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spk08: Good morning, everyone, and welcome to the BGSF Inc. Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. As a reminder, this conference call is being recorded. If you would like to ask a question during the presentation, you may do so by pressing a star followed by one on your telephone keypad. Now, I will turn the call over to Hala El-Bersini, Investor Relations, to provide instructions, introductions, and read the safe harbor statement. Please, Hala, go ahead.
spk00: Thank you, and welcome to the BGSF Fourth Quarter and Fiscal Year 2021 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. I want to take a moment to remind you today that today's discussion will include four looking statements which are based on certain assumptions made by BGSF based on and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company's actual results may differ materially from those indicated by the forward-looking statement because of various risks and uncertainties, including those listed in item 1A of the company's annual report on Form 10-K, the quarterly reports on Form 10-Q, and in other company 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 and time of this call, and BGSF 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 management believes can be useful in evaluating the company's operating activity and business trends related to the 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. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are provided in today's earnings release posted on the company's website. I'll now turn the call over to President and CEO, Beth Garvey. Beth?
spk02: Thank you, Hala. And thank you to everyone for joining today's call to discuss our fourth quarter results and another eventful year. Before we begin our regular review of operational and segment performance, I'd like to highlight the announcement we made last Tuesday regarding the strategic sale of our light industrial segments. which is expected to close later this month. We disclosed the purchase price of $32.3 million, which represents 7.5 times adjusted EBITDA multiple in the Form 8K filed on March 2nd. From a strategic rationale perspective, when the company was founded in 2007, our revenues were 100% light industrial. As we evolved and strategically diversified into professional and real estate sectors, In-Staff continued to develop long-term client relationships, creating deep on-site engagements in logistics and warehousing, and maintained high client retention. Having completed several strategic initiatives over the past two years to support our overall platform for future growth, the sale aligns perfectly with our core strategy to focus on higher margin opportunities. With the divestiture, we can fully turn our attention to professional high-end IT consulting higher project-based opportunities, and managed services in addition to our niche position in real estate. We are pleased with our fourth quarter results, which reflect a strong finish to a year that began with considerable uncertainty. Our ability to quickly and effectively address industry and macro headwinds and to execute internal realignment and restructuring initiatives enabled us to report progressive improvement throughout 2021. Additionally, our timely and strategic acquisition of Momentum Solutions early in the year drove solid contributions within our IT consulting brand. We have greatly improved our market position, which solidifies our outlook going forward. Underscoring our success is a digital transformation in critical technology and cybersecurity system upgrades, which will go live as we enter the second quarter. System testing has gone quite well, and we look forward to improved operating and performance process efficiencies later in 2022. Performance for the quarter was strong. The professional segment reported top and bottom line gains led by IT consulting brands, which drove growth in key customer wins and strong collaborations across accounting and finance and our infrastructure and development teams. IND is making progress on its rebuild from pandemic disruptions and is on a continuously improving pace. Overall, we are working through a productive pipeline to capture higher-end IT consulting and managed service opportunities bolstered by elevated cross-selling efforts and a broader geographic footprint. Now looking at real estate, the fourth quarter end of the year was the highest revenue and gross profit of 2021 as a result of improved recruiting and direct placements. Our teams have excelled in ramping strategic partner programs, advancing market relaunches, and supporting our field talent across multiple initiatives. I'm also proud to acknowledge several of our team members who received key accolades from the National Department Association for leadership and volunteer roles that advance not only our industry position, but our commitment to community engagement. Overall, we closed 2021 in a position of strength and executed our strategic leadership alignments, operational restructuring, and set a course for continued Ford success. With that, I'd like to turn the call over to Dan to discuss the financial.
