Good afternoon, everyone, welcome to the BGSF, Inc. Second Quarter 2021 Financial Results Conference Call. As a reminder, this call is being recorded. Now I will turn the call over to Hala Elsherbini, Investor Relations, to provide introductions and read the safe harbor statement. Please go ahead.

Thank you, and thank you for joining us to discuss BGSF's second quarter 2021 earnings results conference call. Joining me on the call are Beth Garvey, President and CEO 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 recorded and webcast live. A replay will be available later today and archived for 90 days on the company's Investor Relations page. Now for the safe harbor statement. Discussions today will include forward-looking statements, which are based on certain assumptions made by BGSF 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 the quarterly report on Form 10-Q 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 BGSF assumes no obligation to update these statements publicly even if new information becomes available in the future. This broadcast is covered by US 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 the call, management will reference certain non-GAAP financial measures, which management believes 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 in isolation as a substitute for or superior to financial measures calculated in accordance with GAAP. Reconciliations of non-GAAP measures to the most directly comparable 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, President and CEO. Beth?

Thank you, Hala, and thank you to everyone for joining today's call. As much as we want to – for it to be behind us, the COVID-19 pandemic continues to affect us all personally and professionally. We have and will remain highly focused on our key priorities of serving our field talent and client partners, while maintaining the health and safety of our team members. With that said, the majority of our teams have returned to the office on a hybrid basis, as we continue to monitor the ongoing pandemic. Now moving on to the results. Second quarter finished strong and our overall first half of 2021 results improved both sequentially and on a year-over-year basis. Our strategic restructuring efforts and ongoing improvement strategy are driving momentum across all of our business segments and positioning us for continued growth and profitability. We are still on target with our remaining IT road map project, including payroll, HRIS, CRM and applicant tracking system. As we are able to return to some of our traditional ways of doing business, we believe virtual connections are here to stay. Thus a hybrid approach combined with the digital transformation and innovative client and talent engagement will drive our sales and delivery engines. Beginning with real estate. Results were better-than-expected given a slow start to the second quarter but we continue to see progressive climbs in revenues during the quarter to finish with an impressive 80% increase. Our forward focus is on talent attraction and retention coming into the second half of this year, as backlog starts to unwind in the Real Estate segment. Several market reopenings are taking place at a steady cadence. We are intently focused on optimizing our relaunches and establishing a centralized hub to support our regional markets to bolster collaboration and recruiting…

Thank you, Beth and good afternoon everyone. Thank you again for joining us today. This morning, we filed our Form 10-Q for the second quarter ended June 27, 2021; and I'll focus my remarks on key financial highlights. Second quarter revenues increased by 18.8% to $74.4 million, compared to $62.6 million in Q2 of '20. Most notably, Q2 revenues benefited from a significant increase of 80.1% in real estate. Light industrial also reported higher revenues, up 19.9%, while professional revenues were tempered with a 1.3% decline, as the infrastructure and development grew down 24% slowly recovers from pandemic effects of last year. Higher permanent placement fees of $1 million and an $800,000 contribution from the Momentum Solutionz acquisition, helped offset this decline in professional. As we noted last quarter, the Professional segment did not experience the full impact from the COVID pandemic, until Q3 of '20, due to large, long-term projects that were already in place. Sequentially, we saw momentum build with Q2 revenues up 9.9%. This was supported by a rebound in real estate with a 14% sequential increase despite continuing labor challenges. We are seeing some pandemic recovery efforts start to take hold in real estate, though we could see volatility during the second half of the year, as we work to secure talent and as market relaunches continue to come online. Professional increased by 16.2%, as our IT consulting group continues to perform well. We are quite pleased to see the tremendous success of our cross-selling efforts in professional, which represented a 16.4% of revenues in Q2 and 11.4% year-to-date. As a percent of gross profit cross-selling efforts represented 16.4% in Q2 and 11.7% year-to-date. As mentioned, light industrial revenues increased 19.9% over last year, but were down sequentially by 5.4%. This was consistent with 2019. For…

