VOLT - NASDAQ

Greetings. Welcome to the Volt Information Sciences, Inc. Fourth Quarter and Fiscal Year 2021 Earnings Call. . Please note this conference is being recorded. I will now turn the conference over to your host, Joe Noyons, Investor Relations. You may begin.

Thank you, Kyle, and good afternoon, everyone. Thank you for joining us today for Volt Information Sciences' Fourth Quarter and Fiscal 2021 Earnings Conference Call. On the call today are Linda Perneau, President and Chief Executive Officer; and Lenny Naujokas, Controller, Chief Accounting Officer and Treasurer. After the market closed this afternoon, the company issued a press release announcing its results for the fourth quarter and fiscal year 2021. The release is available on the company's website at volt.com as well as the EDGAR SEC website filed as a Form 8-K. 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 of 1995. Actual results may differ materially from those projected or implied due to a variety of factors included, but not limited to, potential impacts of the COVID-19 pandemic in our business - on our business operations. We refer you to Volt Information Sciences' 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, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon. With that, I would like to turn the call over to Volt's President and CEO, Linda Perneau. Linda?

Thank you, Joe, and welcome, everyone, to today's call. We hope you had a happy and healthy holiday season, and we wish everyone a very happy new year. Before getting started, I would like to mention that due to an unforeseen medical procedure today, Herb is unable to join us. We look forward to having him back next week. In his absence, I will be joined by Lenny Naujokas, our Controller, Chief Accounting Officer and Treasurer. Today, I will begin with commentary on our full year 2021 results. Lenny will then provide a more detailed overview of our financial performance. I will then conclude with performance highlights and provide a high-level overview on areas of focus for fiscal year 2022. One year ago, during our year-end fiscal 2020 earnings call, we stated that the path to positive revenue growth and significantly improved EBITDA in 2021 would occur through a combination of expansion opportunities within our existing clients as well as winning new logos, improving gross margins through focused efforts on higher-margin business, accountability and execution on direct hire, driving efficiencies in all processes, improved pricing and cost discipline. We are pleased with our performance across each of these key areas. Overall, 2021 was a year of several financial milestones and significant progress on our path to profitability, which I will take a moment to highlight. For the first time in 9 years, we achieved year-over-year revenue growth and positive EBITDA each quarter as well as for the full year. Each of our operating segments: North American Staffing, North American MSP and international achieved year-over-year growth for the full year. International achieved year-over-year growth for the last three quarters. North American staffing and North American MSP achieved year-over-year growth in all four quarters. For the third consecutive year, we improved gross margins while simultaneously reducing SG&A for the full year. We also achieved a full year positive net income for the first time in four years. Excluding the gain on our divestiture in 2017, it has been seven years. And finally, we delivered a strong fourth quarter, a fitting end to a strong year and the foundation for our confidence going forward despite ongoing COVID disruption. We entered the year with great optimism and executed accordingly. We adjusted well internally to the frequently changing macro landscape, maintaining our growth trajectory while overcoming the various obstacles that continue to challenge today's workforce. As anticipated, the global economic recovery progressed throughout 2021, albeit at a more moderate pace than projected. COVID-19 impacts continued to loom large and the delta variant spread rapidly. To date, specifically in the U.S., there remains nearly 7 million people without employment despite approximately 11 million job openings. Clearly, regardless of vaccine and booster availability, some workers are electing to remain unemployed and/or resigned from current positions and the subsequent supply chain shortages continue to create disruption for businesses across multiple industries. Over time, we believe the workforce challenges and supply chain shortages will ease. Until then, we will continue to operate with the necessary agility to address the ebbs and flows of client demand and the broader market. Thanks in large part to the resilience and determination of every Volt colleague across the globe, we delivered strong operating performance due to the successful and continued execution of our strategic priorities. Let me now turn the call over to Lenny to give a detailed overview of our results. Lenny?

