Q4 2020 TrueBlue Inc Earnings Call
First of all year.
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Thank you for standing by and welcome to the true Blue for quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session.
Ask the question during the session you will meet the press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Derrek Gafford. Please go ahead.
Good afternoon, everyone and thank you for joining today's call.
I'm joined by our Chief Executive Officer, Patrick Morrell.
Before we begin I want to remind everyone that todays call on slide presentation contain forward looking statements.
All of which are subject to risks and uncertainties.
And 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 our SEC filings could cause actual results to differ materially from those in our forward looking statements.
We use non-GAAP measures when presenting our financial results.
We encourage you to review of the non-GAAP reconciliations in today's earnings release or at true Blue Dot Com under the Investor Relations section for a complete understanding of these terms and of their purpose.
Any comparisons made today are based on the comparison to the same period in the prior year unless otherwise stated.
Lastly, we will be providing a copy of our prepared remarks on our website at the conclusion of today's call.
A full transcript and audio replay will be also available soon after the call.
With that I'll turn the call over to Patrick.
Thank you Derek and welcome everyone for today's call before I dive in the quarterly results I wanted to take a moment to reflect back on 2020.
In March of 2020 jurisdictions across the country began implementing restrictions to protect public health.
As the impact of Covid set of.
Many of our clients temporarily halted operations or reduced volumes and our revenue dropped precipitously.
People are year over year revenue decline hit a low of 42%.
Management was prepared for this moment and we reacted quickly.
We deployed preexisting of recession plans and modified operational protocols to focus on the health and safety of our employees workers and clients.
In April we unveiled the plan to reduce 2020, SG&A by approximately $100 million compared to 2019, which we have exceeded.
These cost reductions helped us right size the business to match lower client demand and preserve capital.
The actions were difficult, but they were taken with care and with the long term in mind.
The employees that lost their jobs, we provided three months of fully paid extended health care benefits. So they wouldn't have the scramble for new coverage in the midst of the pandemic.
To ensure we're well positioned the business conditions improved we are investing heavily in client and candidate facing technologies.
And kept our branch footprint fully intact.
Lee to reward our employees for sticking with us this year, we're paying of onetime bonus.
The impact of our efforts is evident in our results our revenue trends have been improving each quarter since Q2 2020.
We posted positive net income in the third and fourth quarters.
For the full year revenue was down 22%.
Mitigate this decrease we reduced selling general and administrative expense by 21%.
While we incurred a net loss for the year largely due to of goodwill and intangible asset impairment charge in the first quarter.
And workforce reduction charges in the second quarter, we were profitable on an adjusted net income basis for the year of.
Of equal importance employee morale and engagement is high.
Our most recent employee engagement scores from the September were higher than they were prior to the pandemic.
Now, let's discuss our fourth quarter results, we took the right actions to restore profitability and position the company for long term growth of the economy continues to recover.
In addition to improving revenue trends with the fourth quarter down 12% versus 25% in the third quarter.
The sustained our cost discipline to drive year over year growth of 25% and income from operations.
Now, let's turn to our results by segment, starting with people right.
<unk> already of our largest segment, representing 60% of trailing 12 month revenue and 73% of segment profit.
Already as the leading provider of on demand labor and skilled trades in the North American industrial staffing market.
The service our clients via a national footprint of physical branch locations as well as our job stack mobile app.
People ready as revenue was down 18% during the quarter versus down 29% in Q3, and we saw intra quarter improvement with revenue down 15% in December versus down 20% in October.
People management is our second largest segment, representing 32% of trailing 12 months revenue and 20% of segment profit.
Management provides on site industrial staffing and commercial driving services in the North American industrial staffing market the.
Of the essence of the typical people management engagement the supply and the outsourced workforce that involves the multiyear multimillion dollar on site or driver relationships.
These types of of client engagements were more resilient in the downturn when compared to the supplemental nature of a typical people ready client engagement.
People management returned to growth in the fourth quarter with revenue up 5% and intra quarter improvement with December up 9% versus up 1% in October.
Turning to our third segment people scout.
Presents of 9% of trailing 12 month revenue and 8% of segment profit.
People Scout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings.
Revenue was down 24% during the quarter versus down 48% in Q3.
People, Scott results were particularly impacted by exposure to large travel and leisure clients.
Now I'd like to shift gears and update you on our key strategies by segment, starting with people ready.
Our long term strategy of people ready as the further digitalize, our business model to gain market share and improve the efficiency of our cost structure.
Most of our competitors in this segment of our smaller mom and Pops that don't have the scale or capital to deploy something like our job stack mobile app. So this along with our nationwide footprint is what makes us unique.
We began rolling out jobs back in 2017 to our associates.
And in 2018, we launched the client side of the App.
We now have digital fill rates north of 50% and more than 26000 clients using the app.
In Q4 of 2020, we filled the 811000 shifts to be of job stack, representing a digital fill rate of 57%.
Our client user count ended the quarter at 26300 of 23% versus Q4 2019.
