Q3 2021 TrueBlue Inc Earnings Call
Today's call I am pleased to report our strong revenue momentum from earlier in the year carried into the third quarter.
Third quarter revenue was $577 million, an increase of 22% compared to the third quarter of the prior year.
Growth was driven by businesses of all types turning to.
Workforce solutions as they grapple with worker supply challenges and a variety of uncertainties related to the COVID-19 business environment.
This dynamic combined with new client wins helped us deliver net income of $19 million in the third quarter versus $9 million in the third quarter of the prior year and.
And adjusted EBITDA was up $11 million year over year with corresponding margin up a 130 basis points.
Before turning to our segments I want to provide an update on the pace of our recovery and thoughts on key topics impacting our business first we are excited third quarter revenue for people scout, our highest margin business surpassed pre pandemic levels up 9% versus Q3 2019.
Volume across most industries are increasing due to high employee turnover, which is leading to an acceleration in demand from existing clients and new demand from first time <unk> adopters.
Our hardest hit market travel and leisure was up 308% during the quarter and new business wins were up 217% year to date with annualized revenue of $38 million.
And people management revenue was down only 1% versus Q3 2019.
New business wins continued to be strong for this segment, which had $22 million of new wins in August bring.
Bringing the annualized total to $86 million or up 34% year to date.
Revenue for people ready was down 16% versus Q3 2019.
People ready has been negatively impacted by the worker supply shortage, which I will address momentarily and increased COVID-19 cases from the Delta variant, which peaked in the U S. Late in the third quarter.
However, we continue to be encouraged by the demand within people ready specifically in the solar energy space.
Renewable energy is a focal point for the by the administration to reduce U S carbon emissions.
We expect solar energy to be an area of growth to support this directive.
We have service this industry for 15 years and have specialized teams and processes in place to capitalize on this market expansion.
Now I'd like to take a moment to touch on worker supply.
Like many companies across the U S. We are experiencing pressure on workers' supply.
The shortage is especially hitting people ready due to the short notice period, we receive from customers to deliver contingent workers.
Fill rates have softened in recent quarters revenue recovery has been steady as job orders have increased.
It is difficult to gauge the pace and magnitude in which supply will rebound.
He workers supported through government stimulus, we're able to increase their savings, which afforded them the option to temporarily exit the labor force.
Additionally, the Delta variant has been a contributing factor to the labor shortages.
However, while still in the early days since enhanced federal unemployment benefits ended in early September we are seeing signs of supply returning.
For example in people ready billable associates are up 9% in October versus the Q3 weekly average.
People ready weekly revenue trends in October are encouraging as well up 17% year over year versus a 14% increase year over year in September.
We launched programs to retain existing associates, reengage, former associates and source, new candidates, including attendance bonuses and rewards to our top performers enhanced referral programs enhanced recruiter incentives and much more.
We are closely monitoring the situation and will continue to provide updates.
Next I want to take time to address a potential vaccine mandate.
The impact on our results could have a wide range of outcomes. There are many uncertainties, including whether the mandate will survive court challenges when the mandate could take effect the definition of a qualified employee and the costs associated with testing workers.
We are actively communicating with national officials to understand the logistics behind the plan and are well prepared to comply with the mandate if and when it takes effect.
On a smaller scale, we have already successfully implemented vaccine tracking measures as some large clients have required that only vaccinated associates can be assigned to their locations.
We will communicate more information as the mandate becomes more clear.
Also as announced on September 22nd due to Brandon Lacey, leaving people scout to accept a tech company CEO role Karin owns role is expanding as she has been named President and COO of people Scout. In addition to her president COO position at people ready tariff.
<unk> served as president of people Scott from 2013 to 2019 and lead the organization through a period of substantial growth global expansion and digital transformation.
<unk> track record of success combined with her deep knowledge in recruiting and staffing perfectly positioned her to lead both brands into the future.
Carl Schweiss will continue in his role as president and COO over the people management brands.
Now, let's turn to our results by segment, starting with people ready.
People ready is our largest segment representing 58% of total trailing 12 month revenue and 62% of total segment profit.
People ready as the leading provider of on demand labor and skilled trades in the North American industrial staffing market, we service our clients via a national footprint of physical branch locations as well as our job stack mobile app year.
Year over year people ready revenue was up 19% during the quarter.
