BGSF, Inc.

Good morning, everyone. Welcome to the BGSF Inc. Fiscal 2025 Second Quarter Financial Results Conference Call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. Now I will turn the call over to Sandy Martin, three-part advisors. Please go ahead.

Good morning. Thank you for joining us today for BGSF's second quarter 2025 earnings conference call. With me on the call are Keith Schrader, Interim Co-CEO and CFO, and Kelly Brown, Interim Co-CEO and President of Property Management. After our prepared remarks, there will be a Q&A session. As noted, today's call is being webcast live. A replay will be available later today and archived on the company's investor relations page at investor.bgsf.com. Today's discussion will include forward-looking statements which are based on certain assumptions made by the company under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including those listed and the company's filings with the Securities and Exchange Commission. Management statements are made as of today, and the company assumes no obligation to update these statements publicly, even if new information becomes available in the future. Management will refer to non-GET measures, including adjusted EPS and adjusted EBITDA. Reconciliations to the nearest GET measures can be found at the end of our earnings release. I'll now turn the call over to Keith Schrader.

Thank you, Sandy, and thank you all for joining us on today's call. I will start today's call with some opening comments and discussion points. Kelly will then cover the property management group performance and discuss strategic initiatives. I will then cover the financial results. After Kelly and I have finished our prepared remarks, we will open the call up for analysts and investor questions. First, I will start with an update on the previously announced proposed sale of our professional division to Inspire Solutions. We filed a proxy statement on July 25th, which established a meeting date of September 4th for a special meeting of shareholders to vote on the sale of the professional group. That process is moving along as planned, and both companies are preparing for the proposed sale. We will not be taking any questions on the proxy or sales process on this call. I would now like to address the question of what the business will look like post the closing of the sale of the professional group. Referring to previous SEC filings, we have been providing segment information that reports the profit contribution, or what we call contribution to overhead, by segment to cover head office G&A expenses. With a smaller business post-closing, we will be taking and have taken actions to reduce our head office G&A expense. We have a path to reduce head office G&A expense following the completion of the TSA period to around $10 million annually and are aggressively pursuing that path. The $10 million figure includes roughly $1.5 million of public company costs. We currently estimate the property management's contribution to overhead for 2025 to be in the $11 to $12 million range. Looking back on the contribution to overhead provided by the Property Management Group in 2022 and 2023, we were providing over $20 million of contribution to overhead. While our revenue has dropped during 2024 and 2025 due to market softness, our gross profit margins have held fairly steady. So, top-line growth is the key. And as a result, Kelly and team are aggressively pursuing various strategic actions to improve top line from its current run rate, which she will cover shortly. Also, Kelly and I are continuing to review other avenues to further reduce SG&A expenses. Under GAAP, we will be reporting the financial performance of the professional group as discontinued operations, thus leaving the property management group as our sole segment. For clarity... In the MBA section of our Form 10Q, we are breaking out SG&A expenses into two main sections, selling costs for the property management group and G&A for the head office function. This will allow you to build a model to forecast the future success of the company. Following close, we will be performing under a TSA agreement for up to six months or longer to help Inspire stand up the business in their operating environment. This means we will be hanging on to certain expenses longer than we would without the TSA. However, we will be paid for those services, which will be reported as a reduction of our G&A expenses. As a result, our results may be a bit lumpy during this transition period. With that, Gilly will briefly cover the property management results and our strategic initiatives that are underway.

