BGSF, Inc. (NYSE:BGSF) Q4 2024 Earnings Conference Call March 13, 2025 9:00 AM ET Company Participants Sandy Martin - Managing Director-Three Part Advisors Beth Garvey - Chair, President and Chief Executive Officer Keith Schroeder - Chief Financial Officer Conference Call Participants Howard Halpern - Taglich Partners Jeff Martin - Roth Capital Operator Good day, and welcome to the BGSF, Inc. Fiscal Year Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. We are ope ...

Financial Performance - Revenues for Q4 2024 were $64.4 million, a decrease of 9.9% from $71.2 million in Q3 2024[6] - Gross profit for Q4 was $21.5 million, down from $24.3 million in Q3, primarily due to lower sales in the Property Management segment[6] - The net loss for Q4 was $1.0 million, or $0.10 per diluted share, compared to a net loss of $0.8 million, or $0.07 per diluted share in Q3[6] - Adjusted EBITDA for Q4 was $1.4 million, representing 2.2% of revenues, down from $3.4 million, or 4.8% of revenues in Q3[6] - For the thirteen weeks ended December 29, 2024, total revenue was $64,411 thousand, a decrease of 6.5% compared to $73,567 thousand for the same period in 2023[16] - Gross profit for the fifty-two weeks ended December 29, 2024, was $54,494 thousand, down from $61,999 thousand in 2023, reflecting a decline of 12.1%[16] - The net loss for the year ended December 29, 2024, was $3,338 thousand, an improvement from a net loss of $10,223 thousand in 2023[18] - Adjusted EBITDA for the fifty-two weeks ended December 29, 2024, was $10,475 million, down from $25,858 million in the previous year, reflecting a significant decline[27] - The adjusted EBITDA margin for the thirteen weeks ended December 29, 2024, was 2.2%, compared to 7.8% for the same period in 2023[27] - The net loss per diluted share for the thirteen weeks ended December 29, 2024, was $(0.10), while the adjusted EPS was $(0.06) compared to $0.40 in the same period of 2023[29] Cost Management - The company implemented a cost restructuring plan in late 2024, with estimated annual savings between $7 million to $9 million[7] - The strategic alternatives review cost the company $88 million in the most recent quarter, while the cost restructuring plan accounted for $230 million[27] Assets and Liabilities - Total assets decreased to $150.1 million as of December 29, 2024, from $178.5 million as of December 31, 2023[13] - Total liabilities were $67.8 million as of December 29, 2024, down from $92.9 million as of December 31, 2023[13] Cash Flow and Expenditures - Cash provided by operating activities increased to $24,379 thousand in 2024, compared to $20,386 thousand in 2023, marking a growth of 14.7%[18] - The company reported a decrease in capital expenditures to $1,640 thousand in 2024 from $2,597 thousand in 2023, a reduction of 37%[20] - The total cash and cash equivalents at the end of 2024 were $353 thousand, compared to none at the end of 2023[20] - The company made net payments of $18,479 thousand on its line of credit in 2024, contrasting with a net borrowing of $2,312 thousand in 2023[20] Impairment and Expenses - The company experienced a significant impairment loss of $22,545 thousand in 2023, which was not present in 2024[18] - The company reported impairment losses of $22,545 million for the fifty-two weeks ended December 31, 2023[27] - Interest expense for the year was $4,475 thousand, slightly down from $4,668 thousand in the previous year[20] - The company incurred interest expense of $1,403 million for the thirteen weeks ended December 29, 2024, compared to $1,601 million in the same period last year[27] - Share-based compensation expenses increased to $201 million for the thirteen weeks ended December 29, 2024, from $184 million in the same period last year[27] Strategic Positioning - The company anticipates that the strategic review process will take 12 to 18 months from the original announcement in May 2024[7] - BGSF was ranked as the 97th largest U.S. staffing company and the 49th largest IT staffing firm in 2024[9] - The company generated $716 million in revenue from Software as a Service for the fifty-two weeks ended December 29, 2024, slightly down from $720 million in the previous year[27] - Transaction fees for the thirteen weeks ended December 29, 2024, were $7 million, a significant decrease from $72 million in the same period of 2023[27]

