Good morning, ladies and gentlemen. Thank you for attending today’s BGSF Inc. Second Quarter Fiscal 2022 Financial Results Conference Call. My name is Jaquita. I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Sandy Martin, Three Part Advisors. Sandy, please go ahead.

Thank you. Good morning, and welcome to the BGSF second quarter fiscal 2022 earnings conference call. With me on the call today are Beth Garvey, Chair, President, and Chief Executive Officer; 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 webcast live. A replay will be available later today, and archived for 90 days on the Company's Investor Relations page. I now want to take a moment to remind you that today's discussion will include forward-looking statements, which are based on certain assumptions made by BGSF under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's 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 and reports with the Securities and Exchange Commission. All risks and uncertainties are beyond the ability of the Company to control, and actual results to differ materially from those indicated by the forward-looking statements. Management statements are made as of today, August 4, 2022, 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 operating activities and business trends related to the financial condition and results of operations. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings release posted on the company's website. I'll now turn the call over to Beth Garvey. Beth?

Thank you, Sandy. Hello, everyone, and thank you for joining us. I'll begin today's call with a few operational highlights for the second quarter, then I'll turn the call over to Dan to provide more details around our Q2 financial results, followed by an update on the company’s launch of our enterprise-wide technology upgrade, and discuss our pipeline, strategic initiatives, and M&A. We are delighted to, again, report very strong results, which continues to give us confidence regarding the US labor market and client demand. The Real Estate segment led the way with an overall stronger demand environment. The Professional segment, which includes IT and finance and accounting, reported strong double-digit growth over last year. We remain laser-focused on solving business challenges for our clients while growing market share with our well-aligned team. I also would like to provide a recent update on Momentum Solutionz acquisition. We cycled past the one-year anniversary in February, and we are happy to report that we have more than doubled revenues in Q2 versus the second quarter of last year. Regarding new markets this year for the Real Estate segment, we successfully opened four of the six markets targeted for 2022. And we'll add the final two by the end of the third quarter. After a market is fully staffed, our goal is to be cash flow positive within four to five months. So, we are forecasting the new markets to be profitable in early 2023. According to a recent study released by the National Apartment Association and the National Multifamily Housing Council, there is a current deficit of 600,000 apartment homes in the US due to underbuilding. The study also states that the US faces a pressing need to build 4.3 million new apartments by 2035 to address demographic shifts and lingering pandemic impacts on the populace and the broader economy. If significant investments are made in new construction for multifamily units over the next several years, this will support additional tailwinds for our Real Estate segment for years to come. With that said, I'll now turn the call over to Dan to discuss the company's financial results in more detail. Dan?