spk06: Thank you, Beth, and good morning, everyone. We filed our annual report on Form 10-K for the fiscal year ended December 26, 2021, last night. As a result of the definitive agreement to sell our light industrial segment, which operates as in-staff, we have determined that this represents a strategic shift in our business model and meets the criteria for classification as held for sale. Therefore, our consolidated financial statements reflect this segment as discontinued operations for the historical periods presented. As a discontinued operation, our discussions today on performance and growth rates exclude the light industrial segment. For additional details on the sale, please refer to our 8K filed March 2nd and our 2021 Form 10K. Moving to our financial highlights from continuing operations. Fourth quarter revenues surged 37.8% to $67.7 million. Real estate delivered a stellar performance of 54%, and professional climbed 28.6%. Real estate benefited from continued pent-up demand, market relaunches, and improved recruiting. The professional segment benefited from increasing demand and a $1.2 million contribution from the 21 Momentum Solutions acquisition, which was offset by a 5.5% decline in the infrastructure and development division. While IMD has been slower to recover from the effects of the pandemic, We remain encouraged by activity we are seeing early in 2022. Gross profit improved 43.6% to 23.4 million, benefiting from real estate growth up 62.8% and professional up 30.6%. As a percent of revenue, gross margin increased 141 basis points to 34.6%. SG&A expenses for the fourth quarter increased by 2.8 million, or 20%, due to higher compensation on growth and the addition of momentum solutions, which was offset by a net $2.1 million CARES tax credit. As a percent of revenue, SG&A expenses for the fourth quarter was 24.4% versus 27.9% last year. Adjusted for the CARES credit, SG&A increased $4.8 million, or 35.4%, and was 27.4% of revenue. Net income of $4.3 million, or $0.41 per diluted share, compared with net income of $1.1 million, or $0.10 per diluted share, in the same quarter a year ago. As noted, Q421 included a CARES Act tax credit of $1.6 million net of tax, or $0.15 per diluted share. Adjusted EBITDA was $5.5 million, or 8.1% of revenues, compared to $3.1 million, or 6.3% of revenues, in 2020. Adjusted diluted EPS was $0.29 per diluted share versus $0.17 per diluted share in the same quarter a year ago. Sequentially, strong momentum carried into the fourth quarter with Q4 revenues up 5.5% from Q3. We saw progressive improvement across both segments with real estate up 10.6% and professional up 2.3%. And now for year-end results. 21 revenues increased 15.4% to $239 million. Real estate was up 33.8% and professional climbed 6.2%. Gross profit improved 22.6% to $80.9 million. Gross margin percent in continuing operations was up 2% to 33.9%. Professional segment cross-selling continues to drive successful wins and represented 17.4% of revenues and gross profit in 2021. This is up from 5.5% of revenues and 6.4% of gross profit in 20. Our SG&A expenses for the year increased 17.9% to $65.1 million, primarily related to additional compensation on increased gross profit, the momentum solution acquisition, and reopening of real estate locations, offset by the $2.1 million CARES credit. Net income for 21... was $10.5 million, or $1 per diluted share, compared with a net loss of $2.1 million, or a negative 20 cents per diluted share, last year. Fiscal 21 included a $2 million adjustment net of tax due to the contingent consideration adjustment and a $1.6 million net of tax CARES credit. Twenty net income included an impairment of goodwill and certain intangible assets of $5.4 million net of tax. Our effective tax rate was 20.1% for 2021 compared to 26.3% in 2020. A breakout of net income and per share amounts for continuing and discontinued operations for the year and fourth quarter is available in our 2021 Form 10-K. Adjusted EBITDA from continuing operations was $16.7 million, or 7% of revenue, versus $13.8 million, or 6.6% of revenues, in 2020. Adjusted diluted earnings per share increased to 98 cents versus 74 cents in 20. As a reminder, in early 2019, the board approved a three-year IT roadmap plan to rebuild our IT infrastructure. Fiscal 21 included CapEx and SG&A, a $4.9 million related to this plan. We expect IT spend to trend lower in 22 as project implementation winds down. Going forward, IT spend will address technology enhancements as we continue to improve our systems as well as grow and scale our business. Moving to the balance sheet, our liquidity position is solid and our leverage ratio of funded debt to overall trailing 12 months EBITDA improved to 1.83 year-end. On a pro forma basis, we estimate our leverage ratio to be under 0.9. Lastly, the Board of Directors approved and increased our 29 consecutive quarterly dividend payments increasing it to 15 cents per share in support of our long-term strategy and the overall recovery of our business. Our balance sheet position and expected deleverage as a result of the sale gives us ample flexibility to fund our operations while continuing to invest in future growth and return shareholder value. I will now turn the call back over to Beth for her closing remarks and a general outlook for 2022. Thanks, Dan.