Thanks, Dan. I'm pleased with how the entire company continues to execute and rise to the occasion. We continue to manage the key areas of our business and with out of box thinking, flexibility and being able to adapt quickly to our changing macro and operating environment. We focus our attention on cost efficiencies, strategic realignment, key cross-selling strategies and digital investments into the business that are paying off to bolster future growth and profitability. We are seeing a recovery in real estate, higher-margin activity in professional and light industrial demands remained strong. On the M&A front, we remained highly engaged with our broker partners, seeking the right acquisitions to augment our organic growth. The M&A landscape has started to slow as valuations continue to increase, but we expect to see a resurgence in activity in the second half of the year. As always, our focus is on geographic and brand diversification into new or complementary high-growth areas that are synergistic to margin enhancement quickly accretive to EBITDA and our strong cultural fit. In summary, we are seeing positive impacts from our strategic changes in each segment, continued momentum from pent-up demand, and positive outlook across each one of our business units. As always I'd like to thank all of our team members for continued hard work and dedication in building long-term shareholder value. With that said. I'll turn the call over to the operator for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jeff Martin from ROTH Capital. Please go ahead.

Thanks. Good afternoon Beth and Dan. Hope you're doing well.

Hey Jeff.

Hey Jeff. How are you?

I'm good. Thanks. I wanted to get some detail around the reopening of various markets within real estate. How many markets total if you could remind us and how many of those are open? And maybe give us a sense of the cadence throughout the second quarter and maybe through July in terms of market reopening there?

If you recall, we had 18 multifamily markets that had paused in 2020 and six commercial. And today we have reopened eight of the multifamily and three of the commercial.

Okay. And then with respect to the unwinding of pent-up demand, how would you characterize how far along we are either in a percentage basis or a baseball analogy? Maybe what inning are we in in servicing that pent-up demand?

I'm not a baseball fan, so I'm not sure. I know, but I do like basketball. Well, I would not say we are where we want to be in real estate yet. I think that we are doing very well in the Professional segment. I think light industrial everybody is having issues right now with finding talent. We still have somewhat of a mixed bag in real estate but we are seeing a daily increase in their headcount which is super positive. So, we think that there are things happening up there. We are also seeing things in the Real Estate segment where they are starting to do events again. And as a reminder that division is very face-forward. So, they are very much -- part of their sales arm is being in front of the customer and going to these association events. And we are seeing some of those to pick back up. So, we're optimistic about that. But if I was to put it in baseball we may be in the -- I don't know that we've made it to the seventh inning stretch yet.

Okay. Thanks for taking a stab at that. You nailed it. When you referenced anticipated lumpiness in real estate for the balance of this year what exactly do you -- I know what you mean by that, but what are the sources and remedies to that lumpiness?

Part of it is going to be how quickly we can get these markets opened. And also as a reminder getting in market open is hiring a salesperson in there. And sometimes it can take them 60 to 90 days to really get their feet wet, to get things moving where we need it to be. So, it depends on how quickly they get engaged. And then the other part of it is as we're starting to see some of this COVID resurgence with the new Delta variant come back we are seeing a little bit of hesitation in some areas as well. So, that kind of lumpiness is we're just sitting back to anticipate what that's going to look like for us.

Sure, sure. Okay. That makes sense. And then is there anything you're doing strategically to combat the tightness in the labor market well in particular with light industrial?

We're doing a lot. We're doing a lot of education. We do have some resources to be able to do market surveys for our customers and educating them on what the moving prices of what they need to pay people. For example if I look back to the beginning of the year overall the pay increases have really started to move. For light industrial they are up year-over-year by $1, but in July, they're up almost $2. And so going in and really educating our customers on here's what's happening around you and if you want to be competitive here's what you're going to need to do and we're really seeing some of our customers jump on that as well as offering sign-on bonuses. We have a couple of customers that are doing bonuses as they start and then another bonus at the 90-day mark. And so a lot of creativity on that side, but a lot of it is education on our side and feeding our clients what information they need to be competitive.

Okay, great. And then could you remind us in terms of the spend on the technology roadmap I think we've got a good sense for the balance of this year but what does that look like next year?

Well, I think that we keep talking about being a roadmap, but the roadmap was to get us with a foundation. So, I don't anticipate that there'll be a lot of change in what our percentage of spend will be for IT technology. I think it will just fall into different buckets. But we had such technology debt to get us where we needed to be that when we go live with all of our new tech technology in April that will just be getting the foundation where we need to be. After we get that done then we get to start building on top of those things. And we're a little bit behind in that part of it but we had to get the foundation done as well. So, I think the buckets will fall differently whether or not it be in CapEx or in -- have a P&L impact. But I still think we'll kind of be in that same kind of area of what we're targeting on that.

