BGSF, Inc.

Good afternoon, everyone. Welcome to the BGFF, Inc. Fourth Quarter and Year-End 2020 Financial Results Conference Call. As a reminder, this conference call is being recorded. Now, I will turn the call over to Hala Alshabini, Investor Relations, to provide instructions and read the Safe Harbor Statement. Please go ahead.

Thank you. and welcome to the BGSS fourth quarter and year-end 2020 earnings results conference call. With me today are Beth Garvey, President and CEO, and Dan Hollenbach, Chief Financial Officer. After the speaker's opening remarks, there will be a Q&A session. As noted, today's call is being recorded and webcast live. A replay will be available later today and archived for 90 days on the company's investor relations page. Now for the safe harbor statement. Discussions today will include forward-looking statements, which are based on certain assumptions made by BGSFs 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 the quarterly reports on Form 10-Q, 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 BGSF 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 the call, management will discuss some non-GAAP measures, which are used for internal evaluation and to report the results of the business as useful information to management, the Board of Directors, and investors over 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 superior to financial measures calculated in accordance with GAAP. For a reconciliation of these non-GAAP measures to the most directly comparable gap measures, please see today's news release posted on the company's website. I'll now turn the call over to Beth Garvey.

Beth? Thank you, Holla, and thank you to everyone for joining today's call to discuss our fourth quarter results in a very eventful 2020. First, I hope everyone is remaining healthy and safe. I'll begin today's call with a review of our operational highlights and segment performance. I will then turn the call over to Dan to discuss our financial results and return at the end with some closing remarks on our general outlook. I'd like to start by taking a moment to acknowledge all our team members at each of our BGSF business units for their continued hard work and dedication, especially during such a tough year. Our business continuity plan, executed mid-March, has been the bedrock of our resiliency and fortified our ability to support our team members and continue servicing our field talent and client partners. We are in a fortunate position as a stronger company today and with more purpose. Before I review our 2020 performance, I would also like to welcome our new team members from our recently announced acquisition of Momentum Solutions. We have partnered with this team for many years, selling solutions through EDGROP technologies, and we are excited about the opportunities to expand our reach into higher-end markets to drive higher recruiting revenues. Their expertise fits greatly into our professional segment IT solutions and more broadly across our capabilities and current client partner base. In addition, their tools are easy to integrate and will elevate our cross-selling strategies even further. It's also a great cultural fit and I'm confident that they will add to our growth story in 2021 and beyond. A year ago, the COVID-19 pandemic had just begun. We were in a position of strength, having completed some of the targeted investments in our business prior to the onset. However, no one knew what the duration or the impact of the coronavirus would be personally or professionally. And while the pandemic impacted our 2020 results, our teams delivered resilient performance through quick response measures and collaborative strategies to mitigate the downside of our sales and profitability. During the year, we took the opportunity to be more intentional and strategically go on the offense. We made it a priority to focus on how we could strengthen the business each and every day to emerge stronger as the pandemic subsides. Most notably, we completed several initiatives to support our platform for future growth. I'd like to highlight several of these. In February of 2020, we acquired EdgeRock Technologies, a leader in IT consulting and managed services supporting a diversified client base. Edge Rock continues to perform a high level for us. We made great progress on our digital transformation, bringing critical workforce technology to our business. We completed several priority projects during the year, including the implementation of our new D365 ERP system. We are also seeing the benefits of the Power BI platform for cloud-based data insights. Our website upgrades have enhanced our applicant and client partner digital experience with much improved functionality, scale, and speed. And our automated time card system in real estate is gaining higher adoption levels weekly and is currently at 72%. Overall, we've completed 14 technology projects out of the original 21 identified in early 2019. We are making significant progress on the seven additional projects to improve payroll and HR systems, enhance our applicant tracking system, fully transition our data center cloud migration, and boost our cybersecurity efforts. Long term, we will continually integrate enhancements