Good morning, and welcome to the BGSF Inc. Fiscal 2024 First Quarter Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Sandy Martin of Three Part Advisors. Please proceed.

Thank you, Chad. Good morning, and welcome to the BGSF First Quarter 2024 Earnings Conference Call. With me on the call today are Beth Garvey, Chair, President, and 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 differ materially 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 condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. GAAP and non-GAAP measures are reconciled in today's earnings press release. I'll now turn the call over to Beth Garvey.

Thank you, Sandy, and thank you all for joining us in reviewing our performance so far this year. Before we discuss our first quarter earnings, I want to address last night's release announcing our decision to review strategic alternatives for BGSF. Over the past five years, we have worked hard to execute our long-term strategy for growing the company organically and through M&A, enhancing our margins, paying down debt, and returning capital to shareholders. I wholeheartedly believe what we have built will create value for shareholders over time. However, our valuation has not reflected that progress today, and the Board and I know that this is the right time to evaluate our options. We also think suspending the cash dividend is appropriate as part of this decision. This strategic process includes a full range of value creation opportunities to accelerate growth or improve the structural return profile of the company. John and I are fully engaged with our advisers and the Board to explore ways to unlock value for the shareholders of BGSF. We have not set a timeline for the conclusion of the review, and I do not have an update today. So I will not be taking calls or will not be taking questions related to the company's strategic review process. Turning to our results, the first quarter of 2024 met our near-term expectations. Although there continues to be caution around hiring, we are encouraged by recent trends in our project and consulting work related to IT and finance and accounting. Despite choppiness in the past few quarters, we saw significant momentum for both areas, resulting in a 7% increase sequentially over last quarter. Our recent project wins have bolstered our confidence in our strategic repositioning and important tech investments, bringing us closer to our clients' needs in 2024. Our actions during the challenging macro backdrop over the last few years have helped us transition into a structurally high-margin profile business. We acknowledge that there is more work to be done and are increasing our focus on accelerating revenue growth and scale. We're proud to offer high-value professional and property management services and solutions in highly specialized niches in growing addressable markets. Our business is built on a state-of-the-art technology platform with proven process excellence. Looking at our professional segment, I'd like to start by highlighting just a few recent wins we are excited about. In the first quarter, we commenced one of the nation's largest SAP cloud projects with a Fortune 500 company that ranks on Fortune 100's fastest-growing companies list. We would not have been in a position to bid on this project a few years ago. But today, we are because of our strategic implementations, process changes, and platform upgrades we've made. We're also actively engaged in projects to support two large divestitures for Fortune 500 clients and are engaged in supporting other merger and acquisition projects this year. These projects excite us and give us confidence that our strategic high-end consulting solutions are uniquely positioned on what clients are looking for in 2024 and beyond. We're at the leading edge of the best technologies available to top companies worldwide. Turning to a discussion about property management. As we look at the first quarter sales, we were up against strong sales from the prior year, which were up almost 10%. Competition coupled with increased operating expenses for property owners has resulted in a reevaluation of our sales process to overcome these factors for our valued clients. In the first quarter, we included restructuring of our sales organization and, more importantly, a change in how we compensate them. Our property management sales leaders are now directly compensated for sales and are no longer tied to a specific market, empowering them to drive sales and see the success of their own production. This was based on our proprietary CRM technology we implemented last year. Now we have full visibility into each market and the number of units, which is a game changer for the sales leadership and property management. We expect our work to begin showing up in the results in the second half of 2024. With that, I'll turn the call over to John.