Thank you, Keith, and good morning, everyone. Total revenues from continuing operations, which exclusively represent property management, were 23.5 million for the second quarter, down 8.6% from the prior year. Sequentially, revenues improved by 12.6% over the first quarter, evidence of a seasonal lift from the higher apartment turnovers, as we typically see based on previous year's performance. Last fall, we realigned the sales organization and reduced direct and indirect operating costs for better alignment with revenues. However, we know that we cannot reduce or cut our way to profitability, so we have and are investing in tools and technologies to change the trajectory of our sales trends going back 18 months or longer. As mentioned on past earnings calls, our industry has been under tremendous pressure from higher interest rates higher than expected insurance rate premiums, and an overall malaise in the industry because customers have a wait-and-see attitude about spending cash or staffing at typical levels. Today, I want to address strategic initiatives that we are currently rolling out to grow revenue, work more effectively and efficiently, and focus on areas within our control. As we have discussed in the past, we continue to implement and expand our sales territory mapping initiatives and our proprietary training platforms, which are a competitive advantage for our business. We also continue to work on adding exclusive and semi-exclusive property management service agreements. This work continues in earnest, but I also want to share new initiatives that we have invested in for property management. We are now building on the strength of our existing technological infrastructure. We are implementing two AI-powered platforms this quarter that will drive speed and efficiency in two of our most critical functions, sales and recruiting. Our investments in AI are more than tech upgrades. They are about meeting our customers where they are and providing the experience they expect from a modern, innovative workforce partner like BGSF. With the challenges that we've experienced on the macro level within the industry, delivering talent quickly and expedited communication in response to client needs remain the priority, and these enhancements will keep us at the forefront in both of those areas. We expect to go live on these technologies by mid-Q4. The team and I are very excited about these tools and are confident that they will support and drive incremental top-line revenue and generate good returns from our investments. We also plan to continue to evaluate costs to re-baseline carefully against our projected revenues. We have received positive feedback and excitement both among the internal teams as well as from external sources for the phase we are approaching as an organization. We anticipate this expressed excitement to continue as we strategize our post-closing structure and planning for the future of property management. With that, I will turn the call back to Keith.

Thank you, Kelly. As Kelly mentioned, second quarter revenues were $23.5 million, down 8.6% compared to the $25.7 million in the year-ago quarter. We are seeing evidence of improvements as revenues per billing day continue to increase during the second quarter, which resulted in a sequential sales lift of 12.6% from the first quarter. This is basically in line with the expected seasonality A-freeze. Our gross profit margins in the second quarter were $8.4 million and 35.8%, as compared to $9.6 million and 37.3% in the year-ago period. On a sequential quarter basis, gross profit margins were down slightly at 40 basis points. I want to call out that our results included a $980,000 additional reserve taken in the second quarter against our accounts receivable balances. After taking over as CFO in March of this year, we took a deep dive into our aged receivables. We have changed our processes and have become more aggressive in pursuing all receivables, both current and aged. In evaluating our success rate in collecting the aged receivables over the last four months, we determined an additional reserve of $980,000 was appropriate. The additional reserve is for receivables in the property management business. SG&A expenses for the second quarter were $12.6 million, including the $980,000 previously discussed additional reserve, which compared to $10.7 million in the prior year's quarter. Excluding the additional reserve of $980,000 in the current year quarter and excluding strategic restructuring costs of $1.6 million and $280,000 in the second quarters of 2025 and 2024, respectively, SG&A costs were below the year-ago quarter by $1.8 million. Our second quarter adjusted EBITDA was $1.1 million, or 4.9% of revenue, compared to $300,000, or 1% in the year-ago quarter. We reported a second quarter gap loss from continuing operations of 44 cents per diluted share and adjusted earnings per share loss from continuing operations of 18 cents. total adjusted earnings per share for the quarter was a positive three cents per share. During the first six months of 2025, we generate $3 million in continuing operations cash from operating activities, which is encouraging. Our capital expenditures were small at $13,000. Finally, the team is working very hard to deliver on our strategic initiatives, and accomplish the heavy lifting from the spinoff of the professional group. Kelly and I are very grateful for the team's hard work and dedication. Kelly and I will update you each quarter on our progress, and we hope this has been helpful for you today. With that, now we'd like to open the call for questions. Operator?

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a few moments while we poll for questions. Your first question is coming from Howard Halpern with Tagwich Brothers. Please pose your question. Your line is live.

