Q1 2021 Volt Information Sciences Inc Earnings Call
Greetings and welcome to Volt Information Sciences, Inc. First quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being record.
And.
And now like to turn the conference over to your host Joel Annoying Investor Relations.
Thank you Omar and good afternoon, everyone.
Thank you for joining us today per volt information Sciences' first quarter fiscal year 2021 earnings conference call on the call today are Linda Pruneau, President and Chief Executive Officer, and Herb Mueller Senior Vice President and Chief Financial Officer. After the market closed this afternoon and the company issued a press release announcing its results for the first quarter of fiscal year 2021.
And the releases are available on the company's website at volt dot com as well as the anchor as you see website filed as a form 8-K.
We have also prepared a supplemental presentation, which is available on the Investor Relations section of the company's website.
Before beginning today's prepared remarks, I would like to remind you that some of the statements made will be forward looking and are made under the private Securities Litigation Reform Act and 1995.
Actual results may differ materially from those projected or implied due to a variety of factors, including but not limited to potential impacts of COVID-19 pandemic on our business operations.
We refer you to volt information Sciences' recent filings with the FCC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.
Today management will reference certain non-GAAP financial measures, which we believe provide useful information for investors a reconciliation of those and GAAP measures is included in the earnings press release issued this afternoon.
With that I would like to turn the call over to volt, President and CEO Linda Parnell Linda.
Thank you Joe and welcome everyone.
Today I'll begin with some brief commentary on the current labor market and recent economic share.
And only positive sign for our industry and also share our top level highlights of our Q1 results.
Herb will then provide additional detail and insight into our financial performance.
And I will conclude with an overview of accidents occurring in each of our business units to ensure continued momentum.
The old phrase what a difference a year makes certainly songs that the strength of the past several months.
As we eclipse the one year anniversary and the pandemic onset.
We are seeing several key indicators that support improving economic and labor conditions globally.
Positive Covid cases have decreased significantly after hitting their highest level during the recent winter months.
More recently positive cases seem to be living leveling off as the race and distribute and administer COVID-19 vaccine has begun.
And distribution began in December of 'twenty, and 'twenty over 100 million doses have been administered in the United States.
Recently, the CDC indicated that at the current pace.
70 to 80 per cent of the American population should receive at least the first dose of the vaccine, indicating herd immunity by September of this year.
This is fueling optimism as children and begin their return to school anticipation heightened and for the ongoing reopening of all counties and states.
And comfort levels increase and even minimal activity that mirrored the old norm occur.
Internationally. However, the trend suggests somewhat of a slower recovery pattern.
And despite over 64 million vaccine doses administered to date and the locations volt operate within Europe Asia Pacific and India recent recurring shutdowns and the introduction of new COVID-19, Varian has led to a non linear recovery.
Looking back during March and April in 'twenty, and 'twenty more than 21 million jobs were lost across the U S.
Through February of 'twenty, one nearly 12.8 million jobs have been game clothing, nearly 60 per cent of the GAAP.
Industries, such as health care, specifically, those provide and travel nurses leisure and hospitality retail trade and manufacturing have led the way on the day.
Even better news on the U S job from temporary jobs are recovering and I didn't even faster pace.
And it's having lost nearly 1 million jobs last March and April the temporary job segment has gained back nearly 76% of sales.
And lots of jobs as of this February.
This is consistent with what we're experiencing particularly and the manufacturing logistics and food distribution industry.
Constraints on the talent supply continues to be our greatest challenge and fulfillment.
We anticipate with broader distribution of the vaccine combined with less state County, and city restriction this situation will improve.
As was the case with my earlier comments regarding international trend, we continue to see less substantive uplift and job openings.
Speaking, specifically about the United Kingdom, the number of new job postings remained broadly unchanged throughout the country started locked down which began in early January and companies across multiple industry weighed out the restriction.
A glimmer of optimism was recently shared by the recruitment and employment Confederation.
Highlighting a 52% increase and job posting and the first week of March 21, and then in the first week of April 'twenty.
And 31% more than in the first week on July 20, synonymous with the initial recovery and the U S.
Despite these certain COVID-19 business disruptions, continuing domestically and abroad.
Signs of an ongoing recovery, which for volt began and the load later half of fiscal 2020 are encouraging.
And we have previously reported we realized consistent monthly sequential improvement beginning in July 20th money coming from a combination of new business wins existing.
Existing client expansion and the return of certain client to or near their pre pandemic level.
This set the stage for strong momentum as we entered fiscal 'twenty one in November.
And although we remain in the midst of ongoing pandemic headwind, albeit less impactful than prior year.