People management is our second largest segment, representing 31% of total trailing 12 month revenue and 13% of total segment profit.
People management provides onsite industrial staffing and commercial driving services in the North American industrial staffing market.
The essence of a typical people management engagement is supplying an outsource workforce that involves multiyear multimillion dollar onsite or driver relationships.
Year over year people management revenue grew by 7% in the third quarter.
Turning to our third segment people Scout represents 11% of total trailing 12 month revenue and 25% of total segment profit.
People Scout as a global leader in filling permanent positions through our recruitment process outsourcing services as well as offering managed service provider solutions.
People, Scott revenue surpassed pre pandemic levels with year over year growth of 108% in the third quarter. We are very excited about the accelerated pace of recovery.
Shifting gears I will now provide an update on our key strategies by segment, starting with people ready.
Our most important strategy that people ready as to further digitalize, our business model to gain market share and improve the efficiency of our service delivery cost structure.
The U S temporary day labor market is highly fragmented and there are very few large players in the industrial staffing segment, where people ready competes with the bulk of the market made up of smaller companies. These smaller regional companies are typically not able to spend the type of investment required to deploy something like our job stack mobile app. So this is.
Along with our nationwide footprint is what makes us a leading provider within industrial staffing.
Our goal is to use job stack to deliver value through differentiated associate and client experiences leading to increased market share and operational efficiencies.
Since rolling out the application to associates in 2017, and our clients in 2018 associated adoption has grown to over 90% and our jobs that client user count ended the quarter at 29100 up 11% versus Q3 2020.
We continue to focus on converting clients to heavy users as a reminder, a heavy user is 50 or more touches on job stack per month, whether it's entering an order rating a worker or approving time or.
Overall heavy client users account for 56% of people ready U S on demand revenue compared to 31% in Q3 2020.
We've also seen continued growth in our digital fill rates, which have increased three acts to nearly 60% with 940000 shifts filled via the app during the quarter.
With the foundation of our digital strategy in place we've expanded our focus on how to better serve existing clients.
And reach new ones more effectively.
At the end of the first quarter, we launched to market pilots that utilize centralized service centers responsible for recruiting onboarding and local delivery. The service centers increase our accessibility as they operate 85 hours per week versus 60 hours for a typical branch.
This enhanced go to market approach includes repurposed job rules with the creation of dedicated account managers, who are responsible for growing and building client relationships.
We believe we were able to use the cost savings from reducing non client facing roles to offset the cost increases from adding more client facing roles such as account managers.
This fundamental shift in how we deliver our services requires thorough training and change management for our employees.
While it is still early we are gathering key learnings that will improve our operating model leading to higher digital fill rates increased productivity and higher customer satisfaction.
We are excited with the progress of the pilots and we'll continue to provide updates.
Turning to people management, our strategy is to focus on execution and grow our client base.
Last year, we sharpened our vertical focus to target a central manufacturers as well as warehouse and distribution clients and made investments in our sales teams to enhance productivity.
With these initiatives implemented we have broadened our strategy to expand our geographic footprint by targeting more local in underserved markets. We're seeing strong results as people management secured $22 million of new deals in August, bringing the year to date annualized new business wins to $86 million.
Up more than 40% versus the three prior year comparable average.
Additionally, we are investing in customer and associate care programs in an effort to better serve our clients' needs and improve retention.
Turning to People's Scout, our strategy Leverages, our strong brand reputation to capture opportunities in an industry poised for growth.
Many companies reduced or eliminated their in house recruiting teams during the pandemic and now we're seeing companies returned to hybrid and fully outsourced models.
To capitalize we made investments in our sales teams to expand wallet share at existing clients and obtain new clients.
Our efforts are delivering results with annualized new wins of $38 million. So far this year versus the three prior year comparable average of $9 million.
In addition, many of our clients were forced to reduce their employee base during the pandemic, especially within travel and leisure our largest industry vertical.
Our ability to hire large volumes of workers quickly has us well positioned to help our clients re staff quickly.
This is led to a rapid recovery in the third quarter, where revenue exceeded pre pandemic levels by 9%.
I'll now pass the call over to Derrek, who will share greater detail around our financial results.
Thank you Patrick.
Total revenue for Q3, 2021 was $577 million.
Representing growth of 22%.
