BGSF, Inc.

Good day and welcome to the BGSF, Inc. 20-minute earnings conference call, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, but touch the phone. To withdraw your question, please press star, then 2. This event is being recorded.

Good morning. Thank you for joining us today for the company's second quarter 2026 conference call to discuss our results. On the call with me are Kelly Brown, co-CEO and president, and Keith Schroeder, co-CEO and CFO. 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 investors.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 in 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-GAAP measures, including adjusted EPS and adjusted EBITDA. Reconciliations to the nearest GAAP measures are available at the end of our earnings release. I'll now turn the call over to Keith Schroeder.

Thank you, Sandy, and thank you all for joining us today in our call. The second quarter of 2026 represented our first reporting period as a standalone Thank you. Thank you. We also completed our initiative to simplify our support structure during the quarter, strengthening our focus on operational discipline, efficiency, and accountability. At the same time, we are executing initiatives designed to accelerate revenue growth and expand our long-term opportunities. We continue to assess our general and administrative cost structure and identify opportunities to enhance operational efficiency. We continue to estimate ongoing G&A expenses of approximately 12 Thank you for joining us today. As a result, the full benefits of these initiatives will be reflected starting in our third quarter results. With that, I'll turn the call over to Kelly to walk through the strategic initiatives currently underway.

Thank you, Keith, and good morning, everyone. Although we have seen optimism around rent growth and reduced concessions in pockets of the country, higher interest rates and elevated operating costs continue to pressure property owners' cash flow. As a result, many customers remain focused on cost control and reduced discretionary spending on temporary staffing. This cautious spending environment has led to lower than expected demand for BGSS workforce solutions, resulting in revenue being below expectations. Keith will discuss these market conditions and their financial impact in greater detail later in the call. Operationally, we continued to make meaningful progress across several key performance initiatives during the quarter. Our focus on optimizing fill rates is producing encouraging results supported by enhanced recruiting processes, expedited candidate matching, and greater efficiency across our delivery teams. We also continue to strengthen our onboarding process, reducing friction for both clients and candidates while accelerating the time from offer acceptance to successful placement. These improvements are helping us deliver better overall experience and drive stronger workforce outcomes. In addition, we remain focused on expanding our PropTech offering. After a successful six-month ramp-up of the program over the first half of the year, we expect this business to successfully build its revenue stream and contribute approximately 1 to 2 percent of revenue in 2027. While still in the early stages of development, we are encouraged by client interest and ongoing execution efforts, and we believe PropTech represents an attractive long-term growth opportunity that complements our broader workforce solutions platform. We executed very successful engagements at both the National Apartment Association and BOMA International conferences during the quarter. Thank you so much for joining us. We are also excited to announce that Tara Gerberich, VP of our Strategic Account Program, one of our own, was awarded the National Supplier of the Year at the National Apartment Association's Excellence Awards. This is the highest individual recognition that is awarded to a supplier by NAA on an annual basis, and we are proud and excited for Tara's well-earned recognition at this conference. Now I will turn the call back to Keith to cover our second quarter financial results.

