Q4 2023 BGSF Inc Earnings Call
Participants
Sandra Martin; IR, Three Part Advisors; BGSF Inc
Beth Garvey; Chair, President, & CEO; BGSF Inc
John Barnett; CFO; BGSF Inc
Jeff Martin; Analyts; Roth MKM
Howard Halpern; Analyst; Taglich Brothers.
Bill Donohue; Analyts; Teton Capital.
Brian Kinstlinger; Analyts; Alliance Global Partners.
Mike Taglich; Analyts; Taglich Brothers
Presentation
Operator
Good morning, everyone, and welcome to the BGSF, Inc., fiscal 2023 Fourth Quarter and Full Year Financial Results Conference Call. (Operator Instructions). As a reminder, this conference call is being recorded. Now I'd like to turn the call over to Sandra Martin IR, Three Part Advisors. Ma'am, please go ahead.
Sandra Martin
Thank you. Good morning, and welcome to the BGSF. 2023 Fourth Quarter and Full Year 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 Q&A session. As noted, today's call is being webcast live and a replay will be available later today and archived on the Company's Investor Relations page at investor dot BGSF.com.
Today's discussions 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 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 Company's financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as substitute for GAAP and non-GAAP measures are reconciled in today's earnings press release.
I'll now turn the call over to Beth Garvey.
Beth Garvey
Beth? Thank you, Sandy, and greetings to everyone on today's call. Fiscal 2023 marked a pivotal year for BGSS, characterized by significant achievements and a successful execution of our strategic and transformative plans. We are pleased to report over $20 million in operating cash flow, accompanied by nearly 5% increase in revenues to $313 million. It's worth noting that fourth quarter of 2022 included an extra week of operations due to a calendar shift.
On a same-day basis, we estimate 7% growth in total 2023 revenue compared to an adjusted 2022 in specific segments, property management revenues grew by almost 5% on a same-day basis for the year, while professional revenues experienced an 8% increase on a same-day basis. Notably, Professional revenue in the second half of 2023 was intentionally lower due to a strategic shift away from lower margin IT placement.
Our 2023 initiatives involved successfully integrating Horm solutions acquired in December of 2022 and acquiring Arroyo consulting in April of 2023. These acquisitions, provide clients with high end finance and accounting work force solutions and robust nearshore and offshore development capabilities. Furthermore, our strengthened partnerships with leading technology companies, including Workday, ServiceNow, Microsoft, SAP Oracle and Salesforce have amplified the BGSF.
Brand, fostering new business opportunities. The rebranding to bBGSF. from various acquired trade names, further enhance our brand name recognition in 2023 as well. I'm immensely proud of our team's dedication and hard work, which has been instrumental in advancing our vision, the March CEO Confidence Index, Paul hitting its highest level since 2021 gives us confidence in the continued growth of U.S. businesses. Our strategic decisions regarding service offerings are well positioned for growth in 2024 and beyond.
Now I'll turn the call over to John.
John Barnett
Thank you, both, and good morning, everyone. As Beth mentioned, 2022 was a 53 week fiscal year and 2023 was a 52 week fiscal year. The extra week in 2022 was in the fourth quarter, making the as reported year over year. Fourth quarter comparison, difficult 2023, total revenue was $313.2 million, up 4.9% on an as-reported basis on a same-day basis, adjusting 2022 for the extra five days, total revenue was up 7% for the segments.
Reported professional revenue for the year was up 6.1% on an as-reported basis and 8% on a same-day basis. The increase was driven by the acquisition of Royall consulting and Horn solutions as we integrated Horn solutions in 2023, we lost the ability to cleanly separate our organic or existing business from the Horn solutions business for the year. On a same day basis, we estimated that our organic professional business declined in the mid 10s in percentage terms,
Property management increased 3.3% on an Andrew as reported basis and 5% on a same day basis. Gross profit for the year was $112 million, up 8% from the prior year. And gross margins were 35.7%, up 100 basis points from 2020. To recall that our 2023 operating results included a onetime $22.5 million pretax non-cash brand name impairment charge related to the rebranding project.
