Q4 2019 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to be Trueblue fourth quarter 2019 earnings Conference call.
At this time, all participants are any listen only mode. After the speakers presentation. There will be a question and answer session. So asking question. During this session you will need to press star one on your telephone keypad.
If you require any further assistance. Please press star zero I would now like to have the conference over to your speaker today Dart Gafford you may begin.
Good afternoon, everyone and thank people joining todays call I'm here with our Chief Executive Officer Dr. Grill.
Before we begin I want to remind everyone that today's call and flood presentation contains several forward looking statements all of which are subject to risks and uncertainties, we assume no obligation to update or revise any forward looking statements.
These risks and uncertainties some of which are described in today's press release and in resi few filings could cause actual results could differ materially from those in are forward looking statements.
We use non-GAAP measures when presenting our financial results. We encourage you to review the non-GAAP reconciliations in today's earnings release or Trueblue Dot com under the Investor Relations section.
Complete understanding of these terms and the purpose.
Any comparisons made today are based on a comparison to the same period in the prior year unless otherwise stated.
Lastly, we will be providing a copy of her prepared remarks on our website at the conclusion of today's call and a full transcript an audio replay will be available soon after the call.
With that I'll turn the call over to Patrick.
Thank you bear and welcome everyone to today's call before I dive into quarterly result, I wanted to take a moment to reflect back on 2019.
This past year had a share of challenge as evidenced by 5% revenue decline.
On a 4% net income decline.
Some of the revenue decline was expected and came from a smaller number of large clients that simply experienced issues within their own businesses.
As the year unfolded, we saw a broader softening in revenue trends similar to other industrial staffing providers as Clive pulled back in response to lower volumes.
While overall job data was positive for the United States.
The contingent portion, which makes up 2% of the workforce experienced a pullback as businesses use contingent services more sparingly in light of rising economic uncertainty.
While we cannot control the macro environment, we will continue to focus on what we can control.
Which includes balancing smart cost management with strategic investments.
I'm pleased with the success of our cost management efforts in 2019.
In total our selling general and administrative expenses came down by more than $25 million or roughly 5% compared to the prior year.
In the third quarter, we announced a set of cost actions that are expected to result in approximately $8 million of net annualized savings during 2020.
At the same time, we've been making targeted investments in sales and marketing to drive long term growth.
One example is people ready new client experience team.
This is a dedicated team of professionals focused on client care and retention by proactively reaching out in the critical early days to understand their satisfaction and help clients to move up the curve in terms of job stack usage.
While the program is still relatively new the feedback from our branch based colleagues and our clients has been overwhelmingly positive.
The team is also helping to proactively drive more activity through our strategic cross selling program.
Our cross selling efforts generated nearly $50 million in sales for 2019 boosting growth through the company by approximately 2%.
These investments combined with the strategic focus of our team give me confidence that were on the right path and we'll maintain our industry leadership into 2020 and beyond.
Our industry is right for digital transformation and we believe we are on the leading edge the digitally differentiate our services and capture increased market share.
Hey, recruiting have always been people first businesses and the accelerated adoption of digital strategies in our businesses has come with the realization that technology can actually help build stronger human connections.
Our people ready segment has an app called job stack that is filled more than 6 million shifts digitally since its inception.
And is currently filling a job every nine seconds.
After we onboard our workers they can proactively book jobs through a mobile app anytime anywhere versus having to go to a branch early in the morning or wait for a call or text.
On the flip side clients can post job assignments 24 seven.
As we begin to leverage the power of digital technology. It is transforming the way we do business.
Approximately 25% of our jobs back orders are now place outside of traditional branch hours.
And 21300 clients use job stack up more than 50% from just one year ago.
Throughout 2019, we've seen Disproportionally high revenue growth from clients that are heavy users of job stack.
And we believe there is potential to capture even more wallet share as we focus on removing process friction.
The staffing industry is highly fragmented across a wide variety of mom and pop and regional businesses.
I believe our jobs tax strategy provides us with the opportunity to clearly differentiate our people ready services to capture more market share.
On the recruiting side of our business Peoplescout inffinix improves outcomes for recruiters and candidates by making applying for a full time job simpler and more convenient.
Moreover, clients that are fully implemented on inffinix are experiencing improved time to fill candidate flow and candidate satisfaction.
This reduce friction for candidates and for clients in our view is the future of the industry.
