BGSF, Inc. (BGSF) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the BGSF, Inc. Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sandy Martin of Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today for the company's second quarter 2026 conference call to discuss our results. On the call with me are Kelly Brown, Co-CEO and President; and Keith Schroeder, Co-CEO and CFO. 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 investors.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 are available 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 today in our call. The second quarter of 2026 represented our first reporting period as a stand-alone company following the conclusion of the TSA with INSPYR at the end of March. We use this transition as an opportunity to further streamline our front and back-office operations, realign our organization as needed and establish a cost structure better aligned with our stand-alone property staffing business. During the second quarter, we incurred $385,000 in nonrecurring strategic restructuring costs, which were included in our quarterly results. We also completed our initiative to simplify our support structure during the quarter, strengthening our focus on operational discipline, efficiency and accountability. At the same time, we are executing initiatives designed to accelerate revenue growth and expand our long-term opportunities. We continue to assess our general and administrative cost structure and identify opportunities to enhance operational efficiency. We continue to estimate ongoing G&A expenses of approximately $12 million, including approximately $2 million in public company costs. We will continue to identify and action cost reduction efforts in our administrative costs beyond those already identified. Building on recommendations from an external organizational and incentive compensation study, we began implementing targeted actions late in the first quarter and completed those actions during the second quarter. As a result, the full benefit of these initiatives will be reflected starting in our third quarter results. With that, I'll turn the call over to Kelly to walk through the strategic initiatives currently underway.

Thank you, Keith, and good morning, everyone. Although we have seen optimism around rent growth and reduced concessions in pockets of the country, higher interest rates and elevated operating costs continue to pressure property owners' cash flow. As a result, many customers remain focused on cost control and reduced discretionary spending on temporary staffing. This cautious spending environment has led to lower-than-expected demand for BGSF workforce solutions, resulting in revenue being below expectations. Keith will discuss these market conditions and their financial impact in greater detail later in the call. Operationally, we continued to make meaningful progress across several key performance initiatives during the quarter. Our focus on optimizing fill rates is producing encouraging results, supported by enhanced recruiting processes, expedited candidate matching and greater efficiency across our delivery teams. We also continue to strengthen our onboarding process, reducing friction for both clients and candidates while accelerating the time from offer acceptance to successful placement. These improvements are helping us deliver better overall experience and drive stronger workforce outcomes. In addition, we remain focused on expanding our PropTech offering. After a successful 6-month ramp-up of the program over the first half of the year, we expect this business to successfully build its revenue stream and contribute approximately 1% to 2% of revenue in 2027. While still in the early stages of development, we are encouraged by client interest and ongoing execution efforts, and we believe PropTech represents an attractive long-term growth opportunity that complements our broader workforce solutions platform. We executed very successful engagements at both the National Apartment Association and BOMA International Conferences during the quarter. These events provided valuable opportunities to strengthen customer relationships, engage with prospective clients and expand our sales pipeline. We are optimistic about the quality of the leads generated and believe these efforts position us well to support revenue growth in the second half of the year. We are also excited to announce that Tara Gerberich, VP of our Strategic Account program, one of our own, was awarded the National Supplier of the Year at the National Apartment Association's Excellence Awards. This is the highest individual recognition that is awarded to a supplier by NAA on an annual basis, and we are proud and excited for Tara's well-earned recognition at this conference. Now I will turn the call back to Keith to cover our second quarter financial results.

Thank you, Kelly. As a reminder, our comments today refer to continuing operations unless otherwise noted. Our second quarter revenue was $22.3 million, 5.1% down from the prior year, primarily due to lower billed hours driven by reduced customer demand as property owners and property management companies continue to manage cost pressures as well as increased competition in select markets. Market conditions remained challenging during the quarter as higher interest rates, elevated operating expenses and continued pressure on property level cash flows contributed to cautious spending decisions across our customer base. While demand was soft during the quarter, recent staffing industry analyst commentary and brand stats results point to improving conditions across the staffing industry, which may support a gradual recovery over the remainder of the year. Gross profit for the second quarter was $7.9 million, slightly down from the $8.4 million achieved in the prior year period. Our gross margin was 35.5%, slightly lower than prior year's 35.8% we believe our gross margin for the year will remain in the 36% range. SG&A expenses were $8.9 million for the quarter compared to $12.6 million a year ago, a 29% reduction. This quarter included $385,000 of strategic review costs compared to $1.6 million in the prior year period. Adjusted EBITDA for the second quarter was a loss of $298,000, an improvement compared to the $1.2 million loss in the prior year period. As our revenue strengthened during the seasonally stronger Q3 time period, the additional gross profit will positively affect our EBITDA, along with the previously discussed cost reduction actions we implemented during the quarter. On a GAAP basis, for Q2, we reported net loss from continuing operations of $0.08 per diluted share compared to a net loss of $0.41 per diluted share in the prior year. Adjusted EPS loss was a loss of $0.02 per share from both continuing operations and on a consolidated basis. We exited the quarter maintaining a strong cash and cash equivalents position of $18.2 million, which includes short-term investments. Our cash flow from operations was slightly negative $160,000, driven by working capital requirements, including a seasonal revenue uplift of $1.4 million. We also repurchased 56,256 shares of common stock at an average price of $5.20 per share, which totaled approximately $293,000 for the quarter. As of June 28, 2026, we have approximately $2.3 million available for repurchases. We expect full year 2026 revenue to remain relatively consistent with 2025 levels. As Kelly outlined, we continue to execute against our strategic priorities, including driving operational excellence through recruiting and onboarding enhancements, expanding our PropTech offerings, strengthening customer relationship and sales pipeline development through industry engagement and reinforcing our leadership position within property management. Kelly and I want to thank our employees for their dedication and resilience during this time. We look forward to updating investors on our progress each quarter. Please reach out after this call if you'd like to schedule a meeting. With that, we would now like to open the call for questions. Operator?