Thank you, Beth, and good morning, everyone. Beth gave some great insight into a few key metrics, but let me provide a deeper dive into our numbers. First quarter revenues were $68.6 million compared to $75.3 million in the prior year quarter. Property management revenue declined 13.6%. And as Beth mentioned, we were up against an increase of 10% in the year-ago period. Property management is experiencing increased competition. In addition, property management companies, our clients are facing cost pressures, adding complexities to our sales efforts. The Professional segment was down 5.7% from the prior year quarter and up slightly on a sequential basis as we continue to see the business stabilize. Gross profit and margins in the first quarter were $23.4 million and 34.1% compared to $26.8 million and 35.6% in the prior year quarter. As discussed, we saw competitive pressure in the property management segment, which has impacted our GP margins. Slightly lower margins for the Professional segment are expected to recover in the second quarter. SG&A expenses for the first quarter were $20 million and 30.6% of revenue, an improvement from $23.2 million and 30.8% of revenue in the prior year quarter. Reported operating income was $415,000 versus an operating loss of $20.7 million in the prior year quarter. Recall that we recorded a one-time noncash brand name impairment charge of $22.5 million related to our rebranding initiatives. Fourth quarter adjusted EBITDA was $2.7 million or 3.9% of revenue compared to $4.3 million or 5.6% in the prior year quarter. We reported adjusted earnings of $0.07 per diluted share compared to $0.16 per share in the prior year quarter. As Beth mentioned, we have suspended our dividend as we work with Houlihan Lokey on our strategic review. While our strategic review may change our near-term outlook, we currently have no plans for acquisitions in 2024. Funded debt to trailing 12-month pro forma adjusted EBITDA was 2.53x at March 31. With that, I would like to call Beth back to the call.

Thank you, John. Over the last several years, our strategic directives have focused us on transforming our business from a lower-margin staffing agency to a premier high-value consulting, managed solutions, workforce solutions, and property management organization. Today, our tech stack includes business and technical expertise with over 100 technologies covering the software development life cycle. BGSF's collective knowledge is highly valuable to our clients because we bring an unbiased approach that ranges from selection to implementation to expansion, often including every part of a tech cycle. For professional consulting, we see a steady ramp-up of new client relationships, strategic IT consulting, executive search, and senior-level projects related to tax and mergers and acquisitions, to name a few. As discussed, we've secured an important partnership with Workday. This means that we are now a partner company, and our people are Workday-certified resources with credentials that validate their skills and knowledge in all Workday products and services. Although our legacy Workday assignments continue to benefit our Professional segment, this new credential Workday relationship will benefit us beginning in late Q2 and into Q3. Our relationship with Workday is stronger than ever, and we are happy to accelerate Workday's progress, which translates to acceleration of our growth. Managed solutions have been another growth area in our success after our successful acquisition of Momentum Solutionz a few years ago. This offering is a high-value proposition for clients looking for advisory services. After further assessing our growth strategy, we strategically hired a leader from the consulting world to help us grow this practice. I'm proud to announce that Hitesh Talati, a 20-plus-year veteran of Deloitte, has joined BGSF to focus on key customers and bring consolidated packages with various service offerings while helping us explore new revenue streams, including artificial intelligence, product development, cloud initiatives, and delivery excellence. Hitesh has a depth of experience and a strategic vision that will help us be a valuable asset as we navigate our next growth phase and continue to deliver value to our customers, employees, and shareholders. In property management, we continue offering proprietary training to attract upscale talent, a unique differentiator in the marketplace. Our operational teams have added an important sales training facilitator role, and we have completed four different training modules in the first quarter alone. We know this industry is evolving and growing, and we are excited to continue to be on the leading edge of innovation and the expanding industry of apartments, luxury communities, and commercial conversions to residential. Multifamily is a dynamic industry that grows especially as single-family housing becomes less affordable and high-interest rates remain. I am pleased with BGSF's growth prospects. Even with the strategic review underway, we will continue to focus on sales, profitability, and cash flow growth. I want to thank our associates, partners, shareholders, and our Board for their support and dedication to our business strategy. We would now like to open the call for operational and financial questions concerning the business. We do not plan to discuss the strategic review or the suspension of the dividends on this call. However, when we have something to report, we will include it in future calls or releases.

And the first question today will be from Jeff Martin with ROTH Capital.

