BGSF, Inc. (BGSF) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, everyone, and welcome to the BGSF, Inc. First Quarter 2021 Financial Results Conference Call. As a reminder, this conference call is being recorded. Now I will turn the call over to Hala Elsherbini, Investor Relations, to provide introductions and read the safe harbor statement. Please go ahead.
Hala Elsherbini: Thank you and thank you for joining us to discuss BGSF's first quarter 2021 earnings results conference call. Joining me on the call are Beth Garvey, President and CEO and Dan Hollenbach, Chief Financial Officer. After the speakers' 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.
Beth Garvey: Thank you, Hala, and thank you to everyone for joining today's call. Although we are already one-year into the pandemic and still being impacted, we remain focused on our key priorities of serving our field talent and client partners while maintaining the health and safety of our team members. I'll begin today's call with a review of our operational highlights and segment performance. And then I'll turn the call over to Dan to discuss our financial results. And I'll wrap up the call with some closing remarks on our general outlook and strategy. Our team has managed well through the ongoing effects of the pandemic and the weather-related disruptions in Texas from the severe winter storms in February. While first quarter results were mixed, order activity has picked up significantly across our division. We continue to build on the progress made over the past year through our business process investments and organizational restructure efforts, which were largely completed in the fourth quarter. Through these initiatives, we are streamlining our operations to drive efficiencies and capitalizing on realigned leadership and cross selling efforts to continue to scale our business.
Dan Hollenbach: Thanks, Beth, and good afternoon, everyone. Thank you for joining us today. This morning, we filed our Form 10-K for the first quarter ended March 28, 2021. And so I'll focus my remarks on the key financial highlights presented there. Let me first add my well wishes that you and your families are staying healthy. Consolidated first quarter revenues declined by 8.6% to $67.7 million compared with Q1 2020. Revenues were impacted by a 14.3% decline in Professional, primarily the Infrastructure & Development division, and a 7.1% decline in Real Estate, offset by a 1.5% increase the Light Industrial division and a $3.9 million contribution from the EdgeRock and Momentum Solutionz acquisitions in the Professional division. Please note that Q1 revenues in Real Estate and Light Industrial were impacted negatively by approximately $1.3 million due to the Texas freeze in February. Placement fees overall were lower by $0.2 million, $200,000, compared to the same quarter last year.
Beth Garvey: Thanks, Dan. I'm pleased with how our entire company continues to execute. Although first quarter got off to slower than expected start, we are beginning to see the fruits of our labor off the hard work we completed last year. We saw recovery signs in Real Estate, activity picked up in Professional and Light Industrial demands remain strong. The cost efficiencies, realignment and cross selling strategies and investments into the business should start to be realized as we drive further growth and profitability throughout the remainder of the year. From an industry perspective, higher rates of vaccinations and COVID related restrictions being lifted point to a strong year of double-digit expansion across most segments of the workforce solutions industry. Within workforce solutions, the US Bureau of Labor Statistics reported a strong temporary penetration rate of 1.92% from March of 2021 compared to the April 2020 drop of 1.57% and the February 2020 pre-pandemic level of 1.93%. The April 2021 Staffing Industry Analysts forecast maintains a 12% growth rate for the overall industry Within US temporary staffing, growth is projected at 11%, surpassing 2019 levels and a record high. Within our focus industries, IT is projected to grow 9% and industrial is forecasted to grow by 16%.
Operator: Today's first question comes from Mike Taglich with Taglich Brothers.
Mike Taglich: Congratulations. Dan, congratulations on your award. A quick question, what are your thoughts about when we see a breakout in Real Estate? Or is that the right word to ascribe to it? Do you want to give us some color about what you're seeing, we're into May, we're into the Q2? What are your thoughts on this?
Beth Garvey: Good question, Mike. We are seeing activity in that division that we feel very positive about. The only thing we're fighting right now is what everybody is fighting, and that is people not wanting to go to work because of stimulus packages. But we still feel optimistic that, that division picks up in the third quarter. So we're still feeling optimistic about that. And with the NAA giving out their projections that they had an active Q1 with people moving, I think that, that bodes well for that division. Keep in mind that people didn't move last year. So if people start moving, that's a good thing for us. And so if the industry is already seeing that, then we feel optimistic about it. But again, we usually see that in the third and fourth quarter. And right now, we have no reason to believe that we've locked these positions well.
Mike Taglich: Are you seeing any of it this month or last month? Or should it be a sequential burn up? Or is it going to be a hockey stick if you had to guess? Or what's your opinion?
Beth Garvey: I think it will be a sequential burn up. I don't anticipate a hockey stick, would love to have some, but I don't anticipate that right now. And I think there's just so much that's still uncertain. For the first - I will say for the first time over a year, we feel very optimistic about the activity we're seeing.
Dan Hollenbach: We have a substantial number of open orders, Mike. And as mentioned, just trying to find the people to go to work.
Beth Garvey: Yes. As of this morning, I had 600 positions that were open. And we didn't have the kind of people, so we didn't create in that aspect. The jobs are there, we just got to get people.
Mike Taglich: All right. Thanks. I'll let somebody else ask more questions. Keep up the good work guys.
Operator: The next question comes from Sarra Schuster with ROTH Capital Partners.
Sarra Schuster: Dan, congratulations on your award. I'm calling in on behalf of Jeff Martin. A couple of questions here. The performance of the Real Estate segment was slightly better than we had modeled in light of the severe storms in Texas during the quarter. Are you able to provide an estimate of the revenue impact from the storms? And was there actually recovery related work from the storms that perhaps aided the performance of Real Estate in the quarter?