Thank you, Kelly. As a reminder, our comments today refer to continuing operations unless otherwise noted. Our second quarter revenue is $22.3 million, 5.1% down from the prior year, primarily due to lower billed hours driven by reducing customer demand as property owners and property management companies continue to manage cost pressures, as well as increased competition in select markets. Market conditions remain challenging during the quarter. as higher interest rates, elevated operating expenses, and continued pressure on property-level cash flows contributed to cautious spending decisions across our customer base. While demand was softer in the quarter, recent staffing industry analyst commentary and Randstaff's results point to improving conditions across the staffing industry, which may support a gradual recovery over the remainder of the year. Gross profit for the second quarter was $7.9 million, slightly down from the $8.4 million achieved in the prior year period. Our gross margin was 35.5%, slightly lower than prior year's 35.8%. We believe our gross margin for the year will remain in the 36% range. SG&A expenses were $8.9 million for the quarter, compared to $12.6 million a year ago, a 29% reduction. This quarter included $385,000 of strategic review costs compared to $1.6 million in the prior year period. Adjusted EBITDA for the second quarter was a loss of $298,000, an improvement compared to the $1.2 million loss in the prior year period. As our revenue strengthened during the seasonally stronger Q3 time period, the additional gross profit will positively affect our EBITDA along with the Thank you for joining us today. Equivalence position of $18.2 million, which includes short-term investments. Our cash flow from operations was slightly negative $160,000, driven by working capital requirements, including a seasonal revenue uplift of $1.4 million. We also repurchased 56,256 shares of common stock at an average price of $5.20 per share, which totaled approximately $293,000 for the quarter. As of June 28, 2026, we have approximately $2.3 million available for repurchases. We expect full-year 2026 revenue to remain relatively consistent with 2025 levels. As Kelly outlined, we continue to execute against our strategic priorities, including driving operational excellence through recruiting and onboarding enhancements, expanding our PropTech offerings, We look forward to updating investors on our progress each quarter. Please reach out after this call if you'd like to schedule a meeting. With that, we would now like to open the call for questions. Operator? Thank you.

We will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. To withdraw your question, please press star and then two. If you are using a handset, please pick up your handset before pressing the keys. And again, the star and then one to ask a question. Your first question today will come from Bill DeZellum. of Tieton Capital. Please go ahead.

Thank you. Let's start, if we could, please, with the strategies that you have to shorten the timeline for placement of staff members. Would you walk through the initiatives that you have executed on, how strongly your customers are responding to that, and then what incremental initiatives you may still have ahead.

Sure. Good morning, Bill. Good to hear from you. A couple of things. First, in the second quarter, we were really focused on, I believe as we previously commented on, the upcoming initiative involving using the data that we have related to the candidate profile. and using our technology to be able to quickly match that to the jobs that we have available. So the development around that continued in Q2, and that we'll really start seeing more of the benefit of that going into the third quarter. The second quarter initiative that we really focused on is around our hiring volume. I believe we previously mentioned how leveraging AI and really reaching more candidates in the marketplace And so in the second quarter, we were able to successfully ramp up the volume of hiring that we were able to execute, which clearly benefits the customers. We had more candidates available for the placements that they list with us. So hiring was the main initiative through Q2. And then going into Q3, we're looking at, again, leveraging technology in a couple of different ways to match those skill profiles of the candidates. More quickly to the profile of the jobs that our customers are listing with us.

And how large of an impact do you anticipate that to have in the second half? I don't have a feeling on how meaningful that will be to your customers.

Yes. So the way that we plan to measure that is to look at our fulfillment rates on our placements. So we can measure for every, you know, for example, 100 placement requests that come in, how many of those get filled in what amount of time. So the goal in Q3 is to be able to improve that fulfillment rate by one to two percentage points to start and to ramp that up. So, you know, we'll measure that throughout Q3. I hate to put specific ties, specific revenue numbers to that now for the third quarter, but the goal in how we measure that is going to be in the percentage of that fill rate that we achieve within that first day of the placement being listed with us.

That's really helpful. And then in the past, you have talked about using AI to interview candidates for positions. Is that ongoing? And are you finding any pushback to positions The humans talking to non-humans in an interview process.

That's a great question, Bill. I can take that one as well. About half of our candidates are engaging with our AI interviewer. And that's a good kind of benchmark that we've set is to say, hey, if half of the candidates will, you know, talk with the AI agent, we have the other half prepared to engage, you know, with obviously our human recruiters. Thank you so much for joining us.

And then with that split, have you found that placement rates are any different between the two?

