BGSF, Inc. (NYSE:BGSF) Q4 2023 Earnings Call Transcript

BGSF, Inc. (NYSE:BGSF) Q4 2023 Earnings Call Transcript March 14, 2024

BGSF, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone. Welcome to the BGSF Inc. Fiscal 2023 Fourth Quarter and Full Year Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. Now I’d like to turn the call over to Sandy Martin, Three Part Advisors. Ma’am, please go ahead.

Sandra Martin: Thank you. Good morning, and welcome to the BGSF 2023 Fourth Quarter and Full Year Earnings Conference Call. With me on the call today are Beth Garvey, Chair, President and Chief Executive Officer; and John Barnett, Chief Financial Officer. 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 discussions 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. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company’s operations related to the financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute. GAAP and non-GAAP measures are reconciled in today’s earnings press release. I’ll now turn the call over to Beth Garvey. Beth?

Beth Garvey: Thank you, Sandy, and greetings to everyone on today’s call. Fiscal 2023 marked a pivotal year for BGSF characterized by significant achievements and the successful execution of our strategic and transformative plans. We are pleased to report over $20 million in operating cash flow, accompanied by a nearly 5% increase in revenues to $313 million. It’s worth noting that fourth quarter of 2022 included an extra week of operations due to a calendar shift. On a same-day basis, we estimate 7% growth in total 2023 revenue compared to an adjusted 2022. In specific segments, Property Management revenues grew by almost 5% on a same-day basis for the year, while professional revenues experienced an 8% increase on a same-day basis.

Notably, professional revenue in the second half of 2023 was intentionally lower due to a strategic shift away from lower-margin IT placements. Our 2023 initiatives involved successfully integrating Home Solutions acquired in December of 2022 and acquiring a Royal Consulting in April of 2023. These acquisitions provide clients with high-end finance and accounting workforce solutions and robust nearshore and offshore development capabilities. Furthermore, our strength in partnerships with leading technology companies, including Workday, ServiceNow, Microsoft, SAP, Oracle and Salesforce have amplified the BGSF brand fostering new business opportunities. The rebranding to BGSF from various acquired trade names further enhance our brand recognition in 2023 as well.

I’m immensely proud of our team’s dedication and hard work, which has been instrumental in advancing our vision. The March CEO Confidence Index pole hitting its highest level since 2021. It gives us confidence in the continued growth of U.S. businesses. Our strategic decisions regarding service offerings are well positioned for growth in 2024 and beyond. Now I’ll turn the call over to John.

John Barnett: Thank you, Beth, and good morning, everyone. As Beth mentioned, 2022 was a 53-week fiscal year and 2023 was a 52-week fiscal year. The extra week in 2022 was in the fourth quarter, making the as-reported year-over-year fourth quarter comparison difficult. 2023 total revenue was $313.2 million, up 4.9% on an as-reported basis. On a same-day basis, adjusting 2022 for the extra five days, total revenue was up 7%. For the segments, reported professional revenue for the year was up 6.1% on an as-reported basis and 8% on a same-day basis. The increase was driven by the acquisition of our Royal Consulting and Horn Solutions. As we integrated Horn Solutions in 2023, we lost the ability to cleanly separate our organic or existing business from the Horn Solutions business.

For the year, and on a same-day basis, we estimated that our organic professional business declined in the mid-teens in percentage terms. Property Management increased 3.3% on an as-reported basis and 5% on a same-day basis. Gross profit for the year was $112 million, up 8% from the prior year, and gross margins were 35.7%, up 100 basis points from 2022. Recall that our 2023 operating results included a onetime $22.5 million pretax noncash brand name impairment charge related to the rebranding project. Excluding the nonrecurring impairment charge, transaction fees and acquisition amortization, our reported loss from continuing operations of $0.95 per share is adjusted to $1.19 earnings per share compared to $1.26 earnings per share in 2022.

We increased adjusted EBITDA from continuing operations by 15.9% to $25 million compared to $21.7 million. Our adjusted EBITDA margin grew from 7.3% of revenue in 2022 to 8% in 2023. Turning to the fourth quarter, revenues were $73.6 million compared to $77.3 million in 2022. On a same-day basis, adjusting 2022 for the extra five days, fourth quarter revenue was up 3% versus same-day basis revenue of $71.4 million in the prior year quarter. For the segments, on a same-day basis, property management revenue increased at an estimated 0.4% and Professional increased by 5%, which included the benefit of acquired revenues. As stated earlier, as the Horn Solutions integration progressed, it became difficult to separate out our organic or existing business.

We estimate it that the organic professional revenue contracted in the high mid teens on a same-day basis during the fourth quarter. We continue to see pressure in the fourth quarter on staff augmentation, project starts and permanent placement. However, the opportunity pipeline has grown as we moved through the first quarter, and we were optimistic about 2024. Gross profit margins in the fourth quarter were $25.4 million and 34.6% compared to $27.1 million and 35% in the prior year quarter. The slight decline in margin is attributed to lower permanent placement business, which carries a gross margin of 100%. SG&A expenses for the fourth quarter were $20.2 million and $27.4 million of revenue, which was an improvement versus the prior year quarter of $23.2 million and 30% of revenue.

Operating income increased $3.2 million from $2.8 million in the prior year quarter, driven by lower SG&A expenses. Fourth quarter adjusted EBITDA was $5.5 million or 7.5% of revenue compared to $4.3 million or 5.6% of revenue in the prior year quarter. We reported adjusted earnings of $0.21 per diluted share compared to $0.19 per share for the 2022 fourth quarter. I’m happy to announce that we closed the refinancing of our credit facility this past Tuesday. We have a great group of banks in this syndicate, and we are appreciative of their partnership. We prudently manage our balance sheet, focusing on working capital efficiencies and carefully evaluating our leverage ratio. Funded debt to trailing 12 months pro forma adjusted EBITDA was 2.48 times at year-end.