Thank you, Linda. Revenue for the fourth quarter of 2021 was $227.8 million compared to $211.1 million in the prior year comparable quarter, a $16.7 million or 7.9% increase. After adjusting for currency translations, revenue increased $16.2 million or 7.7%. During Q4 2021, our direct hire business continued to outpace past performance. For the quarter, we were up 95.1% from the prior year and up 31.4% compared to Q4 '19, which included an additional week. Our North American Staffing segment reported adjusted revenue of $190.9 million, an increase of $12.3 million or 6.9%. The increase was primarily attributable to new business wins and a combination of retail and mid-market clients, combined with the expansion of business within existing clients. Direct hire revenue increased 94.9% year-over-year and exceeded fourth quarter 2019 by 39.5%. Our International Staffing segment adjusted revenue was $26.8 million, an increase of $3.3 million or 13.9% due to the expansion of business with existing clients in France and Belgium as well as increased direct hire business in the U.K. and Singapore. Direct hire revenue increased 95.4% year-over-year and exceeded fourth quarter 2019 by 20.2%. Our North American MSP segment reported adjusted revenue of $10 million, up 7% compared to the prior year, primarily attributable to increased demand in our payroll service business. Moving down the P&L. Gross margin for Q4 2021 was 16.8% compared to 16.2% in the prior year comparable quarter, primarily due to improved margins in our North American Staffing and International segments. Our North American Staffing segment increased 30 basis points due to the increase in direct hire revenue, growth in higher-margin business and a benefit from government wage subsidies. Our International segment increased 320 basis points primarily due to an increase in direct hire business and an increase in higher-margin business in the U.K. and Belgium. North American MSP decreased 290 basis points, primarily due to business mix. SG&A expense for Q4 2021 was $34.7 million or 15.2% of revenue compared to $30.7 million or 14.6% of revenue in the prior year comparable quarter. The increase of $4 million was primarily due to higher incentives on the increased sales volume, increase in labor costs, higher professional fees and negative medical claims experience, partially offset by lower facility costs due to consolidating our real estate footprint. Impairment costs decreased $14.5 million in fiscal 2021 due to charges related to the partial impairment of our Orange, California headquarters and the closure of select branch offices throughout 2020. Restructuring costs increased $0.7 million in the fourth quarter of fiscal 2021, primarily related to ongoing cost of facilities impaired in the second half of fiscal 2020. The prior year quarter included charges primarily related to strategic cost reductions. Operating income for the quarter was $2.3 million compared to a loss of $11.5 million in the prior year comparable quarter. Excluding restructuring and impairment charges, operating income was flat year-over-year as a result of the actions previously mentioned. Operating income for our North American Staffing segment was $9.1 million, an increase of $0.1 million compared to a year ago. International Staffing operating income was $1.4 million, a $1.1 million increase from the prior year, and North American MSP operating income was $0.7 million, a decrease of $0.2 million. This was our 15th consecutive quarter recording positive operating income for each operating segment. For Q4 2021, GAAP net income was $1.3 million or $0.06 per diluted share, a $13.8 million improvement compared to prior year. Adjusted EPS, which excludes restructuring and impairment charges, was $0.11 per diluted share for the fourth quarter of 2021. Adjusted EBITDA for Q4 2021 was $6.2 million or 2.7% of revenue, a $0.3 million increase compared to Q4 2020. Looking at fiscal 2021. Revenue for fiscal 2021 was $885.4 million compared to $822.1 million in the prior year, a $63.3 million or 7.7% increase. After adjusting for currency translations and the MSP delivery model shift, revenue increased $58.7 million or 7.1%. During fiscal 2021, our Direct Hire business continued its strong momentum, increasing 53.9% from the prior year and up 15.6% compared to fiscal 2019, which included an additional week. Our North American Staffing segment reported adjusted revenue of $738.8 million, an increase of $51.7 million or 7.5% compared to the prior year. The increase was primarily attributable to new business wins and a combination of retail and mid-market clients, combined