Our first quarter 2021 revenue was higher and then the pre pandemic level one year ago.
For Q1, we achieved both positive GAAP and.
And positive adjusted revenue growth for the first time in two years.
Positive EBITDA for the third consecutive quarter.
And positive Q1, EBITDA for the first time and at least six years.
The outlook for Q2 also remains quite positive despite experiencing widespread shut down due to February winter storm.
And the seven weeks in the prior year quarter unaffected by Covid related shutdown.
Let me now turn the call over to Herb to provide additional details on the overall financials and Q2 outlook her.
Thank you Linda revenue for the first quarter of FY 'twenty, one on a GAAP basis was 218 billion compared to 217 8 million and the prior year comparable quarter a slight improvement.
After adjusting for currency translations and the MSP delivery model shift overall company revenue was up $9 million due to continued improvements on our North American staffing segment, which posted positive year over year revenue growth for the first time and two years during the quarter.
During Q1 FY 'twenty one.
Our direct hire line of business continued to show improvement for.
For the quarter, we were down one 3% from the prior year quarter. However, we were up two 4% sequentially from Q4 2020 direct higher revenue within our North American staffing segment was higher versus the prior year quarter, but was offset by a decline within our international segment.
Looking at Q1, 2020, one adjusted revenue for each segment, our North American staffing segment reported adjusted revenue of $184 2 million and increase of two 2% from the prior year.
Adjusted revenue for our international staffing segment was $24 million down 12, 9% from the prior year and our North American MSP segment reported adjusted revenue of $9 7 million or two 6% an improvement from prior year.
<unk> and our North American staffing segment began and the second half with fiscal 2020 continued into the first quarter of fiscal 2021.
And for the first time since first quarter of fiscal 2019 adjusted revenue for this segment increased from the prior year comparable quarter the.
The two 2% increase was primarily attributable to new business wins, and a combination of retail and mid market logos combined with the expansion of business within existing clients.
Our international staffing segment decreased $3 6 million or 12, 9%, primarily due to lower demand and the U K and a decline and contractor head count, which resulted from reductions clients made and anticipation of legislation that wants to take effect in April 2020.
We believe the negative impact from that has occurred and we are rebuilding that business.
Our North American MSP segment was up <unk> 2 million or two 6% from prior year.
Kris was primarily attributable to an increased demand and the payroll service business.
Gross margin for Q1, and 2021 was 15% compared to 14, 4% and the prior year comparable quarter, primarily due to a 30 basis point benefit from government wage subsidies and a 20 basis point benefit from improved workers' compensation claims experience.
North American staffing segment margin increase was primarily due to these lower employee related costs as well as a mix of higher margin business or.
Our international staffing segment gross margins as a percentage of revenue increased due to a shift away from lower margin business.
North American MSP decreased 310 basis points due to an increase and her payroll service.
SG&A expense for Q1, and 2021 was $33 $7 million compared to $39 5 million and the prior year quarter. The decrease of $5 8 million was primarily due to strategic cost reductions, including $3 6 million and labor and related costs due to lower head count part.
Really offset by higher incentives on the increased sales volume $1 3 million and lower facility costs due to consolidating our real estate footprint and point $6 million and lower professional fees.
Restructuring and severance costs and the first quarter of 2021, primarily included <unk> $3 million of severance costs and <unk> 6 million.
Related to ongoing cost of facilities and paired and the second half of fiscal 2020.
Offset by a point $3 million lease termination gain.
The prior year quarter included charges, primarily related to the strategic initiative cost to offshore a significant number of roles for operations and Bangalore, India.
Operating loss from the quarter improved $7.6 million to $1.7 million compared to a loss of $9 3 million and the prior year comparable quarter a.
The year over year improvement as a result of the actions previously mentioned adjusted operating income from North American staffing segment was $6 2 million compared to $1 million a year ago.
International staffing adjusted operating income remained flat at $4 million and North American MSP adjusted operating income declined $2 million.
For Q1, 2021, we reported a GAAP net loss of $2 4 million or <unk> 11 per share compared to a loss of 10.8 million or 50 cents per share and the prior year comparable quarter.
Improvement was primarily due to the 14, 6% reduction and operating expenses related to strategic cost initiatives as well as lowered on operating expenses and restructuring and severance costs adjusted.
Adjusted EBITDA for Q1, 2020, one improved by $6 $5 million to a positive <unk> 9 million as compared to a negative five 6 million and the prior year comparable quarter.
Moving on to a few key items from cash flow and the balance sheet.
And at the end of Q1, 'twenty, one, we had $41 million and cash and equivalents.
