Q3 2020 Volt Information Sciences Inc Earnings Call
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Greetings and welcome to both information Sciences third quarter 2020, <unk> earnings Conference call at this time, all participants aren't they listen only mode.
I shouldn't answer session will follow the formal presentation, if anyone should require operator system. During the conference. Please press star zero or your telephone keypad I'd never mind or this conference is being recorded.
[laughter].
[laughter], Illinois.
[noise]. Thank you Laura and good afternoon, everyone. Thank you for joining US today, both information at Sciences third quarter fiscal 2020 earnings call.
On the call today or when the Porno, President and Chief Executive Officer, and heard Mueller Senior Vice President and Chief Financial Officer.
After market close this afternoon and the company issued a press release announcing its results for the third quarter fiscal year 2020.
So at least is available on the company's website at <unk> Dot com as was the anchor as you see what type out as a form 8-K.
Before beginning today's prepared remarks, I would like to remind you that some of the statements made today will be forward looking at are made under the private Securities Litigation Reform Act, a 90 95.
Actual results may differ materially from those projected or implied due to a variety of factors, including but not limited to potential impacts of the koby 19 pandemic our business operations.
We refer you to bold information Sciences recent filings with the FCC for a more detailed discussion at the risk.
Could impact the company's future operating results of financial condition.
Also on todays call management will reference certain non-GAAP financial measures, which we believe provide useful information for investors a reconciliation of those measures to GAAP measures included in the earnings press release issued this afternoon.
I would like to turn the call over to bolts, president and CEO lender printer Linda.
Thank you Joe.
And welcome to vote third quarter fiscal Twentytwenty, earning call I hope that everyone continues to remain safe and healthy.
Today, I will open the call with high level commentary on our third quarter results specifically the impact of Cobas 19 on both business operation.
Just we have taken to preserve and improve our financial position.
Herb will provide a more detailed overview of our financial performance.
I will then provide some additional insight into the progress we're making on several of our strategic initiatives. Despite the ongoing impact because it 19 health crisis.
And finally I will briefly provide some recent trends, we're seeing as we move through our fiscal fourth quarter.
Let me start first with an overview of Q3.
You bet Cobiz 19 continue throughout third quarter.
But we were encouraged to have realized moderate month over month improvement as the economy gradually recover and businesses slow we reopened.
As we shared during our prior quarter earnings call. The cobot impact extended beyond April with revenue hitting a low point in may.
After what we believe to be the truck.
Line up 25% in the month of May.
We saw June rebound to negative 16%.
Further progression in July to negative 14.6%.
Barring any unforeseen resurgence of coking 19, we believe the worst is behind us.
Although we expect the labor market recovery will be gradual.
Overall I remain incredibly proud of our bulk colleagues all the continued confidently navigate the prolonged economic unhealthy uncertainty.
Their efforts during the third quarter allowed us to return thousands of employees back to work.
Labeled multiple clients to resume full operation.
And secured new business wins.
The swift and decisive actions taken to better align its DNA with our current an ongoing operation has proven to be quite successful in improving our financial position.
As a reminder, during last quarter's call we introduced our phase three reduction.
A series of short term and long term measures, including temporary pay cut for myself in her.
Reduced fiscal 2020 annual fees for the directors.
Reduction in overall incentive compensation.
Temporary suspension of the company's not to retirement account.
Robbie hiring and salary free.
Additional reductions of headcount an extension of certain furlough period.
And the closure and or consolidation of underutilized real estate throughout North America.
These actions combined with our previously reported phase one and phase two action, we are integral and I see being positive adjusted EBITDA in the month of June and July and for the full quarter.
We are on track for the previously reported SGN a reduction in 2020, and 2021 accelerating volt to profitability.
And finally, even in the face of rising 'cause it 19 chases and lingering negative business impact we've been successful in continuing our technology enhancement.
Expanding our retail revenue throughout our commercial and technical branch network.
And securing new business wins.
Many of which have ramped quickly and contributed to our sequential month to month revenue improvement.
Talk about beef in greater detail in a few minutes.
I will now turn the call over to her to discuss the financial as well as the individual business unit performance her.
Thank you Linda and good afternoon, everyone.
Revenue for the third quarter fiscal 2020 was 185.9 billion.
Adjusted revenue decreased 42 million or 18.4% year over year.
We estimate the revenue decline associated to the impact to cope with 19 to be approximately 43 to 47 billion for the third quarter.