Excluding the non-recurring impairment charge, transaction fees and acquisition amortization. Our reported loss from continuing operations of $0.95 per share is adjusted to $1.19 earnings per share compared to $1.26 earnings per share in 2022, we increased adjusted EBITDA from continuing operations by 15.9% to $25 million compared to $21.7 million. Our adjusted EBITDA margin grew from 7.3% of revenue in 2022 to 8% in 2023.
Turning to the fourth quarter, revenues were $73.6 million compared to $77.3 million in 2022. On a same-day basis, adjusting 2022 for the extra five days, fourth quarter revenue was up 3% versus same day basis, revenue of $71.4 million in the prior year quarter. For the segments on a same-day basis, property management revenue increased at an estimated 0.4% and professional increased by 5%, which included the benefit of acquired revenues. As stated earlier, as the horn solutions integration progressed, it became difficult to separate out our organic or existing business.
We estimated that the organic professional revenue contracted in the high mid 10s on a same day basis during the fourth quarter. We continue to see pressure in the fourth quarter on staff augmentation project starts and permanent placement.
However, the opportunity pipeline has grown as we move through the first quarter, and we are optimistic about 2024 gross profit margins in the fourth quarter were $25.4 million and 34.6% compared to $27.1 million and 35% in the prior year quarter.
The slight decline in margin is attributed to lower permanent placement business, which carries a gross margin of 100%. SG&A expenses for the fourth quarter were $20.2 million and 27.4% of revenue, which was an improvement versus the prior year quarter of $23.2 million and 30% of revenue operating income increased $3.2 million from $2.8 million in the prior year quarter, driven by lower SG&A expenses. Fourth quarter adjusted EBITDA was $5.5 million or 7.5% of revenue compared to $4.3 million or 5.6% of revenue in the prior year quarter. We reported adjusted earnings of $0.21 per diluted share compared to $0.19 per share for the 2022 fourth quarter.
I'm happy to announce that we closed the refinancing of our credit facility this past Tuesday. We have a great group of banks in this syndicate and we are appreciative of their partnership. We prudently manage our balance sheet, focusing on working capital efficiencies and carefully evaluating our leverage ratio funded debt to trailing 12 months pro forma adjusted EBITDA was 2.48 times at year end.
We maintain a disciplined approach to our capital allocation strategy, which includes investments and capital expenditures, organic growth, cash to pay down debt, a quarterly cash dividend with an annualized yield of approximately 6% and strategic acquisitions we have no immediate plans for acquisitions in 2024.
With that, I would like to turn the call back to Beth.
Beth Garvey
Thank you, John. As we reflect on 2023 we recognize the challenges posed by tough double digit sales comps from 2022, coupled with economic uncertainty. Despite these challenges, our commitment to short term and long term strategic initiatives supporting our teams and streamlining operations has positioned us for success in 2024 and beyond.
Looking ahead to 2024, we plan to leverage our proprietary territory mapping tool for better sales force deployment and property management and continued upskilling talent through our virtual training partnership.
On the professional side, our partnerships with leading technologies and our recent appointment as a direct Workday service partner elevates us to new heights. We are also seeing momentum growing our managed solutions and cross-selling of our nearshore and offshore IT services.
Our strategic repositioning, including higher value consulting management solutions and a unique property management platform sets us up for long-term success and shareholder value creation. I'm extremely proud of the progress and execution of building blocks for our future growth and profitability. Our team's dedication and nimble approach position us well for the opportunities that lie ahead. I look forward to what we can achieve at BGSF. in the future.
Before we open the line for questions, I wanted to mention that we will be at the ROTH investor conference next week and hope to see many of you there. But that said, I will turn it over to the operator for questions.
Question and Answer Session
Operator
Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions).
Our first question today comes from Jeff Martin from Roth MKM. Please go ahead with your question.