with the expansion of business within existing clients. Direct hire revenue increased 64.4% year-over-year and exceeded fiscal 2019 by 16.9%, which included an extra week. Adjusted revenue for our International Staffing segment was $107 million, up $5 million or 4.9% from the prior year, primarily due to increased staffing business in France and Singapore. In addition, revenue in the United Kingdom increased slightly as a result of higher payroll service and direct hire revenue. Direct hire revenue increased 39% year-over-year and exceeded fiscal 2019 by 13.5%. Our North American MSP segment reported adjusted revenue of $39.3 million, up $1.3 million or 3.5% from prior year, primarily attributable to increased demand in our payroll service business. Gross margin for fiscal 2021 was 16.2% compared to 15.6% in fiscal 2020, primarily due to improved margins within our North American Staffing and International segments. Our North American Staffing segment increased 70 basis points due to a mix of higher-margin business and a benefit from government wage subsidies. Our International segment increased 190 basis points, primarily due to an increase in direct hire business and improved margins in the U.K. and Belgium. North American MSP decreased 280 points, primarily due to business mix. SG&A expense for fiscal 2021 was $135.4 million or 15.3% of revenue compared to $137.7 million or 16.7% of revenue in the prior year. The decrease was primarily due to $4.7 million in lower facility-related costs due to consolidating our real estate footprint and $1.2 million in lower software and travel expenses. This decrease was partially offset by a $2.1 million increase in labor and related costs as a result of higher incentives on the improved sales volume and higher medical claims. In addition, professional fees were $1.7 million higher in fiscal 2021. Restructuring costs in fiscal 2021 were $2.8 million, primarily related to $1.8 million in ongoing cost of facilities impaired in the second half of fiscal 2020 as well as severance costs of $1 million. The prior year included charges primarily related to our strategic cost initiatives. Impairment charges in fiscal 2021 were primarily related to capitalized software costs as a result of a change in the expected useful life of assets. Impairment charges in fiscal 2020, primarily related to consolidating and exiting certain lease office locations throughout North America. Operating income for fiscal 2021 was $4.8 million compared to a loss of $29.4 million in the prior year. The year-over-year improvement is a result of the actions previously mentioned. Operating income from North American Staffing segment was $33 million, an increase of $18.7 million compared to the prior year. International Staffing operating income was $4.1 million, a $2.7 million increase from the prior year, and North American MSP operating income was $2.1 million, a decrease of $1 million. For fiscal 2021, net income improved by $35 million compared to prior year to $1.4 million or $0.06 per diluted share. Adjusted EPS, which excludes restructuring and impairment charges, was $0.21 per diluted share. Adjusted EBITDA for fiscal 2021 was $17.8 million or 2% of revenue, a $17.9 million improvement compared to fiscal 2020. Moving on to a few key items from cash flow and the balance sheet. We ended the fiscal year with $71.4 million in cash and equivalents and an additional $8.7 million in restricted cash and short-term investments, a combined increase of $20.8 million compared to the prior year. Our long-term debt remained at $60 million, has seen since January 2020, and total available liquidity increased 37.2% from $32.1 million in July to $44 million in October. We generated $23.9 million in cash flow from operations, with capital expenditures of $3.1 million. On January 3, 2022, we paid $13.1 million or 50% of our 2020 employer social security taxes, which was deferred under the CARES Act. We paid this from cash on the balance sheet and expect to make our second and final payment in January 2023. Trend for Q1. Looking towards the first quarter, although the labor market remains tight, and we continue to be impacted by restrictions in areas we operate, early trends are promising. We expect revenue to improve 3% to 4% over last year. Gross margin should be consistent with last year with our gross margin percentage increasing throughout the year as a result of lower payroll taxes. SG&A should be in the high $35 million range. We believe the increased revenue should result in improved EBITDA over the prior year quarter. I will now turn the call back over to Linda. Linda?

