Good morning, everyone. Welcome to the BGSF Inc. Fiscal 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Now I will turn the call over to Sandy Martin, Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today for BGSF's Second Quarter 2025 Earnings Conference Call. With me on the call are Keith Schroeder, Interim Co-CEO and CFO; and Kelly Brown, Interim Co-CEO and President of Property Management. 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. Management will refer to non- GAAP measures, including adjusted EPS and adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. I'll now turn the call over to Keith Schroeder.

Thank you, Sandy, and thank you all for joining us on today's call. I will start today's call with some opening comments and discussion points. Kelly will then cover the Property Management Group performance and discuss strategic initiatives. I will then cover the financial results. After Kelly and I have finished our prepared remarks, we will open the call up for analysts and investor questions. First, I will start with an update on the previously announced proposed sale of our Professional division to INSPYR Solutions. We filed a proxy statement on July 25, which established a meeting date of September 4 for a special meeting of shareholders to vote on the sale of the Professional Group. That process is moving along as planned, and both companies are preparing for the proposed sale. We will not be taking any questions on the proxy or sales process on this call. I would now like to address the question of what the business will look like post the closing of the sale of the Professional Group. Referring to previous SEC filings, we have been providing segment information that reports the profit contribution or what we call contribution to overhead by segment to cover head office G&A expenses. With a smaller business post-closing, we will be taking and have taken actions to reduce our head office G&A expense. We have a path to reduce head office G&A expense following the completion of the TSA period to around $10 million annually and are aggressively pursuing that path. The $10 million figure includes roughly $1.5 million of public company costs. We currently estimate the Property Management's contribution to overhead for 2025 to be in the $11 million to $12 million range. Looking back on the contribution to overhead provided by the Property Management group in 2022…

Thank you, Keith, and good morning, everyone. Total revenues from continuing operations, which exclusively represent property management, were $23.5 million for the second quarter, down 8.6% from the prior year. Sequentially, revenues improved by 12.6% over the first quarter, evidence of a seasonal lift from the higher apartment turnovers as we typically see based on previous year's performance. Last fall, we realigned the sales organization and reduced direct and indirect operating costs for better alignment with revenues. However, we know that we cannot reduce or cut our way to profitability. So we have and are investing in tools and technologies to change the trajectory of our sales trends going back 18 months or longer. As mentioned on past earnings calls, our industry has been under tremendous pressure from higher interest rates, higher-than-expected insurance rate premiums and an overall malaise in the industry because customers have a wait-and-see attitude about spending cash or staffing at typical levels. Today, I want to address strategic initiatives that we are currently rolling out to grow revenue, work more effectively and efficiently and focus on areas within our control. As we have discussed in the past, we continue to implement and expand our sales territory mapping initiatives and our proprietary training platforms, which are a competitive advantage for our business. We also continue to work on adding exclusive and semi-exclusive Property Management service agreements. This work continues in earnest, but I also want to share new initiatives that we have invested in for Property Management. We are now building on the strength of our existing technological infrastructure. We are implementing two AI-powered platforms this quarter that will drive speed and efficiency in two of our most critical functions, sales and recruiting. Our investments in AI are more than tech upgrades. They are about meeting our customers where they are and providing the experience they expect from a modern, innovative workforce partner like BGSF. With the challenges that we have experienced on the macro level within the industry, delivering talent quickly and expedited communication in response to client needs remain the priority, and these enhancements will keep us at the forefront in both of those areas. We expect to go live on these technologies by mid-Q4. The team and I are very excited about these tools and are confident that they will support and drive incremental top line revenue and generate good returns from our investments. We also plan to continue to evaluate costs to rebaseline carefully against our projected revenues. We have received positive feedback and excitement both among the internal team as well as from external sources for the phase we are approaching as an organization. We anticipate this expressed excitement to continue as we strategize our post-closing structure and planning for the future of Property Management. With that, I will turn the call back to Keith.

