Good morning. Welcome to the BGSF Inc. Fiscal 2023 Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. As a reminder, this conference call is being recorded. Now, I will turn the conference call over to Sandy Martin, Three Part Advisors. Sandy, please go ahead.

Thank you. Good morning and welcome to the BGSF 2023 second quarter 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 question-and-answer 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. 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. 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 as 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 for joining us today for our second quarter earnings discussion. Our second quarter 2023 results reflect meaningful progress on our financial and operational initiatives. I want to thank the BGSF team for their tremendous contributions that supported our solid growth and progress, which resulted in higher revenue, profitability, and cash flow generation in the second quarter. We reported total revenues of $81 million, which reflected increases in both revenue and adjusted EPS of approximately 9% versus the year ago quarter. Adjusted EBITDA increased almost 39% to $7.5 million over last year's quarter, which represented an adjusted EBITDA margin of 9.3%. Notwithstanding industry-wide headwinds and headlines in the sector last quarter, we performed well and achieved results that met or exceeded our expectations. We will discuss progress on our operational initiatives in a few moments. Second quarter Professional segment results included 13 weeks of Horn Solutions acquired in December of last year, and 10 weeks of Arroyo Consulting acquired in April of this year. Both of these acquisitions added to BGSF's high value consulting businesses and strengthened our go to market value delivery proposition. The Arroyo acquisition also adds global IT resources and capabilities, which is in demand from current clients and provides geographic resources from some of the best IT talent in the industry. As is typical in times of economic uncertainty, we are seeing that companies are reducing discretionary spend and capital spending by delaying or extending project timelines. On the contract side, we also are seeing elongated hiring cycles. As we look at our business today, I believe we are benefiting from the strategic transformation of the company that we started over five years ago. We have been focused on building high end specialized consulting services through highly strategic acquisitions of professional…

Thank you, John. Now, turning to our four strategic initiatives for 2023. First, our team successfully implemented our rebranding initiative with the transition of many trade names to BGSF. Although, this may not seem like a big or important milestone for our company, we completed a total of 14 different branded acquisitions over the last 13 years, and each of these added complexity, cost, and potential confusion to our customers. One week after the social media consolidation, our net followers increased 110.3% year-over-year. So we believe this will continue to positively impact our organization moving forward. I'm very proud of our team for successfully transitioning our employees, clients, and all stakeholders over through this process. Today, we go to market as BGSF and we are seeing this benefit us with clients and partners recognizing our scale and breadth of solutions and services in both of our segments. The second strategic initiative, Process Improvement, is all about further leveraging our IT technology platform in big and small ways. We have been process mapping and reducing tasks from our sales and recruiting teams to allow them to do more customer-centric and focused on engaging with our people and our clients. As we mentioned earlier, we are also leveraging mobile-first tools that reduce tasks as well as reduce process friction for our employees, customers, and candidates. I'm very pleased with our progress on process improvements and believe that our business optimization goals are well underway for this year. Our third strategic initiative is shared services. We are focused on improving our time and attendance process and believe the process enhancements will gain meaningful efficiencies, allowing our delivery teams to focus on more revenue generating activities. These improvements and best practice developments will continue to be leveraged as we expand and grow our businesses.\…

Thank you. [Operator Instructions] Your first question comes from Jeff Martin, ROTH Capital. Jeff, go ahead.

Thanks. Good morning, Beth and John. First of all, congratulations on the margin gains in the quarter, something you've done consistently throughout the years. I know you mentioned that real estate margin is at the high end of what the long-term range should be, but wanted to get a sense from you whether the increased margins were more a function of NICs, the addition of Horn and Arroyo, or there was also some efficiency gains from the technology platform and the investment that's made over the past several years?

Yes, thanks. I think really it's a combination of all of those things coming together at the same time this quarter and actually our trend and actually our trend. Definitely on the professional side, we're having some good gains from the addition of Horn and certainly from Arroyo. But it's definitely a combination of everything.

Okay. How did the permanent placement in the quarter track relative to the last quarter or the last 12 months? Was it fairly high in the quarter?

I think we are seeing, if you look at competitors with the industry, we are seeing similar trends in perm placement. It is kind of the first thing to go when there's uncertainty in the marketplace. And again, kind of this fog over the economy is people slowdown in their hiring. They delay, they leave open positions open longer. So what we've seen is down anywhere 20%, 30% in that business.

Okay. The reason I ask is because that is a significant lift to margins potentially. So, you have the margin gains in the face of a decline in permits. That's impressive. Beth wondered, if you could provide a little more detail with respect to the contract delays in professional. Were any of those of significant size? Do you have any visibility on timing? Or those just kind of in the midst of all the fog of the uncertainty in the economy?

Sure, we do have visibility into what the resources have been put on hold. So we have many of our customers where we've got people lined up, they have a project they're doing, and then they just decide to delay it every month. And so nobody's canceling anything. They're just kind of being very cautious as they move through the rest of this year. And we're hopeful for everything that we're hearing from them, that it's not going to be any kind of change where they're not going to pull the trigger on these deals. They're just waiting to see kind of how things shake out.