Jeff Martin
Thanks. Good morning, Beth and John. Good morning, sir. Beth, I was hoping you could give us a little more insight in the professional segment. You mentioned the uptick in the CYO. survey first time in two years or so that you've seen that level. Have you seen that trickle through to the pipeline of business in professional?
Beth Garvey
We definitely are. So there's a lot of optimism going on right now at BGSS. The professional group. They're advising right now target.
Jeff Martin
And then with the Royal acquisition, as you know, probably coming on a year here and how is the progress towards I know the initial reaction towards nearshoring and offshoring was very positive in the flow through and if so, maybe give some anecdotes on what you're seeing.
Beth Garvey
And while it took us a while to really figure out their capabilities and down there and base they have such a from best and what they call products of work so they can do many different things. And so it took us a while to figure out all the many different things that they could do. I'm mostly excited about the way they can build some different tools that we have a connector tool that we're working with that can connect some ERP systems and not all the time do you have as tools that connect ERP systems to like a pricing tool?
Right? And so we're able to start to build some AI. products that help connect those things.
We've also got a I brought a team of a group down there that's actually working a lot in building products for some of our other customers. And so the more that we recognize what they do and the more we talk to our customers about what they need and Luis Sanchez who runs that group has done an amazing job and talking to our customers in regards to what that would a build, what's your pain point and what we can do to help them. And so it's been really exciting to see all that play out.
Jeff Martin
And then on the Workday partnership, maybe you could elaborate what that means for BGSF?
Beth Garvey
In the past, we were at like a third party. We were approved to be able to do some more that we were not a direct. So we would have add it was a second party could walk us into one of our customers. This gives us the ability to be able to go direct. So and they have us on their website now as a preferred implementer. And so it allows us really a lot of visibility and not having to wait for somebody else to tag us on the shoulder.
Jeff Martin
And then I know strategically, various efforts made strides towards more technology, technologically advanced solutions and maybe talk about the progression that you've made over the past year year and a half since you've layered in some acquisitions to enhance the technology aspect of the offering?
Beth Garvey
I think there's a lot of things. It's a great question, Jeff. So I think there's a lot of things that we realized as we started to look at the business and acquisitions going through and talking to our customers about what they need, they are meeting and in looking at our business as a puzzle piece, you know, what do our customers start with what parts they have to pick and their software, then they have to implement it, then they have to customize it. And so how do we make sure that we are that player that goes all the way around the circle? And I think we've done an amazing job in being able to figure those things out.
And in doing so, we figured out that we had teams of people who could do really great things and move the business into higher margin and some of these other product project type of work that we had customers asking us to do were really higher volume, lower margin business and it took two or three people to actually keep that going.
And we just decided that it was strategically a good idea for us to shift to be able to do that higher margin business where we were seeing our customers see the benefit of us closing the gap on their needs. And so and that was kind of how we shifted last year. One of the main reasons we shifted last year to get away from that lower margin business to really double down on the things that our customers needed and that we were finding was really, really good.
John Barnett
I would say also that we did go through a pretty big transformation, right, bringing these two acquisitions on board. And we had some redundancies, not necessarily as a redundancies because I think the finance and accounting expertise that Horne brought on board was more higher end, but we had similar groups, right? And so we needed to really organize our business.
And Eric Peters did a great job working with the professional team to kind of organize our business around finance and accounting, IT managed solutions and then on Oreo, the nearshore offshore. So we spent he spent and we spent a lot of time as an organization to get that alignment and we feel really good about how we're set up and especially in the face of some of this some of this economic fog lifting and more optimism, which we expect to result in higher spend and by our customers.
Jeff Martin
And then one more from me if I could on the property management side, that's a segment that's traditionally grown at a very attractive and rapid rate per se, getting back to say double digit growth in the property management side? And if you're not seeing now, what what kind of environment are you seeing out there currently?
Beth Garvey
I think we'd had to do some adjusting in that segment. We've got more competition out there than we've had before. We've had to change some of the ways we look at different things along those lines. But I think our property management and territory tool that we've mentioned earlier is really going to help us be able to be more targeted in our sales approach. And I think that's going to be beneficial for us going forward.