Thank you, Kelly. As Kelly mentioned, second quarter revenues were $23.5 million, down 8.6% compared to the $25.7 million in the year ago quarter. We are seeing evidence of improvements as revenues per billing day continued to increase during the second quarter, which resulted in a sequential sales lift of 12.6% from the first quarter. This is basically in line with the expected seasonality increase. Our gross profit margins in the second quarter were $8.4 million and 35.8% as compared to $9.6 million and 37.3% in the year ago period. On a sequential quarter basis, gross profit margins were down slightly at 40 basis points. I want to call out that our results include a $980,000 additional reserve taken in the second quarter against our accounts receivable balances. After taking over as CFO in March of this year, we took a deep dive into our aged receivables. We have changed our processes and have become more aggressive in pursuing all receivables, both current and aged. In evaluating our success rate in collecting the aged receivables over the last four months, we determined an additional reserve of $980,000 was appropriate. The additional reserve is for receivables in the Property Management business. SG&A expenses for the second quarter were $12.6 million, including the $980,000 previously discussed additional reserve, which compared to $10.7 million in the prior year's quarter. Excluding the additional reserve of $980,000 in the current year quarter and excluding strategic restructuring costs of $1.6 million and $280,000 in the second quarters of '25 and '24, respectively, SG&A costs were below the year ago quarter by $1.8 million. Our second quarter adjusted EBITDA was $1.1 million or 4.9% of revenue compared to $300,000 or 1% in the year ago quarter. We reported a second quarter GAAP loss from continuing operations of $0.44 per diluted share and adjusted earnings per share loss from continuing operations of $0.18. Total adjusted earnings per share for the quarter was a positive $0.03 per share. During the first six months of 2025, we generated $3 million in continuing operations cash from operating activities, which is encouraging. Our capital expenditures were small at $13,000. Finally, the team is working very hard to deliver on our strategic initiatives and accomplish the heavy lifting from the spin-off of the Professional Group. Kelly and I are very grateful for the team's hard work and dedication. Kelly and I will update you each quarter on our progress, and we hope this has been helpful for you today. With that, now we'd like to open the call for questions. Operator?

Certainly. The floor is open for questions. [Operator Instructions] Your first question is coming from Howard Halpern with Taglich Brothers.

Encouraging results on the top line sequentially. But -- and sort of you talked about the noise that's going to occur, but sort of cutting through that noise, as we end this year and go into 2026, what -- when you rightsize the company, get some positive growth in revenue, where do you hope or where are you seeking to see adjusted EBITDA as a percentage of sales? What would your hope be that you would be able to see?

Well, I think you just need to look back a few years because like I said in the script that in '22 and '23, the contribution to overhead was $20 million plus. So with a $10 million cost of overhead, that would give us an EBITDA of around 10. So it's about 10%, call it, 8%. But that's not going to occur until we get the top line up from where it is now. So it would be kind of a slow -- not slow, but it would be a steady rise, okay?

Okay. And then in terms of unlocking the top line growth, are you in the current customer base, are you seeing that there is pent-up demand and they're just waiting to get some sort of nod to unlock that spending because spending will have to occur at some point. Am I correct on that?

Yes. Howard, you're correct to an extent, we may experience a small amount of pent-up demand. But really, what we're seeing operators do is just shuffle around within their current portfolio to try to keep their assets at the level that they need to be. So that's where it's great that we have a very solid strategic approach with all of our top clients to keep a really good thumb on the pulse of how are they managing their portfolios, what needs do they have upcoming, how do they anticipate Q4 and Q1 looking? So right now, we're very cautiously optimistic to Keith's point, we anticipate it being a climb back up, but it's really hard to tell just how quickly that will happen because the economic outlook and not even just specific to Property Management overall, we're just seeing caution across multiple segments. So -- but yes, I think that just with talking with our clients, it's a mix of managing with their existing teams as best as they can. So I would not say that there's going to be -- I wouldn't expect an extensive amount of pent-up demand, nothing like we saw back in '22 when we saw that post-COVID spike. It's just simply not going to look quite like that this time.

But you might be encouraged for next year if -- and if interest rates start down and if we don't have any major storms, I guess, that would cause property insurance rates to go up. If things remain sort of steady in that down in one and steady in the other, you think you might see some incremental spending on the portfolios of your clients?

I believe so. I think that's a very safe statement.

Okay. And then in terms of finding new customers, how is that process going?