Our mission and Trueblue and connect people in work and we're proud of it having connected 724000 people with work in 2019.
Approximately half of these workers were connected temporary jobs through either our people ready or people management industrial staffing segments.
The remaining half were connected to full time jobs via our Peoplescout segment.
Each worker, who comes to Trueblue has their own unique story.
Whether it is a truck driver who is between jobs and needs to pick up another paycheck to pay the rent or a recent college grad, who is happy to land. There first full time position with a fortune 500 company.
Here are trueblue, we've bid connecting people with work for more than 30 years and were very good Ed.
As the World of work continues to evolve we continue to find new and exciting ways to leverage our expertise.
And our new strategic Subaru works relationship is a great example of this.
While luber works has a great platform one area. They do not have experienced is in pain in managing W. Two employees.
Though dewbre works turned to Trueblue for health and we've created a new business venture called people works to service that employer and payroll service provider for workers booking jobs on the Huber were tab.
While it's early days for the people works venture we're excited about its potential.
Now, let's discuss our Q4 results.
Total revenue for the fourth quarter was down 9%.
Clients were conservative in the use of our services during the quarter in light of softness in their own business volumes and continued economic uncertainty, particularly in industries associated with physical goods.
While this created the challenging environment I'm pleased with our strong cost management results and I'm encouraged by recent improvements in the demand for people ready services.
Now, let's take a closer look at the performance of each of our three businesses.
People ready is a leading provider of on demand labor and skilled trades in the North American industrial staffing market and this business represented 62% of total company revenue and segment profit in fiscal 2019.
People Reddys revenue was down 9% during the quarter.
Due to lower business activity across our client base.
This decline was slightly worse than our expectation.
Though we did see the trend improved to minus 7% in December after adjusting for the Thanksgiving holiday shift.
Turning to our next segment people management provides onsite workforce solutions in the North American industrial staffing market that offer compelling value in a perfect fit for larger clients with longer duration strategic needs for contingent workers.
This business represented 27% total company revenue and 10% of segment profit in fiscal 2019.
Revenue was down 7% in Q4 versus down 12% in Q3.
The improvement due to the runoff of previously disclosed revenue headwinds.
Turning to our lab segment Peoplescout is the global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings and represented 11% of total company revenue and 29% of segment profit in fiscal 2019.
Revenue was down 18% during the quarter, primarily due to previously disclosed headwinds, namely one client that was loss after being acquired and less volume and less margins from another large client.
We also saw some softness in our Peoplescout UK business as political and economic uncertainty weighed on client order volumes.
As we close the books on 2019, I'm pleased with their strategic progress we've made and excited about the path ahead, our balance sheet is in excellent shape and we're very pleased that we're able to leverage excess free cash flow to return approximately $39 million of capital to shareholders via share repurchases in 2019, marking the.
As of year that annual share repurchases exceeded $30 million.
When I look at Trueblue digital strategy and competitive position I'm pleased by what we've accomplished.
We have more clients and workers using our technology than ever before.
As we move into a new year and decade, I believe our digital strategies provides further opportunity to differentiate our services capture additional market share and deliver industry leading growth.
Ill now pass the call over to Dare, who will share greater detail around our financial results.
Thank you Patrick total revenue of 591 million was near the low end of our 587 to 612 million outlook.
Total revenue was down 9%.
Which was larger than decline in Q3 of 6%.
Approximately one percentage point of the step down was due to the roll off of project worth that positively impacted Q3, but did not continue in Q4 and the remainder due to softening demand trends.
Lower than expected revenue was offset by efforts to deliver lower than expected SGN expense, resulting in earnings per share results that were in line with our expectation.
Net income per diluted share of 23 cents was inline with our 18 to 28 cents outlook as was adjusted net income per diluted share a 39 cents in comparison to our outlook of 35 to 45 cents.
EPS was down 38% and adjusted EPS was down 36%, primarily as a result of previously disclosed headwinds, which contributed about 25 percentage points to the EPS decline.
The effective income tax rate for the quarter, a 7% was below our 14% expected rate primarily due to additional tax credits.
Gross margin of 25.4%.
It was down 110 basis points from lower gross margin in our Peoplescout business and our staffing business.
Half of the consolidated gross margin drop was due to previously disclose headwinds that people scale.
And the remainder in our staffing business associated with a prior year payroll tax benefit.
And additional costs associated with a shorter holiday peak season.
Our disciplined approach to managing cost showed in our results this quarter.
