VOLT - NASDAQ

Greetings and welcome to Volt Information Sciences Inc. Fourth Quarter and Fiscal Year 2020 Earnings Conference 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 Joe Noyons with Investor Relations.

Thank you, Omar and good afternoon everyone. Thank you for joining us today for Volt Information Sciences fourth quarter and fiscal 2020 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.

Thank you, Joe and welcome to Volt’s fourth quarter and full year fiscal 2020 earnings call. Before we begin, let me take a minute and wish each of you on the call a very Happy New Year. Although things may have been a bit different this past year, we hope you were able to enjoy a happy and healthy holiday season. Today, I will open the call's commentary on our full year 2020 results, specifically highlights of our performance throughout the pandemic, the impact of our strategic initiatives we have focused on for the last 18 to 24 months, and the resulting trends realized underlying our optimism for 2021. Herb will then provide a more detailed overview of our financial performance. I will then conclude with additional commentary on trends we are seeing in the early stages of fiscal 2021, specifically the month of November and December, and how we plan to achieve growth and profitability throughout the remainder of the year. I believe it is safe to say that the COVID-19 pandemic in 2020 is the most prolonged and widespread disruption our organization has faced in its 70-year history. The pandemic has profoundly impacted economies, businesses, education, employees, and undoubtedly, each of our own personal lives. We've seen industries such as retail, hospitality, and aerospace, previously quite resilient, suffer potentially irreparable harm as a result of COVID-19.

Thank you, Linda. For this call, we have prepared a presentation, which is available on the IR section of our website. We believe this provides additional detail for a better understanding of our results for the current reporting period and longer term. I will be -- in addition, I'll be switching the order and we'll discuss the full year results first, followed by our Q4 results. We believe it's important to speak to the progress we have made since the onset of COVID-19 and the momentum we have seen in the last six months since bearing the full effects of COVID in May. As a reminder, this will year 2019 had 53 weeks compared to 52 weeks in fiscal 2020. The extra week is equivalent of approximately $18.9 million in total revenue. The GAAP numbers I'll be providing will include the 53rd week. All adjusted numbers will exclude the 53rd week of revenue as well as businesses exited or transitioning from one operating segment to another. Largest impact is normalizing in the weeks and clearly provides most accurate apples-to-apples view. On a GAAP basis, including the 53rd week in FY 2019, revenue for FY 2020 was $822.1 million compared to $997.1 million, a 17.6% reduction. Overall, company adjusted revenue was down 13.4% or $127.6 million, primarily due to the estimated $90 million to $105 million in COVID-related revenue impact. You may recall that in Q1 2020, we began to see promising revenue trends in the latter part of January and into February. However, as the pandemic escalated, revenues across the organization were impacted beginning in early March and reaching the lowest point in May. Through a combination of essential services clients continuing to operate at varying levels, other customers returning to work, expanding business with existing clients and winning new customers, we started see revenue rebound in the latter part of May. Our recovery is being predominantly led by our North American Staffing segment, which showed consecutive month-over-month improvement in adjusted average daily revenue when compared to the prior year from June forward. Looking at FY 2020 adjusted revenue; our North American Staffing segment reported $689.1 million of adjusted revenue, down 13.9% from a year ago. International segment came in at $95.3 million, down 15.1% from a year ago, and our North American MSP segment was down 1.4%.

Thank you, Herb. As we look at fiscal 2020 as a whole, we believe there is a path to positive revenue growth and significantly improve adjusted EBITDA for the full year. The path to system growing revenue through a combination of continued expansion opportunities within existing clients as well as winning new logos, improving our gross margin through focused efforts on higher margin business, accountability and execution on Direct Hire, driving efficiency and effectiveness in all processes, and maintaining pricing discipline as appropriate. And finally, we will continue our aggressive cost discipline investing to fuel growth, expansion and delivery support where necessary, simultaneously identifying additional strategic reductions that can be achieved without impacting ability to meet client demand. As Herb mentioned, early trends are encouraging as we are seeing continued momentum, most notably within our North American Staffing segment. This segment specifically finished November down approximately 1.3% from a year ago and preliminary results for December show positive topline growth on a year-over-year basis. In order to not only maintain but also accelerate the existing momentum across all business units, we will be continuing strategic investments, focusing on specialties designed for optimum scope and success, and expanding use of technology to capitalize as markets continue to rebound. Given the success of the chatbot technology, we will be expanding the usage of this tool to a broader base of clients before the end of fiscal Q1 2021. We anticipate once implementation and adoption are complete, we will realize an additional uplift in connecting more field employees with our impressive existing client portfolio and those new clients we will add throughout the year. Expansion of our retail branches generating higher margin business will continue immediately with additional investments in a select handful of markets with ongoing markets added in subsequent quarters. In order to capitalize on larger sales opportunities, we will be expanding our national sales team in U.S., focused on industries with the most robust needs in geographies that will prevail at attracting, placing, and retaining field employees. Having recently completed the build out of the sales team for MSP, we are focusing on restructuring and realigning resources in our international MSP team to maximize existing client expansion in addition to securing new opportunities. We have strategically selected three specialties as key areas of focus in the U.K.; IT, Engineering, and Life Sciences due to the robust needs and our existing ability to provide quality talent in these areas. This provides a more disciplined expert approach resulting in targeted sales activity and more rapid placements. Overall, we believe successful execution across these areas will lead to full year topline growth and positive adjusted EBITDA in fiscal 2021. We acknowledge that the complete turnaround has not happened as quickly as any of us would have preferred. There is no denying, however, since introducing our current operating strategy two years ago, we've made substantial progress in many critical areas of the business, including our financial performance. The pandemic and resulting business impacts didn't bring us to our knees. Rather, it demonstrated our resilience, determination, and dedication to our valued clients, field employees, and each other. The efforts in progress our teams across the globe has made in the face of multiple challenges have set the stage for us to achieve to achieve an adjusted EBITDA margin of 3% in three years. We remain steadfast in our commitment to deliver both topline growth and sustained profitability and ultimately, increasing shareholder value. We would like to thank our valued long term shareholders for your continued support, and our more recent investors who have recognized the progress being made and the substantial upside potential that exists. I'd also like to thank our clients, our field employees working at our clients on behalf of Volt, our Board of Directors, and of course, our Volt colleagues. Although lingering disruption continues, we believe the worst of the pandemic is behind us, and together we will emerge as a stronger organization. I will now open the call for questions. Operator?

