BGSF Inc (BGSF) 2018 Q1 法說會逐字稿

Greetings, and welcome to the BG Staffing Q1 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Terri MacInnis, VP, Investor Relations.

Thank you, operator, and good morning, everyone. As VP of Investor Relations representing BG Staffing, it's my pleasure to welcome you to the company's conference call to discuss Q1 financial and operating results and a progress report on the company's business strategy. With me today on our call is Dan Hollenbach, Chief Financial Officer; and Allen Baker, President and CEO.

By now, you should have seen a copy of the press release announcing BG's Q1 2018 financial results. If you do not have a copy of the press release, you can find it in the Investor Relations section on BG's website at bgstaffing.com. I'll remind you that this call is being webcast live and recorded. A replay of the event will be available later today on BG's website and will remain available for at least 90 days following the call.

I would also like to remind you that our discussions today include forward-looking statements. These statements are based on certain assumptions made by BG Staffing based on and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including those listed in Item 1A of the company's Annual Report on Form 10-K and in the company's other 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 statement. These forward-looking statements are made as of the date of this call, and BG Staffing assumes no obligation to update these statements publicly even if new information becomes available in the future.

This broadcast is covered by U.S. copyright laws, and any use or rebroadcast of all or any portion of this conference call may only be done with the company's expressed written permission.

During our call, we will discuss some non-GAAP measures, which we use for internal evaluation and to report the results of the business as useful information to management, our Board of Directors and investors about our operating activities and business trends related to our 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. For reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release posted on BG's website.

I'll now turn our call over to Dan Hollenbach, BG Staffing's Chief Financial Officer. Dan?

Thank you, Terri. Good morning, everyone. Thank you for joining us, and thank you for your interest in BG Staffing.

We're pleased with the performance of BG Staffing for the first quarter of 2018, and I would like to start by taking a moment to recognize our people at each of the BG Staffing business units for their hard work and dedication to the company's continued success and strong gross profit margins. We are very proud of the job they have done.

BG Staffing provides temporary staffing services within 3 industry segments: Multifamily, Professional and Commercial. As we will discuss in Q1 2018, we achieved our highest quarterly consolidated gross profit percentage in the company's history at 25.9% and our fourth consecutive quarter with consolidated gross profit percentage greater than 25%.

I will spend a few minutes commenting on BG Staffing's financial results and then turn the call over to Allen Baker for his comments on the quarter, the current state of the company as well as the industry.

Our revenues for the first quarter of 2018 were $66.9 million, up 17.6% from the first quarter of 2017 with our gross profit percentage at 25.9%, up from 24.1% for the first quarter of 2017. Net income for the first quarter was $2.5 million or $0.27 per diluted share compared with net income of $1.3 million or $0.15 per diluted share for Q1 2017. Improved customer sentiment led overall demand to continue to be strong across all of our segments, and our Q1 2018 gross profit percentage exceeded expectations.

Now looking at our segment results. Multifamily revenues increased $4.9 million or 37.8% over Q1 2017, which was all organic growth. Multifamily gross profit percentages -- percentage for Q1 2018 was 38.1%, in line with the same period last year. Multifamily opened 7 new offices and split 4 during 2017. Our expectations are to open at least 5 this year.

Our Professional segment's revenues increased approximately $5.3 million or 20.4% compared with Q1 2017 with gross profit percentages for the Professional segment coming in at 25.3% for Q1 2018, which compares to 24% for the same period last year. These results reflect a full quarter of both Zycron and Smart, partially offset by some project-specific variances that negatively impacted Q1 2018 results.

First, a large project within our F&A division is currently winding down. We generated $1.9 million less revenue and $384,000 less gross profit attributable to that project in Q1 '18 versus Q1 '17. We expected these declines and did not include any revenues from this project in our 2018 planning.

Our Commercial segment revenues decreased $188,000 or 1% from Q1 '17. Commercial gross profit percentage was 14.4% for Q1 '18 compared with 13.8% for Q1 2017, reflecting strong execution and pricing discipline by our managers in this segment of our business, taking advantage of the improved business environment that began early last year and carried forward into the first quarter of '18.

Selling expenses increased approximately $2.2 million or 27.1% over Q1 '17 due primarily to the growth in Multifamily of $973,000, of which $328,000 was attributable to the new offices; and the addition of Zycron and Smart, which added $1.7 million to our Professional segment. Our IT and F&A division selling expenses decreased $459,000, and our Commercial segment decreased $93,000.