Wanted to start with property management. You mentioned the challenging comp from a year ago. How does any expectation that you'll ramp starting in the second half? Just curious against the comps for the back half of last year. Does that serve as a tailwind or a headwind? And to what degree do you expect it to ramp in the back half?

Yes, Jeff, I would say historically we don't provide guidance on expectations moving forward. I think we are moving into a period that we haven't experienced before, and it's really coming from two different areas. One, we've had competition, but I think what we've experienced more recently was meaningful competition in the marketplace impacting our efforts. And then the other thing that's happening is our clients, the property managers, are feeling cost pressures from several different avenues. And that's causing them to really tighten down the belt, too, and, in some cases, moving decisions on the use of our service to a level up. So it's a more competitive market that we're seeing, and we're entering a different phase for the property management business operators.

Jeff, I think we'll have our normal seasonality in that division, and I think that we feel good about it. But to John's point, when you don't have any competition and all of a sudden, you have more competition, it's a different sell for us. It's also a different structure for the property owners. At one point, the decision is to be made at the property level, and we're now seeing those decisions being moved up to a regional level. And so that's a different type of approach. Our team has done an incredible job in understanding and navigating the changes in the market and how the industry is evolving. I think that we have a lot of good things coming forward for us in that area. It's just a shift for right now, but a shift that we have under control.

On the professional side, could you compare/contrast Professional today versus five years ago? I know you've made a lot of efforts to transition to more of a consulting type of role with clients. Maybe just give us a snapshot of today versus five years ago. And then also give an update on what's happening in the area of finance and accounting, which historically you've had a significant degree of business there.

The IT and Professional world is completely different today than what it was five years ago. It was disjointed five years ago. We did not have the cross-sell efforts, and we really kind of did a little bit of this and a little bit of that. We've really doubled down and said, what do we want to be and where do we want to focus? If you're going to be something, you can't be all things to everyone, so what do we want to be? And leadership got together and decided when we looked at our business, we looked at where we were strong, where the margin profiles were. We decided how we wanted to move those technologies forward, how we wanted to build the teams around that. Strategically, that moved us in the right direction for the business to be focused and more intentional on how they sold. It put us in a position to really open up the doors in the cross-sell efforts to where now the brands that operated in silos no longer operate in silos. They operate as teams, and those teams are super powerful. The acquisitions we've done over the last three years have been super complementary to what we already had, and that was not a strategy for our M&A in prior years. Prior years, we bought something and then kind of saw how it was going to fit. The last three acquisitions we've done have been specifically around something that we saw the need in the market that fit a puzzle piece within our organization that allowed us to go to our customers and tell them they don't have to do business with anybody else because we have them covered in all of these arenas. That transition has been a game changer for that group. But it took us a while to get there, honestly. When you do acquisitions, it takes a while to get the implementation. When you change comp plans, it takes a while for people to understand that. Teams were getting to know each other, and it took a while to get there. But I feel incredibly good about that division and the things that they have coming out of their area in the last three to four months. I couldn't be more proud of what they've done to transition that group.

Then one more, if I could. On the neutral offering update, you bought Arroyo about a little over a year ago now. Just curious how the progress is there; you would think in the current economic climate that clients would be looking to do more near and offshoring.

They're a solid acquisition. They have done some really great things that continue to grow. The teams have started to cross-sell into that business that we would never have been able to get before from our customers because they were giving it to somebody else who had offshore capabilities. We're starting to see some of that traction moving in the right direction, and the addition of Hitesh is going to be a big part of that group's growth.

And the next question will be from Howard Halpern from Taglich Brothers.

I guess, if you could talk a little bit more about the Workday strategy there and the pipeline that's developing for the second half of the year due to that recognition?