Thank you, Lenny. Before sharing commentary on the performance highlights, I would like to address the ongoing COVID impact on our business, what we anticipate in the coming months as well as how we are aggressively addressing the labor shortage headwind, specifically in the U.S. Since our third quarter earnings call, when discussions largely focused on COVID and Delta variant impact, we find ourselves facing a new fast-spreading variant known as Omicron. While there is still much to be learned about the exact health implications and the effectiveness of the vaccine on this variant, there is no denying the disruption it has quickly caused on air travel, public events, school and university openings and in some places, has fueled the return of mask mandates. Over the last several weeks, we have seen an impact due to attendance of our field employees at various client locations and an increase in workplace health and safety concerns, placing additional pressure on an already tight labor market. The good news is we are well poised to address such challenges given our experiences over the last 24 months and our increased use of technology to source and recruit quality talent more efficiently. We continue to enhance both the candidate and the client experience through our automated surveys, client-specific communications, the scheduling tools and of course, the chatbot. The combination of these advancements saved nearly 21 hours per month per recruiter, allowing them to redirect that time to high payoff activities for our clients. Since last quarter, we invested in an AI-powered job board, jobs.volt.com, which replaced our former job board functionality. This new job board actively engages candidates in real time, providing a more personalized user experience. The look and feel of the site have also been significantly enhanced and better reflects the Volt brand. Although this site has been active for only a short period of time, we have seen thousands of new job seekers to our career site with nearly 30% of those converting to applies. Lastly, we are expecting to roll out a daily pay option for our field employees, a desirable benefit for the skill sets we generally place. This program will allow for early wage access by field employees, ultimately leading to greater retention and a more engaged workforce. As we have seen throughout 2021, demand for talent remains high and availability is scarce. All of these advancements and benefits will play an integral role as we face the known and unknown talent headwinds in the coming quarters. We are also anticipating a ruling from the U.S. Supreme Court on OSHA's Emergency Temporary Standard, or ETS, which requires employers with more than 100 employees to mandate vaccines or require weekly testing of unvaccinated employees. A couple of key points I would like to make. Despite the uncertainty around the ultimate enforceability or effective date of the actual ETS, many of our larger clients have imposed variations of the requirements, including vaccine mandates, daily or weekly testing or combination of both. Overall, the field employee population at these clients represents a substantial portion of our total headcount in North American staffing. Our teams have expertly handled each situation in close partnership with the clients, managing inquiries of the employee population, setting guidelines for hiring and reviewing religious and medical exemptions. The success of these efforts is a tribute to the trust and confidence our clients have in our dedicated program teams. This is when the strength of client relationships are tested. And once again, our teams prevailed. Knowing that compliance with the federal mandate on a much broader scale would be a daunting task to handle manually, we have secured an automated solution to allow us to address vaccination status during onboarding, which has already been implemented. The lessons learned from the early adopters have shaped the sustainable, comprehensive, company-wide strategy that we will be prepared to implement as needed, pending a decision from the Supreme Court. Now let me turn to some performance highlights across our operating segments. In North American Staffing, revenue growth from retail or our commercial and technical branch network delivered 21% growth year-over-year, the third consecutive year of improvement. Representing 20% of revenue for the full year, this business line continues to maintain gross margins 500 to 600 basis points higher than our overall margin. For our International segment, a new model implemented during 2020, which focused on key business segments of IT, life sciences, engineering and professional paid off. All countries reported positive year-over-year trends in the fourth quarter and made significant improvement for the year. Direct Hire was a substantive contributor to our margin improvement with North American staffing up 94.9% in the fourth quarter and 64.4% for the full year; and international up 95.4% in the fourth quarter and 39% for the full year. The investments made in the professional search teams in the U.S. gained momentum throughout the year, making their most significant contribution in the fourth quarter as expected. All three operating segments reported strong operating income. North American Staffing, $33 million; North American MSP $2.1 million; and international $4.1 million. We believe this year was an inflection point in the turnaround. And yet at the same time, we know there is still work to be done. Our focus now shifts to 2022 and beyond as we progress towards our 3% EBITDA margin target. Looking forward, we are focused on several key areas. Continuing our evolution to a more balanced portfolio as a result of the successful execution of both retail and direct hire business lines through the bifurcation of retail and enterprise business, allowing for a more tailored candidate and client experience. Fueling growth through purposeful investments in our higher-margin business segments, including our branch network, Direct Hire and North American MSP. Continued expansion of existing technology tools to meet client demand as well as launching new technology partnerships to drive productivity and efficiency. Volt has a competitive advantage in our India-based operations. And while today, this is used largely as internal back-office support, we believe we can leverage this offshore model to supplement candidate recruiting and sourcing efforts in the U.S. specifically for higher-end skill sets. And we're preparing to quickly mobilize operational plans to successfully partner, support and educate our clients in navigating any future vaccine mandates. As Lenny mentioned, early trends are encouraging as we are seeing continued momentum across all three operating segments. The services Volt offers are in high demand, and our enhanced technology tools allow us to be a valuable partner in solving workforce challenges for clients across multiple industries. Our teams are tackling 2022 with the same resilience, determination and dedication that we have demonstrated since the onset of the pandemic. We believe we will again deliver full year top line revenue growth, margin expansion, positive net income and continued year-over-year EBITDA improvement for 2022, remaining steadfast in our commitment to our goal of an adjusted EBITDA margin of 3%. I will now open the call for questions. Operator?