SDMA expense was down 11 million.
1 million of which was due to lower adjusted EBITDAX solutions.
And the remainder from lower costs in the core business.
SDMA was down 8% and SDMA as a percentage of revenue was up 30 basis points.
Throughout 2019, we discuss some isolated client revenue and segment profit headwinds within our Peoplescout and people management businesses.
Q4 was the first quarter without any of these headwinds impacting our people management business.
The only headwinds impacting Q4 were within our Peoplescout business associated with one client loss after being acquired and lower volume and margin on another large account.
The floor first plant will cease being a headwind after Q1 2020.
The second client will cease being a headwind after Q3 2020.
For Q4 2019 these items suppress total company revenue by 8 million.
And adjusted EBITDA by 4 million.
Please see our earnings release debt for more information regarding these headwinds.
Adjusted EBITDA of 21 million was down 36% due to lower revenue and gross margin, which also contributed to a drop and adjusted EBITDA margin of 150 basis points.
During the quarter, we repurchased $8 million, a common stock, bringing our full year repurchases to 39 million.
Which represents 59% of free cash flow.
This leaves 119 million of total repurchase authorization.
Turning to our segments Peopleready revenue was down, 9%, which was lower than the midpoint of our expected decline of 7%.
And a step down from the 4% decline in Q3.
Contributed to the declining trend was two points of benefit from project work with one of our clients in Q3 that did not continue in Q4.
And the remaining step down was due to softening demand trends in the core business concentrated in the construction and manufacturing industries.
However, after adjusting for the Thanksgiving holiday shift we were encouraged to see the revenue trend and proven December to a decline of 7% with continuing improvement into January.
Segment profit for Q4 was down 19% due to the decline in revenue.
And the timing of prior year payroll tax matter that benefited Q4 last year, they had a neutral impact for the year as a whole.
People management revenue was down 7%.
Consistent with our expectation.
While we have yet to return people management to growth. We are pleased to be lapping the previously disclose headwinds and see the revenue trend improved from a decline of 12% in Q3.
We're also encouraged about the prospect for future revenue growth with new business winds up 21% in 2019.
Segment profit was down 45%, primarily due to the revenue decline.
And additional recruiting costs associated with a shorter peak holiday season in 2019.
Peoplescout revenue was down, 18%, which was lower than our expected decline of minus 16% to minus 8%.
The lower than expected results occurred in our UK business due to uncertainty surrounding the Brexit vote.
Segment profit was down 54%, which is primarily associated with the previously discussed headwinds.
And the incremental revenue weakness in the UK.
Turning to cash flow for the company year to date cash flow from operations totaled.
95 million.
Capital expenditures were 28 million.
Netting to free cash flow 67 million.
The overall strength of the balance sheet continues to improve.
Total debt of 37 million is down from 80 million at the end of 2018.
And our debt to capital ratio of 6% compared to 12% a year earlier.
On a trailing 12 month basis, our total debt to adjusted EBITDA multiple stands at 0.3.
Turning to our outlook for the first quarter of 2020, we expect the revenue range of minus 9% to minus 4%.
The midpoint of the ranges in incremental improvement from Q4 and consistent with current trends.
We expect a net loss per basic share range of seven to zero cents.
Or in adjusted net income per diluted share range of four to 11 cents.
These figures assume a basic share count of 37.8 million and the diluted share count of 38.4 million.
The adjusted net income per diluted share outlook, we provided translates into an adjusted EBITDA decline of roughly 50%.
It's important to know that Q1 is our lowest revenue volume quarter of the year.
Consequently, the decline in revenue has a more pronounced impact on year over year profitability trends in Q1.
Due to the smaller dollar base of all profitability measures in Q1 relative to other quarters.
Also contributing to the drop in profitability is 3 million of adjusted EBITDA headwind from the two clients I mentioned earlier.
In regard to our effective income tax rate, we were pleased that the work opportunity tax credit was extended for another year.
We expect an effective income tax rate of about 12% in Q1 and for fiscal 2020.
Which is lower than our previous rate of 14%.
While economic uncertainty exists, we're staying committed to our digital strategies.
We believe we are leading the industry and moving to a more digitally oriented business model to differentiate our services and acquire market share.
We plan to invest in customer acquisition and retention initiatives to not only acquire more business.
But to ensure we come out strong when the economic climate improves.
We also plan to stay diligent and managing our operating costs.