In mid 2020, we introduced new digital Onboarding features of cut application time and half of.
This has led to some great operational results as we increase the ratio of associates to put to work versus all applicants.
We continue to experience an increase in work for throughput of approximately 20%.
We expect this percentage to further improve as we fine tune the process.
This is exciting and as we move back toward a more supply constrained environment increased throughput will translate directly to revenue.
Right now we are very focused on driving heavy client user growth.
Heavy user as the client who has 50 or more touches on jobs that per month.
Whether it's entering an order rating of worker for improving time.
Jobs back heavy users have consistently posted better year over year growth rates compared to the rest of the people ready.
The growth differential between heavy users of non users reached the peak in December.
And over 30 percentage point year over year growth differential on a same customer basis.
This growth differential is largely driven by wallet share takeaways from competitors.
The user clients were telling us a major reason they are moving share two people ready is due to job stacks unique capabilities. Our focus on heavy user growth is beginning to become more material in our overall results for all heavy users we doubled the mix since 2019.
From 11% of people ready business in fiscal 2019% to 24% for 2020.
Of course, our positive strategic progress was overshadowed by the macro environment at the moment.
But we continue to invest in our digital strategy and believe this approach will help people ready emerge stronger than prior to the pandemic.
As our digital strategy continues to mature we're taking a look at areas within people ready, where we can reduce our service delivery costs. In 2020, we began testing a few different strategies to further reduce the cost of delivering on our services.
And to expand our testing in 2021 to include more technology utilization and an altered go to market approach.
As we move down this path I want to emphasize that the value and importance of our branch network should not be underestimated, we need to maintain a local presence in our communities, where we do business.
At the same time, we do see an opportunity to centralize more services and reorient job was to improve our client focused delivery will continue to update you on this front as plans progress.
Turning to people management, our strategy is to focus on execution and grow our client base initiatives. We've already implemented include sharpening our vertical market focus target essential manufacturers and leverage our strength in E commerce.
These are verticals that have held up well relative to the decline in non essential goods at traditional brick and mortar retailers.
We've also made a concentrated effort to enhance the productivity of our sales teams first we completed the integration of our staff management and seamless brand sales teams, allowing the integrated team to offer a full portfolio of hourly and cost per unit solutions to clients.
Second we are expanding our presence in smaller markets. We believe have been underserved. These.
These strategic initiatives are already paying off.
Even in the middle of this downturn year to date, new business wins of people management are up 20% versus the prior year as we secured $79 million of annualized new business wins versus $66 million in the prior year as.
As the demand environment recovers, we'll be increasing sales resources and investing in client care programs to maintain our momentum.
Turning to People's Scout the strategy Leverages, our strong brand reputation to capture opportunities in an industry poised for growth.
For Covid struck we along with our competitors experienced the trend towards more in sourcing with some clients, bringing more recruitment functions in house.
Many of the in house teams have been reduced or eliminated during the pandemic and we expect a trend reversal back towards outsourcing of the economy recovers.
Focusing our sales teams on this trend will allow us to increase wallet share at our existing clients and diversify the industry mix within our portfolio.
I'd like to take a moment to touch on our capital allocation priorities during.
During the first half of 2020, we repurchased $52 million of our common stock or 9% of our common stock outstanding at favorable prices.
While 2020 was not any of the year, we took the right actions to preserve the longevity of the business, while retaining our operational strength investments in our digital strategy and our lean cost structure have us well positioned for 2021.
I am extremely proud of the leadership and resolve demonstrated by the entire true blue team by coming together and staying true to our mission of connecting people and work. We have continued to provide of vital service to our communities even in the midst of the pandemic.
Thank you to all of our employees associates suppliers and clients.
Now I'll pass the call over to Derrek, who will share greater detail around our financial results.
Thank you Patrick.
Total revenue for Q4, 2020 was $519 million.
The representing a decline of 12%.
We posted net income of 8 million or <unk> 23 per share.
And adjusted net income of $11 million or <unk> 33 per share.
While net income this quarter declined 8% compared to Q4 2019.
In large part due to a higher effective income tax rate.
Income from operations was up 25%.
This increase in operating profitability was due to further improvement in our revenue trends and disciplined cost management.
The Q4 year over year revenue decline was 13 percentage points better.
Then the Q3 year over year revenue decline.
And Q4, SG&A was down 22% year over year on.
Are down nearly twice as much as the revenue decline for the quarter.
Adjusted EBITDA was $22 million, an increase of 4% compared to Q4 2019 and.
And adjusted EBITDA margin was up 60 basis points.
Gross margin of 23, 3% was down 190 basis points.
Our staffing businesses contributed 170 basis points of compression from pay rates, increasing faster than bill rates.
And from sales mix largely due to the revenue growth on our people management business.
Has the lower gross margin than our people ready business, which had the revenue decline.
People Scout contributed another 20 basis points of compression, primarily due to client mix and lower volume.
We expect the additional gross margin pressure in the first quarter of 2021.
But expect it to moderate as we anniversary of the onset of the pandemic in Q2.