Our first question is from Josh Vogel with Sidoti & Company. Please proceed with your question.

Hi, Linda and Lenny. Happy New Year. Hope you guys are well.

Same to you, Josh. Happy New Year.

Happy New Year.

And please pass along my regards to Herb. Hope he gets better quickly.

We certainly will. Thank you for that.

Yes. That's great. I have a couple - a bunch of questions here, actually. The first one, I was just curious, are there any markets where or specialty skill sets, where you find yourself having a stronger candidate pool relative to peers. And thus, you're finding it may be a little bit easier to navigate the macro supply challenges everyone is seeing?

I wish I could say yes to that, Josh. Unfortunately, I think we are seeing the same type of tight labor market across all skill sets that - and I believe all of us in the industry are in a similar situation. Regardless of skill set, we are finding that it's a very tight labor market, tough to find individuals. Wages are increasing across all skill sets. Individuals are leaving jobs for a variety of reasons. So it is across the board, across skill sets. And it is really about broadening our net wider and further in order to capture as much of those available candidates across all skill sets that we can.

Yes, that's understood. And you actually led into my next question about the wage environment and the wage inflation we're seeing. I'm just curious general commentary there, how it affects your business or ability to attract candidates and how successful or easy it is in passing this along to clients as I'm sure they're becoming more and more aware of it needed that pay rates are going up?

Yes. It's been an interesting dynamic. It used to be incredibly challenging to get clients to raise wages over the past 12 to 18 months, we've certainly seen a shift in that. The clients recognize the challenges that are out there. They recognize the need to increase wages for the most part. They recognize the need to add retention bonuses or sign-on bonuses or flexibility and schedule. So there is a much more broad acceptance of what is needed to be done in order to get the quality talent that clients need now. So we've definitely seen an increase in the wage inflation. It's approximately mid-single digits from a year ago. That varies, again, across skill sets and across markets. It typically is accretive to us as the wage increase is accompanied by the commensurate bill rate increase. So for the most part, that is accretive to Volt.

I appreciate all those insights. And looking closer at the results in the quarter, I was wondering if you could bridge the strong gross margin performance. Basically, what specifically drove the 30 basis point bump above the higher end of your guidance? Is that just because the direct hire came in stronger? Or is there anything else there?