Thank you, Beth, and good morning, everyone. First, I want to remind you that we completed the sale of our Light Industrial segment late in the first quarter. As a result, our financial results discussed today are from continuing operations, and except where noted, exclude operating results for the Light Industrial segment for this year and last year. For additional details on the sale transaction, please refer to our Form 8-K filed on March 24. Moving to our financial highlights from continuing operations, strong momentum continued into the second quarter, with total revenues up 29.1% to $74.1 million compared to 2021. By segment, Real Estate grew 41%, and Professional increased 22%. We continue to see better efficiencies in submittals, and while wage rates began to level out during the quarter, they were up 9% quarter-over-quarter. In addition to year-over-year improvement, both segments saw sequential growth between Q1 and Q2. Real Estate revenues grew 15.7%, and Professional segment revenues increased 3.5%. The Professional segment's 2022 revenue growth over 2021 was impacted by strong double-digit growth in finance and accounting, IT consulting, and managed services. We continue to see solid demand for digital transformation work and enterprise monetization products. As talent resources remain in high demand, our clients look for ways to enhance systems to automate processes and leverage less manual functions. Gross profit increased by 30.2% compared to the prior quarter, growing to $25.1 million, primarily due to revenue expansion and increased spread in both segments. As a percentage of revenue, total gross profit increased 30 basis points to 33.8%, compared to 33.5% in 2021. Operating leverage in selling, general and administrative costs improved by 140 basis points to 26.9% of revenue, compared to 28.3% a year ago. SG&A dollars increased $3.6 million or 22.3%, which compared favorably to our revenue growth. Second quarter net income from continuing operations was $3.2 million or $0.30 per diluted share, compared to net income from continuing operations of $2.6 million or $0.25 per diluted share in the same quarter a year ago. As a reminder, last year's Q2 income included a pretax credit of $1.2 million associated with continued consideration recorded from an acquisition in 2019. Adjusted EBITDA from continuing operations for Q2 was $5.4 million or 7.3% of revenues, compared to $3.2 million or 5.6% of revenues in 2021. Our Q2 effective tax rate was 23.6% for 2022, compared to 16% in last year's second quarter. Now turning to year-to-date results. Revenues for the first half were $142.6 million, up 33.1% from 2021, while gross profit was $48.5 million, up 36.7%. Although selling, general and administrative dollars increased 25.5%, they improved as a percentage of revenues, resulting in a nice operating leverage of 170 basis points. Net income from continuing operations for the first six months was $5.2 million or $0.50 per diluted share, compared to $2.3 million or $0.23 per diluted share for the 2021 period. A reminder, the prior period included a $1.2 million pre-tax contingent consideration credit. Adjusted EBITDA for the first half of 2022 totaled $10.3 million or 7.2% of revenue, compared to the prior year of $6.7 million or 6.3% of revenue. Finally, the year-to-date effective tax rate was 22.7% for 2022, compared to 16.2% in the year-ago period. Turning to the company's IT investment roadmap. As we discussed last quarter, we expect significant productivity improvements and competitive advantages in our business from the IT platform upgrade, assuming a modest 5% efficiency in order fulfillment. The projected payback period for the roadmap is approximately three years. Future IT spend will represent incremental enhancements to improve systems, provide a more robust platform to grow and scale our business, and Beth will provide further updates from our go-live launch in a few moments. Moving on to our financial position, the company’s balance sheet is strong, and we continue to maintain a prudently conservative liquidity position. At the end of the second quarter, our accounts receivables balance was $50.1 million, up 4% compared to year-end, while days sales outstanding, or DSO, improved by six days from year-end. Our working capital ratio strengthened to 2.45 from 1.95 at year-end. Net cash provided from operations was $1.2 million, a $3.6 million increase from 2021. We utilized the proceeds of the sale of InStaff to pay down our debt, and our leverage ratio of funded debt to trailing 12 months EBITDA was 0.7x as of the June balance sheet date. Finally, the Board of Directors approved our 31st consecutive quarterly dividend at $0.15 per share, in support of our strategic initiatives. Our solid balance sheet position and deleveraging efforts are expected to continue to provide ample flexibility to fund our operations while investing for future growth, as well as returning value to our shareholders through tax dividends and stock appreciation. I will now turn the call back to Beth.

Thank you, Dan. Now, I'd like to provide you with an update on our strategic IT roadmap initiative. The company went live at the end of the second quarter with our enterprise-wide CRM, HRIS payroll, invoicing, and applicant tracking system. Although we continue to tweak the back office interfaces, the operational modules are in good shape. As we discussed last quarter, we fully expect productivity improvements and competitive advantages in our business from this modernization project. Further IT spend will represent incremental enhancements to improve the current system, providing us with a much more robust platform to grow and scale our business. Our pipeline continues to be active in both segments. We continue to win business in a challenging labor environment, and credit our successes largely to the continued success of our cross-sell opportunities that allow us to solve our client needs across multiple business units, a commitment to communities and organizations supporting education and workforce, a robust structure around the redeployment of our extremely seasoned field talent, and a strong commitment to culture and success for all of our stakeholders. Speed to sync operational performance differences sets us apart from the competition, making us a best-in-class workforce solution model. Based on recent workforce stats and trends, if the US experiences what the Wall Street Journal refers to as a full employment recession due to longer-term plunges in the American labor force, our company is operationally well-positioned for this type of unusual or unprecedented period in the US economy. Turning to our continuing work on the M&A front, deal flow continues to be strong. While many of the potential acquisitions are US-based, approximately 20% of the deals we are seeing are global. Given the geopolitical pressures and potential global recessionary influences, we will be conservative in our approach, and leadership will continue to be patient and prudent in our evaluation. Our capital allocation strategy remains unchanged, and we will look for fair evaluations as we seek possible businesses that fit our long-term strategy. With that, we would like to open the call for questions. Operator?

Absolutely. The first question comes from the line of Howard Halpern with Taglich Brothers. You may proceed.

Congratulations. Great quarter, great first half. And on that note, is the momentum continuing into the third quarter? And as history tells us, the third quarter tends to be the strongest revenue quarter. Is that trend still intact as far as you can see?

I would say that we are very optimistic about where we sit right now at the beginning of August in terms of what the quarter's going to shape up like.

Okay. And how are you seeing the balance between the client requests, client orders, and the ability to recruit talent?

