BGSF - Earnings Call - Q4 2024
March 13, 2025
Executive Summary
- Q4 2024 revenue of $64.4M and GAAP diluted EPS of $(0.10) missed Wall Street consensus of $67.7M and $(0.08), respectively; Adjusted EBITDA fell to $1.4M as Property Management seasonality and restructuring disruption weighed on results. Q4 2024 consensus data from S&P Global: revenue $67.65M*, EPS $(0.08)*.
- Sequentially, revenue declined 9.5% vs Q3 ($71.2M), with Property Management down 18.5% and Professional down 3.0%; gross margin compressed to 33.3% vs 34.2% in Q3.
- Management executed a cost restructuring plan targeting $7–$9M annual savings and ~$0.8M reduction in capital spend via nearshore IT support; majority of people-related savings start in Q1 2025 with commission plan changes fully visible in Q2.
- Strategic alternatives review remains on a 12–18 month timeline from May 2024; CFO transition announced with Keith Schroeder appointed as CFO, effective after the 10-K filing, adding a potential execution catalyst.
What Went Well and What Went Wrong
What Went Well
- Stabilizing trends in Professional: billing-day adjusted Professional revenue grew ~2% sequentially; 50 new logos added in Q4 and 30% increase in signed MSAs vs Q4 2023, indicating pipeline improvement.
- Cost actions advancing: restructuring targets $7–$9M annual savings and ~$0.8M lower cash capex; SG&A reductions started in December with further benefits as contracts roll off and commission plan changes flow through Q2.
- Operational excellence and AI initiatives: expanded advanced lead generation engine (from Property Management to Finance & Accounting) and leveraging AI through the Arroyo team to drive productivity and client solutions.
What Went Wrong
- Seasonal and restructuring disruptions in Property Management: revenue down 18.5% sequentially; larger-than-normal seasonal decline partially due to ceasing service to certain higher credit-risk customers and field reorg disruptions.
- Margin pressure: gross margin decreased to 33.3% vs 34.6% YoY and 34.2% QoQ; competition and macro pressures cited, especially in Property Management.
- Miss vs consensus: revenue and EPS both missed Q4 Street estimates amid softer Property Management and fewer billing days in Professional; Adjusted EBITDA margin fell to 2.2% vs 4.8% in Q3. Q4 2024 consensus revenue $67.65M*, EPS $(0.08)*.
Transcript
Operator (participant)
Good day, and welcome to the BGSF Fiscal Year Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. We are opening questions only for analysts today. To ask questions, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Sandy Martin with Three Part Advisors. Please go ahead, ma'am.
Sandy Martin (Head of Investor Relations)
Good morning. Thank you for joining us for today's BGSF Fourth Quarter and Full Year 2024 Earnings Conference Call. With me on the call today are Beth Garvey, Chair, President, and Chief Executive Officer, and Keith Schroeder, newly appointed Chief Financial Officer. 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 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 Beth Garvey.
Beth Garvey (CEO)
Thank you, Sandy, and good morning, everyone. I appreciate you joining us today. I'd like to begin by addressing our CFO transition. Yesterday, we announced the appointment of Keith Schroeder as our new Chief Financial Officer. We are thrilled to welcome Keith to the BGSF team. He's a transformational leader with extensive public company experience, bringing strategic, operational, and financial expertise that will strengthen our finance and accounting functions. I also want to express my deep appreciation for John Barnett and his contributions to BGSF during a pivotal and transformative period in our company's history. On behalf of our leadership team and the Board, I thank John for his dedication and wish him the very best in his future endeavors. Additionally, I'm proud to share that BGSF has once again been recognized as one of the "Best Places for Working Parents," marking our fifth consecutive year of receiving this award.
Moving on to restructuring our strategic updates, as you recall, in December, we announced a significant restructuring plan aimed at reducing costs, improving operational performance, and positioning BGSF for profitable growth. We anticipate cash savings of approximately $7 million to $9 million in 2025 from these initiatives, which included headcount reductions and streamlined indirect costs. Furthermore, by shifting our IT middleware maintenance and development to lower-cost nearshore support with Arroyo, we expect to save an additional $800,000 annually in capital and cash expenditures. Both of our business segments also underwent an organizational restructure, which we believe will enhance communication, improve operational consistency, and drive efficiency gains, ultimately supporting long-term growth. Regarding our strategic alternative process, our timeline remains unchanged. We continue to expect this to be a 12-18 month process from our initial announcement in May of 2024.
While we are making progress, we recognize the economic and political uncertainties have created a more cautious environment. We remain committed to providing updates when we have definitive developments to share. Before Keith provides financial results, I'd like to highlight key trends in our business segments. Professional segment, our monthly IT contract revenue normalized for billing days reached its lowest point in June of 2024. However, since then, revenue has stabilized or grown sequentially, with positive trends continuing into January and February of 2025. Fourth quarter revenues were down 3% sequentially, reflecting normal holiday seasonality. However, adjusted for billing days, Q4 was approximately up 2% sequentially. Encouragingly, we added 15 new logos in Q4 and saw a 30% increase in signed master service agreements compared to Q4 of 2023. Increased customer engagement and scope meetings suggest a growing opportunity pipeline, reinforcing our confidence in positive trajectory.