This is a new program for Workday. Workday is not typically in the implementation type of business. They said they want to have some consultants that they own as in Workday. They came to us because of our existing relationship and said, look, we don't know how to build this out, and we would like for you guys to help us think through it. So we had a group of leaders that went to California and sat down and said, here's how this would look for you. This means we have certified Workday people that will go into a Workday portal at Workday. Within Workday, we will have the ability to select those consultants and deploy them out. This is different from a Workday person or success managers saying, hey, we've got this customer struggling, let me walk you in the door. It's a whole new process for Workday, which is why it's taking a while to build it. We have to ramp it up, get the infrastructure together, and move through that. We feel very positive that we're going to be successful because Workday has asked us to lead it. This puts us in a unique position to help not only our company but Workday as well. We expect results to start coming in soon. Just yesterday, Eric Peters, our Division President, told me we just had our first Workday consultant from the Workday portal chosen to go on a job. So we've got the first one going out right now. That's a great sign for us.

And just overall now, could you talk about what you're anticipating the pace of being able to pay down debt throughout the year?

I mean, Howard, every bit of cash that we generate, everything we can pull out of the business, we are focused on paying down debt. I'm not going to provide a forecast on that. But no, we are focused on that.

And the next question is from Bill Dezellem from Tieton Capital.

I'd like to actually start to ask you to clarify this in the press release. The second paragraph, where you referenced that the current macro environment is different from the past. What specifically were you referring to there?

The property management arena we talked about a minute ago. The difference in how they're operating, what's happened with the operating expenses in that environment where the property owners are having increases in their insurance and increases in their taxes. A lot of people with ARM loans are reaching maturity now, causing their interest rates to go up. So those types of things.

And then would you please provide a perspective on your revenue trends for each of the two divisions? Over the last four months, I mean, you talked pretty positively about what you're seeing with the Professional side, and maybe we can get a little more clarity on the building strength that's taking place there.

Bill, we talked about the property management side; those trends have been down. That downward trend year-over-year decline started in December and continued through the first quarter. On the professional side of the business, I would say we've been similar to what we've seen from our competitors, which is relatively flat business adjusted for seasonality. That trend has not changed. We're optimistic that a lot of the initiatives we've put in place and worked hard on the professional side for the last 4 to 6 months are going to start showing in our numbers toward the end of the second quarter and into the third quarter.

And John, have you seen, as we've gone through January through April, that month-to-month, there is a little bit of strengthening taking place in the Professional arena? Or was it reasonably consistent throughout the quarter?

I would say, in general, it was reasonably consistent. We had some balances. On the Professional side, as we moved through January, February, and March, we had a slightly stronger January than we thought because typically, we have more year-end there as the budget season shifts from one year to the next. We saw less of that in January, some more in February, and a little recovery in March.

So in essence, the reference that Beth had made to the wins that you're starting to see the revenue benefit from that is still ahead of us.

Correct.

The next question is from Steve Cole, a private investor.

A quick question. I wanted to talk a little bit about property management and the change in the compensation structure you alluded to. Could you speak a little bit about what comp did that? And I know, Beth, you've alluded to the proprietary database that you're now utilizing. How is that working? If I remember, that's been going on for a few months now. Can you maybe give us a little bit of background and then what's happened since you've rolled that out? And are we seeing higher churn at all as you change the compensation structure? Has that been a good thing? Or what's happened there?

The compensation structure changed on April 1. So this is our first look at how the new compensation plans look. To give a little insight into how it used to work, we wanted to do this for a couple of years, and we did not have the ability to attach revenue to a person. It was always just attached to the market. When we would go into a budget, we would say we've got the Dallas market, and this is the number we need you to hit. There are five people that work in that Dallas market, and they all get compensated the same regardless of what they were doing. This gives us the ability to have those rock stars go out and drive their production moving in the right direction, letting them say, you know what, this is great because now I get to eat what I kill. The other thing it allows for us is to let our sales and delivery teams move outside their markets. If there's a market with no orders, they can help other markets and get credit for it. This all went into effect on April 1. So, we are excited to see how that rolls out.

Steve, I would also mention that we needed to transition to a plan that was always relevant. Our old plan wasn't always relevant, depending on what was going on in individual markets. The other thing was to create that owner-operator type incentive so they own their destiny and can see what their commissions and total compensation would be.