Well, recruiting is still our number one challenge that we have right now, but we are doing a really good job of being able to redeploy resources that we currently have so that we can make sure that we are fitting our clients’ needs as well, as the consultants’ needs on both sides. And then we have very robust programs that we are working across the channels for referral programs to get people in the door, and working with colleges and high schools and programs to get people that we can actually train up for the positions that we have. So, there's been a lot of focus around those things, and we are seeing some of the fruits of the labor that come out of that. So, a lot in the building phase on that. I think I've mentioned before, we've got to build the talent for tomorrow. Today's youth is tomorrow's workforce, and we're really focusing in on how to make sure that we are training people up and upscaling them for tomorrow.

Okay. And in terms of the multifamily too, you're able to find enough talent and redeploy them to meet the demand, to have a growing demand for that segment?

In both segments, Howard, we always have open positions that we haven't been able to fill. That number is less than what it was a quarter ago. So, we feel optimistic about that, but we always have open orders in both segments.

Okay. And in the press release, you talked about, I guess, additional - finding additional revenue streams. Do you have an example that you could describe on what you mean with finding additional revenue streams within the context of what operations you're doing?

Well, we are always looking for different types of technology, emerging technology that's coming out of the gates. We look for different things within - we're doing a lot in the municipality space right now. So, our team is really building on that, writing white papers and making sure that we are presenting it to different municipalities and different parts of the country. Our Real Estate division is looking at different things to help with the segment that they have in upskilling some of the talents that they have, which has been able to allow them to charge more for enhanced talent that comes with some skill sets that we train them. So, a lot of those things are just looking for opportunities and looking forward instead of waiting for things to happen. I mean, the teams go to conferences and look for avenues of up-and-coming things that may happen. I know we took our Professional group to the National Apartment Association conference in San Diego this past year. That has never happened before, but what ended up coming out of that is, the Professional group was able to sit down with many different companies within the Real Estate segment and identified technologies that we are currently not in and started to try to build a platform around that.

Okay. That sounds good. And just lastly, any update on the move or entrance into Canada?

We will be opening Canada sometime before the end of this quarter. We're hoping by the end of August, Howard, to be honest with you.

Okay. That sounds good, and just keep up the good work, guys.

Thank you. The next question comes on the line of Jeff Martin with ROTH. You may proceed.

Thanks. Good morning, Beth, and Dan. Hope you're doing well. Beth, could you …

Doing good, but hot.

Yes, it's hot in a lot of places. Was curious if you could go into some detail on Real Estate in the context of where it is now. I mean, we’re basically back to peak levels for the segment. If you look back to 2019, I think Q3 was the peak for that segment. Yes. How much room for growth do you think there is within existing locations versus opening up new markets? I would imagine that's fairly easily scalable, but just curious if you could kind of give us a sense of where the growth was coming from year-over-year. Was it more new markets or was it more existing markets? Thanks.

Historically, it's been new market stuff, but I think that we've talked about in the past that in the US, we're kind of getting to the end of the rope on how many new markets we can open. However, one of the exciting things with the new technology is how we're going to be able to segment the markets that we’re in. So, Houston, for example, we will be able to take - and instead of there being one salesperson there, we could actually have three salespeople there, and we will be able to track activity a lot better. So, we feel like in those cases, the growth will now start to come from existing markets that we have opened, that we are allowing to put additional resources in to expand the growth there.

Okay, great. And then on the Professional side, I would imagine IT is among the strongest. Maybe you could kind of segregate which areas are growing the fastest, which you feel have the most growth potential going forward.

I think that we've talked about the success of the managed solutions Momentum Solutionz that we bought earlier. So, that really leads all of our conversations now. So, they do a really good job of being able to put us to a level to say we can project manage a plan. We can put our consultants up underneath that. And I think as we continue to build out the managed solutions program, it supports everybody in the IT infrastructure. So, it's kind of one of those all boats rise situations, and it kind of starts with the Momentum Solutionz gain.

Great. Well, congratulations on getting your technology platform up and running live in Q2. It’s a big deal. Just curious what kind of reaction you're getting internally. Are people relieved or are they excited? Are they feeling more productive? Would be helpful. Thanks.

Well, it's only been five weeks. And so, we did a lot of work in regards to change management to get ready to go live. So, a lot of people knew what to expect going forward. We aren't seeing efficiencies yet. We - as a reminder, we told everybody we would be going in with a minimal viable product. We just wanted to be able to pay and bill an invoice. That was the most important part of what we needed to do. The efficiencies come after we get all that kind of situated. I think there are something like 142 fast-follow projects that we’ll start layering in, in two-week sprints that allows us to continue to build and get efficiencies out of it. We expect that to really manifest in Q1 of next year.