Driven by new business wins and higher existing client volumes.
We posted net income of $19 million or 53 per share an increase of $10 million compared to net income of $9 million in the prior year.
Revenue growth and gross margin expansion contributed to the net income growth.
Adjusted net income was $21 million or.
Or an increase of $13 million, which is greater than the increase in GAAP net income primarily due to $4 million of government subsidies in Q3 2020 that were excluded from adjusted net income.
We delivered adjusted EBITDA of $29 million, an increase of $11 million.
And adjusted EBITDA margin was up 130 basis points.
Again, driven by revenue growth and gross margin expansion.
Gross margin of 25, 4% was up 210 basis points.
Our staffing segments contributed 110 basis points of margin expansion comprised of 70 basis points from lower workers' compensation costs, primarily due to favorable development of prior period reserves.
And the remaining 40 basis points largely due to the increased sales mix from our <unk> segment.
Which has a higher gross margin profiles in people management.
<unk> contributed 100 basis points of expansion driven by operating leverage from higher volumes.
SG&A expense increased 32%, which was higher than our revenue growth of 22% due.
Due to the severity of the cost actions taken in Q3 last year.
In Q3 2020, our cost management actions produced a decline in SG&A of 31%.
Which outpaced the revenue decline of 25% for that quarter.
Q3, 2020 also benefited from $4 million in government subsidies, which were excluded from our adjusted net income and adjusted EBITDA calculations.
We are running the company more efficiently today than we did prior to the Covid pandemic based on numerous changes in how we operate and leverage technology.
Compared to Q3 2019, SG&A as a percentage of revenue in Q3, 2021 was 20 basis points lower despite having $60 million less revenue our effective income tax rate was 15% in Q3.
Turning to our segments.
<unk> revenue increased 19% while segment profit increased 32% with margin of 70 basis points.
Strong recovery continued across most geographies and industries with the hospitality and service industries. Both above Q3, 2019 levels construction grew sequentially, but was down versus prior year as projects have been delayed due to building material shortages.
Net profit margin benefited from lower workers' compensation costs.
We're encouraged by our trends as we enter the fourth quarter people rather revenue was up 17%. During the first three weeks of October versus growth of 14% in September.
We also saw some improvement in worker supply.
If a management revenue increased 7% while segment profit decreased 48%.
With 160 basis points of margin contraction.
During the quarter supply chain challenges slowed the pace of the recovery.
But are being offset by new business wins equal management had $86 million of annualized new business wins through September with $9 million of new business revenue recorded this quarter and approximately $30 million expected for the full year.
The decline in segment profit margin was partially due to the severity of employee related cost reductions last year, such as test and pay at 401K match as.
As well as additional recruiting cost to stay ahead of the holiday search given the tight labor market upfront.
Upfront costs associated with new business wins, and a drop in same customer revenue associated with supply chain challenges are also impacting profitability.
People Sky revenue increased 108% with segment profit up $9 million and nearly 300 basis points of margin expansion.
Revenue benefited from strong recovery in our hardest hit industries, including travel and leisure which grew over 300%.
New business wins also contributed revenue growth as people scale delivered $38 million of annualized new wins through September of this year.
Versus $9 million in the prior three year comparable outage.
New wins generated $5 million of revenue in Q3 with $28 million expected for the full year.
Operating leverage and increased recruiting staff utilization contributed to higher year over year segment margin now.
Now, let's turn to the balance sheet and cash flows.
Our balance sheet is in excellent shape.
The quarter of 49 million in cash and no outstanding debt.
While our profitability increased compared to Q3 last year cash flow from operations decreased largely due to a $60 million payment in Q3. This year for 2020 employer payroll taxes, there were allowed to be deferred as part of the cares Act.
We also had higher levels of working capital associated with our revenue growth and an increase in days sales outstanding since the beginning of the year, which was a multi year low.
Compared to Q3 last year days sales outstanding was down two days.
For additional details about our outlook for the fourth quarter. Please see our earnings presentation filed today.
We like where our business sits today.
Our services are in high demand as businesses increasingly look for solutions to deal with tight labor pool.
As well as a variety of uncertainties, including Covid and supply chain challenges.
Likewise, our technology strategies are making us increasingly relevant in today's business environment and along with changes in how we operate the business more efficient and delivering our services.