And lastly, we are committed to returning capital to shareholders through stock repurchases.
This concludes our prepared remarks please.
Please open the call now for questions.
The reminded you asking question you want me to press Star one Andreson keypad.
So let's try your question Keith please standby, while we compelled to kill Dave roster.
Sure.
And your first question comes from Jeff Silber.
Okay.
Thank you so much in your prepared remarks, you gave us a little bit of color on intra quarter trends in trend going into January I think it was mainly just for peopleready.
Im just wondering if you could talk about the other two segments as well that will be Greg.
Sure, Yes, thanks, Jeff and I, just give a little bit since you've asked the question a little bit more color on people ready and I'll do the same for the the other segments, let's maybe start off with the other segments.
You know, we're expecting to see continued improvement in the in the people management trends.
Put this into perspective third quarter was down 12% and the fourth quarter is down 7% our guidance. The midpoint of it is assuming that will be down about 2.5%, which is right and kind of line with how we think what we've seen in January will trend itself out.
Yes, so you take that and some of the wins we've had we've we're optimistic about what the rest of 2020 looks like for people management.
For Peoplescout, we're anticipating that the decline will get about five points worse going into Q1, we expect is still see some.
I saw some pressure in our UK business around the Brexit vote in our UK business. In addition to having some RPL business has.
Some communications related business doing legal notices and so forth for the government and.
We expect that to continue to be slow in Q1.
But picked back up going into Q2, and the rest of the year.
The peopleready trends are the ones that were the most encouraged by weather still recent trends we've been seeing some nice turn in the in the in the demand trends.
Still negative now where we want them to be.
That we finished the quarter finished up and down 9% for people ready.
In December adjusted for the Thanksgiving holiday.
Down about 7% in our and our outlook for Q1 is.
As for the business to be down about 5.5%.
So ill and that's on top of Q1 last year was a pretty decent quarter for us at least us and relative comparison thats. The only quarter, we had growth in people ready at a positive 3%. So we're pleased to see the trend we do get into some easier comps with peopleready more work to do here that we're encouraged by what we've seen over the last few weeks.
Okay. That's really helpful. I appreciate the color.
When you were discussing people ready you talked about softening demand and I think specifically you noted construction and manufacturing can you just remind us as a percentage of that segment or centers of the company. Whatever you haven't front have you what those two verticals represent im just wondering where there any verticals within peopleready that actually group.
Share once one second here.
So I'm going to just give you numbers, let Steve.
Going to give you what the mix of business is for our core construction business, which excludes any energy related work and then manufacturing. So these are this going to be for total company and then I'll go over to the people ready trends and in a moment. So overall construction for all of Trueblue represents about.
17% of the business and manufacturing overall represents about 21% of the business.
If we go over to people ready and we're taking a look at all of the verticals that we serve.
Basically all of those verticals were in some form of decline, we do have some energy related business and that did grow.
But the range of this to give you the day range pretty widely from the the segment, although the industry vertical that had the least amount of pressure was hospitality.
Except.
Roughly its peopleready business about 10% that was down 2%.
Whereas the the manufacturing business for Peopleready down 23%.
And.
That makes up about 11.
Excuse me.
About 11% of the business.
Okay, Great I appreciate that that caused our let me just one more quick follow up there and I'll jump back in queue, you called out the UK weakness in the people are soft business.
Can you just remind us what percentage of that segment. If you can do you have any of the exposure and the other segments. Thanks.
Yes that business runs between 50 and $60 million of revenue for think we're closer to 50 55, little little north of 55 million in that business.
And that's the only segment, where you have UK proposal.
Yes, Thats right.
Yes, I'm, sorry, I call, but people softened a little bit Peoplescout thats, what I meant but you understood. Thank you so much.
Jeff This is Patrick just a little more color on on the UK.
What really happened over there as it was one that new election was called.
We saw some real softness in October and November and partly because were is Derek mentioned were pretty heavily weighted in the government sector. There.
And so we saw a pullback from those clients to their government related.
From the time the election was called until the results actually came and we've actually seen a little bit of a bounce back in December and January versus what we saw in October November and a whole lot of it had to do with the business that we have over there with as government clients, where we're doing a lot of talent advisory work.
And they just put those on hold for that that couple month window that created a headwind for us in Q4.
Okay, Great that was really helpful really appreciate all the color. Thanks.
And our next question comes from John Healy with Northcoast research.