spk02: Like everyone else, we continue to see challenges in the overall labor market given continued workforce shortages. However, the labor market is poised for growth with continued signs of recovery ahead. Within Workforce Solutions, the U.S. Bureau of Labor Statistics reported a temporary penetration rate of 2.09% in January of 2022, which is an all-time high. The September 2021 Staffing Industry Analyst Report forecasts 4% growth for the staffing industry in 2022 compared to 16% in 2021, which benefited from a broad-based resurgence in temporary staffing. Within our focus industries, IT is projected to grow 6% year-over-year. As we move into 2022, we remain laser-focused and extremely optimistic on the real estate and professional segments. Both of these businesses have made great strides back to pre-pandemic levels, and we look forward to that natural continuation as we return to a higher cadence of growth. As I mentioned earlier, we spent a lot of time over the past year and a half implementing strategic changes that will make each of these segments even stronger. Turning to M&A, the sale of NSAP will allow for debt reduction and more capital to deploy into high-end IT consulting solutions and high-margin managed services, as well as drive geographic expansion in real estate. We will focus more time on continuing our organic build, growing our professional and real estate segments as well. And as we look to deploy the capital, we will be seeking the right strategic partner that provides geographic and brand diversification into new or complementary high-growth areas that are synergistic to margin enhancement, quickly accretive to EBITDA, and have a strong culture fit. We continue to be grateful to our entire team for their passion and diligence, and I want to publicly thank our entire light industrial team and personally wish them the very best. With that, I will turn the call over to the operator for questions. Operator?
spk08: Thank you. If you would like to ask a question at this point, please press the star followed by number one on your telephone keypads now. When preparing to ask a question, please ensure your phone is unmuted locally. And the first question comes from the line of Jeff Martin from Roth Capital Partners. Please, Jeff, your line is now open.
spk07: Thanks. Good morning, Beth and Dan. Hope you're doing well. Good morning. Good. Can you hear me okay? Great, great. Can you hear me? I can, thanks. I wanted to get a little more of an under-the-hood look into real estate. Looks like things are progressing well, good growth in the quarter, margin expansion. Just was curious with respect to your market reopening there. Can you give us a breakdown of markets reopened and those that are still kind of opening back up and maybe what percentage of back to normal you are within real estate?
spk02: Well, we're tracking where we... We're tracking way ahead of schedule actually at this point, which is a good thing. All of the markets reopened last year that we expected to reopen, and we're ahead of schedule now. We have six openings for this year, and New York was supposed to be in the schedule for May, and I'm happy to report that we had our first placement there two weeks ago. So things are really progressing very, very well.
spk07: Great. And then you mentioned IND slower to recover. Maybe give us a little bit of detail as to why that is and what your expectation is for that part of the professional segment over the balance of 2022.
spk02: Well, IND really got hit, if you recall, from a lot of our customers. That's kind of the lower margin business. And so they got hit pretty hard with some of our larger clients that just didn't rebound quickly. We have secured some new wins within the IND group and expanded some of that business into clients that we typically have. I mean, you've heard us talk about going deep and wide into our customers. And the team has done a really good job in going in and looking for other business within those customers that we had. So we've had some wins in the last month or two and should start seeing them have a nice little recovery into 2022.
spk07: Okay, great. And then maybe you could give us a sense for professional and real estate from a high level in terms of What's a reasonable growth assumption for 2022? I would imagine professional somewhere in the mid-single-digit range, maybe a little higher. And real estate, maybe getting back to the historic growth rates, which are well into the 20s, if not the 30% ranges.
spk06: Well, no. Thank you for the confidence in us, Jeff. But yeah, I think SII has predicted the professional was in the low single-digits. High single digits, yeah, next year, and we think that's a reasonable growth plan. I think on the real estate side, we're sort of maybe a little bit more conservative in that low double-digit range right now. It's very early. We're just in February, so yeah.
spk07: Okay, that's great. I appreciate the context. Thanks for taking my questions.
spk08: Thank you. Our next question comes from Howard Halpern from Taglit Products. Please, Howard, your line is now open.
spk10: Congratulations on the year and all the things that have gone on since the beginning of the year. In terms of the technology roadmap, is most of it now going to be activated by the second half of this year and start to impact streamlining operations and improving operating expenses?
