q2 revenues decreased 1.4 million to 18.1 million or 7 percent versus 2018. Gross profit decreased 308,000 or 10.3 percent. Light industrial gross profit percentage was 14.8 compared with 15.4 percent in 2018. and operating income decreased 14.6% to $1.1 million. Our LI business slowed in Q2 due to the decline in use from three of our largest client partners. One lost business from their major customer, resulting in an initial 63% reduction in its staffing requirements. It's currently running at 62% of the previous volume. Two others brought in other suppliers to assist in their needs as a result of the tight labor market. and this eroded our share of those businesses. As a result, we expect 2019 light industrial revenues to be down approximately 10% year over year. Selling expenses increased approximately $1.4 million, or 12.3% over 2018, led by continued expansion in the real estate segment of $880,000. Professional segment expenses increased $577,000, or 11.8%, primarily a result of compensation adjustments in our commission plans driving the higher margin business. Light industrial decreased to $80,000, or 5%. G&A expenses increased $208,000, or 14%, due to increased spend in our IT and human resources support units, as well as SEC-related costs. G&A expenses were 2.3% of revenues in Q2 2019, which compares to 2.1%, for the second quarter of 2018. Adjusted EBITDA for the quarter was $6.8 million or 9.3% of revenues in 2019 compared with $7 million or 9.8% of revenues for 2018. And now for year-to-date segment results. 2019 real estate revenues increased $4.3 million or 10.8% to $43.6 million with talent contributing $2.5 million in total. Gross profit increased $1.8 million or 11.8%. Gross profit percentage was 38.5, up from 38.1 for the same period in 2018. Operating income increased 9.7% to $6.9 million. Professional revenues for the first six months were $61.9 million, up $692,000 or 1.1% compared with 2018. Our IT division produced the growth while F&A was flat. Gross profit increased 1.1 million, or 7%. Both IT and F&A had increases in gross profit dollars, with F&A growing 18%. Year-to-date gross profit percentage for the professional segment increased to 27.6% from 26% in the prior year. Operating income decreased 7.1% to 4 million. Light industrial revenues decreased 99,000 to 37.1 million, or 0.3% versus 2018. Gross profit decreased 98,000, or 1.7%. Light industrial gross profit percentage was 14.7 compared with 14.9 in 2018. Operating income was flat at 2.3 million. Turning now to selling expenses, which increased approximately 2.5 million, or 11.6% over 2018, With the real estate segment up $1.1 million, or 13.1%, and the professional segment up $1.4 million, or 14.9%, light industrial segment expenses were flat for the period. G&A expenses increased $481,000, or 15.5%, due to increased spend as previously discussed. G&A expenses were 2.5% of revenues in 2019, which compares to 2.3% in 2018. Our effective income tax rate was 22.8% for 2019, compared with 15.2% last year. Adjusted EBITDA for the first six months of 2019 was 12 million, or 8.4% of revenues, compared with 12.4 million, or 9% of revenues in 2018. We believe that adjusted EBITDA and earnings per share are useful performance measures and are used by us to facilitate 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 business. 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. Reconciliations of adjusted EBITDA and earnings per share to net income are available in our latest quarterly report on Form 10-Q and in our earnings release, both of which are available on our website. Cash provided from operations more than doubled over 2018 to $9.2 million. 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 and invest in technology while at the same time keep returning capital to our shareholders in the form of regular quarterly dividends, currently set at $0.30 per share, with an approximate yield of 7.4%. BG Staffing has now paid a dividend for 19 consecutive quarters. And our current debt to adjusted trailing 12-month EBITDA is 0.7. I am pleased to report that we recently improved our liquidity and capital resources by refinancing our senior lending facility with a new group led by BMO Harris Bank, with Citibank and Independent Bank rounding out the syndicate. We are well positioned for growth with a $35 million revolver, $30 million of committed term loan, and a $40 million accordion. Additionally, we were able to reduce both our borrowing costs and treasury fees. We are excited to move forward with our new partners supporting our growth plan. Before I turn the call over to Beth, I'd like to acknowledge a few of our industry awards and achievements from the second quarter. Drew Perry, president of our light industrial division, was named one of the 40 under 40 by staffing industry analysts. The Dallas Business Journal included BC Staffing and its middle market 50 fastest growing companies. Our company was ranked number 103 in the 2019 list of Dallas-Fort Worth's 150 largest public companies. And finally, Beth Garvey has been named a Texas Trailblazer honoree by the nonprofit organization Family Place as one of only five DFW female CEOs of public companies. And now that I'm done bragging, I'd like to turn the call over to Beth.