to optimize our technology position. We also launched a new client contract management system, which will increase the speed and compliance to which new business contracts are executed. We improved our operational structure with realignment of our division leadership and further strategically integrated our recent acquisitions. We entered the Canadian market in Q4, which is a new geography for our professional group, and in January of this year, we renamed the company to BGFF Inc. to further solidify our offering as a broader workforce solutions provider. Before I go into the segment highlights, I would like to reiterate that during these rapidly changing times, the durability of our diversification model continues to help mitigate pressure on our results while we're creating diversity in both our earnings and our revenue streams. Let's begin with real estate segment, which continues to experience the largest pressure from COVID-19 pandemic. Headwinds, including the overnight stop of all non-emergency maintenance early on for a sustained period, the move to virtual leasing during our high volume season, and the eviction moratorium also played a role in owners and management companies tightening all expenses to prepare for any impact. The moratorium has been extended through March 31st, but recently has been under review in the courts. Despite these headwinds, I'm extremely pleased by the progress we have made to strategically position this segment for growth behind the pandemic and respond to what we believe is a great deal of pent-up demand. As previously mentioned, our sales process is evolving for both multifamily and BG talent. We are selling in new and unique ways, addressing virtual and in-person approaches. Our sales execution is stronger, and we launched a talent acquisition center to optimize our recruiting across our markets and streamline customer and talent relations. We have an aggressive plan to accelerate our talent acquisition pool in multiple markets throughout the year, and we are breaking down our individuals in our hubs to where the market will now have a local salesperson and a recruiter in the market versus the recruiter being in the hub as it was in the past. As mentioned, we are working on differentiated approaches and seeing solid progress as we fill the pipeline with client opportunities. We are better positioned for the planned recovery of this segment with expectations of a stronger second half of this year. Turning to the professional segment, this segment continues to benefit from higher demand as customers move to the cloud and if cybersecurity is prioritized. Sequentially, strong order flow tapered off in the fourth quarter with the completion of some large projects. We also saw extended time off during the holidays due to the pandemic, and some engagements were pushed into Q1. However, we are seeing a solid pipeline of proposal activity with the reset of January 2021 budgets and the expansion of our strategic account teams. Additionally, as I mentioned, the Momentum Solutions team brings greater opportunity for our managed services offerings and builds our base of multi-year engagements. Our division restructuring in Q4 is now aligned with EdgeRock, American Partners, Extrinsic, and Momentum Solutions into our IT consulting business unit, while Zycron and Vision Technology now make up our infrastructure and development business units. We expect this realignment will position the team for resurgence in revenue to pre-pandemic levels. Additionally, we integrated our finance and accounting brands into one business unit, which would also drive cost efficiencies. Overall, the restructuring efforts better align our leadership and resources across our professional solutions offering, and we expect it will support sales growth and strong client-partner relationships going forward. Lastly, Line Industrial had a tremendous finish to the year, During the quarter, we saw significant growth with current clients as well as new engagements. This segment provided a nice lift to our overall performance, driving better than expected results given the tailwind in online shopping and warehouse labor shortages. As a reminder, we are well positioned in this vertical as 70% of our business is on-site with a high retention rate. We are pleased to see momentum continuing as this team builds their pipeline. During the year of tremendous challenges, we proved our ability to overcome adversity and execute in a very different environment. We accomplished a lot of heavy lifting in 2020, making strategic changes in our sales efforts, our marketing, our technology, and strengthening our leadership structure. Our culture is also driven by continuous improvement, one that harnesses our individual and collective perspectives and is built on diversity, equity, and inclusion. As we discussed last quarter, we formed a DE&I Council, which is now comprised of more than 45 people and represents broad perspectives across our organization. We will continue to build out our KPIs to support our DE&I pillars of excellence and work to enhance our diversity, foster inclusive experiences, and deepen our community engagement. With that said, I'll now turn the call over to Dan to discuss the financials.