Thank you.
Derek wanted to ask a question up about cost management I think of the slide do you guys talked about kind of managing SGN a level to the revenues of the business and I understand there's probably some productivity savings about theres brought.
With the digital transformation you guys have going on that understand there's probably some investments as well. So just trying to think about how hypothetically, we should think about as DNA levels. This year relative to revenue.
So hypothetically if your revenues were down 5%.
On enterprise basis, what sort of level do you think SGN nay, what now and what sort of revenue declined is.
To pronounce that out.
Kind of match the SGN eight to the revenue.
Yes. Thanks for the question John So I'm going to directly answer your question in just a moment Boeing and give just a little bit of back on that I think maybe helpful to you and two other so from our 2019 was definitely a year of a lot of cost and cost discipline, we reduced operating expenses I'm referring to.
Sales general and administrative expenses here by $28 million. So a lot of that was good blocking and tackling. We also did some things and I would call you know more reform related where we did some a little bit of restructuring.
Fundamental in some of the businesses, particularly Peopleready and our last one that we did larger scale was in the third quarter.
That that individual action will create about $8 million a cost savings in the people ready business in 2020, I just get that as background because what we feel like we've done at this point, where the demand levels are.
Is as far as any wider restructuring actions cost wise, we feel like we've done what we needed to do don't give me wrong costs are still important we're still managing those in a disciplined way that we don't feel like we need to do anything big right now we want to make sure we want to make sure that we got the businesses kind of rightsized to demand, but also not to go too.
As to where we weren't ready to respond when the environment terms. So we think wearable and about the right spot from more strategic perspective, when we take a look at a cost now that said going into Q1, I mean, a midpoint of our revenue guidance says is.
Decline of about 7%, we've got asked DNA declining at about that amount to.
So I would suspect unless other things happened that that kind of decline in FG and H expense will taper itself off because we're still getting some some heavy benefits from the the cost actions that we have done in the past.
However, as a general rule, while this would vary by quarter now we feel like we would like to manage the business on a particular revenue decline whatever that is on percentage points. The SG Navy declining by about the same about half half that amount so.
For example, if revenue was down 4%, we'd be managing to to operating expenses down about 2%.
That would of course be lumpy based on different timing of the quarter, but I think thats a general rule.
What we try to.
To manage to them I think is applicable as we look forward in 2020.
Okay, great Great makes sense and then.
I think you guys made the point.
Thank you said this is the third year in a row, where you guys returned over $30 million a capital to shareholders.
As you look at the business of the stayed at some today.
I feel like that it's more prudent I cannot keep the cash for yourselves or.
And kind of wait for any day or do you think that share repurchase and in an hour and those options are going to continue to be higher priority list as we've seen in the past.
Yes. Thanks for the question John I appreciate you asking us and.
Just just for everyone here I know that John's aware of this.
Our strategy has really become much more organic focused over the last two or three years versus if we went back three years plus you saw a lot more acquisitions.
And that is really a strategic decision on our part because we think that digitally transforming the business right. Now is the most important and the highest return activities. We can be doing so what all that means is that.
The costs that were putting into digital transformation, while we're investing there is certainly much less capital than going buying companies, which leaves us with more capital to return to shareholders.
So we plan to stay active in this we don't want to build up a lazy balance sheet. So we're planning on continuing to stay healthy and returning healthy amounts of capital back to shareholders and.
We want to make sure we're doing some of that consistently but we also want to make sure we're doing it opportunistically as well on.
The balance sheets in great shape, we've got about.
A third of a churn of EBITDA on the balance sheet as debt.
We feel like we could take on some more debt to by Opportunistically as well.
We wouldn't get too far ahead of ourselves maybe as needed for up to turn of the debt in today's environment.
But those are our latest thoughts on use of capital and our thoughts on share repurchase John.
Great. Thank you guys.
And build on that is star in the number one to ask a question.
And your next question comes from careful to make theme from credit Suisse.
Great. Thank you.
Hey, I Wonder if you'd mentioned Derrick I think couple of client losses in the quarter, just any context around that and is there any client most sector due to that Q1 guidance.
Well you know what we've been reporting on Kevin I want to make sure I'm unclear about this is we've been reporting on some headwinds of client losses that we have going back I really the main client losses or headwinds, we've called them out of been ones, where we've lost a couple there continue to be headwinds right now a couple of clients.
We lost that Peoplescout one.