Well, in multiple ways. In the property management industry, there's constant movement within portfolios, changes in management, changes in owners. We're seeing transactions continue to happen. So that's just something that our team with some of the -- both the technology and then some of the data investments that we've made, we're able to keep up with what a lot of that movement looks like. So that's just where our industry involvement is beneficial because we're able to be in discussions to be aware of where that movement is happening and therefore, try to capture share as it does.

Okay. And I guess for Keith, in terms of the strategic spending that's gone on, is that level going to start to come down by the fourth quarter from current levels?

You're talking about the cost for the deal, gosh?

Yes, strategic...

Yes, exactly. Yes. So Q2 was obviously a big spend. We'll see a fair amount still in Q3. But post close, that should basically be gone.

Okay. Okay. And so that would be the only really onetime -- not onetime or just unusually high spending going forward in Q3 and then trending down in Q4. There's nothing else. No other unusual type of spending that we'll see other than maybe some of the lumpiness, like you said, with once it closes the agreement to still work with INSPYR?

Yes, that should be it.

Okay. And are there any other -- for the home office, any other ways that you're looking at to reduce spending beyond -- are there any opportunities, I guess, to reduce the spending further than what might be normalized?

There are, and we are looking at those all the time, and we're working on those now. The big spend -- one of the big spends in that area is software costs. So we're taking a really hard look at that, what sort of tech platform do we need. And so that would be one spot where we could -- and are planning to bring costs down.

Okay. And I guess one last question. Post close, are you going to just use the cash on hand for normal activities? Or are you going to seek maybe a small revolving credit line or something like that? Or will the balance sheet be basically totally clean of debt?

So we'll be clean of debt. So we do plan at close to pay off all of our outstanding debt. We'll probably set up a new line -- we will set up a new line, a small revolver that we would not plan to use in case. And then the other cash would just sit there for a while and while the Board decides what to do with that cash, what's the best way to maximize value to our shareholders.

Okay. Well, I wish you luck. And I think the Property Management segment has a lot of opportunities. So good luck to both of you.

Your next question is coming from Bill Dezellem with Tieton Capital.

Kelly, I'd like to follow up on one of the comments you made relative to a question that the prior questioner had asked. And you mentioned that your customers are shuffling projects and that you don't think there's a great deal of pent-up demand. But if -- I guess when I hear that, it's shuffling generally means trying to delay spending and delayed spending would equate to pent-up demand. So would you help us understand how -- either what you were trying to communicate or what maybe is wrong with the logic that I just shared?

Certainly, yes. Thank you for the question. And whenever I mention shuffling, really, I'm referencing the employees that they are utilizing to maintain and manage their portfolios. In the last couple of years, we've seen a trend where certain aspects of how the portfolio is operated has had room for centralization. So for instance, a role on site that may have been responsible for some of the accounting areas of the property, some things like that. So we're seeing some technology trends and how people are being used within the portfolios. But then also when it comes to maintenance, that was really more specifically where when I mentioned shuffling, if you look across a portfolio in a certain location, they may just be able to utilize the employees that they have in place in addition to our services, but just the utilization of our services might be at a slightly lesser level for the sake of saving on spend if they can use their current workforce at multiple sites to maintain the communities. Does that clarify my statement a little bit?

It does. It's a lot more of the shuffling of who's doing the work rather than what work is being done.

That's exactly right. And so to my earlier comment, that's not to say that there may not be some things that they are postponing or doing at a lesser level, but that's just very hard to predict right now because based on the feedback that we're getting from clients, they really are just trying to, to my point earlier, use the people that they have to keep up as best as they can on the properties while being mindful of the bottom line in lieu of some of the heightened costs that they've experienced the last couple of years.

Yes. And probably a natural outcome would be that there is some delay in project activity that's taking place or maintenance, but it's not, to your point, the log jam maybe that we saw coming out of COVID.

Yes, I think that's accurate.

Okay. That's helpful. And then in the press release and your opening remarks, you referenced the AI-powered sales and recruiting tools. Maybe I wasn't paying attention as well as I should have in the opening remarks or maybe there's more that you can dive into in terms of what you're hoping to accomplish with those tools once you institute them and how those tools are different from what you're currently doing today? Would you walk through those, please?