Our G&A expenses were 2.4% of sales for the first quarter of '18, down slightly from 2.5% for the first quarter of 2017. Our effective income tax rate for the first quarter of 2018 was 22.1% compared with 39% in first quarter of 2017. First quarter tax rate is significantly lower due to the new tax legislation passed in December as well as higher work opportunity tax cuts generated than we were expecting. We're currently keeping our estimate for the remaining quarters' effective income tax rate at approximately 25.7%. Cash flow [with good alliance] paid down both our revolver and term debt as well as paid a dividend to our shareholders.

We believe that adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and provide a more complete understanding of factors and trends affecting our business. We also believe that investors, analysts and other interested parties view our ability to generate adjusted EBITDA as an important measure of operating performance and that of other companies in our industry.

Adjusted EBITDA was $5.4 million or 8.1% of revenues in Q1 '18 compared to $4.1 million or 7.3% of revenues in Q1 '17. Reconciliations of adjusted EBITDA are available to our -- in our current report on Form 10-Q and in our earnings release, both of which are available on our website. Allen?

Thanks, Dan. Good afternoon, everyone, and thank you for joining us today. I'm very pleased to review our strong first quarter results with you.

Improved demand at 17.6% increase in revenue and continued solid execution resulted in record results in every profit category. In terms of capital allocation, we also continued to return to cash -- return cash to our shareholders through quarterly dividends, and I'm also pleased that the board increased our quarterly dividend from $0.25 to $0.30 per share per quarter. BG Staffing has now been paying regular quarterly dividends for 14 consecutive quarters.

Overall, staffing demand remained robust throughout the first quarter of '18, certainly, as it relates to BG Staffing. And customer sentiment was mostly positive.

Our focus on maximizing gross profit margin resulted in our first-ever annual gross profit margin of 25.9%. We continue to sustain our gross profit margin percent as a result of the investments we are making in value-added business segments. We believe these investments have added scalability and flexibility to our business, allowing us to serve additional customers at lower marginal cost, providing us with a significant competitive advantage in segments that correlate with strong demand. This ultimately leads to sustained and growing profitability for the company and significant value creation for investors.

Because of these distinctive skills and assuming no significant changes in market conditions, we believe that we can sustain a gross profit margin within the range of 25% to 26% for the remainder of the year. We currently anticipate customer demand levels will hold with the potential for continued improvement as we move through 2018 for all our business segments. Further, if the economy continues to improve and labor markets continue to tighten, we believe this will be a positive for BG Staffing overall.

In terms of acquisitions, we have previously discussed how we have designed our approach to hunting for new value-added businesses that are tailored to our unique circumstances. Our perspective is that diversification is intrinsically neither good nor bad. It depends on whether we, as the parent company, can add more value to the businesses we buy than any other potential owner could.

Historically, our acquisition strategy has included a willingness to make investments early before competitors and the market to see the potential of the target segment for company. Based on our recent results and our results over the past several years, we believe we have taken advantage of an attractive industry structure and demonstrated a track record of creating a clear competitive advantage.

In 2017, we completed 2 acquisitions -- Zycron and Smart -- both of which have been performing as expected. We expect to continue to be a consolidator in a fragmented industry by making value-creating acquisitions of profitable staffing companies within markets that complement our diversification strategy and meet our strategic objectives. Although we have not completed an acquisition yet in 2018, the pipeline remains very active, and we continue to evaluate a wide range of opportunities. Organic investments, primarily in new office growth relative to our Multifamily segment, will also continue to support our future growth.

Wrapping up my comments, 2018 is off to a good start, and we have every reason to believe that our performance will continue to do well for the remainder of the year. Our business are performing -- our business is performing well, and we remain highly encouraged by the current economic environment.

We believe our future growth prospects are well supported by BG Staffing's strong financial position, and we believe that we can leverage our existing cost structure in periods of growth to produce higher earnings. Our focus going forward will be to continue maximizing our gross profit margin while taking a disciplined approach to operating expense management to sustain our current trajectory of earnings growth.

Now I would like to ask our operator to initiate the question-and-answer session.

(Operator Instructions) Our first question comes from the line of Jeff Martin.

Wanted to dive in to Multifamily a little bit. You said you'd opened at least 5 new offices this year. Wondering how many have opened to-date. And could you shed more color on the...

I think we're...

Sorry, go ahead.

Go ahead.

I was just asking to shed some color on the 38% growth number for the quarter. Are you still seeing work from the hurricanes? And is that a level that we should expect to continue in terms of the growth rate for the balance of the year?