At this time, we will be conducting a question-and-answer session. And our first question comes from Josh Vogel with Sidoti & Company.

Thank you. Good evening, Linda and Herb and Happy New Year.

Thank you.

Thank you. I guess my first question when we look at the adjusted revenue decline for fiscal 2020, down 13%. Don't want to get too much into the weeds, but maybe if can you just give a little bit more -- with like how much the existing base account and then quantify the expansion with other existing clients and the new business help to offset that?

You broke up on just a little bit in there. But basically, if I picked it up right, the expansion of new business versus the recovery impact. And again, we've had substantial amount of gains on the new logos. And that we've been in, we've gotten, we've gained a good bit of new business that has really offset -- partially offset some of the loss that we've had. So, that's continuing year-over-year, we were up, as Linda mentioned, on the amount of new business, so that's been significant as well.

All right, great. And Linda you were talking about some of the new opportunities that have arisen out of the need for employee wellness safety. Can you quantify how much revenue is coming from opportunity you see when we think about monitoring and screening logistics? And you even mentioned the food manufacturing distribution, I'm just curious what piece of the pie is coming from those opportunities today?

Yes, I mean, what I can tell you, Josh, is that a very small percentage of the new business has come from what we'll call sort of related to COVID opportunities. The majority of the new business is coming from focus on those areas that are expanding, like food and distribution and logistics. So, a lot of those areas have has been expanding, a lot of them have robust needs, those are areas that we have really capitalized on and represents the largest percentage of our new business.

All right, great. Impressive with the success using a chatbot and I know that you plan to further roll that out. Are there any other technologies -- digitally enabled technologies that you're exploring to facilitate onboarding and deployment?

Yes, there's multiple, right? So, we're constantly looking at what's the latest and greatest out there in the market. What is it that will specifically help our clients be advantageous for our clients, make the lives of our field employees easier, the lives of our branch teams easier. So, we are -- we consistently are looking at multiple tools, we have generally opted to take an approach of piloting them in small geographies in certain geographies or specific clients. That gives us the agility and the flexibility to kind of perfect it and make sure that it's the right tool for us and we'll continue to make investments in that area as we move through the year.

All right. Shifting gears, if I can, you talked about moving the jobs to India, I think you said there was 130 back office positions, and can you maybe quantify or discuss the cost benefits and sustainability of having those functions overseas? And then is it are you done there? Or is there more opportunities?

Yes, a couple things. Josh, we -- moving those jobs saves us about $6.8 million annually. So, we had about half of that benefit in FY 2020. We really completed that move in May-June time period. So, we saw clearly Q3 and Q4 you know, saw the benefit there. We're continuing to you know look at opportunities if someone leaves the organization, can we put that position in India or do we need to have it in the U.S. and we look at it on a case-by-case basis. And but at the same time, always look at other areas where tasks can be done in India. We've been very pleased with the results of the move; our team there has done a great job. Our team you know here in the U.S. has done a great job working with them and it's really been a successful transition.

Okay, and when we think about the whole virtual acceleration, and I guess this is more your professional and Linda you mentioned folks, IT in the U.K., so when we think about that and then we think about North America, are you seeing any potential opportunities to place workers in a completely virtual setting? And if so, does this open the door to candidates in other geographies?

Yeah, absolutely. So, throughout the pandemic, we had a very high percentage of our employees working, working remotely. As you know, folks were not going into the office that has continued in certain areas, depending upon the client. We have had several clients that have come to us and looking to add additional headcount and management level positions, and they're really open to where these folks live. So, they're not looking for them to be in a specific geography. So, I do anticipate that as folks really sort of feel out how this is going to work for their organization, they understand what they're going to do from a remote work perspective and how they're going to operate. I do anticipate we'll see more and more of that.

All right. Thank you for taking all the questions. I just want to sneak one more in. It's been about six months now since you talked about the partnerships with EmployStream and Sense, helping streamline the recruiting and onboarding, I was just wondering if you could talk to how those are going still and if there's any other partnerships you're exploring?

Yes, so I mean, those partnerships have gone very, very well. We continue to expand as we're learning about the capabilities of each of those tools and how we can leverage those best for not only our clients, but our field employees. We continue to gauge the adoption and the end user experience from our own internal colleagues so that we can make sure that we're fine-tuning and making it the best experience that we possibly can. So, we'll continue to tap into what those what those technology partners have to offer. And as I referenced earlier, we're absolutely exploring multiple other types of technology that will help us continue to grow revenue and margin.

Well, again, thank you for taking all my questions. It's nice to see the business recovering.

Thanks Josh.

Thank you, Josh.

Ladies and gentlemen, we have reached the end of the question-and-answer session and I'd like to turn a call back to Linda Perneau for closing remarks. Thanks.

Thank you. So, we appreciate your participation in today's call. Thanks so much and we certainly appreciate your continued interest in Volt. We look forward to speaking with you again when we report our fiscal first quarter 2021 results in March.