[Operator Instructions] Your first question today will come from Bill Dezellem of Tieton Capital.

Let's start, if we could, please, with the strategies that you have to shorten the time line for placement of staff members. Would you walk through the initiatives that you have executed on? How strongly your customers are responding to that? And then what incremental initiatives you may still have ahead?

Sure. Bill, good to hear from you. A couple of things. First, in the second quarter, we were really focused on, I believe, as we previously commented on the upcoming initiative involving using the data that we have related to the candidate profile and using our technology to be able to quickly match that to the jobs that we have available. So the development around that continued in Q2 and that we'll really start seeing more of the benefit of that going into the third quarter. The second quarter initiative that we really focused on is around our hiring volume. I believe we previously mentioned how leveraging AI and really reaching more candidates in the marketplace. And so in the second quarter, we were able to successfully ramp up the volume of hiring that we were able to execute, which clearly benefits the customers, more candidates available for the placements that they list with us. So hiring was the main initiative through Q2. And then going into Q3, we're looking at, again, leveraging technology in a couple of different ways to match those skill profiles of the candidates more quickly to the profile of the jobs that our customers are listing with us.

And how much -- how large of an impact do you anticipate that to have in the second half? I don't have a feeling on how meaningful that will be to your customers.

Yes. So the way that we plan to measure that is to look at our fulfillment rates on our placements. So we can measure for every, for example, 100 placement requests that come in, how many of those get filled in what amount of time. So the goal in Q3 is to be able to improve that fulfillment rate by 1 to 2 percentage points to start to ramp that up. So we'll measure that throughout Q3. I hate to put specific tie specific revenue numbers to that now for the third quarter, but the goal and how we measure that is going to be in the percentage of that fill rate that we achieve within that first day of the placement being listed with us.

That's really helpful. And then in the past, you have talked about using AI to interview candidates for positions. Is that ongoing? And are you finding any pushback to humans talking to nonhumans in an interview process?

That's a great question, Bill. I can take that one as well. About half of our candidates are engaging with our AI interviewer, and that's a good kind of benchmark that we've set is to say, hey, if half of the candidates will talk with the AI agent, we have the other half prepared to engage with obviously our human recruiters. We've actually -- with the seasonality of our business, we added to our human recruiter workforce over the higher volume months so that those that show signs that they don't want to engage with the AI recruiter can quickly get routed to a human that we cannot lose, we still capture those candidates that don't care to engage. But so far, our data shows it's been about half and half, those that want to engage versus those that show signs that, hey, this isn't what I prefer, can I get to a human?

And then with that split, have you found that placement rates are any different between the 2?

We have not found that placement rates are different between the 2. Now I will say that when candidates engage with the AI recruiter, that does expedite their onboarding process. They can more quickly possibly get to onboarding because it's automated and AI hiring agents can work 24/7 versus our human folks. We like to give a bit of a break after their workday. So we do see that whenever they're engaging with the AI agent that can get them a little bit more quickly to onboarding. However, the volume of candidates that get put to a placement, we haven't necessarily seen a big difference because keep in mind, we do still have our human recruiters that are kind of that end decision maker, so to speak, right? So the AI doesn't make decisions on who we hire and who we don't. That is absolutely still where our sort of human in the loop component comes into play.

Great. And then the final question for now is the PropTech initiative. Would you please discuss in more detail your -- kind of what you are seeing there in terms of, I guess, market size would be what we'd be interested in.