But jordi of the cobot impact was in our North American staffing segment.
After revenue hit a low point may revenue such sequentially increased maybe was down 25% June 16% in July 14.6%.
The improving trend as a result of accommodation of existing customers returning to work.
Spanning business with existing clients and winning new logos.
Our direct hire line of business continues to be impacted by Copel <unk>.
In order to we had seen opportunity suffered which we began capturing in Q3.
For the quarter, we were down 35%. However, the monthly revenue trend, we're showing improvement during the quarter, we improved during the quarter with may down 36% in July down only 31%.
Women are your August truck tire revenue was only down 17% from last year, continuing the positive monthly trend.
Looking at her business segment results North American staffing represented 83% of overall revenue during the third quarter revenue from this segment was 154.7 million an operating income was 2.7 billion.
Adjusted revenue decreased 18.6% for 35.4 million during the quarter.
As Linda previously mentioned the teams had success throughout the pin to American expanding existing clients wanting new logos across the retail branch network as well as larger opportunities.
The segment incurred restructuring impairment charges of 2.1 million this quarter compared to 79000 last year due to headcount reductions at the show the closures, where we could order clubs and specific markets while working remotely.
Excluding the impact of these costs operating income increased 7.6% year over year.
Our international staffing business reported revenue of 21.7 million, which represented 12% of total revenue in the third quarter and operating income of 551000.
Adjusted revenue decreased by 23.9% year over year, primarily due to adjustments of work orders related to pending statutory legislation changes in the UK as well impact from cold.
UK economy has been heavily impacted by Kobin, which has slowed our recovery offsetting the challenges in the UK was our performance in Belgium, and Singapore, which were actually built up about 9% over last year for the quarter as a result of improvement in contract labor, partially offset by Togut nitrogen related decreases.
At 5% or total revenue North American MSP revenue was 9.4 million with operating income of 944000.
Adjusted revenue decreased 2.1% during the quarter.
The decrease is primarily attributable to the impact took over 19 head count reductions and a small number clients offset by expansion with existing clients and the incremental revenue associated with certain acquired shifting into the segment.
Moving down the piano gross margin for the third quarter was 16.1% compared to 15.3% of your go quarter.
Excluding a business actually did in the prior year gross margin increased 60 basis points from 15.5%.
The primary driver for the change in gross margin was approximately $700000 favorable workers compensation adjustment relating to reduce claims liability and reduced payroll tax rates.
In a funding from our disciplined pricing approach, we were able to more than offset in concessions, we had to make from a pricing perspective in a highly competitive environment.
As she they expense for the third quarter was 31.2 million compared to 38.4 million in the third quarter fiscal 2000 buy cheap. The decrease was primarily due to strategic cost reductions Colgate 19 restrictions on travel and working remotely, including 5.4 million and labor and related costs due to lower headcount.
And lower incentives approximately 700000, lower travel expenses at smaller declines in medical cost consulting fees facility related costs than supplies.
Some of these savings were on a onetime basis. It may not recur going forward. These decreases were partially offset by a 486000 dollar increase and expenses to the elimination of the deferred real estate gain offset under the new lease accounting rules as a reminder of the comparative impacted this change will recur in the fourth quarter fiscal 2000.
Morning.
Impairment costs increased 2.3 million into third quarter fiscal 2000, <unk>, primarily due to 2.4 million of impairment charges as result of consolidating excellent physical branch locations, where we can remotely effectively and sustainably support our clients and business operations I want to emphasize however.
But we're not exiting markets, we're well prepared to support expand in some markets without having actually brick and mortar locations.
Restructuring and severance costs decreased 1.5 million in third quarter fiscal 2020, primarily due to 1.4 million of restructuring and severance costs incurred with the exit of our customer care business in the third quarter of fiscal 2000 might treat.
For the third quarter fiscal 2020, we reported a GAAP net loss of 4.8 million or 22 cents per share compared to a GAAP net loss of 6.1 million or 29 cents and third quarter fiscal 2000 might be.
Last year in the third quarter 2020 included 2.9 million or 13 cents per share of impairment and restructuring cost related to the ongoing cost reduction efforts throughout the company.
In addition to the improvement year over year, we continue to improve sequentially each quarter.
Adjusted EBITDA for the third quarter was a positive $1 million, a 2.2 million dollar improvement from the prior year quarter as well as a 2.4 million improvement from F lightweight Q2.
The sequential and year over year improvement is significant, especially when you consider that we're able to accomplishes submit the ongoing pressure on our topline as a results of the pin debit.