Okay. And then could you give us a sense of over the next year or so what the expansion plans are for real estate segment?

I'm very excited about all the things that we have going on in real estate right now. So outside of the fact that they've consistently grown double digits and it's all been organic, the new technology that we just implemented last year has allowed us to be able to really take some efforts and take, we now are rolling out with the help of Salesforce and ALN, we were able to go out and do territory mapping. So our system now matches every property that is out there in the country to Salesforce. And then we are taking that data and we are mapping out territories in the larger markets like Dallas and Atlanta, Houston to start. And this allows us to be able to take and really allow our sales people to have a bigger focus on the types of properties than having just a spell here's no 1,700 properties you need to just go try to figure it out. So it allows a bigger focus on defining who they go to see, when they go to see, we're able to take revenue and tie it to that system to be able to tell if somebody -- if we've spent a lot of revenue in this customer, in this pocket, it shows us white space, so we can go move into those areas where we maybe historically haven't gone in the past. So super excited about that. That launched last week, went live last week. And I know that Kelly and Jen Roeder [ph], who has kind of heads up that project, have done a really good job in making sure that we are positioned to get the most out of that. So that's an exciting move for us in property management.

Great. And then I know right after you purchased Arroyo, you had significant inbound interest in offshoring. Are you seeing some contracts come to fruition there? Maybe give us a sense of how the offshoring initiative is trending with clients.

And we are seeing activity in the offshoring side of it. And customers here in the U.S. are they're starting out slow. So they're giving us a shot saying, hey, give us two or three people to see what your capabilities are. But it's kind of your foot in the door. And once we get people on the ground and in those departments, we definitely feel that that's going to be an expansion in the departments that we have for Arroyo. It's been super exciting. And Eric Peters and the team have really gone through and made sure that they are telling the story and leading with managed services and the capabilities of the Arroyo team.

Great. Thanks for the time.

Thanks, Jeff.

[Operator Instructions] Next question comes from Howard Halpern, Taglich Brothers. Howard, please go ahead.

Congratulations. Great quarter. In terms of the two acquisitions, how has that helped in terms of the cross-selling and building that type of pipeline for future projects?

Well, Howard, as you know, every acquisition that we've ever made has been a strategic acquisition as in, is there a capability that we need? Is there something that a customer has asked us for? And in both of the acquisitions, it was basically for those two things. And the managed services side of the Horn Solutions acquisition, as well as the abilities of our Colombia and India operations, has really given the sales team for professional, a really strong effort to be able to go out to the market and sell solutions across the board. And I think that that has excited the team. There's a lot of motivation and a lot of energy. We've got a lot of different platforms that we've been landing pages that the marketing team has built that has allowed the sales team to really get out to market quickly. So we're just in the process, especially with the Arroyo acquisition, of building these things out. But every week we're finding some new capability that that team has the ability to do and its super exciting to watch it unfold.

Okay. And within the real estate segment, have some of the wage pressures abated? Have you seen that occur?

I think on both segments we are not seeing the wage inflation that we saw in last year. I think that's all kind of lined out and it is what it is right now. So we're not seeing it be crazy like it was last year.

Okay. And then just a couple more in with the transaction keys. Are we going to see any more transaction keys going forward or did this round out from the acquisitions this quarter?

I would expect very little. We will have some come through. We're still working through a number of legal items related to the acquisition of Arroyo. As you can imagine, it's fairly complex, certainly with the Colombian entity and India. But it won't be anywhere as significant as what we saw flow through this quarter or the last quarter.

Okay. Okay, guys. Keep up the great work.

Thank you.

Next question comes from Michael Taglich from Taglich Brothers. Michael, please go ahead.

Terrific. Beth and team congratulations on an excellent quarter, beating the street. I had a question about the tech part of the business. Obviously, you've been outperforming the industry on the tech side. Do you think Arroyo, which is a fairly small acquisition, is going to help you to continue to do that?

I definitely do. So the capabilities that that Arroyo team is really going to open up doors across the professional division IT segment altogether. So we've got very exciting things that are in the works with that team.

All right. Now I don't think it's in my numbers, but I should look at that as a cushion if you will that those synergies like the tech spend and the improved margins we're seeing in the business now.

Correct.

Good. Congratulations on a strong real estate performance there.

Thank you. Super proud of the teams right now.

They're doing a great job. Thank you very much. Looking forward to a couple more great quarters.

Thank you.

I will now turn the call back over to Beth Garvey for closing remarks. Beth, please go ahead.

As always, thank you for your time today. We appreciate your continued support. As always, we're available for follow-up calls. If you would like to work out with the report advisors, we'd be happy to chat in more detail. Otherwise, we will talk to you after we -- when we report our third quarter in November. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you so much for joining, and you may now disconnect.