Thank you, Beth, and good afternoon, everyone. Thank you for joining us today. We filed our Form 10-K for the fiscal year ended December 27, 2020, earlier today, so I'll focus remarks on the key financial highlights for the quarter and the fiscal year period. We ended the year on solid footing, supported by our diversified business model. As Beth mentioned, we leveraged several IT roadmap projects that were well underway at the onset of the pandemic, and this put us in a much better position to navigate the year. While we are maintaining the conservative approach to expense management, we are resuming our remaining IT roadmap projects. As a reminder, the board approved $10 million in early 2019 for a three-year plan to support these projects. We are well underway to maximizing our digital transformation, which should allow us to benchmark our goal of achieving 10% operating efficiencies. Additionally, we are filling open roles that were on hold last year. Before I review the numbers, as Beth mentioned, we announced the acquisition of Momentum Solutions early in February, I would also like to welcome the entire team to the BGSF family. We are excited about the opportunities this partnership brings across our professional division to expand our footprint into a higher-end market with increased margin potential. And now moving on to the numbers. Overall consolidated fourth quarter revenues declined by 3.6% to 69.7 million compared to Q4 2019. Revenues were largely impacted by a 23.9% decline in real estate, offset by an 8.2% increase in light industrial, and a $9.9 million contribution from our two acquisitions and the professional division. Placement fees showed solid improvement, up 83% compared to the same quarter last year, driven by the addition of our retained search group. As Beth mentioned, the extension of the moratorium on evictions and other headwinds continue to pressure revenues in real estate. Keep in mind this may be delayed spending, which we believe is creating a revenue backlog post-moratorium. Sequentially, we saw continued stabilization with Q4 revenues down 2.5% versus an 8.9% sequential decline last year. This was supported by light industrial exceeding expectations and delivering a 12.3% sequential increase versus a 3.4% increase last year. Real estate declined 7.1% versus a 20.7% sequential decline in 2019. Our professional division showed solid progress early in the fourth quarter, followed by a slowdown due to an extended holiday break, some large project completions, and a year-end budgeting shift compared with historical norms. This resulted in an 8% sequential decline versus a 5% decline last year. Cross-selling efforts for the professional group remain robust as we continue to accelerate these efforts, which are becoming a more meaningful part of our overall revenues. For 2020, 5.9 percent of professional revenues and 6.7 percent of gross profits were generated by this program, up from 3.8 percent and 5.1 percent in 2019, respectively. Our current goal is to generate 8 percent of revenues from cross-selling, yielding 10 percent of gross profit. For the quarter, consolidated gross profit improved by 0.6% to $19.3 million compared to Q4 2019. As a percent of revenue, gross margin increased by 110 basis points to 27.7%, benefiting from the higher revenues in professional as a result of the Edge Rock acquisition, offset by decline in real estate. SG&A expenses increased by $1.3 million, or 9.7%, compared to the same quarter last year, primarily due to additional expenses from our two acquisitions offset by our cost-mitigating actions and reduced legacy operations selling costs. As a percent of revenue, consolidated SG&A expenses in the fourth quarter was 21.5% versus 18.4% last year, reflecting the deleveraging impact of revenue declines discussed earlier. Fourth quarter net income was 2.2 million or 21 cents per diluted share compared with net income of 2.7 million or 26 cents per diluted share in the same quarter a year ago. Adjusted EBITDA was 4.6 million or 28 cents per diluted share compared to 6.3 million or 37 cents per diluted share in the same quarter a year ago. Fiscal revenues for 2020. were 227.9 million, down 5.6% year-over-year, while gross profit was 76.2 million, down 5.5%. The effects of the COVID-19 pandemic greatly impacted revenues and drove a 28.7% decline in real estate, offset by a $36.1 million revenue contribution from our two acquisitions. Gross profit held steady at 27.4% for both periods and benefited from higher gross profit across our professional segment. Net income for 2020 was $1.4 million, or $0.14 per diluted share, compared to net income of $13.2 million, or $1.28 per diluted share, 2019. Current year net income included an impairment of goodwill and certain intangible assets of $5.4 million net of tax. This was recognized in Q2 in our Finance and Accounting Division. Our effective tax rate was 26.3% this year compared to 24.5% in 2019. An adjusted EBITDA was $18.7 million versus $26.6 million in 2019, and adjusted earnings per share decreased to $1.34 versus $1.68. Our SG&A expenses for the year increased by $4.4 million, primarily due to additional costs from our two recent acquisitions, additional IT roadmap costs and transaction fees, offset by a $7.3 million decrease in legacy operations selling costs, and our cost mitigation actions. While for all year 2020 results reflect the challenges presented by the pandemic, we maintained steady margins, continued to generate solid cash flow, and preserved our liquidity position. Cash generated from operations increased by $4.3 million, primarily due to the collection of receivables and the impact of a $7.2 million FICA deferral. DSOs at the end of the quarter increased to 58 days versus 53 days at the end of Q3 and 55 days at the end of 2019. Leverage remains under 2X as debt to adjusted trailing 12-month EBITDA ratio was 1.85 at December 27th. And during the quarter, we reduced outstanding debt by $2.4 million. We are pleased to see the Board of Directors approved our 25th consecutive quarterly dividend payment of $0.10 per share. While the Board reduced the quarterly rate to $0.05 in Q2 as a precautionary measure to preserve liquidity during the initial peak of the pandemic, the Board doubled the rate to $0.10 after the third quarter. This is further evidence of the strength of our business, our balance sheet, and our cash generation potential. I will now turn the call back over to Beth for her closing remarks and a general outlook for 2021.