That’s helpful. Thanks for taking my question.

Sure.

Thank you. The next question is from Howard Halpern from Taglich Brothers. Please go ahead.

Congratulations on a great quarter guys.

Thanks, Howard.

Thanks, Howard.

Could you -- I guess go back in reference, I guess from last quarter you talked about there being close to like 1,200 openings between the two different subsidiaries. Has that eased at all, or is that still at that level?

It's come down in the light industrial side. The benefit -- the unemployment -- extended unemployment benefits in some of the markets has been helpful. But -- so we have seen it drop on the lot industrial side. It's dropped a little in multifamily, but not as much as we would like for it to have in that area. But it is -- we are seeing a little bit of movement down on that.

Okay. And if can you talk a little bit about, I guess the gross margins in the quarter were really solid. Is that attributable to the acquisitions some of the cross-selling? And is that momentum going to be able to be held together going forward in professional services?

Yeah. So part of it was helped slightly by momentum. It's got a wonderful gross margin percent up in the upper 40s. So that helped a little bit. $1 million of increase in the firm placements that flows through at 100%. The larger portion of the business being in the consulting side which has a higher margin also contributes to that professional switch. So real estate, while it was down a little bit, probably more a mix of business than pricing based on what we heard yesterday from the division president.

Okay. And can you talk a little bit about how the cross-selling program is going? It's obviously picking up sequentially. But how do you see that continuing as we move forward?

I think part of it Howard has come from -- we started the cross-sell in 2018. I think we had 1% of our business in 2018 that was right at -- due to cross-sell. But when we kicked off this year and decided to do it cross divisionally, we've started to see a lot of different things along those sides. So one of our biggest customers in real estate now has several resources there that are out of our IT group. And we didn't have that cross-divisional sale going on. So when we we've talked about it in the past about what our targets -- we wanted our targets to be. It was really the professional division tossing it to the professional division. So the IT group giving it to the F&A group or the cyber group giving it to the IT consulting group. But now that we've got the one BGSF launch, I think we haven't set a new target for what we wanted it to be, but we are seeing it -- there's a lot of momentum. And the divisions are doing an amazing job in working together and understanding each one of the business units right now. We have the divisions presidents get together once a month and they talk about who they're talking to and what they're doing and it's just really served as an eye-opening experience for everybody in the organization. So it's been fun to watch.

And how much is -- you talked about getting that technology foundation started in April. How much of that is helping that all process along? And how is that going to help leverage cost I guess or expenses as we move forward into next year?

So Howard, let's make sure -- the investing in the infrastructure, how is it going to help benefit…

Is that infrastructure going to help with the cross-selling process and would eventually help with operating efficiencies as we get further down the road in the next couple of years?

Yeah. So let me -- I just came out of -- I don't know if you all heard all that noise when we first started but we had 20-some people here that is in the IT and we're -- and we had meetings kind of doing report outs on what's happening in the system. So we decided to go with Salesforce across the organization for our CRM and ATS. We're going to build our back-office applicant tracking system. But what it's going to do is we're building it wide open. So instead of us having three different segments where people don't know where the customers are, where the consultants sit, everyone across the organization will be able to have visibility into that. That's going to be a game-changer in many, many ways. So we think that if somebody goes into the system and says, "Hey I know somebody I see you're working on-X customer, right? I know somebody there let me hook you up". So we think that that's going to be very significant in the future. And then as far as the efficiencies, we think because we'll be able to speed the processes along, we will have a -- the ability to be able to get people placed a lot faster and tighten that time between the time that they apply to the time we actually get to build for them. That will shorten and then that will help build our efficiencies and profitability.

Okay. Okay guys. Keep up the great work.

Thank you.

Thank you.

Thank you. [Operator Instructions] Your next question is from Brian Kinstlinger from Alliance Global Partners. Please go ahead.

Hi, Beth, hi, Dan. How are you? Thanks for taking my questions.

Hey, Brian.

Hi, Brian.

Sorry. I joined late, so I hope I don't hit the topics you already answered. But it sounds like trends have gotten better in light industrial for hiring, but maybe not so much in professional and real estate. So as you look in your crystal ball Beth and you -- when do you think hiring eases in professional real estate? And what are the triggering events that you think will be the catalyst to improve hiring trends?