Assuming a strong bounce back on economic growth in the back half of 2021.
We expect some gross margin expansion, assuming we experienced revenue growth on our people scale business due to the operating leverage associated with its cost of sales and to a lesser extent gross margin expansion in our staffing businesses from for.
Favorable bill and pay rate spreads associated with less slack in the labor supply.
Turning to SG&A expense, we delivered another quarter of strong results with the expense down $28 million or 22%.
We maintained our cost discipline, while preserving our operational strength to ensure the business is well positioned for growth as economic conditions improve.
We also see opportunity to further reduce the cost of our people around the branch network.
While maintaining the strength of our geographic footprint through a greater use of technology.
Centralizing work activities and Repurposing job roles.
We are in the early stages of planning of the pilots that will occur throughout 2021, and if successful will lead to additional efficiencies in 2022.
As Patrick mentioned, we already of rewarding our employees with a onetime COVID-19 bonus for their extraordinary efforts this past year.
This bonus as well as Covid government subsidies are excluded from adjusted net income and adjusted EBITDA.
Our effective income tax rate was 28% in Q4.
Which included additional expense associated with less net operating loss benefit of.
Both the carried back to prior years.
Due to a stronger performance in Q4.
Excluding the net operating loss adjustments.
Net income per rate was 9%.
Turning to our segments people ready our largest segment saw an 18% decline in revenue and segment profit was down 10%.
As additional social and government mandates were in <unk>.
Acted in December to address the COVID-19 threat or.
Our year over year decline did not improve much but held relatively steady and this trend has continued into January.
The revenue was down 18%.
People management saw 5% growth in revenue and segment profit was up 104%.
People management experienced encouraging intra quarter of revenue improvement.
With the December up 9% compared to 1% in October.
Revenue growth continued into January with people management up 5%.
About half of the segment profit growth in Q4 is attributable to cost management and revenue growth.
And half from unique costs in Q4 last year, creating a favorable comparison this year.
Turning to people scale, we saw 24% decline on revenue.
Segment profit was down 18%.
Temporary project work provided six percentage points of revenue benefit.
As Patrick noted people scout results were adversely impacted by exposure to travel and leisure clients.
Which made up roughly 28% for the prior mix.
And revenue for this vertical was down 54%.
Now, let's turn to the balance sheet of cash flows.
Our balance sheet is in excellent shape.
We finished the year with $63 million of cash and no outstanding debt and an unused credit facility.
Cash flow from operations in 2020 was $153 million up from $94 million on the prior year.
With the increase coming largely from the deleveraging of accounts receivable.
It was also a strong quarter for us from a working capital perspective.
With day sales outstanding at 49 days.
Or down three five days in comparison with Q4 last year.
Now I'd like to take a few minutes to discuss certain forward looking information, we are providing to help investors form their own estimates.
This information and more can be found in the quarterly earnings presentation filed today.
For the first quarter of 2021, we expect gross margin contraction of 290 to 250 basis points and for the full year contraction of 50 to 10 basis points.
As a reminder, in Q1 2020, there was 130 basis points of gross margin expansion from health care benefits.
That were excluded from adjusted net income and adjusted EBITDA.
For the full year 2020.
There was 20 basis points of net benefit from the health care benefit I mentioned.
Less workforce reduction costs that were excluded from adjusted net income and adjusted EBITDA.
You can find more information on these items and our non-GAAP reconciliations.
For the first quarter of 2021, we expect the year over year, SG&A reduction of $13 million to $17 million.
I'd also like to remind everyone that we will anniversary most of our cost reduction actions in April of 2021.
For capital expenditures, we expect about $16 million for the first quarter.
And 37% to $41 million for full year 2021.
These figures include approximately $8 million and $10 million for Q1, and 2021, respectively and.
In build out costs for our Chicago support Center.
Of which $7 million will be reimbursed by our landlord.
With $6 million of the reimbursement expected in the first quarter.
The reimbursements from our landlord will be reflected in operating cash flows.
Our outlook for fully diluted weighted average shares outstanding for the first quarter of 2021 is $35 3 million.
Providing an annual outlook for an effective income tax rate is difficult due to the semi fixed nature of the work opportunity tax credit.
We expect our effective income tax rate for the full year 2021 before job tax credits to be about 23% to 27%.
And we expect total job tax credits to be $8 million to $10 million.
Due to the size of expected job tax credits. It is possible to have pretax income and an effective income rate benefit instead of expense at lower levels of profitability.
While we have more work to do to get back to where we were before COVID-19 hit.
We like the progress we have made.
We've seen steady improvements in our revenue trends.
And with the prospect of meaningful vaccinations on the horizon.
We're optimistic about the potential upside in many of the hard hit and markets we serve.
We took the right actions to improve profitability.
And have done so without losing our operational strength or technology momentum.
And we ended 2020 with the balance sheet that is stronger than where we started the year.
Which will further enable our ability to take advantage of the growth opportunities ahead of us.
This concludes our prepared remarks, please open the call now for questions.