Because they got acquired and another who is just.
You know a large aerospace manufacturer that is having a lot of problems and those are the two main headwinds we've had they weren't lost clients necessarily in the quarter. The ones that were that preceded this quarter, but they were significant enough that we wanted to call them out because of the impact on the company trends and Peoplescout and.
Some of that we've provided in our investor materials, a look at how that continues to provide some a little bit of headwind going into 2020.
But I want to pause there and make sure those were the head of the client losses that you're referring to Kevin.
They were and I just any sense so.
When those should kind of start to run off Derica. When you think they would ultimately not as she impactful if he could.
Yes, it's really down to the one large aerospace manufacturer at this point and so.
We've we've laid it out by quarter I won't go through all of that with you, but the big picture is we're expecting about $11 million of revenue headwind from that client in 2020, which would be about us roughly $6 million of EBITDA headwind about half of all that headwind happens in Q1.
And then tapers itself off over Q2 in Q3 and.
And drops to know headwind in Q4.
Got it ranges.
In terms of the guidance just relative to the macro environment overall in under there is always the sense of how you end the year in December and then ultimately start back up in January So late January to change or little bit better, but just any thoughts from a client perspective like discussions are going from macro perspective.
Well you know for US we were certainly not experts on the macro more experts on running our business and.
Let what our history has told us as far as the macro is that our people ready business is a very very good leading indicator.
Some of the macro trends, particularly when it comes to more macro trends in blue collar industries, and industrial space largely because of this the people ready.
The work is it's it's a collection of small projects that that's sometimes last for days or a few weeks versus much longer assignments. So we tend to see we think the positive turn.
Quicker than some others and also when things drop off.
Now there this is probably our most if we were up to talk of one.
About our thoughts right now going into the first quarter versus our thoughts and second third or fourth.
We're feeling much more optimistic than we were over the last three quarters.
The trend changes that we've seen they've been very recent.
So it doesnt, there's still some question for their sustainability, but.
Versus what we've seen over the last nine months 10 months with demand slipping and seeing positive traction here, it's very encouraging to us and and I'll also say that the demand trends improvements that we've seen I'm talking about the decline that people ready getting.
Smaller than that that pickup has been it's been very widespread it's been virtually across every industry between the middle of December and where we stand now so small amount of time, but widespread which which we feel is encouraging.
For our results and we think of our results are lifting the will then it'll probably carry over into what you're seeing some some of the macro factors as well.
It Kevin this pattern, helping average follow up also on the first question you had to Derek.
Around peoplescout.
If you look at Q4.
Peoplescout was down in terms of raw dollars about $12 million on a year over year basis.
Eight of it was that.
That aerospace manufacturer that did Derek mentioned.
We had another 2 million or so in the UK. So those two things make up the bulk of the decline in one of the trends that we're seeing that it has as concerned is.
And Peoplescout, we're winning a lot of deals in 2019, we had nearly 60, new clients, but relative size of those wins has been a lot smaller than what we've seen historically and so thats something that fits.
Having an impact on our year over year growth rates is we're we're used to win in a lot of deals that are big and what's happening right now as we're winning a lot of deals that are small coupled with that aerospace headwind coupled with the UK headwind and that's that's the results that we find in Q4 and our outlook for Q1, So we're working hard to take those.
Smaller wins that we've had in turn them into into larger clients with expansions of scoping and the like and so that's a big part of what's going on the Peoplescout.
Thanks.
Very helpful. Thank you so much.
As a reminder to ask a question press star and the number of why now I need to listen keep out.
And your next question comes from Josh Vogel sodium capital.
Thank you good evening, Patrick and Derek.
I apologize I hopped on the call late here. So if any of these questions or commentaries redundant im sorry, but.
My first question I had is you know last quarter, you talked about rolling out some new features I believe on job stack in the first quarter of this year or something that could help drive more candidate flow and I'm curious if that's still the plan and also are there other.
Strategies are capabilities that you're looking at with regard to your digital business model.
Yes, Thanks, Josh.
Related to the.
The new features what you're referring to is our is our onboarding today.
The Onboarding is done through some other systems that then flow into job stack and so one of the areas that we're focused on is creating a much more frictionless process when we onboard.
Candidates, and then ultimately hire them and move them into into billable assignments and so that's a big area of focus for us.
Our target is to have that implemented.
At the end of Q on early Q2, and so we're working hard on that and we think thats going to help our supply quite a bit and thats, particularly relevant in a in a tight candidate market.