I think that's kind of backward Brian. We're having a harder time in light industrial and real estate professional we're not having as much of a problem. And we've identified a lot of it in the real estate sector just is pay rate. So it really is about getting these pay rates right because the candidates are -- they're king right now. And they're able to drive up costs and we're having to continue to educate our customers on how that looks. And I think that that's just something that I don't see going away in the very near future.

So it's essentially convincing the real estate customer they're going to have to pay a little bit more which right now they might be a little bit reluctant towards given the moratorium, given the difficulties they're facing, but maybe once that eases and maybe President Biden doesn't step in, maybe that will be the time that they might accept and could afford a higher pay rate. Is that right?

I think that our customers are open to it all right now. We have not had much pushback from our customers when we give them data. So when you go around and say here is what -- and a maintenance tech a year ago, it would cost you $18 an hour and now it costs you $22 an hour and we go to the management company and tell them that they're going to have to pay more. So it is an education side of it. And as far as the moratorium goes yes we do feel that there's going to be some purse strings that end up getting loosened on that. But again keeping in mind that there was $46 billion in rental assistance that was put out there but there's only been $1.5 billion of that spend. So there's still a lot of money out there, that's not hitting these management companies to give them the relief. So it's pushing that out there and until that starts to break free. But I will tell you that, the apartment association itself, is super bullish on the fact that they think that they're going to be able to -- now the moratory has been lifted if they don't put it -- I think there's yes as of yesterday there were some communities that were talking about putting it back in based off of the delta variant. So there may be some pockets where the moratorium ends up getting placed packets. So we're watching that.

And then the light industrial side is it still pay rates? And as we come to the end of increased unemployed benefits is it just that they are used to making so much more for doing so little? Is that, how we should think about it? And so it's kind of going to take time to reset their expectations? I mean, how do you think about that?

I think that's part of it but I don't know if you heard the number I gave earlier. In year-over-year, the light industrial pay rates have gone up from our KPIs by $1 -- $1.08. But in July itself, the pay rates went up $1.93. So we're seeing big pushes in just in the last month for those pay rates to increase. And I just -- the problem right now is we get people in we get them a job and then their next-door neighbor client goes in and says we just did $1 increase. And so we have a lot of hopping. We have a lot of people that are hopping around because they can. And so they'll start at one company and then they get -- they change jobs for $0.5 more. So we are seeing a lot of that happening. So it's just a matter of trying to stay ahead of it.

Yes. Lastly, on M&A. I don't know if you talked about it at all because if you had questions -- but I take it obviously, other staffing firms are facing the same obstacle as you are. So can you talk about your thoughts and strategy in the near-term and M&A? And then from a valuation standpoint, are private valuations generally very high, or are they generally very low given the current environment?

So we are seeing activities. We saw about 24 deals in Q2. Word on the street is from our M&A partners is that Q3 should be a little bit more active as Q2 rolled off of everybody's trailing 12 numbers. In the deals that we've had discussions, with over the last couple two or three months and remember we sort of play in that $5 million EBITDA range plus or minus. We've seen multiples up a turn or so from a year ago a year and a half ago.

Okay. And your reluctancy is that price point?

No. Our reluctancy is making sure that it's a product that will add something to the basket that fulfills our customer needs; that culturally it's a fit.

I don't think we've had a reluctance. I don't -- we haven't seen anything that we found interesting. And if we go back to 2019 and 2018, we were standing there between 75 and 100 deals a year. And in some of those 2018, we didn't do any acquisitions. And so it just has to be the right deal. So I don't think there's a reluctancy. I think that we're just very intentional about it. And we haven't seen something that's really inspired us.

Sorry reluctancy was the wrong word. I could have chose my words better but that's all my questions. Thanks. I didn’t say baseball though

That’s curious. That’s – Thank you.

Thank you. This does conclude our question-and-answer session. I would now like to turn the conference back over to Beth, for any closing remarks.

Thank you, Rachel. We appreciate you taking the time to join us on our call today and appreciate your continued support. We look forward to updating you on our third quarter results in November. Stay and healthy. Thank you.

Thank you. This does conclude our conference for today. Thank you for participating and you may now disconnect.