spk02: Well, that is the goal. We actually go live on the 21st. So what is that, seven business days? So everybody is prepared for that. We've got two months of what we're calling hypercare. that will do additional support because we anticipate as much testing and end-to-end testing we've already done over the last two months to try to make sure that it's a smooth transition. There'll still be some bugs that will need to be worked out. So once everybody gets used to the system and gets up and going and we've got all the little kinks worked out of it, we anticipate seeing some of the efficiencies that we expected later in the year.
spk10: Okay. And based on what you've seen in the last fiscal year and going into this fiscal year, in terms of cross-selling opportunities to generate revenue growth, what are you seeing as we enter 2022?
spk02: Our goal for cross-sell has always been around 10%, and we exceeded that last year. So the teams have done a really good job. Our alignment last year with our teams and getting them – reporting to one manager, if it's an SAP manager or a workday manager, that realignment and restructure we did last year was super beneficial for how we produced in the fourth quarter. And so I anticipate that that cross-sell effort will continue just based off the fact that the realignment really supports those efforts.
spk10: Okay. And within real estate, I know you've said you're ahead of schedule a little bit in openings, but how has talent figured into how growth will proceed in 2022?
spk02: I'm assuming you mean in regard to the shortage of them?
spk10: Well, no. I mean, in the real estate segment, you merged the talent part How is that operating within real estate?
spk02: It's doing very well, and we've discovered that there's a lot of opportunities in direct hire in real estate, and a lot of that comes from the talent side, the BG talent side. But the integration of those two together with the management teams has also been very good for us. It's been a success.
spk10: Okay. Okay. And just lastly, in terms of the merger and acquisition landscape out there, in terms of multiples out there, are things normalizing compared to maybe last year and what you're seeing?
spk06: So I think we've seen the turn in that market that we play in. you know, in that 5 million-ish plus or minus EBITDA range, the multiple turns are up a half to a point from where they were pre-pandemic. So, yeah. Okay.
spk10: Okay. Well, congratulations and keep up the good work. Great. Thank you.
spk08: Thank you. The next question comes from the line of Brian Kinsister from Allianz Global. Please, Brian, your line is now open.
spk11: Hi, Beth and Dan. Nice meeting Nice work on the sale of light industrial. Thank you. Just to be clear on M&A, that up a half point from pre-pandemic, is that significantly down from, say, the last 12 months, similar to how valuations are trending in small caps, or are they not coming down that much?
spk06: I'm not sure. I understand.
spk11: Sorry, you compared valuations to pre-pandemic, which is now almost two years ago. I'm just curious how they compare to, say, a year ago.
spk06: Well, we didn't see much a year ago. Yeah, so we saw a lot of activity early on, probably last summer, I think in anticipation of the tax write. And that's probably the pricing that I'm talking about, because that's when we saw activity. It sort of, at least for us, went a little cold in the fourth quarter, I think because everybody was either not going to do it when the tax changed or everybody was so busy they couldn't get anybody to help them. We just sort of started entertaining again and seeing activity flow. So, you know, we were a little busy selling Insta. And so, you know. Yeah. Does that help you?
spk11: Yes. And then with increased capital that you're going to be bringing in, what kind of investments are you making both from a go-to-market strategy, maybe business development resources, in addition to recruiting investments that you may need to make?
spk02: Well, we're definitely looking at our recruiting efforts in regards to bringing in more recruiters and seeing how that plays out. So that definitely is in the works. The expansion of the real estate group, they're easy to expand in the market. So we're looking at things along those lines. And then once our IT roadmap goes live, there'll probably be some additional things that we're going to need to bolt on to kind of later in the year as everybody gets used to it. So know we're going to uh going live on what um our it uh our cio would say is a minimal viable product so we just want to make sure we can pay and build put people out on assignment and then all the bells and whistles will start happening later in the year so there may be some additional costs with that later on great lastly can you talk about how the spreads are trending for billable staff versus you know salaries
spk06: Spreads are up, actually. Yeah, so spreads certainly are up in real estate. They've been very good at keeping their pricing model working. I want to say professional, probably hanging in there, maybe down a hair in the Q4, but probably more a mix of business than it is pricing.
spk11: Okay. Thank you so much.