Thanks, Dan. I'm extremely pleased with how our entire company is executing. 2020 was a year of resilience, preparation, automation, and restructuring for BGSF. We executed well to optimize our operational structure, and we are already off to a strong start to the year. We were also honored with several industry awards in 2020, including the number seven top staffing agency by the Dallas Business Journal, 70th largest staffing agency, and 50th largest IT staffing agency in the US by Staffing Industry Analyst. And we received accolades from Smart Resources and Accountable Search for best of staffing and client and talent satisfaction. From an Outlook perspective, our teams have aligned strategic plans to drive improvement improvement results for 2021. Our real estate segment is working to relaunch markets after the 2020 pandemic created a pause. With the moratorium in place, there is still some level of uncertainty for another extension, but we anticipate a better second half as delayed capital projects should come back online. For our professional group, we anticipate strong synergies from the Momentum Solutions acquisition in addition to follow-on project activity. We also see our cross-selling focus drive higher demand for our differentiated solutions offerings. Light Industrial continues to execute well, strengthening existing client relationships and building new engagements. The M&A pipeline remains fairly robust with a steady flow of acquisition opportunities. We have a disciplined approach focused on quality companies that offer geographic and brand diversification within our sector specialties. We seek new or complementary high growth areas and those that are synergistic to margin enhancement, quickly accretive to EBITDA, and a strong cultural fit. We believe continuing to build our IT solutions metrics will further scale our offerings and expertise in our professional segment. Our momentum solutions acquisition is a great demonstration of our M&A strategy to enhance and expand our portfolio of service offerings and capabilities. From an industry perspective, we are encouraged to see that staffing industry analysts forecast for overall industry growth of 12% for 2021. Additionally, labor market reports and temporary staffing volumes point to improving employment trends from the trough of the pandemic. Within workforce solutions, the U.S. Bureau of Labor Statistics shows solid improvement with February 2021 temporary penetration rate at 1.94%. compared to the April 2020 trough of 1.57%, which is above the February 2020 pre-pandemic level of 1.93%. We are very well positioned to improve our market share and leverage our diversified offerings. In summary, we turned the disruptions we faced in 2020 into a positive force to reset our opportunities for growth and to seek ways to empower our team members. In turn, this drives innovation, ideas, and promotes overall value creation for our stakeholders. It's also believed that the hallmark of our success relies on a strong corporate culture, and holding true to that philosophy has kept our teams engaged, supportive, and invigorated as we manage through the crisis. We have emerged stronger with higher conviction to deliver improved results as we enter our next phase of long-term growth. I'm truly excited about the year ahead and remain highly confident in our ability to take advantage of the many opportunities in front of us to build long-term shareholder value. With that said, I will open the call up for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. 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 Brian Kinslinger with Alliance Global Partners. Please go ahead.

Hi, everyone. This is Jacob on for Brian. Earlier this week a federal judge in Texas declared the CDC's eviction moratorium unconstitutional, and now the CDC will need to either comply or there could be an injunctive relief. What's your view on when the moratorium might end and when it does? Can you quantify the step up in revenue in DD Staffing's business and how long it might take after that moratorium is lifted?