Okay. 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 a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jeff Silber.
<unk> <unk> with BMO capital markets.
Your line is muted.
Great. Thanks, so much.
Patrick again in the prepared remarks, and forgive me I don't have the exact quote, but I think you said something about fill rates softening in recent quarters.
Can we get a little bit more color on that where were they before the pandemic how low do they go and where are they roughly now.
Yes, thanks for the question Jeff.
The fill rates are quite a bit different between people management and people ready so I'm going to distinguish between the two of course and people management, we have exclusivity.
And our fill rates had been running in the low to mid nineties.
So call it $93, 94% we.
We saw those dropdown into the high Eighty's, So 80, 889% in that business. So most of that is driven by workers' supply challenges and people management.
And people ready the situations are little different because in many cases, we don't have exclusivity. So in some cases, it's a jump ball, where we're competing for the same positions as other staffing providers are and we have typically run in the high <unk> low <unk> in terms of fill rates and people ready, we dipped down to our low point in the high Fifty's, we're now running.
In the low sixty's.
So call it 15% to 20 point drop in.
And people ready.
Do want to point out, though we're starting to see some of the supply of workers start to unfreeze a bit we mentioned in the prepared remarks that our October run rates and people ready were stronger than what we saw in September and Q3.
Our applications are up in the high single digits, our worker supplies up in the high single digits in October and so we're starting to see a softening and I think a lot of that has to do with the unemployment benefits that ran out in the first week in September.
Yeah, we think it's going to take a couple of quarters for the situation to to unfreeze more.
But we certainly saw an uplift in October and as people savings start to dwindle and people feel a little more safe coming back into the work environment, We expect a nice steady incline for worker supply going forward.
Alright, thats, great to hear and I guess, the segue off of that we've been hearing and reading a lot about wage inflation can can we talk a little bit about how that's running for your company and are you able to pass that through in a timely manner in terms of increased bill rates is there any lag there.
Yeah, I think that'd be a good Jackson today to take he's really well schooled on the details.
Hey, Jeff it's Derrek here.
One comment to Patrick's answer that he provided on the fill rates and then I'll take the bill rate question.
Fill rates have definitely dropped.
We've entered this year for all of the dynamics that Patrick just mentioned.
However, we also know that the fill rates have also dropped based on customer behavior. So while we're also seeing though at people ready since we're not exclusive is customers, putting those same orders and across multiple companies.
So some of that drop is the majority of it actually is because of worker shortages, but some of it's also with customer behaviors, just putting those orders and with multiple staffing companies, hoping to get more.
<unk> fills a total from more suppliers.
When it comes to bill and pay rates up pay rates and bill rates in our people ready business were up I'm going to round here. They were just about the same about 10, 5%.
So we are getting them pass through timely.
We're pleased about that theres been other periods of time, where it has we've had big minimum wage increases we've always got them pass through there's been some lag at points in time, but in today's environment, where getting the.
Bill rates increased in lock step with the percentage increase in the pay rates.
Okay, Great. That's really helpful and just one final question do you have that.
Great slide on your balance sheet remaining strong, but I couldn't help noticing that the company hasn't repurchased any shares this year, despite that and despite the strong cash flow can you talk about whats going on there what your capital allocation strategy.
Sure, let's talk about both the year and the strategy going forward. So you haven't seen any stock repurchases from us this year, because we had a couple of big.
Capital events to plan for.
One was last year, we had $60 million of payroll taxes that we were allowed to defer under the cares Act.
Half of that was due to be paid this year, we planned and did pay for all $60 million of it in Q3, we elected to pay the full amount because under the cares act any losses in 2020, we're allowed to be carried back to periods, where the tax rate was 35%. So we elected to.
Pay all of that off that's a really good return for us paying that off in carrying it back.
Then the second piece is the growth in our accounts receivable.
We've had working capital surge in accounts receivable of about $55 million, so with well over $100 million of capital going to those two events, we didn't want to repurchase any shares. So we got those behind us and saw what was going on with the operating environment.
At the level that we're at right now $49 million and we don't feel like we're overcapitalized takes about $30 million to run the company.
So we feel like we're in good position right now looking forward, though returning capital back to shareholders certainly a priority for us. So we are we're not going to build up in excess of Capex cash balance here, we want to make sure we're returning that back to shareholders.