spk08: Thank you. The next question comes from the line of Darryl Davis, who is a private investor. Please, Darryl, your line is now open.
spk04: Hey, congrats on multiple fronts, Beth and Dan. Thank you. Hey, Dan, this is a numbers question. I'm not sure if you're going to have it at your fingertips, but focusing on real estate, I'm wondering if you have data for revenues for this January 2022 versus pre-pandemic if we said January 2020 was sort of unaffected by pandemic? Do you have those figures?
spk06: I don't. I can tell you that when you look at their third and fourth quarter numbers on a run rate, they're in excess of their other 2019 revenue numbers.
spk04: Gotcha. That's very helpful. And then sort of a big question, traditional annual, looking back on things. If you look back at 2021, Beth, what are one or two of BGSF's best moves and one or two of BGSF's worst moves?
spk02: Great question. I would say our best moves was the acquisition early on in Momentum Solutions. It was a game changer to the professional brands. We didn't realize how much of a game changer it was going to be until we got them in, and it just continues to evolve into something special. I would also say that the restructure of the professional group and aligning those teams, you know, we had nine different brands, and aligning those teams really has helped solidify, and we saw those results in fourth quarter really kind of just pop out. So I think those are two things that we really did well. as well as supporting the real estate group as they continue to start to reopen some of their brands or some of their markets. I think what we could have done better on, when we started seeing life back into things, we got really excited and started doing a whole lot of other stuff, and we underestimated the impact that that would have on the mental health side of it. The pandemic and COVID didn't go away, so there were still people that were dealing with a lot of you know, the child care issues or parent issues or things along those lines. And so as we started opening up offices again and getting all excited and pushing out more initiatives, we were really good at doing pulse checks with the group every quarter. And they were like, stop, enough. And so we pulled back, paid attention to what we were doing, and then got really strategic with the executive team and really started aligning what we were going to push out as an initiative and what projects we were going to work on so that everybody in the executive team knew every initiative that was going on. Because I think we were working kind of in silos at some point where the IT group would do something and then the professional was doing something and we didn't realize how it was affecting all the stakeholders in it. So we had to adjust for that.
spk04: Gotcha. Specifically, I'm very happy with the light industrial sale. Really, congratulations on that. That's a big move.
spk02: Thank you. Thank you. I'll put that in next year's question.
spk08: Thank you. The next question comes from the line of Michael Taklik from Taklik Produce. Please, Michael, your line is now open.
spk05: All right. Good morning and great quarter, Beth. And Dan, congratulations for us, okay? Thank you, sir. I guess the first blush is real estate should have a record year this year, right? Or am I wrong to say that?
spk06: I think they're off to a banner year, yes.
spk02: I like how you're thinking there.
spk05: Well, I'm just doing the math on what you said, how you answered some previous questions. I'm looking at last quarter, which is spectacular. Absolutely terrific. A couple quick questions, okay? The IT roadmap, when is that done, and what kind of payoff should we start seeing from it?
spk02: We go live on the 21st. So right around the corner. So in that we figured, you know, that's going to take the team some time to get adjusted to what the, I mean, everything changes. So, I mean, it's the applicant tracking system, the CRM, the payroll system, the invoicing system. So it's going to take some time to make sure that every, you know, before everybody gets up a hundred percent on it. So we anticipate we'll start seeing some of the efficiencies later on in the year. And I think we've indicated in the past that we're looking to try to get in that 10% efficiency range based off what we've heard from other people who've gone through the same type of upgrades.
spk05: 10% of what?
spk06: So a lot of it's on the recruiting side, Michael. So when we get the new system in and then we bolt on a lot of the enhancements, that make some of the AI stuff that we'll probably bring in that'll make recruiting faster and easier and allow them to focus on fulfilling orders versus finding people. We think that will provide some efficiencies on the recruiting side.
spk02: It's going to have a really big impact on the real estate group. The real estate group ran several different systems between an Excel spreadsheet for scheduling and and going into TempWorks, and then they have another system that they do their CRM on, and all of that gets consolidated. And so that's going to free up the recruiting team in real estate significantly. And so we really will probably see the biggest side of it with them.
spk06: Yeah, so I think it's a combination of you get some recruiting efficiencies, probably some cost efficiencies there, but the bigger part of it is, they're able to fill more orders and create faster growth. So.