We absolutely overperformed and outperformed in direct hire. The teams across the board, not only in North American Staffing, but also in international. It was an incredibly strong quarter from a direct hire perspective and that certainly helped to drive the margins up for the quarter.

Got it. And Lenny, I don't mean to put you on the spot here, I would normally ask this to Herb, but really strong cash generation in the quarter. I'm curious if a little bit of that was timing between receivables and payables and other accrued expenses.

So we did receive about $12 million in payments early in the last week of October that would have ordinarily have been received in the first week of November.

Great. All right. I also - okay, so just looking at international, really strong performance there, especially over the last three quarters. I was - at least based on my model, you outperformed everywhere else, but I was a little surprised by the sequential downtick in revenue there. I know that there was a bit of a return to more seasonal patterns, especially vacation. They tend to take a lot of that during the summer months. So was that sequential downtick due to that, especially in the August time frame? And I guess another way to look at it is obviously still an impressive year-over-year in advance, but can you give me an idea of how revenue tracked from month-to-month during the quarter?

So you're specifically asking like Q3 to Q4 or just the revenue in the month of - in Q4?

Yes. I'm curious, when we look at the revenue month-to-month in international, what the trajectory look like?

Yes. So obviously, we normally would get a summer slowdown in the months - in the summer months, depending on the country. So the revenue was lower in August due to pent-up demand let’s - I'll call it at best of people wanting to take some time off or vacations. So that revenue did increase as the quarter progressed.

Okay. Great. And one more, and I'll hop back in the queue. I was feverishly typing. What did you say the SG&A number range was going to be in Q1?

In the high $35 million range.

Our next question is from Mike Hughes with SGF Capital. Please proceed with your question.

The first one is just on pricing. On the last call, you mentioned you were getting a little bit of pushback and perhaps some pressure from some of your larger clients who are experiencing higher supply chain costs. Could you just give us an update on that?

Yes. So, hi, Mike. Good to talk to you. Yes, we continue to see those ongoing pricing pressures in many instances, most instances, we have done a nice job of identifying ways in which we can run a little more leanly, ways that we can run a little more efficiently, again, leveraging technology, which has helped to remove some costs so that we can continue to operate at the levels of each of those clients that we want to continue to operate at. I think we're going to continue to see some of these pricing pressures as we head into '22. I do expect that it will begin to free up a little bit. But right now, we're certainly - we're certainly still challenged with some of those pricing pressures and the team has done a really nice job of offsetting those in some creative innovative ways.

Okay. In the last quarter, I guess, it was months ago now, but - so was the pricing pressure in the October quarter worse than in the July quarter? And is it worse now? Or is it about the same?

I don't think that it's worse. I think it's about the same. I think that it is really on a month-to-month basis. It varies, obviously, depending upon the clients as we're getting new business even conversations around pricing and as we're negotiating new business. So I don't - I would not say that it's gotten worse. I would not say it's gotten better. I think it's remained pretty consistent and sort of a normal way of how we're having to operate and negotiate and engage with our clients.

Okay. And then perhaps on a related topic, Slide 8, you have a gross margin bridge, which is really helpful. And it shows that the full Workforce Solutions contract revenue resulted in about a 50 basis point year-over-year compression in gross margin. Is that pricing or something else?

We're pulling - I'm just pulling up the slide. I do believe that it does have to do with pricing. I'm just pulling up the slide to take a look at it just to make sure I'm giving you the actual - the right response to the slides you're looking at.

It was Slide 8.

We're trying to pull it up. If you have another question, you want to ask that. We'll come back to this one.

Sure, sure. So the direct hire business has performed really well in the last two quarters. How sustainable is that going into this year?