And given the current tax laws that are in place today, our preference is to do that through share repurchase.
Okay, great to hear thanks, so much for the color I'll jump back in the queue.
Your next question comes from the line of Mark Mark Marcon with Baird. Your line is open.
Hey, good afternoon, Patrick and Derrick Thanks for taking my questions wondering with regards to the pilot programs in Chicago and Dallas can you talk a little bit about how the revenue trends compare it over there relative to the rest of the people ready operations.
Thanks, Mark This is Patrick for your question just a reminder for everyone. What we're doing with the market service centers the <unk>.
First thing we're doing is we've expanded hours from 60 hours to 85 hours, we're also adding more client facing resources.
And fewer non client facing resources. So we're taking those savings and were investing them.
Our client facing resources.
We're also providing more consistent delivery training coverage things of that sort. The pilots are still what I would describe as sort of early phased.
So we're not handing out.
Hmm.
We're putting out revenue numbers for the pilots relative to the other locations, but I can tell you is we've learned a lot.
Since we started the pilots at the end of Q1.
To continue to run those through the end of the year and early next year, assuming the pilots are where we want them to be we're going to expand out.
On more of a national basis, but what we're doing right now is we're not giving out local revenue numbers.
Okay.
If presumably if youre going to expand out would suggest that.
Our results thus far.
Our encouraging is that is that a correct assessment.
Well, it's been mixed we've had some areas where the results are very encouraging and then we've had some areas where theyre not as encouraging. So we're trying to work through some of those issues and learnings where the results haven't been encouraging and we're making midcourse corrections on those so it's been a it's been a mixed bag is how I would describe it.
But what are the elements that our mix like what's going better than what's going worse.
Well one of the challenges we ran into was around some of the essentially call center software that we had.
When you're running a branch where you've got three people there everybody kind of knows everything that's going on in that branch when you expand out to an entire market where you've got.
Essentially a market set of clients in a market set of workers as opposed to a branch set of clients and it brings set of workers.
There is a little bit this lost in translation there and one of the things we learned early on as we needed some better tracking software so all of our <unk>.
Folks that are working in the market center could have better access to what's happening with our workers and our clients and so that was a big learning.
Along the way that we had to make some midcourse corrections on in terms of.
And that's when it really well is the worker supply is where it really well we werent sure.
What kind of a drop off we may have by closing the branches in Chicago, and Dallas and to the degree that we were dependent on those branches to find local workers in one of the things. We found is that we probably overestimated that a bit and.
We feel really good about our ability to attract workers locally without a branch network and so that's been a little better than we expected. So there's been some some areas of the went better in some areas that haven't won as well.
The areas that haven't been as well we've made some fixes.
We're seeing some good trending and are encouraged by the results.
Great I appreciate the transparency with regards to the job stack.
If somebody were to ask you like what percentage of revenue is now derived from job stack and then how you would.
How you would characterize the margins or.
Job stack.
Revenue that is totally independent of the branch operations to the extent that there is repeat business. That's been automating how would you how would you characterize that.
Okay.
Well from a margin perspective, it's hard to say because the pricing.
The bill rates and pay rates that we're providing are very similar whether it goes through job stack or whether it doesn't.
Where we have clear efficiencies.
When clients are placing orders when they're approving time.
When they are placing orders after hours I'll give you. An example, we had a client the other day and logistics and delivery company.
<unk> placed an order last minute late at night for 15 associates that came in after hours and within an hour of those those jobs are filled.
And.
The client was so impressed with that that they ended up moving all of their business to us and today. This is a half million dollar a year clients and.
So when you see things like that where we would have had to come in the next morning and have a.
I have a jump ball with some other providers in fact, we were able to fill it while our branches were closed in our competitors' branches were closed to.
To me the biggest value for job stack is the revenue lift that we get from <unk>.
Taking wallet share at our existing install base.
The margin profile again, bill rate pay rate spreads don't necessarily differ between a job that's fueled by job stack versus one that's not but clearly.
When you look at the cost associated with filling positions, we're able to do with fewer people in the market service center is really going to allow us to take advantage of that.
Because as you know we've only got a handful of people in our branches. So it's hard to cut a third of a person or a half of a person.
But you can do that when you go to a market center concept, where you've got dozens of people all working in one location.