spk05: Okay. Because I'm lazy. How much money do you spend on it?
spk06: Uh, in, in, in total, uh, when we shut it down in seven days, we will have been a bit north of 11 million. So on a $10 million budget. Yeah. That was created.
spk05: Which has spent 383 grand. It's been about 400 grand last quarter.
spk06: uh we spent i'm seeing a million seven on your year for last year at i.t roadmap that's on the p l side and then there's another three million in capex so that's the software side of it so yeah yeah okay so you spend 4.7 million dollars ish
spk05: Last year, correct.
spk06: That was the biggest year. I worked on implementing really the biggest part of it, a brand new ATS system, brand new payroll system, and integrating that in with our Dynamics 365 that we put in two years ago.
spk05: So two weeks from now, that spending is behind us.
spk06: The implementation cost goes away. Then we start doing some add-ons to make it more efficient.
spk02: We anticipate the IT spend for us will kind of hover around the 2% of revenue for us to be able to stay ahead of that.
spk05: Sustainable, yes. Gotcha. All right. But that is over and above the IT roadmap, which is more of a one-time expense, I suppose, what you're presenting?
spk06: So a lot of the CapEx side of it was a one-time expense. A significant portion of that sort of drops off at the end of Q1. We'll still have operating costs and some CapEx, as we add add-ons, like some of the AI software and whatever that we add on, that would be on the CapEx side. But the consultant side, particularly the third-party consultant side, will drop off dramatically beginning in Q2. And we can certainly, I can put those numbers together and we can certainly share that with everybody on next quarter's call if that would be helpful.
spk05: It'd be really helpful. Certainly, as you point out, spending on IT is a fact of life in the business that we're in here. But this is a big one-time spend, which is why you guys carve it out. And hopefully there's a big one-time boost in productivity. I don't understand how much you pick up in productivity going forward from this big spend in dollars. So you said 10% reduction in cost on what? I want to get that straight. Again, you got to talk to me like I'm four years old, okay?
spk06: So, and I don't have the numbers at my fingertips right now, but we can certainly put them together. So we talked about creating some efficiencies. Yep, pardon me? We created some efficiencies on the recruiting. Yeah, I literally, I would have to start pulling spreadsheets and... I can work on some numbers and share off the call, but yeah.
spk05: All right, so Beth, on the $11 million spend, do you pick up $2 or $3 million in EBITDA going forward, or is it that kind of thing?
spk02: Well, it depends on how much more a recruiter can produce. I mean, so say we have a recruiter right now who produces $500,000 in gross profits, But because of the efficiencies, they're now able to produce $650,000 in gross profit. So it just depends on what we're going to see from that perspective. And that's how we'll look at it, Mike. We'll look at it when this is what you were doing before. Now we have all these systems and now you're able to produce more. And we would have to go in and really take it down to that level by producer to get that number.
spk05: All right, so I'm going to hold you to it. So basically, if a recruiter does $500,000, now they do $650,000, and earnings go up 30% in real estate. I'm just thinking of that number.
spk02: I'm just thinking of numbers.
spk05: All right, but do you have an idea on order magnitude? You must have pitched your board some number when they green-lighted the spend, right?
spk06: We talked about a 10% efficiency primarily on the recruiting cost. I don't have that number at my fingertips right now. Sorry. That would be in the real estate part of the business, right? That would be in professional and real estate. Both of the segments are going on the software. It's probably much more efficient on the real estate side because their recruiting and fulfillment process was burdensome. More burdensome than professional. And then there's an enhancement by creating more, again, as we mentioned earlier, by creating more efficient recruiters, there's a much better chance of increasing sales and gross profit. So you've got two sides of the equation going on. More efficient recruiters that can sell more or fill more. So you don't have to have as many recruiters. You get some savings on the sell side, SG&A side. and they're filling more so you're getting gross profit improvement.
spk02: And the other thing to keep in mind is because we did not have any of our systems that kind of talked together, we did management by Excel spreadsheet. And so with the new systems, every manager will have new dashboards. We will be able to know on a daily basis where their team is at so that we can help prop them up and give them support. So just having better visibility into the activity of each of the team members will be helpful for us to be able to be ahead and manage and support the team. So just that part of the visibility is going to be a game changer for us as well.