Core Insights - J.J. Woronoff is an investor based in New York, currently involved in corporate development at a live entertainment company, focusing on various deals including M&A and venture investments [1] - Woronoff has over two years of experience at a leading global investment bank, covering multiple sectors such as Media & Entertainment, Healthcare, and Technology [1] - The investment strategy emphasizes identifying undervalued and neglected stocks, leveraging market inefficiencies for potential higher returns [1] Company Focus - The live entertainment company is engaged in a wide range of deals, indicating a diverse portfolio and strategic growth initiatives [1] - The company’s approach to corporate development includes both large-scale mergers and seed stage investments, showcasing flexibility in investment strategies [1] Investment Strategy - The strategy involves fundamental research, analyzing financials, industry trends, and company-specific initiatives to drive future growth [1] - There is a focus on "neglected firms," which are often overlooked by mainstream investors, suggesting a niche investment approach [1] - The strategy requires a tolerance for higher volatility and market fluctuations, indicating a long-term investment perspective [1]

Financial Data and Key Metrics Changes - Total revenues for Q3 2024 were $71.2 million, down from $83.5 million in the same quarter last year, but up 4.5% sequentially from Q2 2024 [11] - Gross profit for Q3 was $24.3 million with a margin of 34.2%, compared to $30 million and 35.9% in the prior year [12] - Adjusted EBITDA for Q3 was $3.2 million, or 4.5% of revenue, an increase from $2.6 million or 3.8% in Q2 2024 [15] Business Line Data and Key Metrics Changes - Property Management sales were approximately $30 million, reflecting a seasonal increase of 15.9% from Q2 2024 [11] - Professional segment revenues were under pressure, declining 12.9% year-over-year, with IT consulting sales representing almost 70% of quarterly revenues and showing slight sequential growth [8][9] - Managed Solutions business experienced double-digit growth year-over-year and a 10% sequential lift compared to Q2 2024 [10] Market Data and Key Metrics Changes - The demand for Property Management has not yet shown signs of pent-up demand materializing, with growth moderated due to expense pressures [31][32] - The Professional segment saw an uptick in project wins, particularly in late September, indicating potential for sequential improvement in Q4 [33] Company Strategy and Development Direction - The company is evaluating strategic alternatives and has launched advanced lead generation technology to enhance sales funnels across divisions [6][18] - Focus on digital transformation and client engagement through technology investments made in previous years [19] - Continued emphasis on training and developing talent in Property Management to differentiate from competitors [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a challenging operating environment but sees signs of stabilization and potential growth if macroeconomic pressures ease [7][9] - Anticipation of improved project and business flow in 2025 as macroeconomic pressures subside [25] - The company is focused on maintaining a disciplined approach to sales, profitability, and cash flow management [29] Other Important Information - SG&A expenses for Q3 were $22 million, including nonrecurring fees related to the strategic alternatives process [14] - The company generated $21.2 million in cash from operating activities for the first nine months of the year [16] Q&A Session Summary Question: Has pent-up maintenance demand materialized in Property Management? - Management believes pent-up demand has not yet shown up, with growth moderated due to expense pressures [31][32] Question: Did the momentum in the Professional segment carry through in Q3? - There was an uptick in the Professional group, especially late in September, with project wins exceeding project ends [33] Question: Is there a timeline for the strategic alternatives review? - Management does not have a timeline at this point but is working diligently on the process [34]