And so we're optimistic about where it's headed and that we also understand that in other states in different environments out there now than what it was here three years ago, that's helpful.
Jeff Martin
Thank you.
Operator
Howard Halpern from Taglich Brothers.
Howard Halpern
Congratulate congratulations on the solid results and looking forward to 2024 in terms of property management, how many locations did you end the year with and what are the prospects or, you know, increasing the number of locations leading locations in 2024.
Beth Garvey
I believe we are at 64 right now, Howard and then and but the way we're doing this territory mapping tool, I may use it land as an example, and where we may have two salesperson people out there now we may end up having six out there. And so that's kind of how we're expanding our growth from that perspective. So they won't have as many personal habits may properties they need to hit.
So it will be more targeted. And then as always, we've always kind of looked at being able to be opportunistic in opening different end markets out in the UK in them, U.S. And so we've got a couple that are identified, but right now, we're really going to focus on this territory side because we think that that's closest to the dollar.
Howard Halpern
And in terms of how you're set up for 2024, what are you seeing in terms of your own internal productivity based on all the technology that you've put in place to grow the business?
John Barnett
Yes, I think you know, we we continue to evolve our systems. And I'm, you know, if you look at what we did last year, in addition to ARM, in addition to the work we did to align the organization on the professional side. We also went through the process of rightsizing the organization and becoming more efficient there. So you would see that in our in our cost as we went through the year and our SG&A cost as a percent of revenue as we went through the quarters. So we feel like we are in good shape today. Obviously, as we grow, we'll continue to add on to our organization. And we still believe that there are efficiencies to be gained out of our system and we continue to work on evolving our system and to get those efficiencies out, Tim and I will add to that.
Beth Garvey
I think that we've done a really good job in a very large share with some of the economic pressures that we had to really kind of rightsize and the players on the team. So when we look at it, we're positioned right now where we can bring on a hub at a lot more revenue and not have to bring on any more G&A expense. And so I think we feel really confident about that in how we've restructured and position ourself for this year.
Howard Halpern
Okay. And one last one. You talked a little bit about the customer side and the outlook there. How are we how are you seeing the talent side and bringing on people to fill those units, fill the requests of customers.
Beth Garvey
And we've talked about in the past, we just have such a great group of consultants and field talent that are loyal to us. And so we aren't really seeing a problem in recruiting right now because we do a very good job in making sure people once they work for us, they continue to work for us. So we were able to redeploy people back out. So we're not feeling a lot of pressure in that area right now. And that's a testament to the team Okay.
Howard Halpern
Okay, thanks. And keep up the great work.
Operator
Bill Donohue from Teton Capital.
Bill Donohue
Great, thank you. Would you please to dive into a bit more detail on that additional competition that you're seeing on the property management side and how it's manifesting itself, please?
Beth Garvey
And we've always had competition, but you know, there's there's more and more people that have decided that this is happening an interesting niche to be in. And so we get followed around that when we open a market we have some of our competitors that will actually go in and follow us.
And so again, it's a testament to us being able to go in and double down on our relationships. That segment is a relationship business. It is a deep and wide in and you have a if you recall, last year we got Supplier of the Year with National Apartment Association. And I think those kinds of things and help benefit us and move it above the pack, but still it changes it changes a little bit how the SLC has to sell, and we're structuring that moving forward in those directions.
Bill Donohue
Thank you. And when you first purchased Arroyo, there were appeared to be some interesting organic growth opportunities. Could you expand on what you're seeing now, please?
Beth Garvey
And there is a lot of cross-sell opportunity with their IO teams and many things that data capabilities that they have that we've uncovered as I mentioned earlier and just knowing what they're capable of doing and then talking to our customers, they do a really good job listening to the pain points of why our customers are going through and figuring out if there's a way that they can help.