I think that I would be better able to answer that question at the end of this week. So National Department Association actually has their lobbying week is actually happening right now. So they are in front of a lot of the lobbying people. They're in front of a lot of the government people. They're in front of a lot of the people that are making these decisions on the moratorium. There's articles flying around everywhere. There's speculation flying around everywhere. So I'm not really sure how to answer that today, but I feel like we would be in a better position after the NAA's week on the hill, I should say. And what that means to us, there is a lot of movement right now with rent relief, and those things do give a positive spin to the management companies now that they're getting something, because before they weren't getting anything. So now if there's some sort of rent relief that they can manage to, we do feel like there will be opportunities for us in the future. It just depends on how quickly that rent relief starts to hit the management companies.

Okay. I know most of the M&A is around adding more geographies and logos, but has the company thought about any tuck-in acquisitions on the payment side of the real estate business?

I'm sorry, on what side of the real estate business?

Payments.

We have not.

Any tuck-in acquisitions in general?

In that sector, we are the largest. We've had several that have been brought to us for real estate that do the same thing, but they're always in markets that we're already in, and we already have the bulk of the business. So there's really no reason for us to buy an acquisition of someplace that we're already in. We are the largest, as far as we know, in real estate supplier. So I just don't think that an acquisition in that area is – in the work thrust. Now that doesn't mean that we wouldn't look at other opportunities that help support the real estate business. We have launched a supplier project right now, so people who are suppliers to multifamily, we have started to help in those areas, and I think that that could be an expansion for us as well. But as far as doing payment side of it, no, we have not looked at that.

Okay, and just one more for me. As more businesses open up, can you talk about any challenges on staffing delivery, such as in-person versus remote delivery? Do you expect there will be a hybrid model going forward, or will that be determined on a customer-by-customer basis?

There already is a hybrid model out there, and it is on a customer-by-customer basis. So there's a lot of people that are adopting the work-from-wherever-forever model, model, and then there's some that are starting to think about how they may want to do their new hire. So if you are being onboarded and you're a new hire, then you would come in for a while and then be able to have some kind of opportunity to go out. There's people who are looking at it from a perspective of whether or not someone is successful. at being able to work from home, and if they're not successful being able to work from home, bringing them in for additional coaching. So there's different models in that regard. But for the most part, I don't think that everybody has really decided how that's going to shake out. And I believe as the shots start to be more and more prevalent around the U.S., I think that people are still at the point right now where we're getting ready to start really looking at it. Matter of fact, I'm going to call this next week for the Dallas Regional Chamber in regards to what some of the businesses around Dallas are doing now that Texas has opened up and people are starting to be able to get shot. So I think it's still evolving. I don't think that we're there yet, but I think that I don't know that it will ever go back to everybody has to be in the office. I know very few companies that have decided to do that, but I do think it will be more of a hybrid model.

Great, thanks for taking my question.

You're welcome. Our next question comes from Jeff Martin with Roth Capital. Please go ahead.

Thanks. Hi, Beth. Hi, Dan. I hope you're doing well. Hi, Dan. Hi, Jeff. Beth, I was hoping you could speak to the larger geographies with which you're in. I know we touched on it a little bit on the real estate side. But curious if you're seeing different business dynamics within your different markets, given each state kind of has its own different sets of guidelines and timing of loosening restrictions. I know you're not exposed much to California, but curious about some of the other major geographies that you're in and what the trends you're seeing are lately. Okay.

Well, we had a lot of our markets that kind of went on pause during COVID. So, you know, keeping in mind that if we have one person in a market and that person leaves, then we're not actually in that market right now, right? So we had about 18 locations that came offline during 2020. We are in the process of really bringing back 10 of those this year slowly. We're not seeing any, every market's a little bit different. The markets are more suburban, kind of away from the New York City's or the DC's or the Chicago's. You know, we're seeing a little more activity in those than we are in the larger markets. But again, I think we're still early in that. I will say in the last two days, we have hit our headcount on our budget, which is the first time we have done that since February of last year.

And that's across all three business lines, or that's just one particular segment?

That's just real estate.

That's just real estate. Okay. And then relative to the SIA industry growth estimate of 12% for this year, not counting the real estate segment, how do you feel about that type of growth rate potential for your light industrial and your professional units?

