Volt Information Sciences, Inc.
Q3 2018 Earnings Call Transcript

Published: 6 Sep 2018

[Operator:]

Greetings and welcome to the Volt Information Sciences Incorporated Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lasse Glassen, Investor Relations.

[Lasse Glassen:]

Good afternoon, and thanks for joining us today for Volt Information Sciences' fiscal 2018 third quarter earnings conference call. On the call today are Linda Perneau, Interim Chief Executive Officer and President of Volt Workforce Solutions and Paul Tomkins, Senior Vice President and Chief Financial Officer. By now, everyone should have access to the news release which was issued after the market close today. If you have not received the release, it is available on Form 8-K with the SEC and in the Investors section of the Volt's website at www.volt.com. In addition, as part of our efforts to improve the quarterly financial disclosures, also posted in the Investors section of the website as a supplemental slide presentation accompanying today’s call. Before beginning today, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Volt’s recent filings with the SEC for a more detailed discussion of the risks that could impact the Company's future operating results and financial condition. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP is included in the earnings press release issued this afternoon. With that, it's now my pleasure to turn the call over to Volt's Interim Chief Executive Officer and President of Volt Workforce Solutions, Linda Perneau. Linda?

[Linda Perneau:]

Thank you, Lasse. Good afternoon and thank you for joining us today on our fiscal 2018 third quarter earnings conference call. I'll begin today's call with a brief update on our previously announced strategic alternatives review and overview with my background and highlights of my initial observations over the last 12 weeks. Paul Tomkins, our Chief Financial Officer, will then discuss additional details about our third quarter financial results, including an update on our liquidity position. I will conclude with a detailed update on our plan to drive profitable growth. When I first spoke to you on our earnings call last quarter, I had been with Volt for approximately one-week and had been appointed Interim CEO about 24 hours earlier. During that same time period, the Company announced it was fully engaged in a process to evaluate potential strategic alternatives to maximize shareholder value. The board remains committed to this and is considering all options. My job, however, is to focus on running the business and return Volt to profitable growth. To provide some background on my experience, I am a 25-year industry veteran, having worked at several of the industry's largest global companies. Throughout my career, I have a strong track record of building high-performance teams that meet and exceed financial goals and expectations. I have successfully turned around several underperforming staffing businesses and consistently delivered on growth and results. Since being at Volt, I have been wearing many hats over the last 12 weeks. Interim CEO, President of VWS and leader of multiple field geography operations. In each of these capacities, I have spent a significant amount of time with a broad cross-section of our employees, contingent workers and clients. I want to share some highlights of my learning. Volt has a very strong foundation from which to build. We have extremely dedicated teams of colleagues with an immense sense of pride and loyalty to the organization, our clients and each other. We have an impressive client portfolio with many relationship outpacing typical industry life cycles. We are challenged with current issues troubling the industry overall, most notably talent scarcity, and we have to be creative with our recruiting solution. Overall, the market remains strong. The segments in which we operate for the most part continue an upward trajectory, and we have opportunity across the broad scope of clients with both current and projected contingent needs. Thanks for the Company's progress over the last two-plus years in fortifying the balance sheet and monetizing non-core assets. Our focus now is on full execution of returning topline growth, margin improvement and driving respectable operating incomes with a much more detailed and deliberate strategic plan to execute. We have a lot of work ahead of us and hurdles to overcome. Our SG&A costs are too high as a percentage of our revenue, and we have uncovered immediate opportunities to improve efficiencies and cut costs. We have been and continue to be swift in taking actions. As many of you are aware, the Volt Workforce Solutions, or VWS, our North American Staffing Business is the largest business segment. The bulk of my comments today will focus on VWS and the detailed plan we are aggressively executing. Overall, however, third quarter results are not yet reflective of the games we expect to ultimately achieve from our strategic priorities and efforts already underway. And in fact, we are already seeing early indications of topline growth improvement in the first month of the fourth quarter. Now I would like to turn the call over to Paul, who will review Volt's third quarter financial results.

[Paul Tomkins:]