spk05: Okay, so you're running the business better, but you're expecting significant improvements top line growth because you'll be able to fulfill more unmet needs and a dramatic improvement in productivity from an efficiency standpoint filling needs.
spk10: Correct.
spk05: I mean, it sounds pretty dramatic or should I look at it like that? I mean, it's the best acquisition you've ever made if you get like a 10% improvement in your profit. uh uh gross margins i should say and it drives some top line on top of that i would say it would be great it'd be great to get a really good understanding of that because it i mean it's material enough from an expense standpoint you carve it out it's material it might it you're hopeful i guess it's that it's material enough on the um to drive results you know that now that you're right there would be it'd be a great to show us what it's going to do besides just obviously letting the P&L roll out over the next four quarters.
spk02: Right. Again, the visibility into the reporting side of it will be super beneficial for us to be able to give you better information in the future.
spk05: On the tech side, one more question. I'll let everybody else speak. On the tech side, what kind of visibility do you have on demand today, and how does the IT roadmap change that? in the sales pipeline i'm not sure i understand your question line okay how how much visibility do you have on the i.t sales pipeline now and how much do you have it when you when the when the roadmap is implemented well again i think it right now because we have such a strong management team um
spk02: The IT group is able to, but again, it's on an Excel spreadsheet, right? And I think they'll be able to kind of move things through a lot quicker. But I think the team has got good visibility on the pipeline. I have a one-on-one call with the division president every week, and we go through the pipeline, and they've got a lot of activity out there right now. So it'll be interesting. I don't know that the roadmap will... change um what they've already got um in place uh or increase the sales efforts because i think that their pipeline is super full right now i think what it'll do is it'll help us figure out from the time that we get a sale or we put in an rfp how long does it take to close it and and we'll be able to see with the funnel a lot better the sales funnel a lot better
spk05: All right, terrific. Well, great quarter. I'm delighted to hear that we're really back on track and making real money, and I'm looking forward to a great year. Thank you. Thank you. Thank you, sir.
spk08: Thank you. As a reminder, to ask any further questions, please press the star followed by number one on your telephone keypads now. The next question comes from Bruce Weller from Weller Ventures. Please, Bruce, your line is now open.
spk01: Hi, good morning. It's Bruce Geller. Congratulations on the nice progress. I'm probably asking a redundant question relative to the last caller, but can you quantify the annual benefit in either dollars or margins that you're expecting from this systems transition?
spk06: Yeah, I think as we just answered, Bruce, right now we don't have the numbers in front of us to do that. I will work on that and we will certainly share it. Again, as we mentioned, it's a combination of efficiencies on the recruiting side and ability for them to fill more orders, which drives the growth profit line. So we will put some numbers together and certainly share those with everybody on the next call.
spk01: But was there a payback period in your mind, like when you decided we're going to spend $12 million? You know, typically there's a thought of, oh, we can pay this back in two years, three years, four years. And I'm just curious what your, you know, without the need for a lot of spreadsheets, what was the anticipation in terms of payback periods?
spk06: You know, if I wanted to do a swag, I would say the payback is three to four years. That being said, we were at a point three years ago, Bruce, that had we not spent any money, we would not have been competitive in this world. So our systems three years ago were archaic. Okay, fair enough. We have not spent money on IT improvement in years.
spk01: Okay, that's fair. Thank you. With respect to the sale of your light industrial division, it seems like the loss of that EBITDA in the near term at least is going to be dilutive until you reinvest those proceeds. Would you agree that that is an accurate statement? And then in terms of reinvesting those proceeds, is it likely that you're going to have to pay a higher multiple on whatever you purchase than the multiple you received on the sale?
spk06: Well, we got a great multiple for light industrial business, frankly. As we have been discussing, and again, it's probably been, as I mentioned, six months since we had serious talks with anybody. The multiples on the IT side, which is primarily what we were looking at last summer, were in the 7 to 8 range. So, you know, if those haven't gone up dramatically, then we could probably buy much better margin business at the same price that we sold LI with far less workers' comp risk and management headaches. Not headaches. I won't say headaches. Intensity. So, yeah.