Good morning, guys. Good morning. Good morning. Encouraging results on the top line sequentially. And sort of you talked about, you know, the noise that's going to occur, but sort of cutting through that noise, as we, you know, end this year and go into 2026, what, when you right-size the company, get some, you know, positive growth in revenue, Where do you hope or where are you seeking to see adjusted EBITDA as a percentage of sales? What would your hope be that you would be able to see?

Well, I think you just need to look back a few years because, like I said, you know, in the script that in 22 and 23, their contribution to overhead was, you know, 20. A million plus. So with a, you know, $10 million cost of overhead, you know, that would give us an EBITDA of around 10. So it's about 10%, I'd call it, 8%. But, you know, that's not going to occur until we get the top line up from where it is now. So it would be kind of a, you know, slow, not slow, but it would be a steady rise, okay? Okay. All right.

And then in terms of unlocking the top-line growth, in the current customer base, are you seeing that there is pent-up demand and they're just waiting to get some sort of nod to unlock that spending? Because spending will have to occur at some point. Am I correct on that?

Yes. Hi, Howard. You're correct to an extent. We may experience a small amount of pent-up demand, but really what we're seeing operators do is just shuffle around within their current portfolio to try to keep their assets at the level that they need to be. So that's where it's great that we have a very solid strategic approach with all of our top clients to keep a really good thumb on the pulse of how are they managing their portfolios, what needs do they have upcoming, how do they anticipate Q4 and Q1 looking. Right now, we're very cautiously optimistic to Keith's point. We anticipate it being a climb back up, but it's really hard to tell just how quickly that'll happen because the economic outlook, and not even just specific to property management overall, we're just seeing caution across multiple segments. But, yes, I think that just with talking with our clients, it's a mix of managing with their existing teams as best as they can. So I would not say that there's going to be – I wouldn't expect an extensive amount of pent-up demand, nothing like we saw back in 22 when we saw that post-COVID spike. It's just simply not going to look quite like that this time.

But you might be encouraged for next year if, and it's if, if interest rates are down and if we don't have any major – storms, I guess, that would cause property insurance rates to go up. If things remain sort of steady in that, you know, down in one and steady in the other, you think you might see some incremental spending on the portfolios of your clients? I believe so. I think that's a very safe statement. Okay. And then in terms of finding new customers, how is that process going?

Well, in multiple ways. In the property management industry, there's constant movement within portfolios, changes in management, changes in owners. You know, we're seeing transactions continue to happen. So that's just something that our team, you know, with some of the both the technology and then some of the data investments that we've made, we're able to keep up with what a lot of that movement looks like. So that's just where our industry involvement is beneficial because we're able to be in discussions to be aware of where that movement's happening and therefore try to capture share as it does.

Okay. And I guess it's the chief. In terms of the strategic, you know, spending that's gone on, is that level going to start to come down by the fourth quarter from current levels?

You're talking about the cost for the deal, Josh? Yeah. Right. Yeah. Yeah, exactly. Yeah, so Q2 was obviously a big spend. We'll see a fair amount still in Q3, but, you know, post-close, that should basically be gone.

Okay. Okay, and so that would be the only really one-time, not one-time, or just unusually high spending going forward in Q3 and then trending down in Q4. There's nothing else... No other unusual type of spending that we'll see other than maybe some of the lumpiness, like you said, with once it closes, the agreement to, you know, to still work with Inspire? Yes, that should be it. Okay. And are there any other, you know, for the home office, any other ways that you're looking at to reduce spending beyond, are there any opportunities, I guess, to reduce the spending further than what might be normalized?

There are, and we are looking at those all the time, and we're working on those now. One of the big spends in that area is software costs. We're taking a really hard look at that. What sort of tech platform do we need? And so that would be one spot where we could – and are planning to bring costs down.

Okay. And I guess one last question. You know, post-close, are you going to just use the cash on hand for, you know, for normal activities, or are you going to seek maybe a small, you know – revolving credit line or something like that? Or will the balance sheet be basically totally clean of debt?