Thanks, Linda. Good afternoon. Today, I will provide additional details on our third quarter financial results as well as provide a status of our liquidity position. We continue to make solid progress in improving our cost structure and year-over-year revenue declines as compared to the last several quarters. Let's now turn to the third quarter results. Our revenue in the third quarter of 2018 was $257.8 million. When compared with the prior year quarter, total company reported revenues declined $32.1 million or 11.1% on a year-over-year basis. The revenue decline was driven primarily by decreases in our North American Staffing segment of $13.7 million, along with decreases in our corporate and other businesses of $19 million which were mostly driven by the sale of our game testing business at the end of fiscal 2017. Excluding the impact of non-core businesses sold or shut down during this past year, on a constant-currency basis, our year-over-year revenue decline would have been 6.6% on a same-store basis. This is an improvement from our year-over-year decline of 7.5% last quarter and 10.3% in the first quarter of 2018 on a consistent basis. Looking at the revenues in our largest segment. Revenue in our North American Staffing segment, which provides a broad spectrum of contingent staffing, direct placement, recruitment process outsourcing and our other employment services was $215.7 million in the third quarter, down 6% on an year-over-year basis. This represents improvement from the second quarter in which VWS revenue declined 6.7% on a year-over-year basis. This quarter, we had growth in our light industrial and engineering job categories, but had declines in IT and technical and our administrative and office job categories. We are beginning to see underlying improvements in field activity and performance driven by Linda's initiatives and execution of the strategic priorities, which she will touch on shortly. Overall, our total company gross margin percentage in the third quarter was 14.1%. On a same-store basis, gross margins declined approximately 150 basis points compared with the prior year. While we experienced improved margins in our MSP and international businesses during the quarter, this improvement was offset by competitive pricing pressure from a higher mix of larger customers in our VWS business and from a soft quarter in our call center business, due in part to higher training costs. We believe our increased focus on VWS on both driving retail growth and expanding our direct hire business will help to significantly improve margin going forward. We remain vigilant in our ongoing efforts to drive operating efficiencies and manage expenses. During the quarter, selling, administrative and other operating costs decreased $4.7 million or 10% versus last year. Excluding the impact of businesses sold, selling, administrative and other operating costs were down 5.4% year-over-year. Approximately $2.4 million of the SG&A improvement year-over-year is directly attributable to ongoing cost-reduction efforts in all areas of the business and from negotiating key vendor contracts under more favorable terms. As a result of the actions taken thus far, in fiscal year 2019, we will have eliminated at least $40 million or 20% of annual SG&A costs as compared with fiscal year 2015 excluding businesses sold. Turning to our total company profitability for the quarter, adjusted EBITDA was negative $5 million in the third quarter compared to a positive $1.4 million in the year-ago period. Net loss in the third quarter of 2018 was $11.4 million compared with a loss of $5.5 million in the third quarter last year. On adjusted basis, excluding special items, including $3.1 million in restructuring and severance charges, net loss was $8.8 million compared with an adjusted net loss of $5.8 million in the prior year quarter. While we're clearly not satisfied with this, we have definitive actions we are taking to better position the company for improvement in the fourth quarter of 2018 and into 2019. Now let's move on to our segment operating results. Operating income in our North American Staffing segment was $3 million in the third quarter compared with operating income of $5.7 million a year ago. On a sequential quarter basis, our operating income improved by $1.4 million as a result of both improved gross margins and continued expense reductions. While a sequential quarter improvement is headed in the right direction, there is still much work to be done to improve our operating results. Operating income in our International Staffing segment was $0.7 million, down slightly compared to a year ago. Our total company operating loss for the third quarter was $9 million compared with an operating loss of $1.5 million in the prior year period. Excluding businesses sold, gain on sale and the increase in the restructuring and severance costs, operating loss in the third quarter was $6.3 million compared with a loss of $2.2 million in the prior year period. And finally, with respect to our liquidity position, at the end of the quarter, we had a total of $52.7 million in global liquidity, up from $33.4 million in the prior year quarter. As of August 31, our global liquidity was $54.1 million compared with $38.9 million a year ago. And with that, let me turn the call back to Linda.

[Linda Perneau:]

Thank you, Paul. Without a doubt, these results indicate there is a lot of room for improvement. I see significant opportunities to restore the luster of Volt and improve our performance at levels at which we can be proud. To that end, we are now looking at the performance of VWS business specifically in a more granular way, designed to give laser visibility into specific drop category performance. Today, we offer a broad range of services in three specific job categories, light industrial, professionals and administrative and office. Light industrial represents the largest portion of our VWS business at 57%, professionals and administrative and office collectively make up the remaining 43%. Within professionals, there are three job categories, IT, engineering and technical. Within administrative and office, there are also three, admin, call center and accounting. When we look at the performance of these, Q3 2018 versus Q3 2017, we see a much clear picture. Light industrial, our largest job category showed positive year-over-year revenue growth. In the professional’s arena, engineering also showed positive year-over-year revenue growth. Each of these job categories have different sales approaches, often different client contacts as well as different candidate profiles. Looking at the business this way allows us to understand our strengths and continue to dedicate efforts and resources in these areas to fuel continued growth. We're also better able to further analyze underperforming job categories and address the underlying issues. Now with this granular detail around specific job category performance, we can confidently execute four strategic priorities, all of which are already in progress. Our four strategic priorities are

[Operator:]

Similar to recent prior quarters, management will not be conducting a question-and-answer session today. This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.