Moving onto a few key items from cash flow in the balance sheet.
We ended the third quarter fiscal 2020, we had 30.9 million in cash and equivalents, an additional 24.3 million in restricted cash and short term investments are long term debt remained the same as last quarter at $60 million and total available liquidity increased from 12.1 million in April to 60.2 million in July.
As a result of preferred payroll tax payments under the cares that.
In addition, our team has done a fantastic job maintaining a strong working capital discipline working closely with clients to mitigate pressure to stretch payment terms through our efforts dsos have improved three days from the previous quarter.
As a reminder, through the passage of the care sack legislation in March.
To defer the payment of the social security portion of our calendar 2020 payroll taxes based on our current payroll, we will likely to for $23 million to $25 million a payments this calendar year.
So this balance will be due at the end of calendar 2021, and the other half due at the end of calendar 2022.
This action provides greater financial flexibility for bolt under the next 18 24 much.
We generated $10.2 million and cash flow from operations in the third quarter with capital expenditures of 833000.
Next our strategic cost saving initiatives are on track and we remain confident we will realize $14 million annual savings from.
Fiscal year, 2020, and an additional 80 million enough why 21 for a total of $32 million and cost reductions I want to point out. These are not merely interim or kobin imposed cost saving measures for more transformative changes to our cost structure going forward with the Swift and substandard actions we are already.
Beginning to experience early favorable affects more than offsetting the kogan related decrease in gross profit dollars for the third quarter.
In conclusion, we improved our operations and streamlined our cost structure, allowing us to emerge stronger than we have been in recent history a.
A difficult decisions and actions we've taken resulted in significantly improved financial results and builds the foundation for vote returning to profitability in 2021.
We'll now turn the call back over to Linda.
Thank you herb.
Turning to our key initiatives since the beginning of the pandemic. Our focus has been on aligning our cost structure with the impending revenue decline, while maintaining the flexibility in our infrastructure to capitalize on opportunities as our economy rebounds.
Our technological enhancements are more important now than ever.
I hope it forced us to operate differently.
Our investments in this arena are helping to add value to our field employees and client.
Broaden our recruiting and sourcing effort and improve the overall experience with bulk.
During the third quarter, specifically, we implemented two technology enhancement designed to improve and expedite the turning to Onboarding experience.
Bolster retention and redeployment opportunities and enable real time satisfaction feedback.
The tool also gives us the ability to capture net promoter score result, an indication of field employees and client satisfaction.
These represent only a few examples of the many functional aspects of these tools that we will continue to leverage over the next several months to improve productivity and performance.
We continue to make progress on the expansion and growth of retail business.
As a reminder, the term retail relates to the transactional higher margin business pursuit across our commercial and technical branch network.
Throughout this crisis this specific retail revenue performance.
Moving to be more stable and sustainable due to the transactional nature of the business the much shorter sales cycle and the ability to have more control over the placement.
The key success with new business wins have minimize their retail revenue decline to roughly 1% versus the 20 plus percent we've seen a larger client.
As the result of our ship to an everyone sell mentality.
Disciplines model and accountability to see activity metrics retail now represents nearly 20% of total north American staffing revenue.
300 basis points improvement from same period last year.
Overall gross margin has also improved as this model heckman short over the past 12 month.
And on average gross margins for our branch network in the third quarter arc 500 to 600 basis points higher than non retail business.
In addition to retail expansion, our sales and operations team have been focused on safely returning thousands of field employees to work.
Expansion opportunities with existing clients as well as new business wins.
During the third quarter, we're pleased to report that the majority of existing clients previously dormant in the second quarter have resumed operations very capacity. Although many are operating at much lower headcount then rickover timeframe.
On an even more positive note, we have 23% of our clients who have seen a more accelerated recovery in the third quarter current headcount level exceed three cobot level.
In total our team may 20% more placements in the third quarter versus the second quarter.
Our teams were also successful in solidifying opportunities with existing clients in market both had not previously service.
Some examples of this include an opportunity we were given buying existing client in California due to the outstanding local relationship and we were asked to expand quickly in Texas.
The Texas team performed exceptionally well and very quickly ramp to 100 head count opening the door.
No substantial growth opportunity in the Midwest.
Or another existing client example, where the program team has been working diligently over the past 12 months to expand and strengthen the relationship.
They have made significant progress and as a result of their effort.
Became a top tier provider for the first time in four years.