Okay. And then final question. I was curious if you have noticed any change in the labor availability over the past 12 months. I would imagine you're starting to see people come back into the workforce that maybe had still been sitting on the sidelines a year ago, but maybe comment on that.

There is some of that, Jeff, but part of it is, there's such a shift that that hasn't leveled out yet in regards to what the employee wants and what the employer wants. There's a whole group of employers now that are wanting people to come back into the office. There's a whole group of employees that are doubling down on the fact that they don't, especially now with the inflation and the price of gas going forward. So, we continue to educate and talk to people and make sure that - I mean, it's a dance. We have to ensure that we’re taking care of both sides. So, in regards to, are there more people, I think there are more people, but I think that we continue to come up against challenges in making sure that we match the right talent based off of everybody's needs and understanding of how that works going forward. I don't think that that is completely leveled out as to what the future of work looks like in those regards.

Great. Thanks for sharing.

Thank you. The next question comes from the line of Brian Kinstlinger with Alliance Global Partners. You may proceed.

Great. Thanks, guys, for taking my questions. My first question is, what was the impact on the margins over the last quarter or two based on the new systems implemented? And what is the near and long-term impact on your margin profile based on the efficiencies generated from this new system? And finally, on all in the new system, how might this help you with business development?

So, on the first part, we just went live five weeks ago, right? So, not quite sure we know the margin impact. As I mentioned sort of in my call, we're using just an optimistic estimate of a 5% efficiency. But as Beth mentioned, we'll probably start seeing those towards the latter part of this year and certainly into Q1 of next year. So, I'll let Beth answer the last part of it.

Yes. In regards to business development, Brian, what it really does is, it allows us to get rid of the noise between trying to find a candidate and getting them out to the customer faster. Before, we were having to go through multiple systems. We had Bullhorn. We had Erecruit. Then you have to go to the job boards. You have LinkedIn. You have Dice. So, the team was having to go to multiple places to find stuff. One of the fast follows we have is a tool that's going to be able to take all of that data and dump it into one. So, when a person needs - when our recruiters need somebody, they'll be able to grab it. The second thing it does is, it allows our sales team to move things faster because if the recruiting team - right now, recruiting is a problem. We can get sales, but recruiting is there. So, the recruiting team can move faster. It gives the sales team the ability to go more quickly to the market. We have a better candidate. We have this tool to get us through the door. So, it's kind of a marriage that works together, knowing on what side of the aisle you need to be. I think that as we move through getting those systems in place, it really does reduce the amounts of steps and the amount of data that comes in for people to do their jobs.

Great. That's insightful. But looking at - the first part of the question that's trailing, did you do it yourself? Did you have a third party do it, and what was the cost of implementation? I'm just trying to understand - I take it margins were marginally depressed, or you had some sort of cost related to this that's going to go away.

So, we had a - so we started this three years ago with an initial budget of around $10 million. We're probably closer to $11.5 million to $12 million on a total project, which we had multiple partners helping us implement this between all of the - we essentially replaced every piece of software that we were using in the company. As Beth mentioned, we still have some add-ons to come on later this year. We'll continue to spend money to enhance the products, not to the level that we spent this year, but primarily on third-party professional fees. We will see some efficiencies beginning in Q4 and into 2023 on that.

So, Brian, we already started reducing the outside consulting partners that we had. We had several that dropped off last week. We have another group that'll drop off this week. Our goal is to, in the next six weeks, get down to where any of the future builds are primarily being done by our internal team and not having to use outside resources. We may have to use one or two every now and then, depending on what the add-on is, but our goal is already - we've already started to reduce, and our goal is to get to where we can actually do it with our internal staff.

Great. Last question I have is, you mentioned the company's position for a potential recessionary period. Are you beginning to see fewer professional staffing requests? I'm just curious if there's any change in what you're seeing in terms of client behavior.

Our pipeline continues to be very, very strong. One of the things that we did this past quarter is we actually added a contracts person who's able to push our contracts faster than we were before. So, if you talk to the teams, that gives them the ability to close still faster. We have many, many things in the pipeline. We are not seeing things slow down at all in either segment. There's maybe a little bit of a slowdown in regards to if somebody's going to pull the trigger on making a decision on a candidate, but it's not significant. The flip side of that is, if a client slows down the process of making a decision on somebody, since it is still a candidate's world out there, the candidate just moves on. We can put them somewhere else. You have to move fast. If clients slow down, they could lose out, and I think that continues to be an education.

Great. Thanks, guys.

Thank you. The final question comes from the line of Michael Taglich with Taglich Brothers. You may proceed.

