BGSF, Inc. (BGSF) Q3 2026 Earnings Call Transcript

Operator: Good morning, everyone. Welcome to BGSF Incorporated Third Quarter Fiscal 26 Earnings Conference Call. I am Frans, and I will be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press *1 on your telephone keypad. If you would like to withdraw your question. Thank you. As a reminder, this conference call is being recorded. Now I will turn the call over to Latoya Johnson, Director of SEC Reporting from BGSF. Please go ahead.

Latoya Johnson: Good morning. Thank you for joining us today for our company's Third Quarter 26 earnings conference call. On the call with me are Kelly Brown, Co CEO and President and Keith R. 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 our company's Investor Relations page at investor.dgsf.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 2000. Actual results may differ materially from those indicated by the forward looking statements because of various risks and uncertainties. Including those listed in our company's filings with the Securities and Exchange Commission. Management statements are made as of today, and 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 EBITDA, and EPS. Reconciliations to the nearest GAAP measure are available at the end of our earnings release. I will now turn the call over to Keith R. Schroeder.

Keith R. Schroeder: Thank you, Latoya, and thank you all for joining us in today's call. During the third quarter, we completed a comprehensive review of our organizational structure to ensure alignment with the current scale and needs of the business. As a result, we implemented targeted organizational realignments at the end of September to simplify and flatten the organization enhance collaboration between sales and delivery teams, strengthen accountability and support efficient execution across the business. These changes build on our broader efforts to streamline support functions and maintain operational discipline while continuing to invest in initiatives intended to drive revenue growth and expand long term opportunities. These actions will result in approximately $1.6 million of annual cost reductions effective in fiscal October 26. The company will incur approximately $100 thousand of severance costs related to these changes. We will recognize the majority of these benefits in Q4 of 26 and the full effect in Q1 of 27. Cost improvement is an ongoing initiative at BGSF and we continue to examine and explore all opportunities to further reduce our selling general and administrative expenses. With that, I will turn the call over to Kelly to walk through the strategic initiatives currently underway.

Kelly Brown: Thank you, Keith, and good morning, everyone. Although multifamily fundamentals continue to improve, apartment demand outpacing new supply, occupancy trends strengthening and rent growth gaining momentum in many markets, the recovery remains uneven. Positive forward indicators suggest continued stabilization across the sector. However, elevated interest rates and operating costs continue to pressure property owners' cash flow. As a result, many customers remain focused on cost control and also remain cautious with discretionary spending, including temporary staffing. This continued spending discipline has contributed to lower than expected demand for BGSF workforce solutions. Resulting in revenue below expectations. Keith will discuss these market conditions and their financial impact in greater detail later in the call. Operationally, we continue to advance several strategic initiatives during the quarter in response to the continued market pressures that we are facing. With the goal of improving our execution across the business. Investments in recruiting processes, candidate engagement, and delivery workflows, will optimize our employees ability to deliver talent with speed and quality at the forefront of our operating model. We also expanded our use of AI enabled sourcing and engagement capabilities, allowing us to connect with qualified candidates more quickly, streamline administrative activities, and accelerate hiring outcomes. Importantly, these tools enhance our recruiters' effectiveness while preserving the high touch service model that differentiates our business, enabling our teams to focus more of their time on client relationships, candidate success, and revenue generating activities. In addition, ongoing enhancements to our onboarding process continue to reduce friction for candidates, while shortening the time from offer acceptance to placement. Our PropTech practice continued to expand and gained momentum during the third quarter, delivering revenue growth as client adoption increased. Building on the successful launch and ramp up earlier in the year, we added new engagements, expanded our consulting pipeline, and further developed our network of specialized consultants. Demand for implementation, integration, and advisory services remains strong as property management organizations seek support in navigating increasingly complex technology ecosystems. While still a relatively small contributor to overall revenue, PropTech is demonstrating the potential we envisioned at launch and remains on track to contribute approximately 1%-2% of revenue in 2027. We continue to view PropTech as a valuable adjacent market growth opportunity that strengthens our broader workforce solutions platform and deepens our relationships across the property management industry. Now I will turn the call back to Keith to cover our third quarter financial results.

