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Text: I'm joined by our Chief Executive Officer, Patrick Beharelle.
We use non-GAAP measures when presenting our financial results.
Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated.
I am pleased to report we had a strong start to the year.
We delivered net income of $7 million in the first quarter versus a loss of $150 million in the first quarter of the prior year.
As a reminder, the first quarter last year included a non-cash asset impairment charge of $152 million net effects.
Growth, excluding the impairment charge, was led by a series of new client wins, improving industry performance, including those hit the hardest last year, and disciplined cost management.
I'm pleased that on an adjusted basis, we experienced growth of $9 million in both adjusted net income and adjusted EBITDA year-over-year.
Before turning to the segment results, I want to highlight the early new win successes at PeopleManagement and PeopleScout as we are beginning to see increased interest in clients using more variable labor.
In PeopleManagement, new wins on an annualized basis are $44 million this year, up from $16 million same time last year, mainly in manufacturing, logistics and retail.
We have seen similar growth at PeopleScout where annualized wins are $30 million this year, up from $3 million the same time last year.
New client growth is coming from a variety of industries, including retail, healthcare and transportation, which is very encouraging.
Now let's turn to our results by segment, starting with PeopleReady.
PeopleReady is our largest segment, representing 59% of trailing 12-month revenue and 69% of segment profit.
PeopleReady is the leading provider of on-demand labor and skilled trades in the North American industrial staffing market.
We service our clients via national footprint of physical branch locations, as well as our JobStack mobile app.
PeopleReady's revenue was down 13% during the quarter versus down 18% in Q4.
PeopleManagement is our second largest segment, representing 33% of trailing 12-month revenue and 22% of segment profit.
PeopleManagement provides onsite industrial staffing and commercial driving services in the North American industrial staffing market.
The essence of a typical PeopleManagement engagement is supplying an outsourced workforce that involves multi-year multi-million dollar onsite for driver relationships.
PeopleManagement revenue is reaching pre-pandemic levels, by growing 7% in the first quarter versus up 5% in Q4.
Turning to our third segment, PeopleScout represents 8% of trailing 12-month revenue and 9% of segment profit.
PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings.
Revenue was down 13% during the quarter, versus down 24% in Q4.
Now I'd like to shift gears and update you on our key strategies by segment starting with PeopleReady.
Our long-term strategy at PeopleReady is to further digitalize our business model to gain market share and improve the efficiency of our service delivery cost structure.
Most of our competitors in this segment are smaller mom and pops that don't have the scale or capital to deploy something like our JobStack mobile app.
This along with our nationwide footprint is what makes us unique.
As a reminder, we began rolling out JobStack to our associates in 2017.
And in 2018, we launched the client side of the app.
We now have digital fill rates north of 50% and more than 26,000 clients are using the app.
In Q1 2021, we sold 716,000 shifts via JobStack, representing a digital fill rate of 58%.
Our client user count ended the quarter at 26,500, up 13% versus Q1 2020.
The rise in heavy client user growth continues to be our primary focus.
Heavy client user has 50 or more touches on JobStack per month, whether it's entering an order, rating a worker, or approving time.
JobStack heavy client users continue to post better year-over-year revenue growth rates compared to the rest of the customer base.
In Q1 2021, the revenue growth differential between heavy client users and non-users was over 35 percentage points on a same customer basis.
This growth differential is largely driven by wallet share takeaways from competitors as heavy client users are telling us a major reason they are moving share to PeopleReady is due to JobStack's unique capabilities.
Our focus on heavy user growth is become more material in our overall results.
We increased our heavy client user mix from 24% of PeopleReady's business in fiscal 2020 to 31% in Q1 2021.
With the foundation of our digital strategy in place, our focus has turned to how we can better serve our existing customers and reach new clients.
Combining the strength of our geographic footprint with technology, centralized work activities and repurposed job roles will allow us to achieve this goal with greater efficiency.
At the end of the first quarter, we launched two market pilots.
Pilots use the elements I mentioned to provide an altered go-to-market approach and are intended to strengthen the local presence in the communities where we do business.
While it's still too early to report results, we are encouraged by the progress made by the team.
We'll continue to update on this front as the pilot progresses.
Turning to PeopleManagement, our strategy is to focus on execution and grow our client base.
Last year, we sharpened our vertical focus to target essential manufacturers and made investments in our sales teams to enhance productivity.
With these initiatives in flight, we have broadened the strategy to expand our geographic footprint by targeting more local and underserved markets.
We are seeing strong results, as mentioned earlier, with new win growth during the first quarter.
Finally, we are investing in customer and associate care programs in an effort to serve our client needs better and improve retention.
Turning to PeopleScout, the strategy leverages our strong brand reputation to capture opportunities in an industry poised for growth.
Before COVID struck, we along with our competitors experienced a trend toward more insourcing, with some clients bringing more recruitment functions in-house.
Many of the in-house teams have been reduced or eliminated during the pandemic and we're seeing companies move to hybrid and fully outsourced models as the economy recovers.
To capitalize on this trend, we've made investments in our sales.
We believe there is a big opportunity to increase wallet share at our existing clients and diversify the industry mix within our portfolio by adding new clients.
These efforts are already delivering results as shown by the $30 million of annualized new business wins across multiple sectors as I referenced earlier.
I'll now pass the call over to Derek, who will share greater detail around our financial results.
