Good morning, everyone, and welcome to the BGSF, Inc. fiscal 2023 third-quarter financial results conference call. Now I'd like to turn the call over to Sandy Martin, Three Part Advisors.

Thank you. Good morning, and welcome to the BGSF 2023 third-quarter earnings conference call. With me on the call today are Beth Garvey, Chair, President, & 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 discussion 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 materially differ 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's 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 conditions and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I'll now turn the call over to Beth Garvey. Beth?

Thank you, Sandy, and thank you, everyone, for joining us today for our third-quarter earnings discussion. Our performance for the third quarter reflects continued progress on our long-term strategic initiatives. Our goals are to grow through organic and inorganic revenues and by diversification actions to higher value and specialized offerings in both segments. Property management solutions and our professional consulting and project work continue to enhance consolidated gross margins and the company's return profile. Our third-quarter performance reflects this progress with sales growth of 6.3% that resulted in total revenues of $83.5 million. We grew by 8% in the Property Management segment and 5% in the Professional segment despite pockets of weakness mainly in the ERP-related consulting area. The effects of economic uncertainties and high interest rates of 2023 continue to cloud our industry and create a choppy demand environment. We believe that our unique offerings across our two segments, as well as good diversification of clients in the end markets, position us well in this environment. Our strategic investment in people, process, and technology over the last three years has given us more stability and capabilities to succeed than three years ago. The Professional segment is in the early stages of realizing benefits from recently added or acquired workforce solution competencies. This includes our nearshore and offshore capabilities from the acquisition of Royal Consulting earlier this year. Our full suite of Professional Services & Solutions includes our acquisitions that have strengthened our go-to-market value delivery proposition. This includes added global IT resources and capabilities with AI capabilities, projects, and customer solutions. With that, I'll turn the call over to John to cover the detailed financial results.

Thank you, Beth, and good morning, everyone. Third-quarter total revenues grew to $83.5 million, up 6.3% from the prior-year quarter. The Property Management segment, all organic, continued to show strength and grew revenues by 8.2% in the third quarter. This growth was on top of 34.1% revenue expansion in the third quarter of last year. This translates to cumulative two-year revenue growth of over 42% compared to 2021. Seasonal apartment turnover make-ready demand in the second and third quarters continues to advance the Property Management division. The professional segment's quarterly revenues increased by 5%, driven by recent acquisitions. Organic sales in professional declined by 20.6% in the third quarter versus the prior-year quarter. The third quarter was going up against difficult prior-year comparisons that were aided by macro tailwinds, driving up sales by 14.9% in the prior-year quarter. Sales softness in this year's first quarter was primarily related to staff augmentation placement and technology implementation starts. We are benefiting from new service and solution offerings from our acquired businesses, and we are pleased to have invested in these differentiated businesses that offer nearshore and offshore IT capabilities and higher-end finance and accounting solutions. The third-quarter gross profit margins expanded to 35.9%, up from 35.7% in the prior-year quarter. Property Management gross margins were 39.5% compared to 40.8% in the prior-year quarter due to lower permanent placement. Property Management permanent placement was relatively flat on a sequential quarter basis but was up against tough comps from the prior-year quarter. The Professional segment gross margins were 33.2%, up 130 basis points due to the acquired businesses and continued shift away from low-margin IT placements. SG&A expenses for the third quarter were $22.7 million, essentially flat compared to the second quarter. Nonrecurring transaction fees for the quarter were $149,000. Third quarter adjusted EBITDA was $7.9 million or 9.4% of revenue, which was sequentially higher in terms of dollars and margin percentage than the second-quarter adjusted EBITDA of $7.5 million or 9.3%. We reported adjusted earnings of $0.36 per diluted share compared to $0.37 per share for the second quarter, which was lower primarily due to the impact of more interest expense this quarter. We are prudently managing our balance sheet, focusing on working capital efficiencies. We have continued to pay down debt. Our bank covenant ratio of funded debt to trailing 12-month pro forma adjusted EBITDA increased to 2.5 times from 2.3 times as the reduction in debt did not offset the decline in pro forma adjusted EBITDA. We are in the process of refinancing our credit facility. We have a great group of banks committed to participate in the refinancing, and we are working through the details to get an agreement executed. We maintain a disciplined approach to our capital allocation strategy that includes growth investment, debt paydown, and consistent capital returns to shareholders through our quarterly cash dividend at an annualized yield of approximately 6.4%. Although we will continue to review the acquisition pipeline, we have no immediate plans for acquisitions in 2023 or early 2024. And with that, I would like to turn the call back to Beth.