So, it will be clean of debt. So, we do plan at close to pay off all of our outstanding debt. We'll probably set up a new line with, yeah, we will set up a new line, a small revolver that we would not plan to use in case, you know, and then, the other cash would just sit there for a while, and while the board decides what to do with that cash, you know, what's the best way to maximize value to our shareholders.

Okay. Well, I wish you luck, and I think the property management segment has a lot of opportunities, so good luck to both of you. Thank you. Thank you, Howard.

Your next question is coming from Bill DeZellum with Titan Capital. Please pose your question. Your line is live.

Thank you, Kelly. I'd like to follow up on one of the comments you made relative to a question that the prior questioner had asked. And you mentioned that your customers are shuffling projects and that you don't think there's a great deal of pent-up demand. But I guess when I hear that, Shuffling generally means trying to delay spending, and delayed spending would equate to pent-up demand. So would you help us understand how either what you were trying to communicate or what maybe is wrong with the logic that I just shared?

Certainly, yeah. Thank you for the questions. And whenever I mention shuffling, really I'm referencing the employees that they are utilizing to maintain and manage their portfolios. You know, in the last couple of years, we've seen a trend where certain aspects of how a portfolio is operated are has had room for centralization. So, for instance, you know, a role on site that may have been responsible for some of the accounting areas of the property, you know, some things like that. So, you know, we're seeing some technology trends in how people are being used within the portfolios, but then also when it comes to maintenance, that was really more specifically where when I mentioned shuffling, you know, if you look across a portfolio in a certain location, they may just be able to utilize the employees that they have in place in addition to our services. but just the utilization of our services might be at a slightly lesser level for the sake of saving on spend if they can use their current workforce at multiple sites to maintain the communities. Does that clarify my statement a little bit?

It does. It's a lot more of the shuffling of who's doing the work rather than what work is being done. That's exactly right.

And so, you know, my earlier comment, that's not to say that there may not be some things that they are postponing or doing at a lesser level, but I think that's just very hard to predict right now because based on the feedback that we're getting from clients, they really are just trying to, to my point earlier, use the people that they have to keep up as best they can on the properties while being mindful of the bottom line in lieu of some of the heightened costs that they've experienced the last couple of years.

Yes, and probably a natural outcome would be that there is some delay in project activity that's taking place or maintenance, but it's not, to your point, the log jam maybe that we saw coming out of COVID. Yes, I think that's accurate. Okay, that's helpful. And then in the press release and your opening remarks, you referenced the AI-powered sales and recruiting tools.

Mm-hmm.

Maybe I wasn't paying attention as well as I should have in the opening remarks, or maybe there's more that you can dive into in terms of what you're hoping to accomplish with those tools once you institute them and how those tools are different from what you're currently doing today. Would you walk through those, please?

Certainly. You know, looking at how AI is being used, obviously it varies widely and depending on, you know, how an operation is being ran. But for us specifically, we see an opportunity based on the need to quickly respond to client needs, to quickly pick up on client needs. You know, whenever they do have a need and they want to spend, they expect it quickly. So that's the sales piece, being able to utilize AI to pick up on, you know, just buying signs, buying activity, and just provide a quicker, you know, response whenever we see that need indicated. On the recruiting side, it's really to help candidates get a response quickly when applying for jobs, to help them get an instant response so that they know that, hey, BG does have a need that I may be able to fulfill. So it helps the, you know, the people part of things get quicker. You know, if you're relying on your people to respond to applicants and you see a bottleneck happening, that's where you might have an opportunity to plug in some AI tools to help that candidate get a quicker response. So it's things like that that we're looking at just to help, like I said, overall theme is the speed with which we can transact and the speed with which we can help connect people to jobs is the primary priority there.