I have no idea to what the answer to that question is, but I will say this that Multifamily, we've worked on about 3 -- we are working on about 3 of the offices opening. We feel confident that they're going to be open shortly. So that's 3 of the 5 right there, and we're not even halfway through the year. As far as 38% growth, that kind of surprised us a little bit. I don't know if that's what we're going to expect for the entire year or not, but it's going to be along those lines.

Okay. Great. And then could you also talk about customer additions or deletions during the period?

We haven't had any customer additions or deletions during this period.

Okay. And then could you provide an update for us on the IT and then finance and accounting?

Yes. The Professional division, which is what you're relating to, we do look at it as though it's financial -- finance and accounting and IT. IT has taken a little hit, primarily in the amp, but that's -- they're still recovering from the vast -- we've laid off most of the people in that area. We're changing their whole direction. They've only lost, I don't know, $2 million, $3 million in sales because of that. However, the acquisition of Zycron has more than made up for that. As far as finance and accounting goes, I think we're well on the way to seeing how the Smart acquisition is going to help that, and we're constantly in the marketplace looking for new acquisitions to bolster that business. As far as what's it's going to do to the remaining part of this year, it should be going up, but we'll just wait and see.

Okay. Great. And then my last question is, could you talk about your capital availability to fund acquisitions, how you feel about your current access to capital and how you see funding that going forward?

I feel really good about it. We've got our bank group structured in such a way that we can do some more acquisitions. All we've got to do is find one. So if it looks good enough to buy, I feel like we'll be able to buy it.

Our next question comes from the line of Michael Taglich from Taglich Brothers.

You're great at producing very good results and very -- always very shy about predicting future ones. So...

That's worked out pretty well.

Well, shyness aside, the Multifamily has obviously been a wildly successful acquisition. Where do you see that business in 2, 3, 4, 5 years from now? And you want to talk about the opportunities there in the Commercial segment? Give us idea what your goals are for it.

Yes. We have -- probably, Multifamily just alone will be over $100 million. That should happen relatively easily assuming there's no bumps in the road. As far as the Commercial segment, we're sticking our toe in the water this year. They've got to produce roughly $5 million, $6 million in revenues, and then we're going to turn them loose. We're learning a lot about the market. I would say at this stage of the game, it's looking pretty good to me even though we have been a little behind what we were expecting, but I think they'll do more than make up for that later on in the year. So is that kind of what you were looking for?

Well, you have goals about where commercial can be 2, 3, 4, 5 years from now?

3, 4, 5 years from now, I have no goals. I just want to see if it's going to be able to stand on its own 2 feet. So this year's goal is to do $5 million or $6 million in revenue. If they do that, then we'll talk about future goals.

And at the current level of what you learned on the Commercial side of the business, do you feel you've got a business model that can match that, that you've done in Multifamily?

We do feel that way, but give us another -- I don't know, give us till the end of the year, frankly. Because we're learning something new about this market every day, particularly the types of people that we thought we were going to putting to work. They are different. We thought they were going to be more similarly situated. But we feel like we should be able, at this stage of the game, to duplicate the revenue growth that we've seen in Multifamily with this model.

What do you think the margins are going to be? Are they going to approach Multifamily's? Will they be...

Yes, yes, they'll easily be the Multifamily-level margin.

And how big a market is Commercial versus Multifamily?

Well, our initial thoughts are it should be bigger, but I don't really know. I just want to see us stick our toe in the water and do $5 million or $6 million in revenue this year. If it does that, boom, the sky's the limit. We'll pull the sheets back and let the operations people tell us what they think they can do.

Now from a rollout standpoint, can you use the office -- yes, I assume you can use the Multifamily offices, so you don't have much in the way of marginal -- fixed expenses, right.

Yes, correct. We're thinking that right now. But like I said, I think we've got people active in 5 or 6 of these offices currently as we're sticking our toe in the water. But we do plan to -- whether it's the same or different, it will be the same profitability level as Multifamily, if you follow what I'm saying there.

I got it. All right. Keep up the good work, and good job on the dividend. I have one more thing. At this rate, without any acquisitions, you should be out of your term debt even with this dividend rate in a couple years or so, right.

Okay. I'll take your word for that. Dan is over here shaking his head, yes, so I'm going to agree with you.

There are no further questions at this time, and I would like to turn the call back to Allen for closing comments.

Thank you, operator, and thanks to all of you for joining our call today. I'm looking forward to our next call that we report and anticipate that Q2 results should be solid. Have a good afternoon. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.