We were recently asked to assist in staffing several hundred people in a new location. They built to support the manufacturing and distribution of critical personal protection equipment.
Our D.C.G. team also realize expansion within many of their existing MSP client.
Predominantly in health care Arena. The expansion opportunities included the addition of New Division or service line under the bulk program or the transitioning of employees as a result of acquisition.
New business wins and implementation also played a key role during the third quarter.
Since we started to experienced an acceleration of meeting.
Toward an RFP decision in the latter part of me the sales team closed multiple deal industries, such as call Center health care and consumer E Commerce.
One example is a new win early in the quarter with the health care organization on the West Coast.
The client initially allowed us not <unk> from the door and due to the team's success in placing quality talent in a short period of time.
We celebrated to over 120 head count.
Or another example of a win with the consumer E Commerce client, who is already partnered with another provider.
Again, the local team rose to the occasion and today had nearly 100 head count on site, taking market share from the competitor daily.
The average referenced above were meaningful for the quarter and allowed us to partially offset the cobot 19 impacts.
In North American staffing segment alone revenue in headcount grew week over week nine out of the 11 non holiday weeks in the quarter.
Last but not a.
A large percentage of our colleagues continue to work remotely and have adjusted well to the changing demand necessary to operate differently.
The team have adopted virtual processes in lieu of in person meetings and events, including do cubic yards in presentation virtual site tours and most recently drive through job there to ensure we keep our tentative pipeline full and meet client demand.
Simultaneously, we slowly begun to execute our bayes returned to work plans for our corporate and branch network in geography, and market, where it's safe to do so and physical locations have been properly prepared to be reopened.
We anticipate this will progress slowly as we carefully balance the needs of our pipeline as well as the personal and sadly demand a certain both colleagues in light of the lingering closures and shutdown.
Early indications for the fourth quarter reflect continued week over week incremental improvement, although the rate of that improvement is slower than expected.
We are continuing to experience didnt impact from unexpected shutdown due to positive co the cases.
Unexpected facility or shipped closures due to client cost savings effort.
Client comply or product challenges.
And partial or total facility closures due to natural event experience. Most recently in Texas and also in California.
Because of its ongoing uncertainty, we're not providing guidance for fourth quarter.
I will however, provide some brief perspective on recent trends we are seeing.
Preliminary August adjusted revenue is in line with our July result.
We expect the fourth quarter to show improved performance compared to the third quarter.
Continuing to close the gap to read coded level.
Given our strong cost savings actions previously Scott.
We are trending toward positive adjusted EBITDA for the quarter.
Since the onset of the health crisis, our number one priority has been and continues to be the health and welfare of our colleagues our field employees and our client.
I am incredibly thankful for the dedication passion and resilience our teams across the globe have demonstrated throughout these challenging time.
They have been creative and innovative in providing a broad range of solution to our clients and partners to address the ever evolving and rapidly changing needs.
Oh, great examples of the impact of having our the awards our teams received during the quarter.
Our international team was recognized by global health and pharma as the pharmaceutical workforce provider of the year 2020.
And our entire organization was named by four as one of America's that staffing firms for 2020.
One thing it's certain books has undergone significant transformation over the last 24 months.
We are more operationally and strategically agile and flexible.
We have developed a keen identity as an industry leader and stand up for diversity equity and inclusion for all.
We are well poised to deliver innovative and effective workforce solution.
We have strengthened client and partner relationship, enabling us to expand and capture additional opportunity.
We have a strong service and sales mentality.
We continue to selectively enhance our digital and technology framework, all positioning bode well to deliver to a broad diverse base of clients across all markets now and in the future.
Let me now turn the call back to the operator should begin acuity specially operator.
Thank you at this time.
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Question.
Our first question comes on the line of Josh Vogel with.
<unk> Company you May proceed with your question.
Thank you I was good afternoon, let in her hope you're doing well.
Doing great Josh Thanks.
Great.
My first question you know I guess they stop your commentary Linda you gave some examples of some recent wins and I'm. Just wondering if you can maybe talk about.
The new business wins in general the size of the deals you're seeing in the pipeline.
As you said you saw an acceleration head count to 100 120 some examples.
How that compared to what you saw in prior quarters both.
During and Creek, Colgate and just talk about the the prospect pipeline in general Thank you.
Yeah, So here's what I'll say, Josh you know, we and we had and been doing a very nice job selling new business over the past a really 18 to 24 month that is certainly accelerated as we.
I have built wrote more robust pipeline.
