Volt Information Sciences, Inc.
Q1 2021 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Noyons, Investor Relations.

[Joe Noyons:]

Thank you, Omar. Good afternoon, everyone. Thank you for joining us today for Volt Information Sciences first quarter fiscal year 2021 earnings conference call. On the call today are Linda Perneau, President and Chief Executive Officer; and Herb Mueller, Senior Vice President and Chief Financial Officer.

[Linda Perneau:]

Thank you, Joe and welcome everyone. Today I'll begin with some brief commentary on the current labor market and recent economic shifts, signaling positive signs for our industry and also share 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 actions occurring in each of our business units to ensure continued momentum. The old phrase, "what a difference a year makes", certainly summed up the sentiment of the past several months. As we eclipsed the 1-year anniversary of 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 levels during the recent winter months. More recently, positive cases seem to be leveling off as the race to distribute and administer COVID vaccine has begun. Since distribution began in December of 2020, over 100 million doses have been administered in the United States. Recently, the CDC indicated that at the current pace 70% to 80% 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 begin their return to school, anticipation heightens for the ongoing reopening of all counties and states and comfort levels increase as even minimal activities that mirror the old norm occur.

[Herbert Mueller:]

Thank you, Linda. Revenue for the first quarter of FY '21 on a GAAP basis was $218 million, compared to $217.8 million in the prior year comparable quarter, a slight improvement. After adjusting for currency translations and the MSP delivery model shift, overall company revenue was up $0.9 million due to continued improvements in our North American staffing segment, which posted positive year-over-year revenue growth for the first time in 2 years during the quarter. During Q1 FY '21, our Direct Hire line of business continued to show improvement. For the quarter, we were down 1.3% from the prior year quarter. However, we were up 2.4% sequentially from Q4 2020. Direct Hire 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 2021, adjusted revenue for each segment, our North American staffing segment reported adjusted revenue of $184.2 million, an increase of 2.2% 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, a 2.6% improvement from prior year. The improvement in our North American staffing segment began in the second half of fiscal 2020, continued into the first quarter of fiscal 2021. And for the first time since first quarter fiscal 2019, adjusted revenue for this segment increased from the prior year comparable quarter. The 2.2% increase is primarily attributable to new business wins on 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 in the U.K., and a decline in contractor headcount, which resulted from reductions clients made in anticipation of legislation that wants to take effect in April 2020. We believe the negative impact from that has occurred and we're rebuilding that business. Our North American MSP segment was up $0.2 million or 2.6% from prior year. The increase is primarily attributable to an increased demand in the payroll service business. Gross margin for Q1 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.

[Linda Perneau:]

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 expertly represent Volt Daily, and of course, the hard work and resilience of every Volt colleague globally. Despite varying headwinds, 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 to Q4 2020. Of most notable improvement is North American Staffing, which in addition to the above mentioned improvements, also delivered adjusted revenue growth of 2.2% over prior year. This segment had strong performance across the entire organization and continues to build upon the steps that have been taken over the last 2 years. Our branch network continues to demonstrate promising progress on the retail front. This typically with small to midsized local clients. We continue to invest in multiple markets to fuel growth, and since our last earnings call have expanded in a couple of markets in the Southeast.

[Operator:]

And our first question comes from Josh Vogel with Sidoti & Company. Please proceed.

[Josh Vogel:]

Thank you. Good afternoon, Linda and Herb. Hope you both doing well.

[Herbert Mueller:]

Doing great. Thanks, Josh.

[Josh Vogel:]

Great. Good to hear. Certainly impressive results coming out of fiscal 2020. I had a couple questions for you here. I guess the first point, obviously really impressive step down in SG&A year-over-year and on a fairly similar base of revenue. So when we look at the savings when you think about labor facility costs, professional fees, what do you think is permanent and what may come back this year as volume picks up?

[Herbert Mueller:]

Well, the reductions that we had are 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. I think we've got a fair amount of room in our back office to not have to bring on additional support to support more revenue, but certainly on the revenue sales side, I think there's some opportunity there that we'll take advantage of and make sure that we're doing what we can out in the field.

[Josh Vogel:]

That's helpful. That actually kind of leads into my next question. I think on the last call, you quantify that revenue per employee increased, I think, like, a third in the U.S. I was just -- any thoughts you have around your current recruiter bench and the existing capacity? How much is left there before you have to meaningfully add headcount?

[Linda Perneau:]

Yes, so I'll pick that one, Josh. We -- it varies, right. So the answer to that really varies depending upon what location, what area of the country, the specific dynamic that may be happening in any one particular location. We look at productivity, we look at it regularly. It's a metric that we measure to, it's a metric that our folks are incented by. So it's a very important metric for us. And we know that a certain productivity level in teams hit the glass ceiling, and they just simply cannot, cannot grow. And when we see that approaching, we're very quick to make an investment, right? We're making investments 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 -- and then in other areas, we still have significant bandwidth, where those productivity levels are lower, might be more of a startup branch, 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 fuel the growth.

[Josh Vogel:]

That makes sense. And I guess, one last one, about the cost side of things. Just general comments around how the back office, how things are going in India, and you see many potential opportunities to move any more funds over there?