So I think what we'll ultimately see some nice cost savings that come out it's just been difficult to extract it up to this point, where we've had small numbers of people in our branches.
Can you refresh me what the first part of your question was Mark.
So just just trying to think through the revenue that you would directly attribute to job stack.
Yeah.
Well, we've got some numbers, we've put out there around heavy users essentially account for 56% of our eligible revenue and we define eligible by the way we haven't rolled out job stack in Canada or for some of our skilled trades. So if you exclude those two.
Heavy users account for 56%, which is where the largest chunk of our revenue through job stack is coming from so I think that's one measure that you might look at.
Okay, and then with regards to the.
So were thinking it would be <unk>.
Locations of job stack through as we look out towards next year and the following year.
How would you envision the branch count evolving and what sort of savings in.
Could you end up getting from that and how do you think about.
The incremental revenue that job stack really hits, we could end up getting.
Yeah, I think that'd be a good question for Derek to take around some of the cost savings and I can probably add some more color. After after you speak there.
Yeah, Hi, Mark it's Derrek here, so a little bit of extra perspective on job stack.
And the efficiencies that it's bringing its very hard to carve off the specific savings for job stack, but if we stand back big picture and look at what we're running as far as revenue per employee in our people ready business were running.
If we look back quarterly all the way to 2017 over the last five years. This quarter is our highest quarter ever in revenue per employee.
That's comparing back to a time when people are ready as annual revenue was $1 6 billion.
So the technology is definitely delivering efficiencies for us.
As we take a look towards next year.
And the market pilots to give you an approximation of the amount of SG&A that's in our.
Field operations at people read it runs about $200 million.
We haven't given out any percentages yet but.
If it was just say hypothetically, a 10% coming from real estate savings and some other things I mean that would be a very sizeable amount for us. So I'm given that hypothetically, but that gives you an SG&A base to take a look at.
I think as far as productivity and cost savings, there's even more opportunity is behind US you know that one of the other things that we're starting to take a look at too is the proprietary technology that is runs people ready its operating system. So think things like applicant tracking system billing payroll and when I say.
Raul, it's less about just calculating the paychex, it's all of the work processes that go in and around that so we think there is.
Some technology upgrades that would also deliver a lot more efficiencies here. So we haven't given out any numbers at this point in time, but we're very optimistic that we can run this business in a more efficient manner and we would be really disappointed if we didn't get above or.
Our EBITDA margin of the last cycle of five 2%.
That's great and then I was wondering just can you talk a little bit about just the guidance here for the fourth quarter or the lack thereof.
From a revenue perspective, what are you what are you trying to to get out in terms of we know what what the historical pattern has been but what could be different on a plus or minus basis relative to history and how should we think about.
The sequential change in SG&A.
Yeah, so from a.
Revenue perspective, we've given an outlook that you haven't given an outlook we've just given.
Average out there, which you've taken a look at that.
Excluding last year, our Q4 US revenue Q4 revenue was about the same as Q3 each year.
We've also provided some information that our staffing operations have accelerated by a couple of points going into October versus September. So, while we haven't been giving revenue guidance really at all this year or since Covid broke out we have been giving some sequential direction.
According to our history and I think those two data points.
Are the most important.
And what was your second part of your question Mark just the SG&A, how should we think about that in terms of the sequential change relative to the third quarter.
Yes, we've given <unk>.
SG&A outlook of $126 million to $130 million.
So in that too you can find those numbers in our outlook section.
Values I'm wondering what's what's driving the change.
Well I was just kind of getting to that part in our EBITDA adjustments, we're talking a big part about it is an extra 5 million half of it coming from.
Some deferred compensation sales that'll be taking place in Q4 and also some SAS software implementation cost so theres about $5 million.
Our close to $5 billion of extra adjustments for the fourth quarter.
Great. Thank you.
You bet.
Okay.
Your next question comes from the line of Josh Vogel with Sidoti Your line is open.
Thank you good afternoon, Patrick it's Eric Thanks for taking my questions.
I just wanted to build off.
One of Mark's questions there on the branches.
Maybe just a little bit more color around potential timing.
What do you have to see today from like a market dynamic and usage of your tech Naomi capabilities.
Comfortable and paring down the brass branch structure and can we see this start to materialize in 2022.
Yeah.