That's a combined percentage, Jeff. I believe that our IT professional is right around that 12%. I think they're predicting something around 2% to 3% for light industrial. So I think it's just what the net is. It's a combined rate. And we feel good about an overall growth along those lines if you roll this all together.

Got it. Okay. And then with respect to your IT roadmap, I mean, you've made tons of progress. I think you've done a lot of the heavy lifting. What does it look like for this year and how does that impact EPS? I know you've quantified that in the past. I was curious if you could do that for us again this year.

Probably about the same as it was last year in terms of the P&L impact. Cash flows will be about the same because CapEx is around the same. So I think it shouldn't be much different this year. So we'll see a tail off beginning in the latter half of 2023. Got it.

And in terms of the initiatives, what are some of the bigger pieces that are going on now? And what's the timing in terms of completion on those this year?

We actually have some pretty big ones that are going on right now. We initially worked on all the things that were going to be behind the scenes, the ERP, the Power BI, and things like that. We've now moved into the things that are more front office related. We're working on payroll, billing, HR, our applicant tracking system, and our CRM. All of those things are now, the IT department has done an amazing job in doing information gathering as to what we are looking for and what we need. They've put together a spreadsheet and they're using a tool called Olive to go through and send out the RFPs and get the gathering back in. They're supposed to present to us in April what they're suggesting that we do for those technologies. and then launching it this year with a go-live date in April of 2022. So it's a very big initiative, but we've done a lot of work in making sure that we can line them up together so that when we have our front office capabilities with our applicant tracking system, that it lines up well with our payroll billing so that it all launches out at the same time seamlessly.

Okay, great. Well, I wish you luck this year, and nice job managing through a tough time last year.

Thank you. Good to talk to you.

You too.

Again, if you'd like to ask a question, please press star, then 1. Our next question comes from Howard Halpern with Taglit Brothers. Please go ahead.

Congratulations on the fourth quarter, guys. Thanks, Howard. What do you believe the impact from Momentum will be, first in terms of what did they generate in revenue last year, and what are they going to bring to the table in terms of cross-selling or enhancing your current operations?

They're running about $3 million in revenue. A portion of that was being marketed basically through EdgeRock. So a couple things. One, they have a higher-end delivery model. They do use a bench model, which is a new thing for us. And they have a lot of long-term contracts. We think that the ability to cross-sell and leverage that higher-end business could be – that's why we bought them. And then the other thing you've always looked at is what if somebody else would have bought them? what would have happened to that business.

And if you think about how in project management tools, so they have technologies that they're putting in a PeopleSoft platform. So with us, we now are going to be able to have them go through and project manage in Oracle and in Workday and in ServiceNow so we can really build out the technologies that we have and have them project manage it for us. So there's huge opportunities for us and they're coming on strong and we've already put them in front of several of our customers that we have and they're already winning deals across the board for us. So we're super excited about them.

Okay, and you had mentioned early in the call about entering Canada. What do you view the short and long-term opportunities are in Canada?

It's hard to tell. It's early. We don't know. These are a lot of our bigger companies like the consulting companies that we would do business with have asked us to go. Amazon. These are bigger companies. We don't really know. We just have had a lot of people ask us to go and a lot of business that we've had to turn down because we weren't there. So We'll see what happens. We're just putting the word out now that we're ready to go and bring it. We're ready.

We have the infrastructure in place.

And I guess you had mentioned also CapEx should be in that low $2 million area for this year.

Yeah, I think we're at 1, 2, 2 this year. We should be right around that number again.

Okay. And just one final one. I mean, hopefully you survived the Texas storms, but did that –

disrupt any business for a couple weeks down in texas for you it did yeah one week one week was totally yeah it was it was good okay but everybody survived but we're seeing a nice bounce back from it you know so business still had to happen so you know some of our companies that didn't necessarily get to work that week or are doing double duty to make up for it but it wasn't it was a tough week

Okay. Okay. Thanks, and keep up the great work, guys. All right. Appreciate it, Alex.

Our next question comes from Michael Taglik with Taglik Brothers. Please go ahead. Oh, he's gone. Is he there?