And an additional 11 9 million and restricted cash and short term investments and increase of 12 6 million and combined with the prior year and seven $4 million decrease from the prior quarter. Our long term debt remained the same as last quarter at $60 million and total availability total available liquidity.
Increased slightly from 24 million and October to $24 2 million in January.
We used $6 $5 million and cash flow from operations as a result from the increase in accounts receivable and the first quarter of fiscal 2021 with capital expenditures of $1 million.
Looking towards the second quarter, we expect revenue to improve 5% to 7% over last year, we expect gross margin percentage to be in line with last year as the factors, which impacted gross margin in Q1 are anticipated to continue.
And as a reminder, last year, we had a 60 basis point improvement.
Due to a positive workers' comp expense adjustment, representing a two to three times higher adjustment and then typically realize SG&A should continue to be and the $33 million to $34 million range, which still represents a substantial reduction from the prior year.
This coupled with our favorable revenue trends creates a significant opportunity for us to achieve operating income EBITDA improvements over the prior year quarter.
Overall coming out of a difficult fiscal 2020 with solid momentum Linda and I are encouraged with the performance from the first quarter of 2021, and we remain confident we are back on the projected growth trajectory to return to profitability and in 2020 one.
I'll now turn the call back over to Linda Linda.
Thank you herb.
Our Q1 results are the combination of improving economic and labor trends.
Growing confidence in vaccine distribution.
Increased buying activity.
Strong safety protocols enforced by clients of all sizes.
Dedicated field employees, who continue to show up and ex currently represent volt daily and of course, the hard work and resilience of every volt colleagues globally.
Despite varying headwind.
Each of our business units International North American MSP, and North American staffing had both sequential and per day revenue improvement when comparing Q1, 2021 Q4, 2020.
I was most notable interest and it is north American staffing, which in addition to the above mentioned improvement.
And so delivered adjusted revenue growth of 2.2% over prior year.
This segment had strong performance across the entire organization and continues to build upon that that had been taken over the last two years.
Our branch network continues to demonstrate promising progress on the retail front.
Typically with small to midsized local clients.
We continue to invest in multiple markets to feel growth and since our last earnings call and have expanded and a couple of markets and the southeast.
Our focus remains on the ongoing development and training of each call. We get in this area as we can do continue to conduct virtual boot camp.
And expand specific training and individuals coaching around direct hire opportunity.
I am pleased with how the teams have responded to and executed against the discipline and required in this model and expect that dynamic to continue to positively impact our future performance.
On the large enterprise client side, we continue to see increased buying activity Mister.
Specifically and the areas of call center manufacturing logistics and food distribution.
Our teams are capitalizing on expansion opportunity as well as winning new logos and across all business units, we have healthy pipeline, leaving me encouraged about future wind potential.
We continue to source quality talent to add to both our mid to large accounts and branch network sales team and will continue to invest to accelerate top line performance.
As has been the case since July 2020.
Order volume and placement volume remains well above pre COVID-19 time frame despite constrained talent right.
Yeah.
Last quarter, we discussed the progress we have made leveraging chatbot technology to assist with candidate attraction screening and engagement.
And what's the plan we have completed the second phase of expansion of usage across select clients within our North American staffing organization.
Our next expansion is planned for the end of March as we continue to focus on enhancing the candidate experience and.
Kris and candidate pipeline and meeting the demands of our clients quickly and more effectively.
We will continue to leverage our current technology and explore additional technology and talent platform designed to enhance not only the candidate experience, but also to provide development and upscaling opportunities demonstrating our commitment to developing the work.
Force of the future.
We will continue to share more details as we progress.
And then and that's P segment, providing total talent solutions to clients looking for and outsourced approach to sourcing and engaging and managing contingent workforce continues to demonstrate slight recovery from the initial pandemic impact.
This segment, what's and stem sivley impacted by the decline of two large client early in March and new sales win load as a result of limited buying activity throughout the last year.
As we have reported on.
RFP activity has gradually improved and the last several months.
Although these are generally long sales cycles, but generate significant margin uplift when new wins occur.
We are fortunate to have a strong tenured team with extensive experience coupled with the agility and flexibility to offer scalable solution for smaller and more complex programs globally.
Our unprecedented client tenure is a testament to the outstanding program solution and partnership our M. S. T minus T teams provide.
We remain confident and a promising outlook for this segment.
On the international front.
Despite the ongoing headwinds previously referenced we are beginning to realize incremental improvement.
Typically in the U K.
The outlook for this segment also remains promising and should continue to gain momentum as lockdowns and and a higher percentage of the population is vaccinated.