Certainly been able to get out there in front of in front of more prospects.
When we think about the size of our pipeline our pipeline continued to double and when we looked at them year on year. They are and we monitor those there they're very substantial.
Individual I'll frame it up for you a little bit this way and this is the debate to VW U.S.. So you know vws had roughly $47 million than impact, let let's call. It the cline exiting the third quarter from Cree Kobin.
Levels is roughly 27 million.
So that 20 million.
It's actually made up by the team through putting thousands of people back to work in the quarter Ics great expansion opportunities that we have with existing clients as well as new business wins.
That's helpful. Thank you and what about just framing the size of.
A a a new retail client versus non retail opportunity.
Yes, so retail as we define it but the more transactional higher margin are generally clients, that's been a million dollars or less I'd say generally because that's not always the case, they certainly could spend more than a million dollars, a and still be classified as a retail client.
But that's kind of it a guideline.
Non retail then would be everything over and above.
Okay, Great and obviously a nice.
Theme that is prevalent is the.
Technology enhancements and and I had the announcement in July with a employee treatment sense and helps streamline recruiting and Onboarding and you know I you know maybe it makes sense now for partnerships to get this technology and maybe not for these tools in particular, but have you thought about maybe doing any of this in.
Turner Lee investment my investment wise to make the enhancements for the clients and candidates or should we expect to see more similar type partnerships in the future.
And I in the short term and you can expect to see more these types of partnership with.
Some various vendors.
As as we move through the next several quarters.
Okay and now that.
For two months in from that that particular announcement I'm any insights or quantify quantifiable data you have with regard to how these tools are being received by the candidates and the clients and maybe on the candidates that are you seeing meaningful improvement in the in their engagement.
Yeah. So you know to my says a relatively short period of time.
So you know I I wouldn't necessarily call. It a trend in this scenario given that you know there is a learning curve. There is a Kurt you know learning curve from our own employ our own bolt colleagues as well as with our field employees I can tell you that in the quarter, we sent out over.
30000 surveys.
So we're well continue to monitor this will continue to and you know look for benchmark data. So we can we can set some some goals and targets for ourselves in terms of you best in class that net promoter scores and those type of thing and then we'll build you operational strategies.
Around that to make sure that that that we can we can achieve those goals. So so you know certainly more to come on that it's I think it's still tell a little bit too early to talk specifically about trend.
Sure sure.
Last quarter.
You talked about some opportunities ever created to meet cobot specific demand like temperature scanning social business requirements seeking cleaning and I was wondering if you're still seeing that or if any that business that are the new opportunities that came about in Q2.
I think theres, an opportunity here for that to be a long term business.
Yes, so I think gum, here's here's the great news the great news is that some of those get those emerging skills that were created in Q2 has now become deals that will be part of our wheel house long term. So you know they'll they'll be part of of what were our capabilities for the foreseeable.
Future the that really interesting part about that earlier statistic that I gave you end, the 20 million and roughly 5 million or less of that was actually related to co that specific roles. So you know the team is doing a great job of going out there and so.
Solidifying that revenue with the non coded related position.
All right.
The the costs, that's some of the cost saving initiatives in the real state rationalizations going on.
North America is there an opportunity to too.
I do that outside of the U.S. or North America.
American Hi, Josh Josh we're continuing to look at that to see.
What we can do their you know, we've obviously been working out real remote and.
For this period of time, so we're evaluating that theres pros and cons both ways.
But we're certainly looking at data on ongoing basis.
Okay.
And just lastly, and I I mean, if he said it herb and I Miss I apologize, but did you.
Did you mention or give any sense of restructuring impairment charges that maybe taken in Q4.
Based on the ongoing rationalization and that three pieces of the cost saving initiatives.
I did not mention anything for Q4 and work and continuing to evaluate opportunities, but there's nothing definitive at this point.
Okay.
Great. Thanks for taking my questions [noise].
Thanks, Josh.
Thanks.
I'd like to ask your question. Please press star one on your telephone keypad.
Well.
The question.
No no.
Ladies and gentlemen, we have reached the end of today's question answer session I would like to turn this call back over some of the personal for closing remarks.
Thank you operator, and thanks, everybody for your participation in todays call and for your continued interest in boat. We look forward to speaking with you again, when we report our fourth quarter and fiscal 2020 result in January 2021.
Stacey thank you.
This concludes today's call you may disconnect. Your lines at this time. Thank you for participation have a great rest of your day.
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