Keith R. Schroeder: Thank you, Kelly. And as a reminder, our comments today refer to continuing operations unless otherwise noted. Third quarter revenue was $25.1 million a decrease of 6.6% from the prior year period, primarily due to lower build hours driven by reduced customer demand as property owners and property management companies continue to manage cost pressures as well as an 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 contribute to cautious spending decisions across our customer base. While our demand remained soft during the quarter, recent commentary from staffing industry analysts and results reported by Randstad suggest conditions across the staffing industry are showing signs of improvement. With improving trends in certain markets and geographies. Although the pace of the recovery remains uneven, we are encouraged by these early indicators. Our gross profit for the third quarter was $9.1 million slightly down from the $9.7 million achieved in the prior year period. Our gross margin was 36.1% slightly improved over prior year's 35.9%. We believe our gross margin for the year will remain in the 36% range. SG&A expenses were $8.7 million for the quarter, compared to $10.2 million a year ago, a 14.7%. This quarter included $175 thousand of strategic review and restructuring costs compared to $482 thousand in the prior year period. Adjusted EBITDA was $858 thousand for the third quarter compared to approximately $1 million in the prior year period. Our 26 Q4 EBITDA will be positively affected by the previously discussed cost reduction activities. On a GAAP basis, for Q3, we reported net income from continuing operations of $0.01 per diluted share compared to a net loss of $0.28 per diluted share in the prior year. Adjusted EPS was $0.09 per share from continuing operations and $0.11 per share on a consolidated basis. We exited the quarter with maintaining a strong cash and cash equivalents position of $17.9 million which includes short term investments. Our cash flow from operations was negative at $540 thousand driven by working capital requirements including a seasonal revenue uplift of $2.8 million We also repurchased 32.2 thousand shares of common stock at an average price of $5.36 per share totaling approximately $169 thousand for the quarter. As of 9/27/2026, we had purchased 611 thousand shares of common stock under our stock buyback plan, and we have approximately $2.1 million available for repurchases. As Kelly outlined, we continue to execute against our strategic priorities including enhancing recruiting, candidate engagement, and onboarding processes to drive operational excellence expanding our PropTech offerings leveraging AI enabled tools to improve speed and efficiency while maintaining our high touch service model strengthening customer relationships and sales pipeline development through industry engagement and reinforcing our leadership position within the property management industry. Kelly and I want to thank our employees for their continued dedication adaptability, and commitment to delivering exceptional service. Their efforts in advancing our strategic initiatives embracing new technologies and supporting our clients have been instrumental in positioning the business for long-term success. Look forward to updating investors on our progress each quarter. Please reach out after this call if you would like to schedule a follow-up call. With that, now we would like to open the call for questions. Operator?

Operator: Thank you. We will now begin the question and answer session. *1 on your telephone keypad *1 again. If you are called upon to ask your question, and are listening via loudspeaker on your device, Please pick up your handset and ensure that your phone is not on mute when asked. And your first question comes from the line of William Dezellem, from Tieton Capital. Please go ahead.

Bill Dezellem: Thank you. Keith, I was delayed getting on the start of the call and missed your initial comments. But it sounds like there is a restructuring that you are doing. Would you please repeat just the headline version of your closing opening comments, please?

Keith R. Schroeder: Absolutely. Yes. So we did a-- we took a look at our organization basically during Q3. And then effective with the first week of our fiscal October, we took actions where we reduced on an annualized basis, $1.6 million worth of cost. So we will see most of that in Q4 because it did not happen right at the first of the month, plus we will have some offsets on severance of about $100 thousand. So it is $1.6 million on an annualized basis.

Bill Dezellem: Great. that is helpful. And then the headcount that was taken out where within the organization did they fall and how did you achieve I guess, the efficiency so that you could remove those heads because I think you all have been pretty lean. up to this point.

Kelly Brown: Yeah, hey, Bill. it is Kelly. Good morning. We did. We took a really hard look at the most around the operational team structure. So the reductions were in the selling expense category. And so we were able to look at how delivery team is, well, 2 things. Looking at how the delivery team is able to field and fulfill the request leveraging a lot of the tools that we have spoken about on previous calls. So that was definitely 1 aspect of things. But then, secondly, we try to stay very mindful and sharp on the seasonality of our business. So acting ahead of that also try to make sure that the organization is optimized as much as possible going into what has historically been our lower volume time of year. So just trying to make quick and responsible decisions in that regard as well. that is really helpful. Thank you.

Bill Dezellem: And then when we look at the overall business, you know, you have referenced that there is some signs that staffing is improving and the multifamily is improving and yet it is uneven. How would you characterize pricing with that. That you are experiencing with your customer base?

Kelly Brown: Yeah, exactly to your point. it is very-- It is variable throughout the country with regards to where we are seeing higher levels of optimism than others. So whenever it comes to pricing, we do try to walk that line between, of course, we want to stay to be able to win the business. However, we also need to be mindful of what our customers are able and willing to pay, but also what will enable us to pay the field talent, what we need to be able to pay to capture the level of field talent that our customers expect. So it is not necessarily a very targeted answer for you, but it is variable literally market by market. We do have teams that I think as you know from previous discussions service different areas of the country specifically. So we are able to because of that structure look at the localized trends and then make sure that we are pricing accordingly.

Bill Dezellem: And so would you say that the overall trend, Kelly, has been up, down, flat, when you net it all out.

Kelly Brown: As far as how we are structuring our pricing, I would say we have been able to stay relatively flat. And I say that because of just statistically the margins that we have been able to hold, So yes, I would say flat would be the best answer there on broad scale. Okay.