I think we're still learning what the true market size is going to be for us. And I say that because the first 6 months of launching that business was spent just doing a lot of listening to our customers to see. PropTech can be a widely used phrase that can mean a lot of different things. There's a lot of different ways that technology is leveraged clearly in the property management space. So the first 6 months has been a lot of business development and a lot of listening to what area of PropTech seems to be the biggest pain point for our customers that our contractors can assist with. So in the early few months, definitely promising. A very strong pipeline has been built by that team. So now they're really just focused on, okay, we know in that business, it's not as fast paced of a close like staffing. Staffing moves very quickly whenever they need a person, it's a very quick, let's get the placement to the site. PropTech is a longer runway. You have the different phases of scoping out the project going through and finalizing what those terms are going to look like. So now we're going through that cycle of, hey, let's get more of our contractors dispatch than we already have to start engaging in some of those projects. So I think as we continue to learn what the scope that we're hearing from our customers is, we'll be able to more clearly identify, hey, what is the real potential here. I think we'll be able to give a little bit more detail and guidance on that over the next couple of quarters as we really fine-tune hey, based on this feedback, what direction do we see this business really staying more narrowly focused on.

That is really helpful. And actually, I do have one additional question. Circling back to the staffing side, have you seen signs with rents improving and fewer incentives for move-ins? Essentially a healthier industry that your candidate -- not your candidate list, but your prospective customer list is growing and that there are more firms that maybe aren't quite ready to engage in hiring, but that are interested in conversations, essentially your prospect pipeline growing is really the way to ask that.

Sure. The great thing is, Bill, certainly, the usage of staffing is still there. Our communities out there still need people. What we're really working with our customer partners on is, hey, let's figure out how we can best have those needs fit into the limited budget that you have. So year-over-year, we're seeing the sheer volume of requests actually up whenever you compare year-over-year. However, how many hours of work that translates to is what we're really having to work very carefully on with our customers because of that limited budget piece that we mentioned earlier in the call. So short answer to your question, we've already seen just the sheer volume of requests improving year-over-year. However, where we're having to really work is, okay, how many hours of work can that translate to? And that might be something that we need to see improve as we continue on in the industry seeing those glimpses of optimism with the rent improvement and with pockets where we're seeing concessions go down, et cetera, et cetera, and that will loosen up some of those operating dollars that the communities can put towards services such as ours.

Kelly, does that imply that there is a backlog of work that is that is taking -- that is building up. And maybe this is my ignorance to not understanding the business well. But if there's an air conditioner that's out, that needs to be replaced right now if it's summer. We understand that. But is there -- are there other activities that your candidates work on that can be deferred. And therefore, this idea that the volume of request is up indicates that there is a backlog of deferred work?

I'm hesitant to believe that there is a large backlog of work, Bill, because feedback from customers also indicate that, hey, let's be very careful in how we can leverage the team members that we have if they can maybe take a team member that would have typically worked at one community and have them work at maybe 2 or 3 others that are within a reasonable proximity. So as they sort of float that staff around their portfolio, that's a strategy that's been used to try to, again, be mindful of the dollars that are going out for help that we may fill in with. So I think, frankly, our operators are making it work. They're making it happen maybe with more limited resources. So could there be maybe a small backlog of work out there? Possibly, but I don't want to necessarily assume that because I really think our operators are just doing what they can to -- with the resources they have, keep up as much as possible.

And the next question today will come from Michael Taglich of Aegis Capital.

Quick question. You broke out strategic alternatives review. Could you give me a little more detail on that spend?

Yes. That was restructuring costs, Mike, because there's things like when we finished the TSA in March, we had several people. And so those costs fell into Q2. There's some consulting type costs that were part of the studies that we had done early part of the year. There was a final bill came through there. So those were the types of costs that came through in the quarter.

Okay. And from a -- from a go-forward standpoint, do you have any thoughts about how that spend is going to work? So that's all restructuring costs basically?

Yes. Yes, it is. So going forward, that cost would be very small.

Okay. All right. And the -- does management discuss at all any additional opportunities to bring more of the gross margin down to the bottom line from a cost reduction standpoint?

Yes, that is something I think I mentioned in my remarks, we are always looking at ways to bring down costs, whether it be people-wise, whether it be software-wise, both in G&A and in selling. So yes, while we made a lot of steps so far in the last, call it, 6 to 9 months, we are constantly looking at ways to bring those costs down, and we act on them all the time.

At this time, we will conclude our question-and-answer session. I'd like to turn the conference back over to Kelly Brown for closing remarks.

Thank you for your time today. We appreciate your interest in BGSF and look forward to providing an update on our third quarter in a few months. Have a great day.

Thank you all.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.