Certainly. Looking at how AI is being used, obviously, it varies widely and depending on how an operation is being ran. But for us specifically, we see an opportunity based on the need to quickly respond to client needs to quickly pick up on client needs whenever they do have a need, they want to spend, they expect it quickly. So that's the sales piece being able to utilize AI to pick up on just buying signs, buying activity and just provide a quicker response whenever we see that need indicated. On the recruiting side, it's really to help candidates get a response quickly when applying for jobs to help them get an instant response so that they know that, hey, BG does have a need that I may be able to fulfill. So it helps the people part of things get quicker. If you're relying on your people to respond to applicants and you see a bottleneck happening, that's where you might have an opportunity to plug in some AI tools to help that candidate get a quicker response. So it's things like that, that we're looking at just to help, like I said, overall theme is the speed with which we can transact and the speed with which we can help connect people to jobs is the primary priority there.

That's really helpful. And then looking at the -- your segment reporting, you had corporate G&A of $6.2 million, which is really separate from the property segment. It's really truly like I think, Keith, you had referenced in the opening remarks, corporate G&A. The operating loss for the property division, including that corporate G&A was $4.4 million. So with -- make sure I'm understanding this correctly, without the corporate burden, the property business would have made $1.8 million this quarter.

Yes, that's correct.

Great. And then essentially, in response to the prior questioners questioning, you're looking to increase revenue, increase EBITDA margin, and therefore, that number would increase even further as you build the business?

That is correct.

[Operator Instructions] Your next question is coming from George Melas with MKH Management.

Quick question, and I don't know if you can tell us that, Keith, but what do you expect to be the cash on hand once the transaction is completed and you've paid down the debt?

Sure. So post close with the cash coming in from the sale, less course fees, less all of our outstanding debt, we should have around $45 million on hand.

Okay. So $45 million, so that's roughly $4 per share.

Yes, $4 [indiscernible] or something like that, but yes. in that range.

Okay. Very good. Kelly, during the quarter and during the month of July, what were the trends in terms of year-over-year revenue change? For the quarter, it was minus 8.6%. But how did that progress in April, May and June? And maybe if you can tell us in July.

April, May and June, particularly through June, we did see a positive trend when it comes to the year-over-year gap. And so looking into Q3 and beyond, clearly, as I mentioned earlier, just with some of the economic uncertainty that we continue to hear and see in the market, we anticipate being able to continue to increase that. I am not able to obviously share July figures just yet. However, in June, we definitely saw a positive trend for the quarter.

Okay. So that sort of means that April and May were probably down double digit, and then you said June was positive. Did I understand that correct?

A comparison to April and May, we closed...

Positive. May was kind of flattish. June was up quite a bit. July is looking good. We would expect based upon past years, seasonality lift in the quarter of around 9% versus Q2, but we have to see what the rest of the quarter does.

Okay. Keith, can you repeat that? What you saw for April, May and June? I did not -- I was not able to catch it.

Okay. April was a good increase. May was somewhat flattish. June was a very strong increase. July is an increase over June. And the last part was that what would -- based upon years past that the amount of lift just because of the season, we would expect for Q3 versus Q2 is about 9%. But we have to see how the overall quarter unfolds.

Okay. So let me just quickly do my math and try to translate that into a year-over-year number. Bear with me. So we still have a pretty meaningful decline year-over-year, right, in the third quarter.

We would still be behind prior year unless we get a big lift in share gain, okay? But the key is we have to keep gaining on it, right? And that's what we're focusing on. That's the reason we have invested in new tools that are coming online so we can gain share.

Okay. Very good. Kelly, I think if I recall, the revenue is primarily around leasing and maintenance. And can you sort of tell us a little bit if there is some -- where there is the strength, where there is weakness? And if we look at versus '24 or maybe even against versus '22, which of those two parts of the business has -- how have they performed?

Well, we don't necessarily have that level of detail available here on the call. However, as mentioned before, it's really been an overall softening in the industry the last 18 months due to the heightened costs that operators are facing in a big way in the insurance and interest areas.

That's just something we haven't ever broken apart in the information that we put out to the public. So it's just to get into this morning.