Bill Dezellem: that is that is helpful. Thank you. And then a couple of other-- oh, gosh. Well, I guess your size, you just seems as though you are under scale. And so I guess there are 2 questions tied to that. Number 1, that over 40% of your market value is in cash. How are you thinking about that? And maybe that relates to your stock buyback program. Would love to hear your thoughts and insights on that.

Keith R. Schroeder: Sure. Yeah. So we have about $2 million left to spend. So we will continue that. We have not with the Board talked about what we will do when that is all spent. Our volume is low, so we are not able to buy a large chunk of shares. So but we are buying all the shares that we can. At this time. So again, we will continue that program. And then at some point in the future, we will be talking with the Board about what is the what is the next steps.

Bill Dezellem: Great. that is that is helpful. And then just relative to the size, I do not think that I the industry makeup as well as I would like to in terms of how fragmented the industry is, if there are firms, whether they be private equity or otherwise, that are looking to consolidate the industry Would you just talk through the dynamics that you see in the in your industry at this point relative to those factors?

Kelly Brown: Well, with regards to the talent that we hire, so I am gonna talk about that in 2 different facets, Bill. So first, let's talk about the talent that we hire. The talent that we hire and leverage for the customer base would not necessarily call fragmented. We are seeing crossover in various other industries that can leverage that same skill set when it comes to the skilled trade talent that we hire specifically. Among both the multifamily as well as the commercial areas of the business. That demand for skilled trade talent certainly does flow over and out into other industries such as construction or home maintenance, you know HVAC specifically. You know, more and more in the headlines around data centers and what it takes to build and maintain those. So certainly, the talent that we hire definitely is in demand. Demand in many other industries aside from our own. When it comes to the customer base, the customer base that we sell to is definitely very narrow, I would say, probably more fragmented than the talent that we hire because we do stay very specific to servicing multifamily management companies and multifamily property owners that it is a very specific population that we sell to. You know, and that is 1 reason why we have been you know, pretty excited about what we are seeing among the PropTech group because that enables us to it is 1 example of how we can leverage the current customer base that we have built historically among the multifamily and commercial staffing areas, and we are now able to expand that conversation into more of a technology conversation. So we like the reputation and the sort of stickiness, I am gonna say, with the customer base that we have been able to build. So now we can look at, okay. We built a reputation among that customer base. How can we now expand on that conversation and what other sort of problems can we solve so to speak, for that same customer base? I hope that answer was helpful. That is.

Bill Dezellem: And then relative to the fragmentation of competitors and if there are firms that are that are trying to consolidate the industry. Insights there would be helpful. And then also, in kind of in conjunction with that, would you talk through the value that you would bring to other organizations if someone were to try to do a larger roll up, if you will.

Keith R. Schroeder: Yeah. So, long question there, Bill. But anyway, there are a lot of competitors out there. It is very fragmented. There are 3 larger competitors, of which we are 1. Correct? There is no 1 at this point that we are aware of that is trying to consolidate this group. But as far as the value we would bring, strategics that would buy each other, there is obviously a lot of fixed cost. Right? there is cost to people. And the IT costs, the software costs, you know, are high. So there would be some real leverage there if you would have 2 strategic combined. Great.

Bill Dezellem: Thank you, and nice move on cutting costs ahead of seasonality.

Keith R. Schroeder: Thank you, Bill.

Kelly Brown: Thank you, Bill.

Operator: And your next question comes from Michael Taglich from Aegis Capital. Please go ahead.

Michael Taglich: Good morning, everybody. Quick question. I have 2 questions. Number 1, I saw about 175 thousand spent on your strategic review. Could you be a little more specific about what you spent that money on in the quarter?

Keith R. Schroeder: Yeah. That was pretty much all restructuring costs. There were some folks that we let go. So those severance costs and things like that, that is really pretty much all that went through that line in Q3.

Michael Taglich: Okay. And the follow-up to that is how much lower will your cost be in Q4 versus Q3? What will savings be?

Keith R. Schroeder: Okay. Selling costs will be down selling costs, which is 1 of the items that we report on that, will be down about 300 thousand in Q4 versus Q3. You get to Q1, the full $400 thousand per quarter will come out. So there is some severance costs, so it is a $400 thousand a quarter savings, okay? But there are some costs associated with this, start of it. Does that help?

Michael Taglich: Just for clarity, okay. So you are going save $300 thousand in Q4, then 400 thousand in Q1. Is that the right? Is that what you mean?

Keith R. Schroeder: That is correct. Okay. All right. So $1 million annualized, I am sorry, $1.6 million next year. Great. A million. Yep. Okay.

Michael Taglich: Good. Alright. Thank you.

Keith R. Schroeder: Thank you, Michael.

Operator: There are no further questions at this time. I would now like to turn the call back over to Kelly Brown, for closing remarks.

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

Operator: Thank you all.