[Herbert Mueller:]

Josh, I think things right now are going very, very well. We've been extremely pleased with the progress that we've made there. Our team has gotten up to speed, very, very quickly, both from an accounting and shared service side. We've got metrics on their performance, and they continue to come in excellent. We've had a few people that haven't worked out, as you have in any situation, and we've dealt with that situation quickly. And have really been very pleased. We went through, we've got a fair amount of accounting support there. We just went through our year-end audit last, December, and it was one of the cleanest audits we've had, we just had Q1 and Q1 was done, extremely well. So we're very pleased. Going forward, we're continuing to look, 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 in India or do we need to do it here, and we're handling that by case by case basis.

[Josh Vogel:]

Sure. Okay, great. And now, switching to the revenue results, to see what you put up in North America, and I don't know if it's easy to quantify, but when we think about 2.2% increase on an adjusted basis, what would that have looked like without COVID related impact, because I think you did quite a number in and around $100 million for last year, I was just curious, what was in 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.

[Linda Perneau:]

So this is what makes the 2.2% even more exciting, Josh, is that keep in mind, first quarter of last year was pre-pandemic. So these teams in North American staffing managed to deliver these results in a pre-pandemic timeframe.

[Josh Vogel:]

Yes, of course. Even also impressive, given your commentary around for Q2 because the first seven weeks of that quarter. If I heard you right, Herb you said, you expect revenue to be up 5% to 7% year-over-year. In Q2 -- okay, great. And so then you -- can you maybe give a sense of the drag from the winter storms that are built in that. If we didn't have that, what would that growth look like?

[Herbert Mueller:]

Yes, and we're still seeing some impact from that, because you had the initial shutdown, that occurred, especially in Texas and Tennessee, where literally in Texas, especially for a week long, we had clients that were down. 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 couldn't get the the 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'll see us on the low end of that range. If it rebounds quickly, and you've got things making up, we could do a little bit better, but we -- overall, it hasn't been horrendous, but also keep in mind, that you've not only had the big ice storm that hit Texas and Tennessee, but before that you also had really bad weather in the Northeast, the Midwest, has been getting hit, Denver, just got . So that's something -- that is something we're watching closely, but right now there's an impact there 1% to 2% potentially, but knock on wood, not much more than that.

[Josh Vogel:]

Okay. But I can certainly attest to some lousy weather in the Northeast this past winter. Just one last one, I will hop back in the queue. Just thinking about North America, retail mid-market logos, how much business do they make up? It was running at a 20%, is that still the case? And what's your target for retail mid market logos as it progresses?

[Herbert Mueller:]

Yes. So we came in basically at that same rate. We had -- it did increase, but so did the enterprise businesses as well. So we were pleased with both of those, and we'll continue to have emphasis long-term. We'd love to see that be 30% of our mix, how fast we can get there, we'll -- it'll probably be kind of a step basis as it's going, but it's still certainly a high priority for us.

[Josh Vogel:]

All right, great. Well, thanks for taking my questions and looking forward to seeing how the year plays out.

[Herbert Mueller:]

Right. Thanks, Josh.

[Linda Perneau:]

Thanks, Josh.

[Operator:]

And our next question is from Mike Hughes with SGF Capital.

[Michael Hughes:]

Good afternoon, and thanks for taking my questions. The first one is, do you have the deferred payroll balance? And then the second question is, can you just kind of outline the 3% EBITDA goal? What needs to happen to get there as far as a retail mix, maybe on the Direct Hire front and MSP and other factors?

[Herbert Mueller:]

Sure. Mike, on the deferred payroll tax, it's just a hair under $26 million, of which $13 million of that -- half of that will be due in the end of December of this year. And that's currently shown now as a current liability. And then going into the following year, you've got another just a hair under $13 million that will be due at the end of 2022. And then as far as the 3% mixers, multiple components of that

[Michael Hughes:]

Okay. And if you put a timeframe on that?

[Unidentified Company Representative:]

Yes, so really looking at that by the end of FY '23.

[Michael Hughes:]

Okay. And then I apologize, just one other. Could you repeat your commentary around the gross margin for the April quarter what you said on that front?

[Herbert Mueller:]

We expect it to be very similar to last year's, and again, I threw out that's actually implying underlying improvement, because last year we had 60 basis points. That one-time, workers' comp, typically we get a 20 to 30 basis point improvement on our workers' compared estimate. And last year, it was just unusually high, which really beat us up. So, really still trying to come up and hit last year's number, which will indicate some improvement in some of the underlying fundamentals and gross margin.

[Michael Hughes:]

Okay. I mean, that's, I think it was $1.1 million that you've benefited from last year. So that's a big hurdle that you're going to overcome. So is that primarily from Direct Hire? Or what's going to drive that kind of core expansion?

[Herbert Mueller:]

Yes, so a combination of things embedded in that is we do expect to have -- maybe close to half of that other workers' comp, benefit that we could still see $400,000 to $500,000. They're also potentially some additional wage subsidies, government wage subsidies to come in. And then on top of that, certainly Direct Hire and overall our business mix with no improvement on our retail business. So there's just a variety of components that will come into that.

[Michael Hughes:]

Okay, great. Thank you very much. Appreciate it.

[Herbert Mueller:]

You're welcome.

[Herbert Mueller:]

Thanks, Mike.

[Operator:]

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 Perneau for closing remarks. Thank you.

[A - Linda Perneau:]

Thanks, Omar. Thank you for your participation in today's call, and for your continued interest in Volt. As a reminder, we are holding our annual shareholder meeting virtually on April 20. We look forward to speaking with you again in June when we report our second quarter fiscal 2021 results. Thank you.

[Operator:]

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.