We maintain a disciplined approach to our capital allocation strategy, which includes investments in capital expenditures, organic growth, cash to pay down debt, a quarterly cash dividend with an annualized yield of approximately 6% and strategic acquisitions. We have no immediate plans for acquisitions in 2024. With that, I would like to turn the call back to Beth.

Beth Garvey: Thank you, John. As we reflect on 2023, we recognized the challenges posed by tough double-digit sales comps from 2022, coupled with economic uncertainty. Despite these challenges, our commitment to short-term and long-term strategic initiatives supporting our teams and streamlining operations has positioned us for success in 2024 and beyond. Looking ahead to 2024, we plan to leverage our proprietary territory mapping tool for better sales force deployment and property management and continue up-scaling talent through our virtual training partnerships. On the professional side, our partnerships with leading technologies and our recent appointment as a direct Workday service partner elevates us to new heights. We are also seeing momentum growing in the Managed Solutions and cross-selling of our nearshore and offshore IT services.

Our strategic repositioning including higher value consulting, management solutions and a unique property management platform sets us up for long-term success and shareholder value creation. I’m extremely proud of the progress and execution on building blocks for our future growth and profitability, our team’s dedication and nimble approach position us well for the opportunities that lie ahead. I look forward to what we can achieve at BGSF in the future. Before we open the line for questions, I wanted to mention that we will be at the ROTH Investor Conference next week and hope to see many of you there. With that said, I will turn it over to the operator for questions.

See also Female Smoking Rates by Country: Top 20 and 25 Countries with the Most Beautiful Roads in the World.

Q&A Session

Operator: [Operator Instructions] Our first question today comes from Jeff Martin from Roth MKM. Please go ahead with your question.

Jeff Martin: Thanks. Good morning Beth and John. Beth, I was hoping you could give us a little more insight in the Professional segment. You mentioned the uptick in the CEO survey first time in two years or so that you’ve seen that level. Are you seeing that trickle through to the pipeline of business in Professional?

Beth Garvey: We definitely are. So there’s a lot of optimism going on right now at BGSF, the professional group is — they’re a buzzing right now. It’s all good.

Jeff Martin: Great. And then with the Royal acquisition with you now probably coming on a year here. How is the progress towards — I know the initial reaction towards near-shoring and off-shoring was very positive, seeing that flow through and if so, maybe you can give some anecdotes on what you’ve seen?

Beth Garvey: Well, it took us a while to really figure out their capabilities down there. They have such a robust, what they call products that work so they can do many different things. And so it took us a while to pick out all the many different things that they could do. We’re mostly excited about the way they can build some different tools. We have a connector tool that we’re working with that connect some ERP systems. Not all the time, do you have tools that connect ERP systems to like a pricing tool, right? So we’re able to start to build some AI products that help connect those things. We’ve also got a team of AI group down there that’s actually working a lot in building products for some of our other customers. And so the more that we recognize what they do and the more we talk to our customers about what they need.

Louis Sanchez, who runs that group has done an amazing job talking to our customers in regards to what they would able — what’s your pain point and what we could do to help them. And so it’s been really fun to see all that play out.

Jeff Martin: And then on the Workday partnership, maybe you could elaborate what that means for BGSF?

Beth Garvey: In the past, we were — like a third party, we were proved to be able to do some more, but we were not direct. So we would have — a second party could walk us into one of our customers. This gives us the ability to be able to go direct. So they have us on their website now as a preferred implementer. And so it allows us really a lot of visibility and not having to wait for somebody else to tag us on the shoulder.

Jeff Martin: Great. And then I know strategically, BGSF has made strides towards more technologically advanced solutions. And maybe talk about the progression that you’ve made over the past year, one and a half years since you’ve layered in some acquisitions to enhance the technology aspect of the offering?

Beth Garvey: I think there’s a lot of things. It’s a great question, Jeff. So I think there’s a lot of things that we realized as we started to look at the business and acquisitions going through and talking to our customers about that you’re needing and then looking at our business as a puzzle pace. What do our customers start with? Well, first, they have to pick their software, then they have to implement it, then they have to customize it. And so how do we make sure that we are that player that goes all the way around the circle. And I think we’ve done an amazing job in being able to figure those things out. And in doing so, we figured out that we had teams of people who could do really great things and move the business into higher margin.

And some of these other project type of work that we had customers asking us to do were really higher volume, lower margin business, and it took two or three people to actually keep that going. And we just decided that it was strategically a good idea for us to shift to be able to do that higher-margin business where we were seeing our customers see the benefit of us closing the gap on their needs. And so that was kind of how we shifted last year. One of the main reasons we shifted last year to get away from that lower margin business to really double down on the things that our customers needed and that we were finding we’re really, really good at.

John Barnett: I would say also that we did go through a pretty big transformation, right? Bringing these two acquisitions on board, we had some redundancies, not necessarily, I’d say, redundancies because I think the finance and accounting expertise that Horn brought on board was more higher end, but we had similar groups, right? And so we needed to really organize our business and Eric Peters did a great job working with the professional team to kind of organize our business around finance and accounting, IT, managed solutions and then Arroyo, the near shore, offshore. So — we spent — he spent and we spent a lot of time as an organization to get that alignment. And we feel really good about how we’re set up and especially in the face of some of this economic flog lifting and more optimism, which we expect to result in higher spend by our customers.

Jeff Martin: And then one more for me, if I could. On the Property Management side, a segment that’s traditionally grown at a very attractive and rapid rate. Do you foresee getting back to, say, double-digit growth in the property management side? And if you’re not seeing it now, what kind of environment are you seeing out there currently?