At this time I would like to remind everyone in order to ask the question Press Star then the number one on your telephone keypad again that of Star then the number one on your telephone keypad well pause.
Pause for just a moment to compile the Q&A roster.
Yes. The first question comes from the line of Jeff Silber with BMO capital markets. Your line is open.
Thanks, so much for taking my question.
You guys provided a lot of detail in terms of revenue trends by segment.
Can you talk about just sort of be end markets, where youre seeing relatively more strength and weakness.
In terms of customer type and I don't know if you of any tonnage geographically in terms of some of the areas, where lockdowns have increase the complaining and back there. Thanks.
Hi, Jeff This is Derrick I'll help you out on this question here.
So, let's talk about where we're seeing strength and where we're seeing challenges in both of those areas that you talked about.
Areas that where we've seen a lot of the improvement from an end market perspective is manufacturing transportation services and retail on.
All of those.
And markets that I, just mentioned are down mid single digits, whereas retail was actually up mid single digits.
Which reflects really if you were to compare back to where we were on Q3 and the improvement in the trend somewhere around two or three times.
What it was in the third quarter.
We're we're still have some areas of challenge not surprisingly is hospitality.
Hospitality for US is down 50% for the company overall that makes up about.
Five points of our mix, but still a sizeable do the the rate of decline that we're talking about.
Construction has improved.
Overall this includes our energy and industrial practice down 20% an improvement from where we were in the mid <unk>, but still relatively high amount of decline relative to the other end markets that I just mentioned.
From a geographic perspective, we saw widespread improvements across the vast majority of geographic areas in which we operate if we were to pick the one though that was the biggest challenge.
Or put it another way, where we had the most of opportunity for improvement looking forward would be the state of California.
I mentioned the state of California from two perspectives one of its relative size, it's our biggest states, making up of around 14 or 15% of our business mix.
And the the rate of decline and that geography has remained elevated compared to others to give you. Some perspective of that California has been running down in the high 20 percents for the last couple of quarters. It was down even more than that so certainly many of the lockdown the protocols the California impact.
Our business and is also a problem is related to some of our you know.
The decline in construction at the construction market for us so hopefully that color provides.
Somehow.
That was great I really appreciate that derrek.
In terms of the guidance I know youre, not giving specific revenue guidance, but last quarter, you kind of gave us some color to use for what was the fourth quarter. I was wondering if you can get something like that for the first quarter.
Sure.
Well, what we saw going into January well, let me back up you've seen that from quarter to quarter, a nice improvement in the rate of our decline meaning in the third quarter, we were down 25% coming into the fourth quarter. We ended up down 12% we saw nice.
Monthly improvements in most of the business units the the unit, where we saw things style a bit at least from an improvement perspective with people ready.
And so that was not a surprise to us as Covid claims Roes in that business unit.
When you take one like people scale. Most of this is done virtually you take business of people management. These are big operations really all predominantly in the logistics the retail warehousing space in manufacturing much of the food. So those customers have very sophisticated operations to keep them running and theres very little.
Now face to face or person to person contact with customers, whereas that's not quite the case with people already it's.
It's not of concern to us we saw the similar trend when Covid case of spiked in the summertime, although it was not nearly as big as the Spike now we saw the rate of improvement.
Diminish some and so we saw that going into January as well.
So.
From a people Scout perspective, you can see if you look at our materials, we're trending about where we left off in December.
When we.
For people management not quite as much.
Growth as we had in December because December was largely helped the people management by the peak holiday season, which doesn't continue on into a run rate into January and then people already.
The decline getting a tad bit worse than where it was in December.
So all in all of that that gives you some color going into the first quarter and also keep in mind that.
We will start to anniversary a bit of the falloff as we get to the back half of <unk>.
March so the last two weeks of March revenue declines were running.
In the high 20%.
Our range for us as a company.
So that's another small detail you can tug.
Tuck away for for use of Juicy fifth alright.
Alright, Thats really helpful. On just one quick follow up January typically is your weakest months seasonally is that correct.
That's right Joe.
The January is our weakest months of seasonally and Q1 also you could put into that category as well.
From a seasonal perspective, which also makes the the profitability line quite sensitive to the due to the fixed cost.
Okay, that's great I'll jump back in the queue. Thanks, so much.
Hey, Jeff This is Patrick I just wanted to.
Add a little bit more color on your first question about <unk>.
Kind of what we're hearing on our end markets from.
Talking with our clients in Q4 and into Q1.
Just some nuggets that we're hearing from our manufacturing clients they're signaling.
From supply chain Lumpiness in the near term, but the good bit of optimism in the long term.
And then for those clients that you've kind of described as Covid winners of firms that do home fitness or food manufacturer online retailers.
Their volumes have been very strong throughout the whole year and Theyre Big question is to what degree.
Well, we haven't of reset and that the tailwind will continue.
And then of course, our co producer is probably not the best for them to use it for those companies that are in the vets and hospitality.
Travel they were on during the same question of except on the opposite end of one will the headwind start to ease off and.