In summary, I concur with her and our performance throughout the pandemic and and the first quarter leaves us well poised to continue the projected growth trajectory and returned to profitability in fiscal 2021.
Before I turn the call over for questions I would like to extend my heartfelt appreciation to our volt colleagues around the world.
Our teams have been working relentlessly to provide peer your service to our clients.
And so on the safety and continued employment of our field employees.
And secure new business opportunities, enabling essential and impactful work to be completed.
They have reacted swiftly embraced the new way of operating tackled challenges head on.
Paul with volt best interest and mine.
I would also like to thank our valued clients, who continue to trust us to be their work force solutions partner.
Our field employees, who trust us with their career choices.
And of course, our shareholders and board of directors.
Support and gives us the necessary motivation to excel.
Now I would like to open up the call for questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
And our first question comes from Josh Vogel with Sidoti and company. Please proceed.
Thank you good afternoon, and Linda and her book, you're both doing well.
And great. Thanks, Josh.
Good to hear certainly impressive results coming out of fiscal 2020, I had a couple of questions for you here.
I guess the first point you know obviously really impressive.
One and SG&A year over year and on a fairly similar based on revenue. So when we look at these savings on when you think about labor and facility costs professional fees.
You know what what do you think is permanent and what May come back this year as volume picks up.
Well the reductions that we had you know are our permanent however, as we've mentioned before as we start growing and.
Adding top line.
We will be bringing back additional people into.
Our sales force as we see opportunity to really be able to capitalize on that you know I think we've got a fair amount of room and our back office does not have to.
And you don't bring on additional support to support more revenue, but certainly you know on the on the revenue sales side I think there are some you know on.
Opportunity there that will take advantage of and and make sure that we're doing what we can out on the field.
And that's helpful that actually kind of leads into my next question I think on the last call you've quantified that revenue per employee increased I think like a third and the U S.
Just any thoughts around and you're correct.
So, it's a recruiter branch and the existing capacity.
How much how much is left there.
Before you have to meaningfully add head count.
Yeah, so and I'll take that one Josh and.
We see it very right and.
So the answer to that really varies depending upon what location what area of the country you know and.
The specific dynamic that that may be happening and in any one particular location, we and a.
Look at productivity, we look at it regularly it's a it's a metric that we measure to it's a metric that our folks are and.
Incentive by so it is a very important metric for us and we know that on certain productivity level. You know teams hit the glass ceiling and they just simply cannot cannot grow and when we see that approaching and we're very quick to make an investment right.
We're making investments and as we win new business as we win new on site as we're seeing a lot of our clients expand and buying activity pick up so you know and and then and other areas. We still have significant bandwidth are where those productivity levels are our lower might be more of a start.
France or might be an area, where we're just.
Really looking to leverage so it varies but it is something that we monitor very closely what we will continue to do to Herb's point is certainly look for additional cost savings opportunities as we leverage technology and identify cost savings and.
Some of that will be offset by investments that will continue to make to feel that fueled the growth.
That makes sense and.
I guess, just one last one and about the cost side of things.
And just general comments around.
The back office, how things sparing and India and see many potential opportunities maybe to move any more on this over there.
Josh and I think things right now are going very very well, we've been extremely pleased with the the <unk>.
<unk> that we've made there our team has gotten up to speed very.
Very very quickly both from an accounting and share service side.
And we've got metrics on their performance and they continue to come in and excellent.
We've had a few people that haven't worked out as you have and any situations and we've dealt with that situation quickly and.
And have really been very pleased we went through we've got a fair amount of accounting support there and we just went through our ear and.
<unk> last December and.
Was one of the cleanest audits, we've had we just had Q1 and.
And Q1 was done extremely well so we're very pleased going forward.
We're continuing to look you know is there an opportunity or not certainly any time that we have a position that.
Opens up through attrition or whatever we evaluate does it make sense for us to replace that position and India or do we need to do it here and we'll we're handling that case by case basis.
Sure, Okay, great and now.
During two.
On the revenue results.
And the urge you to see what you put up in North America, and I don't know if it's as easy to quantify but when we think about.
Two 2% increase on on adjusted basis.
What would that have looked like without COVID-19 related impact because I think you did quantify a number in and around 100 million for last year. I was just curious what was and this quarter and then when we think about the growth you saw on the quarter, how much came from new client wins versus expansion with existing clients.
So this is what makes the 2.2% even more exciting Josh is that keep in mind, our first quarter of last year with pre pandemic. So are these teams and north American staffing managed to deliver these results.
And a pre pandemic timeframe.
Yes of course.
Even so impressive gift and all your commentary around you know for Q2 because of the first seven weeks of that quarter.