We have not found that placement rates are different between the two. Now, I will say that when candidates engage with the AI recruiter, Thank you for joining us. The volume of candidates that get put to a placement, we haven't necessarily seen a big difference because, keep in mind, we do still have our human recruiters that are kind of that end decision maker, so to speak, right? So the AI doesn't make decisions on who we hire and who we don't. That is absolutely still where our sort of human-in-the-loop component comes into play.

Great. Thank you. And then the final question for now is the PropTech initiative, Would you please discuss in more detail what you are seeing there in terms of, I guess, market size, what we'd be interested in?

I think we're still learning what the true market size is going to be for us, and I say that because the first six months of launching that business, Thank you so much for having me. Thank you so much for joining us. So now they're really just focused on, okay, you know, we know in that business it's not as fast-paced of a close like staffing is. Staffing moves very quickly whenever they need a person. It's a very quick, let's get the placement to the site. PropTech is a longer runway. You know, you have the different phases of scoping out the project, going through and finalizing what those terms are going to look like. So now we're going through that cycle of, hey, let's get more of our contractors in. Thank you for joining us.

That is really helpful. And actually, I do have one additional question. Circling back to the staffing side, have you seen signs with rent improving and fewer incentives for move-ins, essentially a healthier industry, that your candidate, not your candidate list, but your prospective customer list is growing and that there are More firms that maybe aren't quite ready to engage in hiring, but they're interested in conversations. Essentially, your prospect pipeline growing is really the short way to ask that.

Sure. You know, the great thing is, Bill, certainly the usage of staffing is still there. Our communities out there still need people. What we're really working with our customer partners on is, Thank you so much for joining us. We've already seen just the sheer volume of requests improving year over year. However, where we're having to really work is, okay, how many hours of work can that translate to? And that might be something that we need to see improve as we continue on in the industry, seeing those glimpses of optimism with the rent improvement and with pockets where we're seeing concessions go down, et cetera, et cetera. And that will loosen up some of those operating dollars that the communities can put towards services such as ours.

Kelly, does that imply that there is a backlog of work that is building up? And maybe this is my ignorance in not understanding the business well, but if there's an air conditioner that's out, that needs to be replaced right now if it's summer. We understand that. But are there other activities that your candidates work on that can be deferred? and therefore this idea that the volume of requests is up indicates that there is a backlog of deferred work?

You know, I'm hesitant to believe that there is a large backlog of work, Bill, because feedback from customers also indicate that, hey, you know, let's be very careful in how we can leverage deferred Thank you so much for joining us. You know, maybe with more limited resources. So could there be maybe a small backlog of work out there? Possibly, but I don't want to necessarily assume that because I really think our operators are just doing what they can to, with the resources they have, keep up as much as possible.

Great. Thank you for the time, Kelly.

Of course. Good to hear from you, Bill.

And the next question today will come from Michael Taglik of Aegis Capital. Please go ahead.

Good morning, everyone. Quick question. You broke out a strategic alternatives review. Can you give me a little more detail on that spend?

Yeah, that was restructuring costs, Mike, because, you know, there's been things like when we – Okay, and from a...

From a go-forward standpoint, do you have any thoughts about how that spend is going to work? So that's all a restructuring cost, basically?

Yes. Yes, it is. So going forward, that cost would be very small. Okay.

All right. And does Matchbox discuss at all any additional opportunities to – bring more of the gross margin down to the bottom line from a cost reduction standpoint?

Well, yeah, that is something I think I mentioned in my remarks. We are always looking at ways to bring down costs, whether it be people-wise, whether it be software-wise, both in G&A and in selling. So, yeah, while we've made a lot of steps, you know, so far the last, call it six to nine months, we are constantly looking at ways to bring those costs down and We ask from them all the time.

Okay.

Thanks. Thanks, Michael. Take care, Keith.

At this time, we will conclude our question and answer session. I'd like to turn the conference back over to Kelly Brown for closing remarks.

Thank you for your time today. We appreciate your interest in BGSS and look forward to providing an update on our third quarter in a few months. Have a great day.

Thank you all.

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