In the Property Management segment, we took decisive action to align direct and indirect operating costs with revenue, improving overall efficiency. The broader multifamily housing sector remains challenged by rising operating expenses and credit challenges. However, we are optimistic about improvement in revenue trends starting in mid-2025. Our territory mapping initiative in key markets drove a 23% increase in revenue and remains a top priority for expansion in 2025. We continue to see year-over-year growth for our exclusive and semi-exclusive preferred vendor agreements, positioning BGSF as a go-to partner for our property management clients. Now I'll turn the call over to Keith to walk us through the financial results. Keith?
Keith Schroeder (CFO)
Thank you, Beth, and good morning, everyone. I am honored to join BGSF and look forward to meeting many of you as we engage with investors in the coming months. Now turning to our fourth quarter performance, our fourth quarter revenue was $64.4 million compared to $73.6 million in Q4 of 2023, which is reflecting declines in both segments. Our Professional segment revenue declines narrowed to 8.7% year-over-year and 3% sequentially. On a billing-day-adjusted basis, our Professional revenue grew 2% sequentially. Property Management segment absorbed significant restructuring changes, which, while challenging, have now aligned the business with forecasted revenue levels. Property Management revenue experienced normal seasonality increase in Q3. As we moved into Q4, we experienced a larger-than-normal seasonality decline. We attribute this decline in part due to actions we took to stop servicing certain credit risk and disruption as we executed the restructuring initiative.
Now turning to our profitability and margins, our gross profit was $21.5 million in Q4 with a margin of 33.3%. This is compared to 34.6% in the prior year. This is largely due to increased competition and economic pressures in Property Management. SG&A expenses were $20.8 million compared to $22.0 million in Q3 and $20.2 million in Q4 of 2023. Our Adjusted EBITDA was $1.4 million, or 2.2% of revenue, versus $3.4 million, or 4.8% in Q3. On a net income basis, we reported a GAAP loss of $0.10 per diluted share and an adjusted loss of $0.06 per diluted share, which includes a $1.4 million gain resulting from reduction in the expected Arroyo earnout. Our priority remains enhancing profitability in 2025. With that, I'll hand it back to Beth for closing remarks.
Beth Garvey (CEO)
Thank you, Keith. As I mentioned last quarter, we launched an advanced lead generation engine in Q3, generating $2 million in revenue in just six months for our Property Management team. Encouraged by its success, we expanded this initiative to our Finance and Accounting teams last month, where we were already seeing positive early results. Additionally, we recently restructured our technology and digital marketing teams, launching an Operational Excellence team focused on streamlining workflows and service delivery, identifying gaps and opportunities, and leveraging AI to improve productivity and eliminating repetitive tasks. This initiative reflects our data-driven approach to business process optimization, ensuring disciplined execution of repeatable, high-impact processes. Simply put, we are applying our own best practices and consulting expertise to drive operational excellence within BGSF. Looking ahead, we are laser-focused on revenue growth and profitability improvement, which will enhance cash flow and shareholder value.
Our restructuring plans have positioned us for greater financial efficiency, while our investments in technology, partnership, and people continue to drive long-term value creation. We have built strong relationships with industry leaders across IT, with our SAP, Workday, Oracle, ServiceNow, and Microsoft partnerships, and Property Management, large commercial and residential leasing companies. Additionally, our Managed Solutions, nearshore, offshore engineering, and AI capabilities give us a competitive edge in an evolving market. I want to thank our team members, our Board, and our investors for their continued dedication and belief in our strategy. Now let's open the call for questions. As a reminder, we have no new updates on the strategic alternative process, so we kindly ask you to refrain from questions on that topic. Operator?
Operator (participant)
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Howard Halpern with Taglich Partners. Please go ahead, sir.
Howard Halpern (Principal Equity Analyst)
Good morning, guys. Nice to talk to you, Keith.
Keith Schroeder (CFO)
Good morning.
Howard Halpern (Principal Equity Analyst)
In terms of the restructuring and streamlining, what type of cadence could we expect in terms of seeing that on the SG&A line as we go through the upcoming quarters?
Beth Garvey (CEO)
The majority of those cuts, Howard, took place in December, and they will start showing up in Q1. The majority of that was in people. You will see in the results for Q1 some of those reductions. Some of the other reductions will take place throughout the year as we eliminate contracts that we were not going to renew, and they start to fall off.
Howard Halpern (Principal Equity Analyst)
Okay. How is the process, I guess, going with relocating some of what you're doing to your Arroyo operations? How is that process going, and how are you seeing that?
Beth Garvey (CEO)
We are super proud of the abilities that the Arroyo team has. As we start to identify things that we can move to the team down there, we will continue to try to streamline costs that are in both our home-office efforts and our IT efforts to be able to utilize the team down there.
