Thank you for standing by. This is the conference operator. Welcome to the BG Staffing Q2 2019 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Terri MacInnis, Vice President of Investor Relations with Bibicoff + MacInnis. Please go ahead.

Thank you, Gillian. It’s my pleasure to welcome you to the BG Staffing conference call to discuss Q2 and 6-month financial and operating results and a progress report on the company’s business strategy. With me today on our call is Beth Garvey, President and CEO and Dan Hollenbach, Chief Financial Officer. By now, you should have seen a copy of this morning’s press release announcing BG’s Q2 and 6-month financial results as well as the Form 10-Q. If you do not have a copy of either, you can find it in the Investor Relations section on BG’s website at bgstaffing.com. I remind you that this call is being webcast live and recorded. A replay of the event will be available later today on the company’s website and will remain available for at least 90 days following the call. I would also like to remind you that our discussions today include forward-looking statements. These statements are based on certain assumptions made by BG Staffing based on and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company’s actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including those listed in Item 1A of the company’s annual report on Form 10-K and in the company’s other filings and reports with the Securities and Exchange Commission. All risks and uncertainties are beyond the ability of the company to control, and in many cases, the company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. These forward-looking statements are made as of the date of this call, and BG Staffing assumes no obligation to update these statements publicly, even if new information becomes available in the future. This broadcast is covered by U.S. copyright laws, and any use or rebroadcast of all or any portion of this conference call may only be done with the company’s expressed written permission. During our call, we will discuss some non-GAAP measures, which we use for internal evaluation and to report the results of the business as useful information to management, our Board of Directors and investors about our operating activities and business trends related to our financial condition and results of operations. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered in isolation, as a substitute for or as superior to financial measures calculated in accordance with GAAP. For a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures, please see today’s earnings release posted on the company’s website. It’s now my pleasure to turn the call over to Dan Hollenbach, BG Staffing’s Chief Financial Officer. Dan?

Thanks, Terri and good afternoon to everyone. I am pleased to welcome you to our call today. I would like to start by again taking a moment to acknowledge all our team members in each of our BG Staffing business units for their hard work and dedication to our company’s continued success and strong gross profit margins. Their contributions are vitally important, and we are truly proud of the job they continue to do for us. BG Staffing provides contingent staffing services within three industry segments: our real estate division, which operates in apartments, communities via BG’s multifamily and in commercial buildings via BG Talent; our professional division, which includes our Finance & Accounting, IT and creative groups; and our third division, Light Industrial. Today, BG Staffing operates 79 branch offices and 15 on-site locations, providing services in 42 states in the District of Columbia. After I complete my review of our financial results, I will turn the call over to Beth for her comments on the quarter and 6-months period has ended, our company’s strategy, how we are executing on our business plan and the outlook on current industry conditions. First, our Q2 results, consolidated revenues for Q2 2019 were $73.9 million, up 4.1% from Q2 2018. Gross profit increased $1.7 million or 8.7%, with gross profit percentage of 28.2%, up from 27.1% for the second quarter of ‘18. The increase in gross profit percent was led by our F&A division, up 8.9% over 2018. This continues a string of quarterly increases in gross profit percent. Net income for Q2 2019 was $3.8 million versus $5.2 million in Q2 2018. 2018 was impacted positively by the recognition of a $1.1 million gain on contingent earn-out and an effective tax rate of 11.4% due to the favorable tax treatment of…

Thank you, Dan. Good afternoon, everyone, and thank you for joining our discussion. I’m pleased with our operating results and happy to talk today in more detail about how well we are performing and the reasons why I’m thrilled about the runway in front of us. The outlook for our industry for the remainder of 2019, which is, of course, subject to normal seasonal patterns, remains optimistic, and both the present economy and labor markets remain positive for staffing overall. Our solid second quarter operating results support my continued confidence about the remainder of the year. I’m pleased to report that strong customer demand continues to drive our success and is led once again by solid operational performance by our extremely capable teams in the field. I’m so very proud of them and glad to report 28.2% consolidated quarterly gross profit, our ninth consecutive quarter with consolidated gross profit percentages in excess of 25%, which is outstanding for our industry. We believe that our historic strong and steady revenue growth continues to benefit from our laser focus on the strategic priority of growing returns. We keep close tabs on our key performance indicators, which are our bill rates, our pay rate, our build hours and gross profit, always looking for continuous improvement on efficiencies to drive sustained value creation. We also pay close attention to our gross margin strength, with an emphasis on operational discipline, organic growth initiatives and selective value-creating M&A. On the M&A front, we are known as a disciplined acquirer, and our pipeline remains very full and active. Literally, every week, we evaluate opportunities for businesses that will add pieces to our client solution matrix. We’re always looking for acquisitions that are accretive in both EBITDA and valuation. The most attractive targets we see are primarily in…

[Operator Instructions] Our first question is from Jeff Martin with ROTH Capital. Please go ahead.

This is Sarra Schuster on behalf of Jeff Martin from Roth. Beth, congratulations on your award.

Thank you.

In terms of your 3-year strategic plan, while it’s still relatively early in the first year, are you seeing any immediate efficiency gains, particularly in terms of automation and efficiency gains in recruiter resources? And are there specific segments, Professional, Real Estate and Light Industrial that are benefiting or stand to benefit more than others?