As we look into the first half of this year I think there's going to be continued headwinds in events of the hospitality and travel.
Hopefully easing off into the back half of.
This year and into next year.
Yeah.
Yeah.
The operator next question coming from the line of Kevin Mcveigh with Credit Suisse. Your line is open.
Great, Thanks, Patrick and Derrek eight derrek.
I just want to clarify.
Did you see travel on leisure was 28% of people Scott revenue.
Yes, well, if we take a.
Travel and leisure for people Scout, that's right about 28% of the business there.
And it's if we take the mix, where it was fourth quarter of year ago.
At 28% and you know, we're seeing about a 50% decline there. So you could do some math and say you know of approximately 15 percentage points of the revenue decline for people Scout.
Is it related to.
Those of those industries.
Got it because if I am on no trend from last quarter was it.
I thought it was 78% total revenue for matrix.
But maybe that was hospitality needed after school for all of the trust from the and then.
And the one thing it seems like you folks have made a lot of progress on this obviously.
The the branch capacity.
I wonder any updates as to kind of footprint of it sounds like you still need some visibility, but how are you thinking about branch capacity longer term, particularly given the success you are seeing from a technological perspective.
Okay.
Yeah well.
We've we've we've managed the capacity really tightly for through 2020, no doubt that's a as you know most of our costs come from our employees and most of our employees are out on our operations.
And so when we're talking about our capacity in our branches and our onsite locations, we've ran that tight.
But even with the cost reductions that we're talking about here on the fourth quarter. We did add some capacity in the fourth quarter. We ended the fourth quarter with 300 more employees across our business units I'm talking about people out in the field on support locations that are directly serving customers. So we've added some capacity there.
When we take a look across our medium term, we still think we have a lot of opportunity.
The increase productivity and the efficiency of all of our operations as Patrick alluded to our people are ready we've still got a very you know.
The sizable branch footprint and so the opportunity for us is reducing the branch footprint, but not our geographic footprint.
So that means repurposing some job roles.
Doing some centralization of key processing operational processes and activities in the larger branches.
Dropping some branches, but still keeping those employees that were in those branches heavily engaged in selling and servicing our customers.
And so there are some operating efficiencies from that as well as technology, we're going to stay true and keep investing in our job stack technology. We think that's the biggest differentiator when it comes to candidates when it comes to customers.
That's going to help continue to help productivity and then underneath of that what I'll call more.
On operational processing systems think things like CRM applicant tracking systems, our bill and pay for it systems of which today are also proprietary technology, we think there are opportunities to.
Move to some more standardized systems that will also get us in the cloud.
Provide a little bit more innovation on those things, but we don't need to have those spent a lot of money trying to differentiate those things those are very basic processes.
But important ones and so by doing so we can reduce some of our I T spend there reduce some of the cap human capital that it takes to maintain those and then increase the the.
The proportion of time, we're spending on differentiated technology and at the same time with all of those really helping our branch operations become more productive and of more virtual type of go to market strategy.
Thanks, a lot of sense and then just one more quick on the back in the queue.
Just any thoughts it seems like the there's a little bit of both pace pressure.
Any thoughts of index was at $1 70 in the quarter and then.
You got in the $2 15 of $2 90 for the Q1 from any thoughts as to as to what's driving that is that the minimum wage driven or just any thoughts around that.
If I have it right is that getting a little bit worse as you start in Q1 is the or is that just normal.
<unk>.
Harmony of kind of the team versus the fill rates.
Well, let's talk about Q1 in particular that I'll talk about the bill pay rate spread and then we will try to simplify things as we look forward for 2021.
Of the guidance that we've given in Q1 I'm going to go off of midpoint here.
Yes, that's a pretty sizable decline that we have guided to.
On the surface of it which is about 270 basis points. So it looks like it's getting worse, but keep in mind that in Q1 of this year, we had 130 basis points of benefit from health care.
Benefit costs that we lowered due to some reserve adjustments from prior year, So if I excluded that.
That's gonna take you down to 140 basis points of <unk>.
<unk>, which is actually less than what we had here in Q4 at 190 basis points overall, so that's progress.
If we stay on all the way back from 2020, and just say hey.
We had 230 basis points of what's it all come down to.
You got about 100 basis points, that's from pricing that's from negative bill pay spreads largely what's going on there is that even though we're in a recession.
The pay rates are at the lower rates of went up a lot.
Probably more so than we've seen in other recessions somewhat because of safety concerns.
Somewhat because of unemployment benefits that are there.
Sometimes of making it attractive of lower pay rates too.
The unemployment versus.
Work.
So you've got those dynamics in place you've also got people that are at home with kids and so it takes more money to entice them a way to have a substitute all of those things are driving until a little bit of higher of the pay rate inflation, but if you stay on all the way back.
2020, so basically what we saw is 100 basis points of overall compression on 2020 of the pricing.
And 150 basis points to mix and you've got 20 of the kind of falls out on other category that mix piece is largely from people management, our lowest gross margin business.