Thank you, John. Like most businesses, we continue to navigate and manage through changing market dynamics this year. We remain bullish on the company's prospects based on significant progress of our strategic repositioning over the last several years, which includes higher value consulting, managed solutions, and a growing property management platform. We are truly unique in the workforce solutions space. Although our stock has traded down and it's mostly in line with the industry, we believe that we are better positioned for future growth, higher gross margins, and meaningful cash flow generation leading to long-term shareholder value. We have made significant progress and changes in both segments and believe we are well positioned for profitable growth. In property management, we have expanded across the US and Canada over the last few years but are still small from the market penetration perspective compared to the addressable potential. The National Apartment Association expects added capacity with approximately 4.3 million new apartments planned to be built by 2035, and we plan to significantly benefit from this industry growth. On the professional side, we are partnered with the world's leading technologies according to Gartner's 2023 cloud ERP report, which includes Workday, Oracle, and SAP to name a few. We also provide other high-value IT consulting, finance and accounting, managed solutions, and offshore IT engineers, building AI projects for valuable long-standing clients. Our transformation plan to build a strategic workforce solutions business with two growing segments accelerated in the most recent years. We plan to continue to make prudent decisions as we continue to build an enduring company that creates sustainable, long-term shareholder value. Looking into the fourth quarter, despite continuing difficult comparisons, we expect the professional segment to stabilize somewhat. We plan to continue to focus on our strategic initiatives this year to expand our business, improve profitability, and generate cash flow. Our businesses are not recession-proof, but we believe that the segment and the diverse markets position us to be more resistant to typical downcycles compared to others in the staffing industry. For the remainder of 2023, we expect to see normal seasonality in our property management and growth in the professional segment, driven by our acquisitions. I want to thank the entire BGSF team for their diligence and hard work in supporting the company's expansion plans, acquisition integrations, and profitability progress this year. Finally, it is with great sadness that I share the passing on Tuesday of former Chairman of the Board, President, and CEO, Allen Baker. Allen was a person of integrity and a forward-thinking leader. He dedicated over a decade of his life to helping shape the fabric of our company. His impact extends beyond BGSF, leaving an indelible mark on the industry, and his legacy is marked by steadfast commitment to excellence and a passion for driving success. I know that many of you knew him, so I wanted to share this with you today. For details on the memorial service, please go to dignitymemorial.com. Before we open the line for questions, I wanted to mention that we will be presenting at the Southwest IDEAS Conference in Dallas on November 15. With that, operator, I'd like to open up the call for questions.

The first question comes from Jeff Martin from Roth MKM.

Thanks. Good morning, Beth and John. My condolences on Allen Baker. Sad to hear that. I wondered if you could dive a little deeper on the ERP consulting trends that you're experiencing now and whether the technology innovation starts are being pushed out, delayed, or not happening. How large of a piece is that of the professional segment? And maybe just give us a sense of how the progression trend there has occurred over the quarter and into the first half of the fourth quarter. Thanks.

Thanks, Jeff. The first two months of the quarter really weren't slower. We started to see a little bit of activity pipeline coming in September, which was helpful. But we've been discussing starts in the ERP area being pushed pretty much all year. Companies still have the need to be able to do it; they are just a little bit nervous about when to pull the trigger on those things. So, we are hopeful that the activity we started to see in September and a little bit of life back into October will translate into better fourth quarter, or at least flat.

Great. And then the business is much different now than it even was a year ago with Arroyo and Horn. Maybe you could give us an update on some of the progress since you've acquired those two businesses. What strategically has changed and how you've positioned the business now versus one or two years ago?