Okay. Very good. Fair enough. And just to repeat what you said, Keith, and make sure I understand it correctly, you expect that post close and post transaction services, the G&A would be roughly $10 million and that includes $1.5 million of public company expenses.

That is correct.

That's okay. And so if we adjust the current results for the additional reserve that you took on the AR, we have a contribution to overhead sort of for the first half that's roughly a little bit north of $5 million.

For the first half of this year?

The first half of -- yes.

Yes. I think you need to look forward, not backwards, okay?

Okay.

Your next question is coming from [ Steve Cole with MKH Management ]

Let me open up with a couple of things. Looking at exclusive versus nonexclusive agreements with the property management companies, can you address where we are with that and how much of your business comes from those arrangements?

Certainly. Yes. When we say exclusive versus semi-exclusive, we see among our clients and sometimes it's dependent upon the size of their portfolio. Sometimes it's dependent upon where they are in their business and what their needs are. Our strategic team has done a great job speaking with our client partners and working with them on agreements where we can really cater the way that we deliver our services to their needs. So there's an appetite for that where it kind of simplifies the approach with the client to say, hey, we've got one partner. We know exactly how BGSF delivers. We have a great relationship with the employees. So there's definitely been a healthy appetite for -- in that area. Overall, the strategic portfolio, clearly, year-over-year, that's going to fluctuate a little bit, but we anticipate the entire strategic portfolio to comprise roughly between 11% and 15% of the overall revenue of the business.

So among those top 10 companies, you're only getting 11% to 15% of total revenues. Am I hearing that right?

No. It varies from client to client. Some of the clients that would be exclusive agreements, if they're spending on staffing, they're spending it with us. So we would get -- we would capture all of that. With some other clients, it's not necessarily an exclusive agreement. So it may be anywhere -- maybe 5% of what they spend, it may be 50% of what they spend. That varies from client to client.

Got it. What I'm trying to get on, maybe I didn't ask the question right, is isn't this an advantage? Let's say, BG obviously is one of the biggest players in this business. So the way that you can leverage that is obviously becoming one of these exclusive or semi-exclusive. There can't be more than a handful, right, per the client. So the question is, is this a good or bad? I would think this is a significant differentiator is what I'm trying to get at. versus you and, let's say, a local provider in a market versus other nationals. Am I missing that? Or how do you view that, I guess, is what I mean.

Yes. Our geographic spread throughout the country is definitely an advantage competitively, especially whenever you're dealing with a company that has a portfolio across the country, to my point earlier, that makes it very appealing for them to work with BG because they know they're going to come to one source for all of their needs. So that's certainly been a strategic advantage that the team is leveraging whenever they're engaging in discussions with companies to gain the agreements for exclusive or semi-exclusive agreements.

And Keith, just a quick question. So when we look at the size of the business today and we look at, let's say, where your theoretical breakeven is, can you talk to your incremental margin pickup above breakeven because I presume there's reasonable operating leverage here. Is that right? Or am I missing that?

No, you are right. So I would say the best way to look at that, the margin lift as sales dollars go up, it's going to be around 35%. That would just fall straight through. Sales dollars go up about 35% of that margin should essentially fall -- 35% of that revenue, excuse me, should fall straight through because the selling costs are relatively fixed G&A as well. So building sales will quickly drive a much higher margin and EBITDA.

Okay. Great. And I guess the last question, I'm just trying to understand, when you look at that, and we've already hopped in this a little bit, but the company cost, the G&A cost as we go forward, I always thought property management, correct me if I'm wrong, how much of these folks are actually working from home versus from offices? And how much of the total G&A cost is embedded in lease costs to these offices? And is that an opportunity we can look at?

The office cost for this group is not into G&A. That's what we have broken out. That's the selling cost, okay? Selling includes lots of things. It's obviously selling, recruitment, all those sorts of things. So that cost -- when you look at the Q, that is the selling cost. The G&A is really finance and accounting, HR, all that sort of stuff.

There are no further questions in queue at this time. I would now like to turn the floor back over to Kelly Brown for any closing remarks.

Thank you for your time today. We appreciate your continued support and look forward to updating you on our third quarter results in a few months. Have a great day.

Thanks, everyone.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.