Bearing better and our higher gross margin businesses at people ready and if people scout staring less well so.
So.
We don't think that the pressures that are on people ready or people scout or anything thats fundamental or long term. We think it's more of a matter of timing. So that 150 basis points really comes back as the mix adjusted.
And then that other 100 basis points on pricing, we think we will start to come back as we have less slack in the of the labor supply is more jobs are created with more economic growth and pricing power swings back more to the staffing industry, which is what we have seen in prior emergences of from us.
The recessions.
Very helpful. Thanks, guys.
We have our next question coming from the line of John Healy with Northcoast Research. Your line is open.
Thank you.
That's the Eric and Patrick I wanted to ask kind of a big picture question.
You know, we feel a lot of the news about $15 of federal mandated minimum wage kind of curious just how you guys interpret.
That is and the repercussions for your for your business and and and not so much from a even just the bill and pay rate spread standpoint, but just from a demand standpoint do you see it as.
The catalyst it is the headwind I feel like it's a pretty theoretical at this point you could you could go a lot of ways with it. So curious to see how you guys are initially.
Initially.
You know feeling about that.
Yes, I'll go ahead and take that one channel as Patrick you know Theres a lot of cross current.
When it comes to $15 minimum wage.
From a good guy perspective, or a tailwind on our market based businesses when the.
The minimum wage goes up it ends up being a tailwind for us and generates more revenue.
But strategically if we look at this longer term.
The business cases start to change on automation.
And offshore.
Also people's individual business cases of going back to work or not start to change as well at $15 $16 $17 an hour of you've got the increased labor pool.
<unk> jobs that are at 910 $11 an hour.
And so we see it is it's too early to tell a tailwind.
With market based business and a larger labor pool headwinds around offshoring automation and then the big on known as a buyer behavior and how clients will react to.
At a minimum wage they would need to be phased in over multiple years I can't imagine a scenario where would this would be of big Bang all at once.
So there'll be time to adjust but I think it's too early to take the strong position on to what degree of would be a tailwind or headwind for us John because there's some cross currents right now.
Makes sense and then just one other question of kind of a big picture one as well.
When you guys talk about the jobs that GAAP.
Just theoretically do you guys ever think about potentially using that.
On almost as a separate business.
As opposed to of tool.
And the way I was thinking about it what is the.
Is there the scenario, where you could kind of provide that application to third parties either for companies to use internally.
Or even for smaller staffing firms to become competitive in and maybe you guys tend to use it as an application as opposed to kind of an internal to all of the just kind of curious how you. How you see jobs that kind of I don't know maybe over the next five years or so.
Well, we've had a lot of discussions internally about that.
That's the way to monetize Joe.
<unk> stacking.
You know you never say never to.
For a complete shift in business model like that.
When we look at 2021 and 2022.
What we're focused on is continuing to drive more heavy users of jobs back as I mentioned in my comments earlier, we've seen.
Some nice wallet share takeaways any disproportionate revenue growth among those clients that are using the tool.
We've also increased some of the capabilities around on boarding by.
By digitizing that process, we've taken a lot of for Chile.
Away from the application processing so in the end.
By digitalize, the significant parts of our business.
We think our dependency on branches is going to kind of evolve and will begin to become less dependent on branches that can allow us taking cost out.
Well so from our perspective, we're focused on.
Driving more heavy users and taking cost out of our branch network in 2021 of 2022 and beyond that.
It's an open items.
Great. Thank you Pat.
Okay. All of our next question coming from the line of Josh Vogel with Sidoti and company. Your line is open.
Okay.
Josh Vogel from your line is open you may ask your question.
Yes can you hear me.
Yes, we can hear you Josh Okay, sorry, I was having the <unk>.
Nicholas from there.
Thanks for taking my questions Hope you guys are doing well I wanted to build off that last question a little bit.
But in a little bit of a different way. So like when you think about the applications of job stack of ability to leverage the technology can you share from smaller competitors.
We assume that that opens the door to other potential markets that you. The non current service or you have smaller exposure to so, especially when we think about the growing gig economy, maybe if you can share some thoughts around the opportunity for and if you didn't want to expand in some of the markets, where either little or no exposure when you.
Maybe try to do that organically or through M&A.
Well, we've been evaluating Jason.
Jason market.
Primarily due the people ready business Josh.
But we're not prepared to make any announcements at this point. The just just know that we're evaluating it it's under discussion.
But right now we're focused on.
The clients that we have and going out and getting new clients within the light industrial staffing sector.
But in terms of adjacent markets its on the drawing board, but whether we're going to.
The timing on that as an open items that were not making announcements on today.
Understood.
Oh.
Tangent from one of the up for questions.
Outside of the potential increase in minimum wage and I know, it's still early but does the changing of the guard in Washington.
And some of the proposals being floated out there.
The key thing are you hearing anything that you think could be a tailwind or headwinds here to your business.
Well the Eric why don't you take the first shot at that and then I'll add some color to it.
Well Theres a few things that we've got our ion theres, a lots of us being talked about clearly.