Revenue Performance - Total revenues for the thirteen weeks ended September 29, 2024, were $71.2 million, a decrease of approximately $12.3 million (14.7%) compared to $83.5 million for the same period in 2023[103]. - For the thirty-nine weeks ended September 29, 2024, total revenues were $208.1 million, a decrease of approximately $31.5 million (13.1%) compared to $239.6 million in the prior year[114]. - Property Management segment revenues decreased by approximately $6.2 million (17.1%) to $29.8 million, primarily due to reduced billed hours and increased competition[105]. - Professional segment revenues decreased by $6.1 million (12.9%) to $41.4 million, mainly due to a decline in billed hours in the Finance & Accounting division[106]. - Property Management revenues for the thirty-nine weeks decreased by approximately $15.4 million (16.1%) due to reduced billed hours and cost pressures[114]. - Professional revenues decreased by approximately $16.1 million (11.2%), with the Arroyo Consulting acquisition contributing $6.8 million of incremental revenues[115]. Profitability - Gross profit for the thirteen weeks ended September 29, 2024, was $24.3 million, down $5.7 million (18.8%) from $30.0 million in the prior year[109]. - Total company gross profit decreased by approximately $14.9 million (17.3%), with gross profit margin declining to 34.3% from 36.0%[118]. - Gross profit margin decreased to 34.2% from 35.9%, primarily due to margin decline in the Property Management segment[109]. - Property Management gross profit decreased by approximately $8.6 million (22.4%) due to increased competition and lower demand[119]. - Professional gross profit decreased by approximately $6.4 million (13.3%), with a $2.3 million contribution from Arroyo Consulting[120]. Expenses and Cost Management - Selling, general and administrative expenses decreased by $0.7 million (3.1%) to $22.0 million, reflecting cost control efforts in response to revenue decline[112]. - Selling, general and administrative expenses decreased by $3.9 million (5.7%) due to cost control efforts[121]. - Interest expense, net decreased by $0.5 million (26.9%) primarily due to lower average balance on the Revolving Facility[113]. - Interest expense decreased by $0.9 million (19.6%) due to reduced accretion on contingent consideration[122]. Cash Flow and Working Capital - Net cash provided by operating activities was $21.2 million for the thirty-nine weeks ended September 29, 2024[133]. - For Fiscal 2024, net cash provided by operating activities was $21.2 million, an increase of $6.2 million compared to $15.1 million in Fiscal 2023[135]. - Working capital increased to $22.0 million from a negative $18.1 million as of December 31, 2023[133]. Strategic Initiatives - The company has initiated a strategic alternatives review to maximize shareholder value, engaging financial advisors for this process[99]. Capital Expenditures and Financing - Capital expenditures in Fiscal 2024 amounted to $1.4 million, primarily for IT improvements, compared to $2.0 million in Fiscal 2023[136]. - The company reduced its Revolving Facility by $17.2 million and paid $4.3 million in contingent consideration related to the Arroyo Consulting acquisition in Fiscal 2024[138]. - The Amended and Restated Credit Agreement allows the company to borrow up to $40 million and includes a term loan commitment[140]. - As of September 29, 2024, the company was in compliance with all affirmative and negative covenants under the First Credit Amendment[141]. - The company has a maximum financial exposure of $0.1 million from a standby letter of credit arrangement related to the EdgeRock acquisition[142]. Economic Environment - The current inflationary environment may negatively impact labor markets and increase borrowing costs for the company[146]. Accounting Policies - Revenue is recognized when workforce solutions are delivered, with various service types contributing to total revenue[147]. - Intangible assets are amortized over estimated useful lives ranging from three to ten years, with purchased software capitalized[148]. - Goodwill is reviewed for impairment annually, with the company assessing the recoverability of its carrying value[149].

Core Viewpoint - BGSF reported a quarterly loss of $0.07 per share, missing the Zacks Consensus Estimate of $0.11, and showing a significant decline from earnings of $0.36 per share a year ago, indicating an earnings surprise of -163.64% [1] Financial Performance - BGSF's revenues for the quarter ended September 2024 were $71.19 million, which missed the Zacks Consensus Estimate by 5.09% and decreased from $83.48 million year-over-year [2] - The company has not surpassed consensus revenue estimates over the last four quarters [2] Stock Performance - BGSF shares have declined approximately 19.2% since the beginning of the year, contrasting with the S&P 500's gain of 21.2% [3] Future Outlook - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the next quarter is $0.09 on revenues of $75.5 million, and for the current fiscal year, it is $0.06 on revenues of $287.4 million [7] Industry Context - The Business - Services industry, to which BGSF belongs, is currently ranked in the top 23% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8]