Beth Garvey: Yes. So we had over $0.5 million that was impacting just in Real Estate because of the storms here. Once people got electricity again, we actually had people from all over the US that started helping us make calls to people within Texas to do what's called fire watch. So if you saw the news across the country, you saw all of these buildings that had broken pipes and water flowing throughout the building through the parking garages. That's actually fire watch positions for us. So what we would do is go in and make sure that the pipes in the fire systems weren't breaking and then we'll let people know. We did see a big jump on that, which helped us. So that was about a two-week bump on that. But it is revenue in general that about affected that over-happening.
Sarra Schuster: Okay. Thank you. With respect to your outlook for Real Estate, what are the key factors that you foresee between now and the end of the year that will most influence the rebound for the business?
Beth Garvey: the same thing, we just talked about with Mike. I mean, it's just making sure that we get out there. As cities start to reopen, I think a lot of it has to do with people are ready to make moves. They didn't move last year. So we see some activity in that. And then if the rent release packages, if there's more education that goes on with the renters right now to be able to let people know if they do need assistance, how to apply for that assistance and then that will give the management companies the relief that they need to be able to move stream.
Sarra Schuster: Next question, the Professional segment had some project completions last year. Based on your commentary and your press release this morning, it appears new long-term contracts are ramping up. Can you provide some specifics with respect to timing and impact of these contracts relative to the project completions last year?
Beth Garvey: Sure. I think we've talked about the fact that there's been a lot of RFP activity out there right now for the Professional division. We've had several wins in the past three to four weeks. But unlike a win in Light Industrial or win in Real Estate, those aren't immediately jobs that you bill. So when we get a win in Professional, then you go in and you have discovery meetings and you figure out what your timing is going to be. So all of that to say is we do have some positive wins on RFPs, but sometimes it can take about four to six weeks for those to ramp. So we're seeing some of that will probably start getting off at the end of May and into June.
Sarra Schuster: One last question here. For Light Industrial and the logistics demand you're seeing, it appears bill rates are up nicely while hours worked are down about 6%. Is there more work than you have labor for? And if so, are there ways to increase your labor capacity to continue to grow the Light Industrial segment?
Beth Garvey: We are doing everything we want . So the answer is yes. So bill rates are up, and I think customers are seeing that they're having to really go in and paying more to get more. We're seeing bonus programs put into place. We're seeing sign on bonuses being put into place. So when a client in Light Industrial increases their bill rates, that's a good thing for us because in that division, paying bill rates are dictated. So if they have to give more on an hourly pay rates, then that helps us on the bill rates. They're down because we expected it to be down in the first quarter because fourth quarter is always a busy quarter to begin because of the holidays. So we weren't surprised by that. But I will say that again we have about 600 positions that were open in the Real Estate. We also had about 600 positions that were opened in Light Industrial. And we're doing a lot of different things to educate our clients in regards to doing surveys, research for what their pay rates are compared to what they should be for the region and really just going in and saying. If you need people, you are way under market and here's what you need to pay. So there's a lot of education going into making sure our clients have the data to be able to make good decisions. And we're being as creative as we can to try to make sure that we support it, so we're all in the same boat. But it's nice to see some of the clients really starting to engage in understanding that they're going to have to pay some bonuses and sign on things and increase their pay rates. So that is a good thing for us.
Sarra Schuster: Great. Well, thank you very much and again, congratulations on the quarter and just look forward to have a follow-up call tomorrow.
Operator: The next question comes from Howard Halpern with Taglich Brothers.
Howard Halpern: I'll go back to Real Estate for a second. You talked about reopening some offices in Q1 and Q2. Could you give us the locations? And is there any incremental costs of reopening those offices?
Beth Garvey: Well, Howard, I'm not going to tell you locations because that's intel. And I don't know who's on the call. But I will say we opened up two in first quarter. We had five scheduled for second quarter and five scheduled for third quarter. And keeping in mind when we open a market in Real Estate, it is not anything more than people, so it's a salesperson and a recruiter in that market. So that is what our expenses would be to open those markets. But I'm hoping it sounds clearer when we talk tomorrow.
Howard Halpern: Okay. And in terms of the growth potential in Real Estate, are you going to see the new business that comes in again as a little bit higher margin to get the overall gross margin back to that 38% plus level?
Dan Hollenbach: We don't think so. There is some pricing pressure that we have seen in previous years. So I think we're in a range right now that's not going to shuttle too much.
Howard Halpern: Okay. And in terms of talking about gross margins, the gross margin was nice in professional services. And with the wins that you talk about, are you going to keep the margins up towards the high 20s, low 30s, in that area?
Beth Garvey: I don't expect that probably to stay up there. With L.J. Kushner, their of 100% gross margin, so that's good for us. And the addition of Momentum Solutionz, which ran higher gross margins to begin with. And then EdgeRock ran higher than our legacy stuff as well. So I think we've got a nice little trend going with businesses that are extremely complementary to our gross margin profile.
Howard Halpern: Okay. And just on a relative basis going forward, you're pretty happy with the SG&A level that you're at right now?
Dan Hollenbach: I think in terms of dollars, yes, I think we'll get the deleveraging effect as we move into Q3 and Q4, when revenues start to - we anticipate get back to April in more normalized level.
Howard Halpern: Okay. And with that more overall normalized level, for modeling purposes, what would be a good overall tax rate for the year?
Dan Hollenbach: Well, we don't give that out.
Howard Halpern: Okay, well you guys keep up the good work and we'll talk.
Operator: At this time, there are no further questioners in the queue. And this concludes the question-and-answer session. I would now like to turn the conference back over to Beth Garvey for closing remarks.
Beth Garvey: Thank you, Chris. We appreciate you taking time to join us for our call today, and we appreciate your continued support. We look forward to updating you on our second quarter results in August. Stay safe and healthy, and we'll talk to you soon.
Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