It’s still early right now. So, we have not started to see some of the rewards that we plan to get out of this. If you recall, we had a in Q1 was when we put together the plan, and we are just now making decisions about the partners that we’re going to be partnering with and getting staffed up to make sure that these initiatives are rolled out the way we need them to be rolled out. As far as divisions, who we think is going to stay and then reap the most benefit, I believe the real estate division is going to be it’s going to be life-changing for that division. I think they’re going to really see the best bang for the buck from what we get out of that, which is great since it is our fastest-growing and largest gross margin division.

Thank you. There was a small but noticeable tick-up in permanent placement in the quarter, at least versus the second quarter of 2018 in Professional. Is that something that BG is more focused on or is that just part of the variability of perm over the course of the year?

A lot of it has to do with where we are right now. The more companies are starting to offer perm placement perm positions over a temporary position just because of the shortage of talent. So, people are moving into going in and realizing that people want to actually have a job. So, we’re seeing a tick-up in that area. It’s usually in our F&I group, but not necessarily in our IT group. But that’s usually where we see the most activity in that area.

Thank you. The real estate segment had a handful of markets with somewhat recent sales hires in certain offices. How are those offices performing? And what is your outlook for the real estate segment from both a commercial and a multifamily point of view?

We did. We are all fully staffed now. I believe our growth in the first quarter was right at 6%, right? In Q2, we were 14, 15. So we’re back up to where we are, we actually live in that area. So, we’re back up to the levels that we normally experience. I think we can continue to see double-digit growth out of that group in both the real estate side, and as we’re getting more traction, under the commercial side.

And then one final question, can you please provide an update on the new market initiative in California in terms of staffing up? I know you mentioned it a little bit on the call, but client wins and growth expectations for that market over maybe the next 12 to 24 months?

We are on the real estate side, we are running, from an FTE standpoint, exactly where we thought they would be 3 months into 4 months into it. So, we’re very pleased with that activity. As for the growth pattern, we don’t talk about that, trying not to give guidance, particularly at that level. But as you’ve been following us for years, generally, the growth starts to come on those offices at the end of year 1 and the year 2 and year 3. And then we expect at some point to expand into that to expand the California market.

Okay, thank you very much.

[Operator Instructions] Our next question is from Howard Halpern with Taglich Brothers.

Congratulations on a nice solid quarter, guys. I think this goes back to a little bit from last quarter, but how has the progress been on the different cross-selling opportunities within especially within the Professional segment?

I think our cross-sell initiatives are one of the most exciting things we have going in the Professional brands right now. They really are starting to break down all the silos. They all know how they all know what other people do. They’re having meetings every day now, where they’re talking about different services in different areas that we can help our customers grow. The last I thought it was really pretty exciting. The last sales blitz they did a few weeks ago, the professional brands actually sold all BG services, including Light Industrial and real estate. So, everybody is getting on board now, and the momentum just keeps going. I mean, like I said, they are having major meetings every day in conversations with our customers. It’s pretty exciting.

Okay. And in terms of the commercial real estate, has I, guess you had talked about the sales cycle prior. That’s still about the same. You’re still sort of in the middle of that process of gaining significant traction, I guess, in that business?

Correct. And also, in that division, to the earlier question we see that division really high in perm as well. These are engineers, people that are higher quality. So, they have a lot of perm in their area as well. So, the sales cycle is slower than what it is in multifamily. More people want to take a look at a resume. They want to have some time to look at it. So, they’re adjusting to that. And again, if we had to teach people how to use this in the multifamily side and we are having to teach people since we’re kind of inventing this commercial strategy, we’re trying to teach people how to use this in that area as well. So, they are doing a really good job. They’ve moved into their first stand-alone office. They got big enough and strong enough that they’ve moved out of the multifamily office that they moved last month into their own operational and like, I guess, what you’d call it, their headquarters for their little division. And their heads are starting to grow. It’ll be they’ll have everybody supporting everybody across the U.S. located in Houston.

Okay. And one final one from me, with the new credit agreement in place, what would you anticipate the quarterly interest expense to be approximately in the second half, excluding, I guess, the onetime charge?

Yes. So, we’ll have a onetime charge just north of $500,000 in third quarter for the old existing fees, but we’ve got anywhere we’ve got about 150 basis point reduction in our overall cost. It’s now if you look at the – it’s now a structured thing based on leverage. And then we expect, probably beginning in the fourth quarter to start benefiting on the service fees. And we expect that number to probably decrease by 30% to 40%. But we won’t have the full transition of the treasury down until early September. So...

Okay. And to pay down of debt will still be slow and steady as you’re going forward?

Slow and steady, absent an acquisition, so. yes.

Okay guys. Keep up the great work.

Thank you, Howard.

Thank you so much.

There are no further questions at this time. I’d like to turn the conference back over to Beth Garvey for any closing remarks.

Thank you, operator and thanks to all of you for joining our call today. I hope you can tell that we take great pride in our people and our purpose. Every day, we try to drive and make a positive impact and deliver appealing returns to our shareholders. Our vision is to become the national leader in staffing and impact our communities by unleashing the power of connecting people to opportunities and transforming lives. I’m looking forward to reporting more progress to you next quarter as we continue to drive towards our 3-year goals of generating $500 million in revenue and 10-plus adjusted EBITDA. Have a terrific rest of the day.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.