Financial Performance - Revenues for Q3 2024 were $71.2 million, a 4.5% increase from Q2 2024's $68.1 million, driven by a 15.9% increase in the Property Management segment[3][6] - Gross profit rose to $24.3 million in Q3 2024, up from $23.6 million in Q2 2024, primarily due to higher sales in Property Management[4] - Adjusted EBITDA for Q3 2024 was $3.2 million, representing 4.5% of revenues, compared to $2.6 million (3.8% of revenues) in Q2 2024[4][5] - Adjusted EPS increased to $0.10 in Q3 2024 from $0.07 in Q2 2024[4][5] - Revenues for the thirteen weeks ended September 29, 2024, were $71,186, a decrease of 14.7% compared to $83,484 for the same period in 2023[14] - Gross profit for the thirty-nine weeks ended September 29, 2024, was $71,397, down 17.3% from $86,337 in the prior year[14] - Operating income for the thirteen weeks ended September 29, 2024, was $470, a significant decline from $5,267 in the same period last year[14] - Net loss for the thirty-nine weeks ended September 29, 2024, was $(2,357), compared to a net loss of $(11,222) for the same period in 2023[14] - Adjusted EBITDA for the thirteen weeks ended September 29, 2024, was $3,208, representing a margin of 4.5% of revenue[22] - Adjusted EPS for the thirteen weeks ended September 29, 2024, is $0.10, compared to $0.36 for the same period last year[23] - Net (loss) income per diluted share for the thirteen weeks ended September 29, 2024, is $(0.07), a decrease from $0.24 in the prior year[23] - The adjusted EPS for the thirty-nine weeks ended September 29, 2024, is $0.24, down from $0.93 in the previous year[23] - The company reported a net (loss) income per diluted share of $(0.22) for the thirty-nine weeks ended September 29, 2024[23] Segment Performance - The Professional segment experienced a 2.5% revenue decline from Q2 2024, attributed to a decrease in billed hours in the Finance & Accounting division[4][6] - Property Management segment revenue for the thirteen weeks ended September 29, 2024, was $29,824, accounting for 42% of total revenue[15] - Professional segment revenue for the same period was $41,362, making up 58% of total revenue[15] Expenses and Liabilities - Total current assets decreased to $51.5 million in Q3 2024 from $66.9 million in Q2 2024[12] - Total liabilities were reported at $74.4 million, down from $92.9 million in the previous quarter[12] - Selling, general and administrative expenses for the thirty-nine weeks ended September 29, 2024, were $64,549, down from $68,475 in the previous year[14] - The company reported interest expense, net, of $(1,222) for the thirteen weeks ended September 29, 2024, compared to $(1,672) in the same period last year[14] Strategic Initiatives - The company launched an advanced lead generation technology in Q3 2024, improving lead acquisition and conversion rates[4][7] - The company is focused on expanding consulting efforts and has plans for further technology enhancements in Q4 2024[6][7] Company Rankings - BGSF was ranked as the 97th largest U.S. staffing company and the 49th largest IT staffing firm in 2024[9] Other Financial Metrics - Cash dividends declared per common share were $0.15 for the thirty-nine weeks ended October 1, 2023, unchanged from the previous year[14] - Acquisition amortization for the thirteen weeks ended September 29, 2024, is $0.13, compared to $0.15 for the same period last year[23] - Impairment losses (pre-tax) for the thirty-nine weeks ended September 29, 2024, are $0, while the previous year recorded $2.10[23] - Strategic alternatives review contributed $0.05 to adjusted EPS for the thirteen weeks ended September 29, 2024[23] - Transaction fees for the thirteen weeks ended October 1, 2023, were $0.01, compared to $0.08 in the previous year[23] - Income tax expense adjustment for the thirteen weeks ended September 29, 2024, is $(0.01), compared to $(0.04) in the prior year[23]

Financial Data and Key Metrics Changes - Total revenues for Q2 2024 were $68 million, down from $80.8 million in the prior year quarter, and flat sequentially [7] - Gross profit was $23.6 million with a margin of 34.7%, compared to $29.6 million and 36.6% in the prior year [8] - Adjusted EBITDA for Q2 was $2.6 million or 3.8% of revenue, down from $7.5 million or 9.3% in Q2 2023 [9] Business Line Data and Key Metrics Changes - Property Management revenues were approximately $26 million, down year-over-year but up sequentially by 4.8% from Q1 2024 [5][7] - Professional segment revenues were approximately $42 million, declining both sequentially and year-over-year due to project ends exceeding project starts [6][7] - New contract wins in the Professional segment outpaced contract ends by approximately 25% through June [6] Market Data and Key Metrics Changes - The multifamily sector experienced higher M&A activity, leading to delays in capital decisions and increased deferred maintenance levels [13] - A pilot market for territory mapping strategy saw a 19% increase in revenue year-over-year [13] Company Strategy and Development Direction - The company is focused on maximizing shareholder value through a review of strategic alternatives [4] - There is a strategic shift towards managed solutions and IT consulting, with an emphasis on building long-term partnerships [15][17] - The company is enhancing its sales enablement process and targeting properties with specific campaigns [12] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for the second half of 2024, expecting improved results in both segments [11] - The company anticipates a strong revenue ramp-up in the Professional division starting in Q3 [16] - Management noted that macroeconomic pressures, including inflation and interest rates, continue to challenge the industry [5] Other Important Information - The company has reduced funded debt from $63 million at the end of 2023 to $52 million at the end of Q2 2024 [9] - The company has been recognized as the 49th largest IT staffing firm in the U.S., an improvement from 52nd [4] Q&A Session Summary Question: Expectations for the third and fourth quarters - Management believes the second half of the year will be significantly better than the first half in both segments, with positive momentum in contract wins [19] Question: Status of large contracts - Some large contracts have started, with significant revenue expected to begin in late August and September [20] Question: Working capital and cash flow - Management feels comfortable with capital availability, attributing improved cash flow to effective accounts receivable management [23] Question: Pipeline and verticals for projects - The pipeline is primarily in technology, focusing on managed solutions and expanding service offerings to existing customers [24] Question: Trends in permanent placements - There has been double-digit growth in permanent placements, indicating increased confidence in the economy [28] Question: Reasons for increased contract wins - The increase in contract wins is attributed to pent-up demand as companies move forward with ERP system upgrades [29]