And we are very careful in making sure that we get Luis and his team in front of the right people and they move, they move things in that direction. But I think that as we continue to talk to our customers and they continue to understand what we can do I think there's great opportunity for us in growth in that area.
John Barnett
And Bill, this is one of the this is one of these areas where companies have existing relationships, right? And they may have nearshore offshore resources working. And what we've had to do through this process is start with a few people, right, build our reputation with our current customer base and grow it with the goal of proving our capabilities and getting more work for it from them.
Bill Donohue
That is helpful. And I do want one point of clarification from your opening remarks you had talked about learning the capabilities and the ability to tie pricing to an ERP system that was Royal. Is that correct?Or was that another part of the business and I just missed what you were saying.
Beth Garvey
And tried to tie business or I'm sorry, I'm struggling with that segment.
Bill Donohue
Okay. So, you had referenced that one of the capabilities that you have learned that you have from one of the acquisitions was the ability to tie pricing to our ERP system.
Beth Garvey
Okay. I'm sorry. So there are there are companies out there that do pricing tools like a manufacturing procedural, how to price this product, right? And and we have the ability now to do connections with and that the Royal team has built connecting tools that take a ERP system and tie it to manufacturing pricing pull, right? That capability of feeding that into an ERP system has been lacking. And so we've done a really good job in being able to build that out.
Bill Donohue
Great. Thank you both and appreciate the time.
Operator
Brian Kinstlinger from Alliance Global Partners.
Brian Kinstlinger
With your question and thanks for taking my question. Sorry, I joined late. So I'm not sure if this was asked, can you talk about your current appetite for M&A with your recent transactions in solid cash flow trends? And then maybe can you speak to valuation expectations for private companies and how they may have changed over the last few quarters? Thank you.
John Barnett
Yeah, I think you know, right right now, where we're at it, making two very large acquisitions going through our realignment process and and where we are from a leverage standpoint, we unless something that was really a good fit came up. We are looking at acquisition opportunities as they come up, but know I highly doubt that we would pull the trigger on anything except something that was exceptional at a low price this year this year, we're really focused on execution.
We've done the alignment. We believe we have some final final have some tailwinds from the economy behind us and done, and we need to focus on on driving business and full adoption of selling in what we have acquired across our sales platform.
Brian Kinstlinger
Great. Thank you.
Operator
Mike Taglich from Taglich Brothers
Mike Taglich
Good morning, everybody. I hope I didn't miss that. One question. Is there a high low on the growth range on a property management business and the tech business for this coming year?
Beth Garvey
And in percentages about how high we think are you asking for guidance went from considerable value to what are you going to beat inflation or not?
Mike Taglich
And are you going to beat inflation or not enough in real estate?
Beth Garvey
I feel very good about 2024, right?
Mike Taglich
You want to give a little more specific or you don't feel like.
Beth Garvey
So I feel like I feel like we have great momentum going in our professional group. And we have had numerous conversations with a lot of customers who are starting to break free with what they have going on. And I was traveling last week with the professional team and was wildly overwhelmed with the positivity that was coming from our customers.
So I feel very, very good about what is happening in that area. And I think from the property management group. And as we continue to move forward, I know the interest rates for some of these mortgage leases that are coming up. And I know there's been some conversations about some concerns out there with the owners of the properties that so we're just going to watch that. And so but all in all, I think that the restructure that we have made through the last couple of years with the systems and with the realignment of our teams and I feel very, very good at going into 2024 about and the potential of our growth group.
Mike Taglich
Okay. Thanks. Rest of my questions have been answered. Thank you. Good luck.
John Barnett
Thank you.
Operator
And ladies and gentlemen, with that, we'll be ending today's question and answer session. I'd like to turn the floor back over to Beth Garvey for any closing remarks.
Beth Garvey
Thank you, everyone, for your time today, and we appreciate your continued support. We look forward to updating you with our first quarter results in early May. Have a great day.
Operator
And ladies and gentlemen, with that, we'll be concluding today's conference call and presentation.
Thank you for joining. You may now disconnect your lines.