I'm sorry. Hi, it's Mike Taglich. I had the mute button on like an idiot. I just want to thank you guys for working. Last year wasn't the year you wanted to be when you started the year, but that's true for everybody. But thanks. I have one follow-up question, if you will, because most of my questions are answered. If you had a guess about the coming real estate recovery and what the backlog of activity might be, I mean, how – From the hip, how do you feel it's going to lay out this year?

We anticipate remaining relatively flat through the first two quarters, Mike. And I guess hoping is the word. Right. Forecasting, expecting that as the openings develop and as the shots become more prevalent, that we should see some ramp up in the third and fourth quarter.

Good. And I guess we'll find out like everybody else.

All right.

Thanks, Melissa. Keep up the good work, and I'm thrilled. Okay. See you in September.

Yep. Looking forward to it.

Thanks. Take care.

You too.

And our next question comes from Daryl Davis, private investor. Please go ahead.

Hey, Beth. Hey, Dan.

Hey, Daryl.

Congrats on setting yourself up for a successful future and closing the door on 2020. Slamming the door. My question here focuses on SG&A, but I have two apologies. First off, I was disconnected during this call, so if this has already been hit, I missed it. Second, I'm only on page 26 of the 10-K, and I haven't seen the answer yet, so it might be in there. So historically, you have maintained SG&A expenses, and I mean going back five, six years, seven years, that were not intuitive. I mean, like, lower as a percentage of revenue, though your operating margins were higher as a percentage of revenues. And I can give companies names, but just think of some low-margin peers. They run tight SG&A, but also low operating margins. Their SG&As might be in the 12%, 13%, 14% range. And if some of your higher-end peers, and you could think of those or I could name them more in the IT space, they run, you know, operating margins like 8%, 9%, 10%, but they might have SG&A 22%, 26%, 32%. Y'all's has been weird because you're like teens, 14%, 16%, 18% for SG&A, but your operating margins have really been like cream of the crop, really impressive. So it's non-intuitive, and that's what I mean when I say non-intuitive. I'm curious, this past year, you jumped about 200 basis points. And you explained that in your release that going from about 19% to about 21% was attributed to the two acquisitions, both of them in the IT space. I'm wondering, generally speaking, looking forward, we probably should expect similar things going forward as you expand in IT. And more specifically, looking backward at legacy, this is really aimed at Dan, if we just looked at legacy SG&A year over year, 2019 versus 2020, were they essentially the same?

No. As a percent?

Yes.

They probably were up slightly because we couldn't de-leverage, particularly in real estate, we couldn't de-leverage as fast as revenues were dropping. Because you just can't cut out all your headcount and you do have your fixed salary cost. A big portion of their numbers, which are commission driven, were obviously affected and bonuses were affected. And we dropped out travel and entertainment and You know, I haven't seen a meal come through in forever. So I think across the operational divisions, we could probably say that. On the home office side, we started investing a year and a half ago in our IT. And you see that both in the IT roadmap numbers as well as our IT team and our HR team. When Beth took over three years ago, we had one benefited analyst in our HR team. So we've been investing heavily in that HR team as compliance changes, as we expand into now 44 states and Canada. And our risk from not only a labor standpoint, but from an insurance standpoint becomes higher. So we've made some good investments there.

Gotcha. I do want to just mention one thing, just for anybody who's listening or going to read this tomorrow, regarding the eviction moratoriums. I think a lot of investors might think they come and go. They are historically singular. You don't have to take my word for it. Anyone who's curious can read Emily Benfer of Wake Forest. Her research has been very helpful. These don't come around. These should not be associated with regular recessions. There have been three in the history of our country. They're not usual.

We agree. But nothing about this is usual. Our industry is hopeful for everything moving forward. So, I mean, we had our staffing industry conference this week, and, you know, we're definitely in a V recovery for us, and I think that that's a good thing.

Great. Thanks so much.

Thanks, Joe.

Again, if you'd like to ask a question, please press star then 1 at this time. Knowing no further questions, 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, Sarah. We appreciate you taking time to join us for our call today, and we appreciate your continued support. We look forward to updating you on our first quarter results in May. Please stay safe and healthy.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.