There is there is talk out there from a tax rate perspective.
Got our eye on that.
There is talks about.
You know more people that have the right to work in this country you know being a.
On a headwind for us I think that's all good.
We can have a debate on taxes, but you know there's there's a lot of pontificating going on on that topic. So I think at this point of at least from my perspective, I don't have anything of immediate concern.
Now coming with the administration.
Although there are a variety of topics. Its just still so early days, Josh but that's my take on.
Patrick you might have on other thoughts.
Well, yes in the near term Joe.
Josh with.
Some of the stimulus and some of the investments in infrastructure that are being talked about.
I would see that as the potential tailwind for our business, we've got a lot of skilled trades folks.
A lot of general labors that would help.
To help build out that infrastructure.
A lot of our clients are very focused on that I'm curious to see what's going to happen. So I think it could be a tailwind for us if there's a big infrastructure spend that.
Net debt generally benefits of our businesses.
Sounds great.
Thinking about SG&A I know that you just gave the guidance for Q1, but as the year progresses.
We anniversaried a lot of the initiatives in April.
How should we think about potential range in the model there when we think about made from December.
How SG&A should step up with whatever potential revenue growth you achieved.
Right well I'll talk about on general sense, we haven't given out guidance you know.
You've called out that we anniversaried some things.
When we hit April not all of our actions took impact in April but the majority of them did so it's an important place to focus on.
Also keep in mind, we had you know some gives and takes in SG&A that we excluded.
And I've been clear about our non-GAAP reconciliations are two of the biggest or the you know the workforce reduction charges. We took in the second quarter. That's a sizable number of that won't be repeating so keep your eye on that we've also had some government subsidies that have been benefits the SG&A that we called out.
But if we exclude those and we're just talking about what's going on fundamentally with SG&A, we're going to continue to be really disciplined in our approach there and now we're going to continue focusing on technology.
There will be some investments in SG&A as we grow revenue.
It's the best way for us to have investments as the supporting that make sure. We're taking good care of customers and our clients our.
So you're going to still continue to be balanced and with all of this Josh just like we have done so.
As the economic demand really comes back strong that's traditionally been a very good for our industry. It's been good for us from a revenue growth perspective, when it happens and we've had good leverage going on.
With us with that revenue growth and would expect of that to be the same if we can get some gross margin accretion.
And.
As things.
Unfold with strong economic growth, maybe in the back half of the year.
That would help of more.
Alright, and just one more quick one nice to see that you're rewarding the employees and stuck with you just from a cash flow perspective, just curious about the timing and size of the.
The the bonus that youre going to pay out.
Yeah. So the size of the bonus overall of $3 $7 million and that will occur in the first quarter here.
Here of 2021.
Alright, great well, thank you for taking my questions.
Hey, Josh I'd just this Patrick I just had one other thing to add just on the bonus just so everyone doesn't think this is some kind of executive bonus of about 97% of of that.
Those bonus dollars would be go into non executives in the company. So this is really a of.
A bonus for the rank and file employees in the not in the kind of executive pay out.
Got it thank you.
Okay.
Okay and in order to ask the question. It seems the press Star then the number one on your telephone keypad.
Our next question comes from the line of Mark Mark on.
With Baird. Your line is open.
Good afternoon, Patrick and Derrek I was wondering if you could talk a little bit more about people. Scott you mentioned earlier in the call that you did have some clients the basically hold things in the house as things open up.
We think we might see more outsourcing can you give us a sense for how direct those discussions have been like what caused them to hold.
The old things in house, one of the discovered since that would lead them to outsource and.
The competitive position for people Scott just in terms of being able to to win Rfps.
Yeah.
Yeah. Thanks, Martin, it's Patrick I'll take that one.
So first.
It's probably helpful to just start with what was the nature of the in sourcing that we saw with some of our clients.
It wasn't a situation, where we had clients going from 70 per cent outsourced to zero.
It's more of a situation, where we had clients that were <unk> 70 per cent outsourced and going to 50 per cent outsourced or they were 90 per cent outsourced and theyre going to 60% of that so we're so.
Basically what was happening is our clients, we're bringing some scope in house of the tended to be.
The more mission critical hire and harder to fill type of positions. These were often are driven at the CEO level, where.
The strategy was to have more mission critical positions handled in house.
That was the the strategy and I don't want you to think of this was a lot of client it was a handful of clients.
But they were they were pretty large ones.
So what happened is they went and built teams and then soon as they got the teams built the pandemic hit.
And most of those teams got blown up because the hiring was was severely diminished.
And so we've been in conversations with those clients.
In several instances they've said, we're rethinking the strategy of having the fixed cost structure sitting against the highly variable nature, we also talked with.
Prospects that are that are working with other <unk> providers that experienced the.
For the same type of strategy and they had similar thoughts so.
I would expect as hiring starts to pick up the debt mix will shift back to higher percentages not necessarily the same percentage of that we were at before but the higher percentages. So those are coming directly from from client conversations.
In terms of competing for Rfps.