Yes. I mean I expect it to be very sustainable. So we're continuing to outperform their early indications in Q1 '22, continuing to be very strong. I mentioned our professional search group, which you may recall, we invested in May, June last year. That team really picked up steam towards the end of last year. And while they had a very strong fourth quarter. Overall for the year, they weren't a huge contributor. I expect that to shift this year. I do expect them to be a larger contributor to our overall direct hire numbers. So I do expect that to continue throughout '22.

Okay. And then the North American MSP business, I think you talked about last call that kind of the pipeline of RFP has been a little bit slower and there have been maybe some consolidation in the customer base. Can you just talk about the prospects for that business over the next year?

Yes. So again, I continue to be cautiously optimistic about the MSP performance. They certainly are showing some nice traction as we've kicked off '22. They have several expansion opportunities within existing clients, which is very good and very solid. They implemented a new win towards the end of Q4. So that will also - we'll see that start to begin to generate revenue into '22. A lot of RFPs that they're responding to presentations. There is greater collaboration with our North American staffing team, and that will continue - we'll continue to accelerate that and broaden that across the organization as well. So I have a very high level of faith in this team and their ability to drive some stronger performance in '22.

Okay. Just two more quick ones for you. I think you gave the metric for the retail mix for the year. Did you give it for the fourth quarter? Do you have it for the fourth quarter?

I don't have it broken out for the fourth quarter, but I can get that for you.

Okay. I could back into it. I think you've given it out in the prior quarters. And then just the last question. I think you said you were expecting top line growth in the current quarter of 3% to 4%.

Yes.

What are you baking in as far as degradation growth related to the latest COVID wave?

Yes. So that - I mean, that is clearly built into there. We have actually seen an acceleration and more of a rash of that happening in the last couple of weeks. So in the beginning of Q1 of '22, it was less prevalent. It has become increasingly more prevalent, like I said over the last couple of weeks. So the majority of the quarter will be without impact, smaller impact on Q1. I believe we'll start to see that more as we head into the subsequent quarters. It remains to be seen, but we're definitely seeing impact of higher attendance and folks having to quarantine.

Can you quantify it?

I don't know that I can quantify it yet. Again, it's just sort of something that has really begun to take hold. I'm not sure that I want to quantify it yet. Certainly, I think we'll be a little better - more knowledgeable about it by our March call, and we'll have a better idea of exactly what kind of impact we're going to see.

Okay. I appreciate it.

Yes. Let me come back and I'll answer your other question, Mike. So now that I've got the slide up. So the reason for that basis point decline really is coming from higher workers' comp, also some increased impact from some sick and COVID pay. Pricing was actually also impacted, but it was a much smaller percentage of impact.

Okay. And workers' comp, I think, had been a positive for you over the last few quarters. How should we think about that going forward not to get too far in the weeds, but since it was a little bit of a drag here?

Yes. I think there's so many ins and outs with it from a workers' comp perspective. It is somewhat harder to predict, because I could say one thing today, and it could change next week. I think that we should see something similar to what we saw in '21. I don't have any reason to believe otherwise.

Our next question is from Josh Vogel with Sidoti & Company. Please proceed with your question.

Just one more add-on here. Based off your comments expecting strong trends in direct hire to continue in Q1, but you're guiding for gross margin to be flat year-over-year. I was just curious if you could talk about the moving parts that get you to a flat year-over-year gross margin. Is it the absence of government subsidies from a year ago? Just trying to reconcile that.

Yes. I think that we're certainly going to see a lower government subsidy impact. I think we're still, as we talk about some of the pricing pressures, I think we're taking some of that into account. I think there's a number of things in there, Josh. Happy to look into that further and we can circle back and give you some more specifics. But I think we're - we feel confident in the guidance in terms of margin being flat.

Got it. Well, great performance in '21. Looking forward to seeing what you do this year. Have a great night.

We have reached the end of the question-and-answer session, and I will now turn the call over to Linda Perneau for closing remarks.

We appreciate your participation in today's call and for your continued interest in Volt. We look forward to speaking with you again when we report our fiscal first quarter 2022 results in March.