Total revenue for Q1 2021 was $459 million, representing a decline of 7%.
We posted net income of $7 million or $0.20 per share, compared to a net loss of $150 million in the prior year, which included a non-cash impairment charge of $152 million net of tax.
On an adjusted basis, we delivered adjusted net income of $9 million or $0.25 per share, an increase of $9 million compared to Q1 2020.
The increase in adjusted net income was driven by a decline in SG&A expense.
Adjusted EBITDA was $13 million, an increase of 189% compared to Q1 2020 and adjusted EBITDA margin was up 200 basis points.
Gross margin of 24.1% was down 140 basis points.
Our staffing businesses contributed 150 basis points of compression with 130 basis points due to a benefit in the prior year for a reduction in expected healthcare costs.
Adjusting for this, our overall gross margin was nearly flat.
There are also some other offsetting gross margin trends that I would like to point out.
In our staffing businesses, higher pay rates in relation to bill rates and sales mix provided 90 basis points of drag offset by 70 basis points of benefit from workers compensation expense, largely related to favorable development in our reserves.
PeopleScout also contributed 10 basis points of expansion.
Turning to SG&A expense.
We delivered another quarter of strong results with expense down $20 million or 17%.
Maintaining our cost discipline is important but of equal importance is doing it in a way that preserves our operational strengths to ensure the business is well positioned for growth as economic conditions continue to improve.
We are also implementing pilot projects to further reduce the cost of our PeopleReady branch network through greater use of technology, centralizing work activities and repurposing of job roles while maintaining the strength of the geographic footprint.
These pilots will occur throughout 2021.
And if successful, could lead to additional efficiencies in 2022.
Our effective income tax rate was a benefit of 2% in Q1, as a result of our job tax credits exceeding the income tax associated with our pre-tax income.
Turning to our segments.
PeopleReady saw revenue decline 13%, while segment profit was up 55% due to lower expense.
PeopleReady experienced encouraging intra-quarter revenue improvement with March down 3% compared to January down 18%.
We were also pleased to see revenue trends improve in some of our hardest hit markets.
Non-residential construction improved to a decline of 8% in March versus a decline of 24% in Q4 2020.
And hospitality improved to a decline of 9% from a decline of 49% for these same time periods.
California was our largest market pre-COVID and was one of our hardest hit geographies.
California's revenue trend improved to a decline of 4% in March versus a decline of 27% in Q4 2020.
PeopleManagement saw revenue increase 7%, which in combination with lower expense drove a $3 million increase in segment profit.
PeopleManagement also experienced encouraging intra-quarter revenue improvement with March up 15% compared to 5% in January.
Of the $44 million of annualized new business wins Patrick mentioned, $2 million was recorded in Q1 and approximately $28 million is expected over the remainder of the year.
Peoplescout saw revenue declined 30% while segment profit increased 61% as a result of lower expense.
Sequentially, revenue was up 11% compared to Q4 2020.
As Patrick noted, we are encouraged by the new business wins and the results within our hardest hit industries including travel and leisure which went from a decline of over 50% in Q4 2020 to a decline of about 25% in March.
We are also optimistic about the long-term signals we are seeing in these new win.
First, there are signs of a growing interest from clients to shift back from an in-house model to an outsource model.
Second, wins are coming from a variety of industries, including retail, healthcare, and manufacturing.
Of the $30 million of annualized new business wins Patrick mentioned, $2 million was recorded in Q1 and approximately $14 million is expected over the remainder of the year.
Now let's turn to the balance sheet and cash flows.
Our balance sheet is in excellent shape.
We finished the quarter with $88 million of cash, no outstanding debt and an unused credit facility.
While our profitability increased compared to Q1 last year, cash flow from operations was flat largely due to less benefit from working capital associated with better revenue trends this year.
In regards to the topline, the historical sequential revenue growth from the first quarter to the second quarter has averaged about 10%.
This average excludes 2020.
Turning to gross margin for the second quarter, we expect expansion of 180 basis points to 220 basis points.
Segment revenue mix and operating leverage from higher volumes at Peoplescout are expected to drive approximately 120 basis points of the improvement with the remainder coming from non-repeating workforce reduction costs incurred in Q2 2020.
We expect gross margin expansion of 40 basis points to 100 basis points for the full year.
For SG&A, we expect $108 million to $112 million for the second quarter and $446 million to $454 million for the full year.
I'd also like to remind everyone that we will anniversary most of our 2020 cost reduction actions in April of 2021.
For capital expenditures, we expect about $14 million for the second quarter and $37 million and $41 million for the year.
Included in our capital expenditure plan are build out costs for our Chicago support center, much of which will be reimbursed by our landlord.
Our outlook for fully diluted weighted average shares outstanding for the second quarter of 2021 is $35.1 million.
We expect our effective income tax rate for the full year before job tax credits to be about 26% to 30%.
And we expect the benefit from job tax credits to be $8 million to $10 million.
With the momentum of our first quarter results, a solid balance sheet, and a strong mix of operational and technology strategies, we feel we are well positioned to take advantage of growth opportunities during the recovery and beyond.
Please open the call now for question.

user
trueblue q1 earnings per share 20 cents.
q1 adjusted earnings per share $0.25.
q1 earnings per share $0.20.
q1 revenue fell 7 percent to $459 million.

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