spk01: Okay. Um, but in the interim period, you know, once you have those proceeds, they're not going to be earning much. Um, and you did, you, you do lose some EBITDA here, you know, are you looking at a few months of dilution prior to.
spk06: On earnings per share, we are looking at some dilution where we lost probably on a net income basis, about, uh, about three and a half million. So we in 35 cents a share. uh but we think in the long term the the capital that it gives us to buy and expand on the professional side uh was worth the transaction okay thank you very much thank you our next question comes from the line of james
spk08: Maxwell from Tocqueville. Please, James, your line is now open. Hey, good morning, guys.
spk09: Good morning. I guess over the last couple of years, you've deployed maybe about $45 million of capital into the professional segment. And some of that has been impacted by COVID, et cetera. Are we fully recovered yet? in that segment? Have they fully recovered to pre-COVID levels? I'm just trying to understand sort of the productivity of LJK, EdgeRock, Momentum.
spk06: So specifically Momentum is doing fantastic. I think we bought that business around the $3 million-ish range, and it will do well better than $3 million as we move forward. Uh, EdgeRock is back to pre COVID levels, uh, and our, what we now call our ITC, uh, I mean, uh, yeah, ITC, which is our, uh, sort of higher end, uh, consulting side of the IT business is doing very, very well. The, as we mentioned, and it was mentioned probably every quarter this year, the, uh, IND side, uh, suffered dramatically in the latter part of 20, uh, and has been slower to recover. So we feel very good about all of that. LJK, we are two years into that. The principal that we bought with that has left. And we're sort of restructuring that business to support the other two divisions on a retained search basis. OK.
spk09: And then what are the organic capital needs of the real estate segment and is there any way to accelerate the growth by deploying more capital?
spk06: So it's really finding the right people in the right location because it's really a salesperson and a recruiter. There's no office space cost or whatever. So it's really talent acquisition is the cost of expanding that business.
spk09: And being able to manage that. Pardon me? I'm sorry. Similar to professional businesses. So there's not a lot of, the proceeds from your divestiture are not really to grow the business organically. It's more to make additional, professional acquisitions?
spk06: Well, I think it allows for both. I mean, we're going to reduce our debt down to, you know, again, less than one on the new EBITDA number. So, you know, we do away totally with our debt requirement, annual debt requirements, lower in interest. So we do have additional cash available to us, cash flow available to us. When we planned this year, clearly when we budgeted, we didn't share with the real estate team that we were considering selling in staff. So, you know, I know Beth and Kelly will go back and take a look at that growth and see whether it makes sense given our markets and our customers, you know, whether we want to accelerate that or not. So we certainly have the availability to do it.
spk02: I spoke with both of our division presidents last week in regards to the increasing our amount of recruiters out there for this year. So we're in the process right now of evaluating what that looks like, how quickly we can do it, and what we would expect to get out of it.
spk09: Okay. Do you have more real estate locations open today than you did pre-pandemic?
spk02: I think we're back to where we were from in 2019. But we do have six additional openings scheduled for this year. And we're also going into Canada. So that'll be an interesting venture for us. I think we've got Canada on the schedule for May. So we do have big expansion plans for that.
spk09: So based on the P4 results, the productivity of each office location is much higher than it was pre-pandemic.
spk02: is is that was that pent-up demand um so that that is possibly not sustainable or does or in your opinion does that continue i think some of it was pent-up demand but but i mean you know if you look around there's a bajillion cranes out there and multi-family locations are being uh built left and right so i think that you know as as The construction side of it opens up. I think there was capital that was being held because of the moratorium. So I think once people started being able to open up their purse strings, I think we saw some additional activity just in that side of it. So part of it was pent-up stuff, but another part of it was just everybody going, okay, now we can go in and start spending money, and that's always good for us.
spk09: Great. Thank you. Appreciate it.
spk02: You're welcome.
spk08: Thank you. We currently have no further questions, so I will hand over back to Beth Garbrey for any final remarks.
spk02: Thank you. We appreciate you taking time to join us today on the call and appreciate your continued support. We look forward to sharing our first quarter results with you in late April. So everybody stay safe and healthy, and thank you again for joining the call.
spk08: This concludes today's call. Thank you so much for joining. You may now disconnect your lines.
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