Good morning, Dan. Good morning, Beth. Congratulations. Good quarter. Okay. A bunch of questions here. Okay. So, first, on the tech platform, if you will, whose name escapes me at the moment as a program, all right, so you're $12 million into it. You started three years ago. If I hear correctly, you’ve got a three-year payback that we start seeing in the financials in Q1 of next year, is that correct?

Yes, sir.

Is that - that's correct. Okay. So, three years from - so if I was throwing around.

Around 2024, 2025.

It should start adding $1 million a quarter in EBITDA, if you will?

How much?

$1 million a quarter. There's four quarters in a year, a three-year payback.

Your math is good.

I was very good in math when I was a child, so. But if I hear correctly, it doesn't start until next year.

Correct.

Okay, good. Okay. All right. I'll take that in mind. Okay. Other assets doubled in the last six months. You want to speak to that?

Other assets. Hold on a second. Oh, yes. So, that includes the receivable related to the sale of InStaff. $2 million was deferred for a year, so.

And the rest of it’s - so, that's 2 million.

Are you talking the other current assets or?

Yes.

Other current assets rose - it's 4.7 in June and 2.3 at December. So, $2 million of that. The other $400,000, I don't know that, Michael. I have to pull that detail, but $2 million of it is the receivable on InStaff, so.

Okay. We have a $2 million receivable on that. We have …

That's most of the increase, yes.

Right. Okay. Well, other in total was $11.3 million, up from $6.6 million. So, $2 million of that $11 million is InStaff, right, receivable. So, that'll go against - that'll go into …

You're looking at the summary and the earning release? Yes, I'm looking at the actual balance sheet.

Yes. That's all I’ve got in front of me. I'm sorry.

Yes.

Get it.

Okay. All right. A couple more questions. Just so I understand, the Real Estate offices, how much of an expense hit did we take in the quarter, if you will, from the new offices?

Well, keep in mind, in Real Estate, and we don't call it an office, it's a market, because a market consists of a person. So, we hire a person to do sales in that market. So, worst case scenario, it's a person and a half because we have to have a recruiter that starts out. So, they're what? Probably in a quarter - you're going to make me - I don't want to say because then I'm going to tell everybody what I pay everybody.

Okay. Well, that's fine. I'm just wondering about the …

So, it's a person and a half, Mike.

Okay. So, my next question then is, if you would spend a little bit of time talking about - we're going to be done with offices in the United States of America within 12 months. Okay. I'm summarizing what I heard, if you will. And then you talk about growth by adding people in offices, which probably is more accretive. How much - do you want to talk about the opportunity you see there, and what investments need to be made, and what the payoff is, if you will? Should we go from one person per office to five, or what are your thoughts on that?

I don’t know that we completely understand what the answer is on that. Part of it is, we don't know exactly what the efficiencies we're going to get out of the system. For example, right now, a market consists of a person that does sales and a person who does recruiting. So, a minute ago, when I answered you that it would be a person and a half to open a market, I'm making the assumption that I'm going to get a half-a-person efficiencies out of the new system, right? So, if we go through and add three salespeople in Houston, I only need one and a half recruiters to support those three salespeople. So, we’re trying to build that out right now. And part of that is, we didn't have the ability in the old system to really go in and say what each person produced. In the new system, we will change the model to understand what each person produces. Then, we'll be able to build that out and know what the efficiencies we get in that, as well as what the potential new revenue would be going forward.

Okay. Last question, M&A. Your - BGSF’s current rating just up 6x EBITDA, if I look at what - a pretty conservative estimate, what the EBITDA should be this year. Okay. And you've got your best quarter coming ahead of you and the best half coming ahead of you. Are you seeing M&A at multiples that are accretive to that or no, and also qualifying with the quality of the business?

Multiples are all over the board.

Yes. We've seen - so looking in the IT world, which is primarily where we've been focused, we've seen reasonable multiples in the seven to eight-ish range, maybe eight and a half-ish range. We declined a bit on a few that were in the 10 to 16 range.

Okay. So, I guess, so do you feel with - what are your thoughts about our multiple versus everybody else's?

Well, I believe that the industry multiple overall is down. I believe that we are a turn or two less than the industry. I believe the multiples for some of the companies that are for sale, pardon the expression, are crazy.

All right. Well, okay. All right. That's all I've got. Thanks. Great quarter. I'm looking forward to a strong second half.

Thank you. I would now like to pass the conference back over to Beth for closing remarks.

Thank you, everyone, for your time today, and we appreciate your continued support. We look forward to updating you on our third quarter results in a few months. Have a great day.

That concludes the BGSF Inc. second quarter fiscal 2022 financial results conference call. Thank you for your participation. You may now disconnect your line.