Yes. Thanks, Josh This is Patrick I appreciate the question.
Well, we're looking at a number of metrics that we're tracking so we're looking at client count.
Revenue growth associate count.
Average hours per associate.
Average bill rate average pay rate margins, we're looking at a whole host of.
Metrics that our financial as well as non financial metrics around.
Around client acquisition and client retention.
Expansion rates things of that sort.
So we started the pilots right at the end of the first quarter.
And we've been measuring all of these metrics throughout the pilots both in Chicago and in Dallas.
In terms of.
Sort of green lighting.
More of a national expansion.
We want to see the two pilot markets.
The trending for those in Q3 and Q4 again above the.
The pilot group that we're comparing against which is the rest of the rest of the the U S branch network. So when we see that we're outperforming then at that point, we'd be in a position to green light.
On a much larger scale, there's a few other nuances.
We're about to start running some pilots on as an example.
We have some branches that arent part of.
In a large metropolitan cities. So if you take Illinois as an example, Peoria, which is in the middle of the state two and a half hours southwest of Chicago, We only have one branch there.
So one of the other things that we're looking at is could we support a branch like Peoria from a market service center in Chicago, That's an open item right now.
We'll be testing in Q4, and so the first order of business was could we outperform.
In our Metro markets with a market service center versus the branch network and then secondly.
For those locations that are.
Not metro that are secondary cities can we deliver services.
More effectively and.
More efficiently than than through a local branch and so those are the things that are being tested and until we are outperforming.
We'll continue to pilot and make tweaks and perfections before we before we launch on a large scale, what we're not going to do is launch on a large scale. If we're if we're not outperforming.
The current situation and so those are some of the things that we're looking at.
Those are great insights. Thank you.
You certainly had a very strong results across the three segments I I I just wanted to focus a little bit on the little bit of margin compression, we saw on a sequential basis.
Eric you had some comments on it.
No supply chain issues I'm, just curious when we look at Q2 versus Q3.
Was that supply chain issues that leaned on the margins at people management and also.
Sequentially, we saw a little bit downtick in People's Scott I'm, just curious what drove those.
Okay.
Sure.
Downtick at people management that certainly had something to do with it you know our same branch revenue for people management went negative.
In the third quarter, so and we're bringing on new clients.
As well as people management. So the same customer revenue is the most profitable and thats. The one that really de leverages because we've still got the same amount of resources for the most part running those sites the revenue drops and so all of those gross profit dollars fall to the bottom line without much offset on the SG&A side.
From a people scout perspective.
We gave a little bit of color on Q2 that was a really outsized.
Margin quarter for us, but what we're turning in this quarter is probably more appropriate for the revenue side. So what we saw was just a huge surge in same customer volumes. So we were getting.
Great leverage maybe a little too great across our recruiting base.
And so it deliver some very very nice margins that business will still continue to deliver nice margins.
But the Q2 margin expansion was a bit ahead of itself and not one that we can still make the same type of.
Service level agreements with all of our customers as far as timeliness. So.
That's a little color on those two pieces of business.
Yes.
Oh, I'm, sorry, I'm pretty basic.
Adjusted EBITDA margin, we had for the quarter versus same quarter a year ago.
Got it thank you.
Your comments on the SG&A in Q4, I was just curious when the <unk>.
5 million split between deferred compensation implementation is that going to bleed into 2022 or is it kind of just a.
Again, a hit up in Q4.
Yeah, those those costs, while the SG&A is going up those are excluded from our EBITDA calculation. So they won't be dilutive to adjusted net income or EBITDA the deferred compensation.
Plan will be fully transitioned this year, we have been moving.
Anything over to some company owned life insurance policies for tax reasons, the last two or three years and so that will complete itself and then the.
The system cost.
The extra two and a half to $2 5 million that we'll spend there.
We could do some more implementation costs and likely will next year.
Towards some SaaS based systems, but those two would be excluded from the SG&A and those would not be recurring costs that would continue with us once the systems are stood up.
Yeah.
Alright, Great and then just a couple quick ones on around the vaccine mandates I know you had some commentary there Patrick.
No.
I guess.
You know you talked about tracking measures and stuff like that but you know what's the dialogue you're having at the client level, both big and small and if this is something that does materialize.
It could be a net benefit for you.