Company Performance - BGSF reported a quarterly loss of $0.07 per share, missing the Zacks Consensus Estimate of $0.08, and down from earnings of $0.24 per share a year ago, representing an earnings surprise of -187.50% [1] - The company posted revenues of $68.14 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 7.92%, and down from $80.8 million in the same quarter last year [2] - Over the last four quarters, BGSF has surpassed consensus EPS estimates three times but has not beaten consensus revenue estimates [2] Stock Performance - BGSF shares have lost about 10.6% since the beginning of the year, while the S&P 500 has gained 9.9% [3] - The current Zacks Rank for BGSF is 3 (Hold), indicating that shares are expected to perform in line with the market in the near future [6] Future Outlook - The current consensus EPS estimate for the coming quarter is $0.30 on $83 million in revenues, and $0.40 on $300.77 million in revenues for the current fiscal year [7] - The outlook for the industry can significantly impact the stock's performance, with the Business - Services industry currently in the top 34% of Zacks industries [8]

Financial Performance - Q2 2024 revenues were $68.1 million, a slight decrease of 1.0% from Q1 2024's $68.8 million[3] - Adjusted EBITDA for Q2 2024 was $2.6 million, representing 3.8% of revenues, down from 4.0% in Q1 2024[3] - Net loss for Q2 2024 was $0.8 million, or $0.07 per diluted share, consistent with Q1 2024[3] - Revenues for the thirteen weeks ended June 30, 2024, were $68,137, a decrease of 15.0% compared to $80,800 for the same period in 2023[12] - Gross profit for the twenty-six weeks ended June 30, 2024, was $47,068, down 16.4% from $56,358 in 2023[12] - Operating income for the thirteen weeks ended June 30, 2024, was $81, compared to $5,050 in the same period of 2023, indicating a significant decline[12] - Net loss for the twenty-six weeks ended June 30, 2024, was $(1,553), an improvement from a net loss of $(13,862) in 2023[12] - Adjusted EBITDA for the thirteen weeks ended June 30, 2024, was $2.6 million, with an adjusted EBITDA margin of 3.8%[18] - Net loss income per diluted share for the thirteen weeks ended June 30, 2024, was $(0.07), compared to $0.24 for the same period in the previous year[19] - The company reported an operating income of $81,000 for the thirteen weeks ended June 30, 2024, compared to $5.05 million for the same period last year[18] - Total interest expense, net, was $1.06 million for the thirteen weeks ended June 30, 2024, down from $1.5 million in the prior year[18] - Adjusted EPS for the thirteen weeks ended June 30, 2024, was $0.07, down from $0.37 in the same period last year[19] - The company reported a net loss income of $(1.55) million for the twenty-six weeks ended June 30, 2024, compared to $(13.86) million for the same period last year[18] Segment Performance - Property Management segment revenues increased by 4.8% from Q1 2024, while Professional segment revenues declined by 4.1%[3] - Property Management segment revenue for the thirteen weeks ended June 30, 2024, was $25,726, representing 38% of total revenue[13] - Professional segment revenue for the same period was $42,411, accounting for 62% of total revenue[13] Strategic Initiatives - The company anticipates a strong revenue ramp-up in the Professional division starting in Q3 2024[6] - New contract wins in Q2 2024 outpaced contract ends by approximately 25%[5] - The company has been recognized in Staffing Industry Analysts' 2024 U.S. rankings, placing in the top 50 for U.S. IT staffing firms[7] - The company reduced headcount and lowered fixed costs in the first half of 2024 to align with revenues and strategic growth plans[4] - The company is evaluating strategic alternatives to maximize shareholder value, with no updates available at this time[6] - The company is reviewing strategic alternatives, incurring $280,000 in related costs for the thirteen weeks ended June 30, 2024[18] Cash Flow and Assets - Total assets as of June 30, 2024, were $159.8 million, down from $178.5 million a year earlier[11] - The company reported cash flows from operating activities of $14,717 for the twenty-six weeks ended June 30, 2024, compared to $12,549 in 2023[14] - The company had capital expenditures of $(995) for the twenty-six weeks ended June 30, 2024, down from $(1,490) in 2023[14] - Cash and cash equivalents at the end of the period were $226, indicating a stable liquidity position[14] Impairment and Costs - The company incurred impairment losses of $22.5 million for the thirteen weeks ended July 2, 2023[18] - Share-based compensation increased to $236,000 for the thirteen weeks ended June 30, 2024, compared to $75,000 for the same period last year[18] - Transaction fees for the thirteen weeks ended June 30, 2024, were $25,000, significantly lower than $435,000 in the prior year[18]