Like we're operating in today.
In terms of other strategies, probably the biggest one.
Is something I alluded to in my prepared comments is.
Our focus on on heavy users of job stack.
Which today.
Heavy users roughly account for about 15% of client revenue.
At people ready.
And when you take out clients that are that are new and you take out clients that have been lost and you look at an apples to apples.
Year over year comparison, what we're seeing is that those clients are running at roughly 20 points to 20 to 25 points higher in terms of growth rates on a year over year basis, so they're running it.
In the in the 20 is in terms of growth rate in the rest of our clients are running in the negatives.
And so a big area of focus for us in 2020 and beyond is to convert more clients it or their non users of job stack.
To become more heavy users.
So in Q4 that actually created a couple of points a lift for us our results would have been.
Even weaker without without the the heavy use that the other thing that we're seeing among those heavy users is we're seeing significantly higher client retention.
Among those clients and so the double benefit of having higher growth rates on a year over year basis, coupled with higher retention rates.
So it becomes pretty obvious that that's that's an area of focus for us and so what we've done specifically in 2020 as we've changed comp plans.
For.
In our field organization to drive more heavy.
Job stack user usage.
We've put more sales and marketing effort.
Towards those heavy users.
We launched a client engagement team.
In the back half of 2019 in a big part of that client engagement team has onboarding new clients and says we've been onboarding clients.
We've been when making sure that not only do they get off to a good start with people ready, but theyre fully aware of the capability to job stack and we're working hard to get them signed up and so.
I suspect is the use is a year goes on and even into future years, we're going to continue to see that heavy user percentage of revenue climb.
We will continue to see some pretty healthy year over year growth rates among those clients and so that's that's a big area, we've invested a lot of money.
In jobs, DAC, and so thats it thats, a big deal for us coupled with some of the Onboarding technology, we talked about earlier.
That's helpful. Thank you.
Again, I apologize if I missed it but are you still expecting.
To achieve a net 8 million an annualized cost savings in 2020.
Hi, Josh Thanks for the question, yes, so as far as.
The cost savings that we went through on the Peopleready organization and the savings that regeneration generated out of some of the restructuring activities. We did in Q3.
We are expecting $8 million up savings.
From that action that will carry into 2020.
Okay. Thank you and then if I'm wondering what if we see.
More pronounced or unexpected step down at some point this year I'm just curious how dynamic you could still be in managing the cost structure outside of that that 8 million.
Sure.
Well you know we talked about the 8 million this carrying into 2020 in 2019, we carved out $28 million of operating expense. So I.
I think we've we've got some some track record here in being able to go through and right size. The DNA based on where we are however, you know with every step down it does get it does get harder.
And it gets harder when and some of the actions carry more risk and well, we've really been trying to avoid in our.
Cost reduction efforts up to this point is being very careful about any cost reductions involving employees that are directly serving or selling to clients and so we've really tried to do those outside of the branch network. I think we've been very successful in that people ready, which is where we've had the most pressure.
So to that degree we took another step down we'll be able to take some more cost out.
I will be in the same rate so revenue I'm not sure.
I want to stay the same rate to revenue I mean, our expenses were down almost as much as the drop in revenue. So I don't know if we could keep a one to one match for that but we'd certainly make progress and we have to go into some other areas that might carry a little additional risks, but what will be able to respond if things turned down more.
Thank you.
Just just one last one look at looking at your outlook outside of people Scout.
And you know you note of incremental improvements if people ready and people management. So there's no. Other itemize or are you can say client related headwinds that we should expect as of today at people ready or people management.
Now what we what we've provided in our 2020 outlook just we've we've got one clients that we reported on in 2019 that was creating headwind for the company and as continuing in 2020, so we've broken that out.
Certainly we had we wind clients and we lose clients, but theres not any big client loss or anything Thats and you know on the horizon that we feel like we need to call out. So if there was something like that we'd let you all know but that doesn't exist at this time.
Alright. Thank you thanks for taking my questions guys.
Thanks, Josh.
[noise] and begin model star in the number one you asking your question.
Well pause for just the amendment to compel the capital roster.
I'll now turn the call back over to Patrick the Harold for closing remarks.
Well. Thank you everyone I appreciate you listen in to our fourth quarter earnings call. We look forward to.
Shedding again next quarter end up every week everyone. Thanks.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
Mm.
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