That's really helpful. Thank you. And then looking at your segment reporting, you had corporate G&A of $6.2 million, which is really separate from the property segment. It's really truly like I think, Keith, you had referenced in the opening remarks, corporate G&A. The operating loss for the property division, including that corporate G&A was 4.4 million. So with it, make sure I'm understanding this correctly, without the corporate burden, the property business would have made 1.8 million this quarter. Yes, that's correct. Great. And then essentially in response to prior questioners questioning, you're looking to increase revenue, increase EBITDA margin, and therefore that number would increase even further as you build the business. That is correct. Great. Thank you both. Thank you. Thank you.

Once again, if you do have any questions or follow-up questions, please press star 1 on your phone at this time. Your next question is coming from George Milas with MKH Management. Please pose your question. Your line is live.

Great. Thank you. Good morning. Good morning. Good morning. Quick question, and I don't know if you can tell us that, Keith, but what do you expect to be the cash on hand? once the transaction is completed and you've paid down the debt?

Oh, sure. So, post, you know, post close with the cash coming in from the sale, less course fees, less all of our outstanding debt, we should have around 45 million on hand.

Okay. So, 45 million, so that's roughly $4 per share.

Yeah, 440 or something like that, but yeah, somewhere in that range. Okay, very good.

Kelly, during the quarter and during the month of July, what were the trends in terms of the over-year revenue change? For the quarter, it was minus 8.6, but how did that – how did that – progress in April, May, and June, and maybe if you can tell us in July.

April, May, and June, particularly through June, we did see a positive trend when it comes to the year-over-year gap. And so looking into Q3 and beyond, clearly, as I mentioned earlier, just with some of the economic uncertainty that we continue to hear and see in the markets, You know, we anticipate being able to continue to increase that. I am not able to obviously share July figures just yet. However, in June, we definitely saw a positive trend for the quarter.

Okay. So that sort of means that April and May were probably down double-digit, and then you said June was positive. Yes.

In comparison to April and May, we closed.

April was positive. May was kind of flat. June was up quite a bit. July is, you know, looking good. We would expect, based on past years, you know, seasonality lift in the quarter of around 9% versus Q2, but we have to see what the rest of the quarter does.

Okay. Keith, can you repeat that, what you saw for April, May, and June? I did not, I was not able to catch it.

Okay. April was a good increase. May was somewhat flattish. June was a very strong increase. July is an increase over June, and the last part was that what would, based upon years past that the amount of lift, just because of the season, we would expect for Q3 versus Q2 is about 9%. But we have to see how the overall quarter unfolds.

Okay. So let me just quickly do my last and try to translate that into a year-over-year number. Bear with me. So we still have a pretty meaningful decline year-over-year, right, in the third quarter?

We would still be behind prior year unless we get a big lift in share gain, okay? But the key is we have to keep gaining on it, right? And that's what we're focusing on. That's the reason we have invested in new tools that are coming online so we can gain share. Okay, very good.

Kelly, I think if I recall, the revenue is primarily around leasing and maintenance. And can you sort of tell us a little bit if there is some, where there is strength, where there is weakness, and, you know, if we look at versus 24 or maybe even against versus 22, which of those two parts of the business has, you know, How have they performed?

Well, we don't necessarily have that level of detail available here on the call. However, as mentioned before, it's really been an overall softening in the industry the last 18 months due to the heightened costs that operators are facing in a big way in the insurance and interest areas.

Okay. That's just something we haven't ever broken apart in the information that we put out to the public. So it's just another one we're going to get into this morning.

Okay. Very good. Fair enough. And just to repeat what you said, Keith, and make sure I understand it correctly, you expect that post-close and post-transaction services, The GNA would be roughly $10 million, and that includes $1.5 million of public company expenses. That is correct. That's okay. And so if we adjust the current results for the For the additional reserve that you took on the AR, we have a contribution to overhead sort of for the first half that's roughly a little bit north of five.

For the first half of this year?

Yeah.

Yeah. I think you need to look forward, not backwards. Okay.

Okay, very good. Thanks for your time. Thank you.