Good question. I'll say that the one thing we have always strived to do through our acquisitions is to ensure that we can continue to add offerings to our customers that they have requested from us. We've talked in the past and we have the ability to help somebody pick software. We have the capability to help customize it, to get reporting out of it, which encompasses all of our team. You take it from selection to the IT group to the accounting group and that circle has been a strategic path for us for many years. What do we need to do to make sure that we don't break that cycle? The two acquisitions with Horn and Arroyo helped with that last piece in the finance and accounting group. We did not have managed services in that finance and accounting world, and that has proved to be very beneficial for us. And then the nearshore, offshore opportunities; we've talked about that over the last quarter that we had not in the past year, had any conversations with our customers who didn't ask if we were considering that. So as those two companies get integrated into the organization and the sales teams get more aligned and are able to cross-sell those efforts, we expect those revenues to increase and grow and actually make our offerings that our customers won't have to go outside us but continue to keep all the business with us.

Yeah. Great. And then you referenced Q4 for professional; you expect it to be up year over year, mainly from the acquisitions, but you have an improvement on the core organic. Maybe give us a sense of what is driving that improvement on a sequential basis? Because looking back last year, you still grew double digits in professional year over year, so it's not necessarily an easy comp, but it does get a little easier.

Yes, there are a couple of things to highlight. First, when comparing this year's fourth quarter to last year's, it's important to note that last year we had 14 weeks in the fourth quarter, while this year we will have the usual 13 weeks. Therefore, when discussing the fourth quarter and our expectations or current observations, we are adjusting last year's figures for that additional week and aligning our expectations with a comparable week. We noticed some improvement in September within our core IT and professional groups. Although we hesitate to claim that six weeks indicates stabilization, we have seen a consistent performance on a week-to-week basis. We are optimistic that the fourth quarter will proceed similarly, with typical seasonal patterns. Reviewing our business over the past two years, it has been challenging to discern seasonality due to operating in a highly aggressive growth market and having the extra week last year. However, if we look further back, we can observe seasonality in the professional segment, though not as pronounced as in the Property Management segment, where we experience high demand in the second and third quarters. The fourth quarter also faces impacts from holidays and increased vacation time.

Could you discuss what you're observing regarding wage rates and trends? Are you noticing increased competition in wages or any other competitive factors that were not there previously?

I don't think there would be anything to note there specifically.

Okay. Thanks, John and Beth.

Thanks, Jeff.

Our next question comes from Howard Halpern with Taglich Brothers.

Congratulations, guys, navigating a tough environment. First question is regarding the property segment. How many offices do you currently have open? And what's the plan going forward in terms of opening new or splitting existing locations?

I believe we are currently active in 64 markets within the Property Management sector, and we are eager to expand quickly. However, that involves costs, which impacts our profit and loss, so we carefully manage those expenses to ensure effective growth without putting undue pressure on our teams as they enter new markets. Historically, we have consistently opened new markets each year. With the new sales force marketing territorial mapping tool we are using, we expect to penetrate these larger markets more effectively than we have in the past.

And in terms of finding people to complete your customer's request, how is that going in terms of educating the potential people who will be deployed to your customers and what are you seeing in terms of that?

Finding talent is not as big of a problem as it had been in the past, but I think we've talked about this in the past. We strive to be a leader and attract the best talent, and we do that through relationships. So we have a very big referral program within our organization. If somebody's working for us, we ask them to bring their friends along and have found that to be probably our number one recruiting tool.

Are there any additional internal technology projects that you are working on or is most of it now just maintenance and making sure everything is tightened up from what you've done in the past year, a year or two?

As a reminder, we went live with the technologies on the MVP, so we wanted to ensure that we could pay them bill right out of the gate and that it wasn't disruptive to our consultants or our customers. We have now moved into the efficiency side of it. So less in regard to getting it actually implemented and cleaned up and more things into the efficiencies, and we're starting to see that move as well.

Okay, so we should see an impact in the fourth quarter, but really next year we should notice some changes on the profit and loss line.

We've already started to see that. Internally, we track the contribution to overhead by employee and I think we had a target of getting 9% efficiencies. So we've hit that this last quarter, but keep in mind that our third quarter is our highest quarter in revenue, and we like to wait to see what happens in December to see how it stabilizes, but we're pleased with the progress so far.

Okay, thanks and keep up the great work, guys.

Our next question comes from George Melas from MKH Management.

Thank you. Hi, Beth and John. Congrats on good results in a tough environment. I have a very general question, which is you did this rebranding I think it's already quite a few quarters ago. How do you manage the business differently now that you have that and what does that enable you to do?