If I heard you right Herb you said, you expect revenue to be up 5% to 7% and year over year.
And Q2, Okay, great and so then but can you can you maybe give a sense of the drag from the winter storms that are that are built and that if we didn't have that what would the growth look like.
Yeah, and we're still seeing some impact from that because you had the initial shut down.
That occurred, especially in Texas, and Tennessee, where you know.
Literally and Texas, especially you know for a week long we had clients that were down and then and then.
The other thing is the supply chain interruption. So we actually saw cutbacks in states that were not affected by the ice storms, but indirectly because they couldnt get the and other supply chain was disrupted and we're still seeing a little bit of impact from that and that's part of kind of the range and if that doesn't.
Recover quickly you know you'll see us on the low end of that range and if it rebounds quickly and you've got things, making up you know we could.
And do a little bit better but.
Overall, it hasn't been horrendous, but also keep in mind that you'd not only had the big ice storm that hit, Texas, and Tennessee, but before that you also had really bad weather and the northeast the Midwest has been getting hit Denver, just got rock. So so that's something that you know is.
And it's something we're watching closely but right now.
And you know, there's an impact there, 1% to 2% potentially but knock.
On wood and not much more than that.
Okay. Good I can certainly attest to some lousy weather in the northeast.
Last winter.
Sure.
And just.
Last one and I'll hop back in the queue, just thinking about north.
Merrick.
So mid market loans.
How much business do they make up.
It's running at 20% is that still the case and and what's your target for retail and mid market logos as it progresses.
Yes, so we came in and basically at that same rate. We had it did increase but so did you know on the enterprise business as well. So we were pleased with both of those.
And we will continue to have emphasis and long term, we'd love to see that the 30%.
Our mix.
You know how fast we can get there well it'll probably be a kind of a step basis and its growing but its still certainly a.
A high priority for us.
Alright, great well, thanks for taking my questions and looking forward to seeing how the year plays out.
Great. Thanks, Josh Thanks, Josh.
Yeah.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue.
One moment, please while we poll for further questions.
And our next question is from Mike Hughes with <unk> capital.
Good afternoon, and thanks for taking my questions. The first one is do you have the deferred payroll.
And once and then the second question is could you just kind of outline.
The 3% EBITDA go on what needs to happen to get there as far as the retail mix, maybe on the direct hire from and our MSP and other factors.
Sure Mike on.
On the deferred and payroll taxes, it's just a hair under 26 million of which 13 million of that half of that will be due and the end of December.
This year and Thats currently shown now as a current liability and then going into the following year you've got another just a hair under 13 million net will be do you know at the end of 2020 two.
And then as far as the 3% and extra multiple components of that one is the retail that we just talked about you know and ultimately striving to get that to be.
30% of our our business and then growth in our direct hire.
It was a key priority for us now and then.
And the other major third leg of that is just better pricing.
Through our existing business and new business continuing to get.
Uh huh.
Better margins and better pricing on on what we do as well as overall cost control.
Okay, and if you put a timeframe on that.
Yes, so really looking and that by the end of <unk>.
FY 'twenty three.
Okay, and then I apologize just one other could you repeat your commentary around the gross margin for the on the April quarter, what you said on that front.
We expect it to be very similar to last years and again on throughout that's actually implying underlying improvement.
And last year, we had 60 basis points.
And that.
And one time workers comp you know typically we get.
'twenty two.
30 basis point improvement on our workers' comp.
And estimate and.
And last year it was just unusually.
Unusually high.
It's really beefed us up so you know really still trying to come up and hit last year's number which will and.
Indicate some improvement and some of the underlying fundamentals and gross margin.
Okay.
I think it was $1 $1 million that you benefited from last year. So that's a big hurdle that youre going to overcome so is that primarily from direct hire what what's going to drive that kind of core expansion.
Yeah. So a combination of things embedded in that is we do expect to have.
You know maybe close to half of that other worker's comp benefit that we could still see four to $500000. There are also potentially some additional you know wage subsidies government wage subsidy is to come in and then on top of that you know certainly direct hire and.
And overall, you know our business mix with no improvement on.
Our retail business and so there's just a variety of components so come into that.
Okay, great. Thank you very much I appreciate it.
Youre welcome and.
Thanks, Mike.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back over to Linda per new for closing remarks. Thank you.
Thanks Omar Thank you for your participation in today's call and for your continued interest and vote. As a reminder, we are holding our annual shareholder meeting virtually on April 20th.
And we look forward to speaking with you again in June when we report our second quarter fiscal 2021 results.
Thank you.
Thank you all this concludes tonight's Web conference you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.
Are we calling back and.