Your next question is coming from Steve Cole with Mangrove. Please post your question. Your line is live.

Good morning, guys, and thank you for having the call. Let me open up with a couple things. Looking at exclusive versus non-exclusive agreements with the property management companies, can you address where we are with that and how much of your business comes from those arrangements?

Certainly, yeah. When we say exclusive versus semi-exclusive, you know, we see among our clients and sometimes it's dependent upon the size of their portfolio. Sometimes it's dependent upon where they are in their business and what their needs are. Our strategic team has done a great job speaking with our client partners and working with them on agreements where we can really cater the way that we deliver our services to their needs. So there's an appetite for that where it kind of simplifies the approach with the client to say, hey, you know, we've got one partner. We know exactly how BGSF delivers. We, you know, have a great relationship with the employees. So there's definitely been a healthy appetite for, you know, in that area. Overall, the strategic portfolio is, You know, clearly year over year that's going to fluctuate a little bit, but we anticipate the entire strategic portfolio to comprise roughly between 11% and 15% of the overall revenue of the business.

Okay. I'm sorry, Kelly. So among those top 10 companies, you're only getting 11% to 15% of total revenues. Am I hearing that right?

No. It varies from client to client. Some of the clients, that would be exclusive agreements. If they're spending on staffing, they're spending it with us, so we would capture all of that. With some other clients, it's not necessarily an exclusive agreement, so it may be 5% of what they spend. It may be 50% of what they spend. That varies from client to client.

Got it. What I'm trying to get at, maybe I didn't ask the question right, isn't this an advantage? Let's say BG obviously is one of the biggest players in this business. So the way that you can leverage that is obviously becoming one of these exclusive or semi-exclusive. There can't be more than a handful, right, per client. So the question is, is this a good or bad? I would think this is a significant differentiator is what I'm trying to get at versus you and let's say a local provider in a market versus other nationals. Am I missing something? that or how do you view that, I guess, is what I'm trying to say.

Yeah. You know, our geographic, you know, spread throughout the country is definitely an advantage competitively, you know, especially whenever you're dealing with a company that has a portfolio across the country. You know, to my point earlier, that makes it very, you know, appealing for them to work with BG and because they know they're going to come to one source for all of their needs. So that's certainly been a strategic advantage that the team is leveraging whenever they're engaging in discussions with companies to gain the agreements for exclusive or semi-exclusive agreements.

Thank you. And, Keith, just a quick question. So when we look at the size of the business today and we look at, let's say, where your theoretical break-even is, can you talk to your incremental margin pickup above break-evens? Because I presume there's reasonable operating leverage here. Is that right, or am I again missing that?

No, you are right. So I would say the best way to look at that, the margin left as sales dollars go up, it's going to be around 35%. That would just fall straight through. Okay, and that would be – So sales dollars go up. About 35% of that margin should essentially fall, or 35% of that revenue, excuse me, should fall straight through because the selling costs are relatively fixed. You know, G&A is as well. So building sales will quickly drive a much higher margin and even down.

Okay, great. And I guess the last question, I'm just trying to understand, when you look at that, and I would already hop in this a little bit, but the company cost, the G&A cost as we go forward, I always thought property management, correct me if I'm wrong, how much of these folks are actually working from home versus from offices, and how much of the total G&A cost is embedded in lease costs to these offices? And is that an opportunity we can look at?

The office cost for this group is not in G&A. That's what we have broken out now. That's the selling cost, okay? Selling includes lots of things. It's obviously selling, recruitment, you know, all those sorts of things. So that cost, when you look at the Q, that is the selling cost. The G&A is really, you know, finance and accounting, HR, all that sort of stuff. Great. Thank you guys very much. I appreciate it.

Thank you.

Thanks.

There are no further questions in queue at this time. I would now like to turn the floor back over to Kelly Brown for any closing remarks. Thank you for your time today.

We appreciate your continued support and look forward to updating you on our third quarter results in a few months.

Have a great day.

Thanks, everyone.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.