Pretty honest with ourselves we have been a really strong high volume non professional type skills.
And very strong in North America, where.
From where we struggled more is in the large global deals.
The.
The requires significant Asia, president and a significant U K and European presence. So we are building the building out our capabilities.
Over the last couple of years, and we think our ability to compete for those types of global deals has been enhanced with our TMP acquisition.
In Europe as well as some additional deals that we've sold that have more of a global component to them. So we've got more reference ability.
So we like our chances going forward.
And we brought in the new leader of people Scout.
On the fourth quarter of last year, bringing Lacey sat with tremendous amount of confidence in him.
And so we think we can compete with the best in the World.
Great and then can you talk a little bit about you know.
If we assume that the world opens up.
In the second half sometime this year.
Yeah.
You would envision people scouts revenues to basically slow and.
Particularly in light of those conversations that youre, having with some of those clients and what they're telling you would just from a timing perspective, and how we should think about you know the the margin profile of the business.
Getting back to historic levels.
Yeah, well I'm.
I'm going to stay fairly high level on this and then maybe you can chime in as to what degree of when it give some numbers, but if you look at people Scout in 2020, we were down 37% overall with improving trends from Q2 to.
The Q3, and then the Q3 Q4, we're expecting a nice bounce back, particularly in the non hospitality non travel on leisure clients.
The biggest unknown, we have as those travel and leisure clients. There are a couple of big ones for us and when we talk with them about their forecast in the back half of the year.
There's a there's not a lot of visibility right now so much depends on the effectiveness of the vaccine rollout and the lifting of restrictions and there's just a lot of uncertainty.
Sitting around that.
Maybe if you want to add a little color on.
Just directional.
The second half.
Yeah. So from from of both from a margin perspective, let me just talk about of Big picture you know.
We.
We're still really bullish on the People's Scout business.
Both of them from a strategic perspective on how it serves the market but the.
The low level of penetration at least the compare to staffing when you take a look at the business world out there on.
Our competitive positioning and then when it comes to the market the the margin aspect of this.
We're very we're very bullish on that as well one of the things with people scale that you have.
Is.
Our cost of sales that people scout, it's mostly people.
And what I mean by that and why that's important it's the same dynamic we have in our staffing business, maybe even more so as far as kind of of fixed cost structure. So when the downturn communist we can cut back on the number of people, we have but it doesn't it doesn't directly offset the growth the <unk>.
Revenue in the the margin profile of that comes from that so.
Meaning as volume comes back a big part of the margin comes from some expansion in gross margins and more leverage across the SG&A space there and on.
It's been good for us as well we've challenged a lot of ways that we're running that business.
We've spent a lot of centralization, we've done a lot of repurposing of job roles as you know.
A lot of Repurposing thats happened to get more general activities processing activities down to lower paid positions. So that we're we're more effectively utilizing our higher skilled positions in recruiters. So.
As things start to rebound for people scale, we feel very good about the margin expansion possibilities in getting back to a mid to high teens segue.
Segment margin I don't think that'll be something that would be very tall order for us to see that by the end of 2021.
But if we're talking of across the medium term on that business. Overall, that's something that we are very optimistic about as we look forward beyond just next year.
Great and then from a short term perspective, you know when we take a look at the January.
Year over year trends across all three businesses on.
Relative to December.
The.
The the track kind of.
Changed a little bit so it was a little bit worse in January was that all due to.
The Covid or is there also some mix shift with regards to some of the logistics business.
Being particularly strong in December or anything else, that's going on the good point too.
Yeah, well, it's always hard to tell mark how much is us and how much of the industry, but we were not surprised about the shift in the the slowdown with people ready we saw that last summer you know we look at the University of Washington.
Projections are.
We juxtaposed those projections and some correlation analysis around people ready and so this we expect that the set people ready.
You know when we take a look at people management, Yes January revenue growth of 5% in December it was nine.
But that 5% for January it's higher than any other month or was it. So December was a little bit peak ish.
With the holiday.
You know a peak season in some of the online ordering was very good.
That doesn't carry forward into January but I wouldn't call any of that part fundamentals.
And with people scale, yes, its about the same but you know its a lower revenue as far as dollar. So it's it's lumpy by nature. So I wouldn't be too concerned about looking into the one month for people scalp. So overall, we're January came out that we share with all of you that's about water, we expected things to be good.
Given the things that I've just mentioned so it's not concerning to US we've seen positive along the way like this particularly with Covid.
And.
We think that the overall dynamics at least the fundamentals of each of the three of those business units remained sound I don't think there's anything.
Nique going on it's going to take the trend the different way than what we have been seeing.
Across the course of this year as we move across the early parts of of net of 2021.
Great. Thank you very much I'll follow up more offline.
Uh huh.
This concludes our question and answer session I will now turn the call back over to the presenters.
Thank you operator in closing I, just like the thank all of our employees and associates for their efforts throughout the pandemic.
And we look forward to speaking with you on our next quarterly earnings call have a great rest of the week everyone.
This concludes today's conference call you may now disconnect.
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