Great question, George. Thank you for asking it. So we did that in the second quarter. What it allows us to do is we had 13 different ways we communicated out to the public based off of the 13 different brands that we had. Centralizing that and changing over to BGSF, we have had our social presence increase threefold at this point and sometimes it's five times what it was before, depending on the platforms. That allows us to do more targeted campaigns to attract customers and candidates. I believe we had a report out this week that some of those initiatives have yielded, allowing our customers to come in directly into the platform now to supply orders, and we've had 70 orders in the last few weeks that have come in through the websites because of the things that we've done. So it’s all about the attraction of the candidates as well as the customer, and we track that very closely to see how the initiatives are working within the new platforms.

Okay. From a reporting perspective regarding the P&L, I can't recall if these brands had separate P&Ls, but they clearly did at one point. How is that managed in the professional segment?

George, traditionally, we have often included earn outs with our acquisitions, so we used to treat them as a separate P&L. Now, aside from Arroyo, which differs from our usual IT business, we are viewing our acquisitions through the lenses of IT as well as finance and accounting. With the addition of Horn, we will start analyzing the business based on how traditional IT and finance and accounting are performing, and how managed services are doing in both sectors, as managed services increasingly becomes a significant part of our business.

Okay. That's really interesting. Great. It seemed like the Property Management was extremely strong. It seems like it's your best quarter ever and continues to show momentum there. What makes it so successful because at one point, it felt like it was decelerating a little bit and now it's really back on track and doing very well?

Well, George, they really decelerated during COVID. They got hit very, very hard. But that team is an amazingly engaged team and they really did great things within the industry. As a reminder, they won the national supplier of the year for NAA, which is amongst all suppliers to the Department Association. So this team shines bright and that is a relationship business as a whole, and the team does an amazing job in providing solutions to our customers and it translates into results and revenue.

Sounds good. Thanks for that.

Our next question comes from Mike Taglich from Taglich Brothers.

Good morning, Beth. Good morning, everyone. Again, my condolences on Allen, who was a wonderful person. Most of my questions have been addressed. If I consider the adjustments for the acquisition as of the beginning of this year, including Arroyo and with Horn already factored in, what would my nine-month adjusted EBITDA figure be?

We don't separate it out all the way down to EBITDA, if that's the short answer.

Okay. Beth, how much money do you expect to spend over the next year or so opening new offices for the real estate division?

We're in the budget process right now and as in the past, we've always budgeted maybe six-ish and then ended up doing more. We are really doubling down on this territory mapping in the larger markets. The early signs are that it’s going to be super successful. So that's probably a really good question for next quarter when we have a better idea of how we're going to be able to penetrate those markets that we're currently in. Keep in mind that we’ve had one salesperson in Dallas for like 15,000 apartments, and one person can't do that. So with this territory mapping tool, we'll be able to take several more salespeople and have higher touch value to these customers and get out there more often. We think that we're going to get major benefits from that. We launched it in Houston and have already started to see a little bit of movement in the right direction on that, so I think next year is going to be a little more about opening offices as well as penetrating into the markets that we're already in. The faster we can do that, the better we are. Everyone's goal is to go fast and make sure that we do so successfully.

If you had to guess, so if I'm hearing you correctly, the better staffing some of the existing offices to flesh out the market opportunities in the area, right?

Correct.

If you were investing in growth initiatives, would that be 70% compared to opening another five or six offices, which would make up 30%? What are your thoughts on that? I would like to understand how much more cost-effective this is. And of course, you don't have to open up a new office; it's already there.

None of these places have offices. No, there are no brick and mortar. When we open a market, it's a salesperson. So this is all about people. There is no office associated with that. So it's a matter of whether or not we're going to hire 10 salespeople, whether or not that's two new markets, and 8 people in existing markets that we're in. It's just what we have to do from that perspective. But it's really just about being able to manage through that. Like I said, we are just starting the budget process right now, and I'll be able to better answer that later.

All right. Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Beth Garvey for any closing remarks.

Thank you, Scott. Thanks for your time today and we appreciate your continued support. As always, we are available for follow-up calls, and we look forward to updating you on our fourth-quarter results in March. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.