That's very helpful. I guess the last question there would just be the macro environment from the developer from the property manager side in your advantage. How do you guys see yourself positioned there? I know you've obviously got size. I'm just curious what your competitive value proposition is versus what's out there. How are you positioned now? And how is that changing aside from, Beth, as you mentioned; it's going up higher in the food chain and the decision side, but just in practical terms, how is that working?

The differentiator we have in property management is also the training side. That's something allowing us to outsell or offer a service that others don't have. The other benefit is that these property management companies, like Greystars and Lincolns, are seeing more competition around them. Historically, procurement was never involved in the decisions made about what staffing agencies get used. We're starting to see even those larger companies working to say these are the approved vendors to work with, and you can only use these three approved vendors. We will likely be one of the three based on our size and reputation in the industry. That's a good move for us, and we're seeing some of those contracts develop in recent months. So, we're waiting for those details to get signed.

Yes, and I think our reputation in the industry is super strong compared to our competitors. Last year, we won the Supplier of the Year award for the association, which speaks volumes to how they view us as a partner. Additionally, we are finalists for the Educator award this year. So that's definitely a strength that we have that others don't.

And the next question will be from Mike Taglich with Taglich Brothers.

Most of my questions have been answered. One question, I guess, is for John. What would the tax basis be on the tech side of the company's business?

I don't have that number at my fingertips, but that's where all of our tax basis is. It's all on the professional side because that's where we've made all of the acquisitions.

And the next question is a follow-up from Jeff Martin from ROTH Capital.

Beth, I just wanted to get an update on your technology platform initiatives. I think that's a continuous process. An update there, what you're seeing in terms of improved productivity, engagement, collaboration, etc.

We continue to have moved out of the setup phase and more into the phase where we're doing more work that makes the system more productive. We're focused on enhancements with a graph showing we now do more in the advancement sites than we previously did, getting it to work behind the scenes. That's a positive move. Our marketing team is doing great things to attract talent and customers. We can tell when someone views our site and our sales teams can immediately follow up. We are doing campaigns for activities we engage in – all the trade shows, the property management group, and all those contacts from those events. We've uploaded all of those, and our marketing team is now running drip campaigns, things we couldn't do before. This provides visibility and quicker touches to our customers. We've had policy changes in terms of how we do time card collection, reducing the workload on staffing coordinators, which allows them to fill job orders faster. We're making intentional enhancements prioritizing what's closest to the dollar, and those are the things that get worked on first.

Yes, Jeff, we did go through a period of implementation. We made two acquisitions back to back. Our resources dedicated to system improvement were also spent integrating those two companies. That's done now, and we have a development roadmap to enhance the Salesforce platform to improve efficiencies.

The next question is from George Melas from MKH Management.

A quick question on Workday. I'm trying to understand that better. Is this sort of a unique setup in the industry, or have other software shops set up a similar system? I'm trying to understand the person that will be on the Workday portal that Workday assigns will be your staff and will be paid by Workday. Is that how the contract works?

Yes. Workday is now our customer in that scenario.

And with this, I knew at the beginning of a project to ensure it starts well? Or does it mostly involve projects that have problems? How do you work with Workday consulting and implementation staff?

They're our staff to begin with, so we will engage our consultants. The majority of the business will be in implementation rather than fixes. Until clients decide to purchase Workday, they will require implementers. Our other parts of the Workday practice are those going in to do fixes.

It'd be interesting to see how it works out. And my question on property management. The impact of competition, you are in some 60 or so markets. I imagine the competition is not in all these markets. So can you really map the impact of competition? Can you see a real differentiation in performance between markets where you have competition and where you don't?

I don't believe we have that granular of information. You're right that not every competitor is in the markets that we're at. But most of our markets do have a competitor now. But I don't know that we get that granular on how that works.

Yes, I would say we have varying performance across our portfolio. Each market has a different macro environment, and some markets are harder hit by competition than others.

And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Beth Garvey for any closing remarks.

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

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