Howard Halpern (Principal Equity Analyst)
Okay. You talked about, I guess, you're still seeing some of the headwinds in property management. What do you hope to see in the second half that will turn those headwinds into tailwinds?
Beth Garvey (CEO)
As you know, we're very active in the National Apartment Association, and there's been many, many conversations that Kelly Brown has had amongst the peers that she deals with there, and they are all hopeful for the second half of the year.
Howard Halpern (Principal Equity Analyst)
Okay. In the professional services, what kind of feedback are you getting from your customers on what you're offering to Arroyo? Are you just seeing more activity? You talked about, I guess, 15 new logos. Are you making progress with new logos as the quarters unfold?
Beth Garvey (CEO)
We are. There are several new logos coming in. There's a lot of activity in the pipeline. Our teams are having more scope meetings than they've had probably in the last 18 months, which is a good sign as we continue to power forward through the year. I think that there's some optimism that came out of the election, and then there's been a slight pause on that optimism as the tariff conversations continue. For the most part, I think there's a cautious optimism out there.
Howard Halpern (Principal Equity Analyst)
Okay. Okay, guys. Keep up the good and hard work that you have to get done in this industry. Thank you.
Beth Garvey (CEO)
Thanks, Howard.
Keith Schroeder (CFO)
Thank you, Howard.
Operator (participant)
The next question will come from Jeff Martin with Roth Capital. Please go ahead.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Thanks. Good morning, Beth and Keith.
Beth Garvey (CEO)
Hey, Jeff.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Wondering if you could characterize on the professional side the budget spend allocation among your clients. I know a lot of companies have shifted their CapEx towards AI-related projects. Wondering if that can benefit you going forward or if that's been a headwind that you have to overcome.
Beth Garvey (CEO)
AI is one of those tricky things. I think the great thing about where we are right now is our acquisition of the Arroyo team. They have those capabilities, and we are having many conversations with clients in regards to AI tools that we can offer. I think that it's interesting to see how our clients come to us with our problems, and then when we get engaged with the Arroyo team, how they can come through and actually solve those problems. It's all through AI technology. We're just, I think, dipping our toe in what the capabilities are at this point, but what we're seeing early is very, very exciting.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Great. At what point in 2025 do you expect the full revenue of the $7 million to $9 million annual cost savings to be captured? As I understand it now, the majority of that work was done in Q4, but to be a little more true as we progress throughout 2025, I'm just curious if you could elaborate.
Beth Garvey (CEO)
Jeff, you are really cutting out. If I understood your question, is when are we going to see the full effect of the cuts that we made? Was that the question?
Jeff Martin (Co-Director of Research and Senior Research Analyst)
It is. I apologize. I got rid of my headset. Is this better?
Beth Garvey (CEO)
That's better.
Keith Schroeder (CFO)
Yes, perfect. Thank you.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Okay.
Beth Garvey (CEO)
You were fading in and out. That's okay.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Yeah. I was curious to the extent of what kind of time frame to realize the full run rate of the $7 million to $9 million savings. And as I understand it, most of that was done in Q4, but there's a little more to go as we progress throughout the year in 2025. Just curious if you can elaborate on that.
Beth Garvey (CEO)
Again, the majority of the cost savings was in people, and those took place in December. You'll see those in, I think it's in Q1 for sure. The other change really was kind of in cost structure for changing of commission plans. Those took place in February and in March. You'll see the full effect of the commission plans going into Q2.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Okay. Just curious, out of those cuts in personnel, could you help us understand how many of those were revenue-driving? Are we going to see some revenue impact related to that in the first half of the year? What strategically can you do to grow your way back out of that?
Beth Garvey (CEO)
A lot of the cuts were back-office. They were home office folks. We did have some restructure when both divisions did their restructure. We got rid of kind of a mid-manager level out in the field. That restructure was a little disruptive on the property management side because we have markets that are a salesperson, so that salesperson has the relationships in the market. When we changed some of those and took our mid-level folks and pushed them down into a selling role back out in the field, they had to re-establish those relationships. We will see a little disruption in that. I think they have leveled out. We saw that early in December and in early January, but I think that is all leveled out right now. Professional has been really kind of managing the underperformers all along. It was less disruptive for the professional team.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Okay. Great. On the property management side, how much of your footprint is utilizing the territory mapping today? Is it 100%, or is it a lower percentage? If that's the case, what's the timeline for reaching 100% on the territory mapping?
Beth Garvey (CEO)
We've launched Houston, which is where we had the growth that I mentioned earlier. Atlanta has launched as well. We are in the process of launching Dallas. We have started to hire that team here in Dallas-Fort Worth. I believe there's a few other markets that will go after this year, and those will be in June.
Jeff Martin (Co-Director of Research and Senior Research Analyst)
Excellent. That's it for me. Thank you.
Beth Garvey (CEO)
Thanks, Jeff.
Keith Schroeder (CFO)
Thank you.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Ms. Beth Garvey for any closing remarks. Please go ahead, ma'am.
Beth Garvey (CEO)
Thank you for your time today. We appreciate your continued support, and we look forward to updating you on our quarter results in May. Have a great day.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.