Yeah, Josh I appreciate the question. So theres a lot of unknowns pertaining to mandate that should get cleared up in the next couple of weeks.
And until those get cleared up it's difficult to say that.
The magnitude and timing of the impact.
A couple of things to note, though from an RPM perspective, we've talked with a number of our clients and this could be a potential tailwind for us as certain clients have indicated that they expect much higher than normal attrition.
Which would increase hiring volumes and of course, we get paid.
Fee for each higher and so the more churn there is that our clients the more revenue and volume that we run through People's Scott So.
You know hard to predict.
<expletive> but it looks like if this ultimately gets implemented.
There's the potential that could be a nice tailwind for People's Scout.
Related to our staffing business. Its just too early to know there's so many uncertainties things like here's a complication.
Would you count the site as the 100 employee three.
Threshold or the staffing provider. So as an example, we have a lot of small.
Landscaping companies that there would be fewer than 100 employees.
So would our hundred employee count matter or would it be there because it would be odd for us to send workers to their side and our workers have to be vaccinated, but theres don't.
That's an open item how 'bout work at home people for our corporate staff, we don't really know the definition of an employee if we take the Obamacare definition.
It would have very small impact on us.
Our workforce if it's are they working hour for us in the account I would it would have a larger impact and so it's hard for me to stay on the staffing side of the business till we see the specifics because there's just so many unknowns that could go so many different directions that it probably would be premature for me to try to guess what.
What osha is going to come up with in terms of their rules.
No. That's helpful. Obviously, a lot of uncertainty and moving parts here and you kind of led into my next question is taking.
Taking people management out of the equation.
Looking at people Scout and people ready.
And I guess just a question you can't really answer because of the definition of an employee but I was curious what percentage of those clients fall below the 100 employee threshold, but I guess you can't answer that right now.
Well I don't have that number handy I can tell you that if the definition current employee was the Obamacare definition, we would be in the single digit percentages of our employees impacted.
And then you factor in the percentage of those that are already vaccinated and all of a sudden you went into a very small number.
If it turns out at the other extreme where it's you know.
They work they work one hour and they're considered an employee.
And then the impact would be a lot larger than we would have to do some workarounds for sure, but one thing I'd like you to take away is we're well prepared for this.
We've.
<unk> been doing this already for clients that.
Have come to us and said Hey, only senders vaccinated employees, it's been more prevalent in people management and other places, but we're certainly well prepared to.
To operate in this environment if the if the mandate survived the court challenges I do want to just follow up on one question you asked earlier about.
The margins in people management and people Scott touched on this a bit but sometimes.
Sometimes those go down for a good reason, we've had a lot of wins in people management and.
People Scout.
And implementation in Q3.
Also some in Q4 and so.
No.
The quarter to quarter can look kind of lumpy from time to time.
Does have a large implementation or a couple of large implementations.
We saw some of that in Q3 for sure.
No I appreciate I appreciate the follow up on that I.
I guess, just one last question around.
The potential for vaccine mandates you know another way to kind of look at it.
Perhaps put in place.
Certain states, but not others can you give me a sense of your geographic exposure, So I guess blue states versus red.
Yeah, I think that'd be a good good question for Dirk to answer.
Yes.
Well, Josh I don't have that slide that way I'd have to I'd have to check into that one and get back to you.
No I didn't mean to catch you off guard on that one.
Well, we do have our rabbits.
Bye Bye state, though derrek don't worry that we could use as kind of a proxy to give Josh a sense of what our revenue is.
Particularly in pizza like maybe your your top five states in terms of revenue or top III.
California, Texas, New York, California at 14%, Florida 13.
Texas.
Nine.
Illinois, three in Washington, a three.
From there on out, they're all 3% and 2% I'd have to run off.
Some calculations.
No.
Perfect well. Thank you guys for taking my questions.
Thanks, Josh.
Okay.
At this time I would just like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment for any last minute questions.
Okay.
Okay.
There are no further questions at this time, Mr. <unk> I turn the call back over to you.
Well. Thank you everyone for joining the call today and thanks to all of our true Blue Associates for the great work that they're doing every day.
We look forward to speaking with you all again on our Q4 earnings call in early February and make sure everyone stay safe take care.
Okay.
This concludes today's conference call. Thank you for attending you may now disconnect.
Okay.
[music].
Okay.
Yeah.