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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 our strong revenue momentum from earlier in the year carried into the third quarter.
Third quarter revenue was $577 million, an increase of 22% compared to the third quarter of the prior year.
Growth was driven by businesses of all types turning to flexible workforce solutions as they grapple with worker supply challenges and a variety of uncertainties related to the COVID business environment.
This dynamic, combined with new client wins, helped us deliver net income of $19 million in the third quarter versus $9 million in the third quarter of the prior year.
And adjusted EBITDA was up $11 million year-over-year, with corresponding margin up 130 basis points.
Before turning to our segments, I want to provide an update on the pace of our recovery and thoughts on key topics impacting our business.
First, we are excited third quarter revenue for PeopleScout, our highest-margin business, surpassed pre-pandemic levels, up 9% versus Q3 2019.
Volume across most industries are increasing due to high employee turnover, which is leading to an acceleration in demand from existing clients and new demand from first-time RPO adopters.
Our hardest hit market, travel and leisure, was up 308% during the quarter, and new business wins were up 217% year-to-date, with annualized revenue of $38 million.
At PeopleManagement, revenue was down only 1% versus Q3 2019.
New business wins continue to be strong for this segment, which had $22 million of new wins in August, bringing the annualized total to $86 million or up 34% year-to-date.
Revenue for PeopleReady was down 16% versus Q3 2019.
PeopleReady has been negatively impacted by the workers supply shortage, which I will address momentarily, and increased COVID cases from the Delta variant, which peaked in the U.S. late in the third quarter.
However, we continue to be encouraged by the demand within PeopleReady, specifically in the solar energy space.
Renewable energy is a focal point for the Biden administration to reduce U.S. carbon emissions.
We expect solar energy to be an area of growth to support this directive.
We have serviced this industry for 15 years and have specialized teams and processes in place to capitalize on this market expansion.
Now I'd like to take a moment to touch on worker supply.
Like many companies across the U.S., we are experiencing pressure on worker supply.
The shortage is especially hitting PeopleReady due to the short notice period we received from customers to deliver contingent workers.
While fill rates have softened in recent quarters, revenue recovery has been steady as job orders have increased.
It is difficult to gauge the pace and magnitude at which supply will rebound.
Many workers supported through government stimulus were able to increase their savings, which afforded them the option to temporarily exit the labor force.
Additionally, the Delta variant has been a contributing factor to the labor shortages.
However, while still in the early days, since enhanced federal unemployment benefits ended in early September, we are seeing signs of supply returning.
For example, in PeopleReady, billable associates are up 9% in October versus the Q3 weekly average.
PeopleReady weekly revenue trends in October are encouraging as well, up 17% year-over-year versus a 14% increase year-over-year in September.
We've launched programs to retain existing associates, reengage former associates and source new candidates, including attendance bonuses and rewards to our top performers, enhanced referral programs, enhanced recruiter incentives and much more.
We are closely monitoring the situation, and we'll continue to provide updates.
Next, I want to take time to address a potential vaccine mandate.
The impact on our results could have a wide range of outcomes.
There are many uncertainties, including whether the mandate will survive court challenges, when the mandate could take effect, the definition of a qualified employee and the costs associated with testing workers.
We are actively communicating with national officials to understand the logistics behind the plan, and are well prepared to comply with the mandate if and when it takes effect.
On a smaller scale, we have already successfully implemented vaccine tracking measures as some large clients have required that only vaccinated associates can be assigned to their locations.
We will communicate more information as the mandate becomes more clear.
Also, as announced on September 22, due to Brannon Lacey leaving PeopleScout to accept a tech company CEO role, Taryn Owen's role is expanding as she has been named President and COO of PeopleScout in addition to her President, COO position at PeopleReady.
Taryn served as President of PeopleScout from 2013 to 2019 and led the organization through a period of substantial growth, global expansion and digital transformation.
Taryn's track record of success, combined with her deep knowledge in recruiting and staffing, perfectly positions her to lead both brands into the future.
Carl Schweihs will continue in his role as President and COO over the people management brands.
Now let's turn to our results by segment, starting with PeopleReady.
PeopleReady is our largest segment, representing 58% of total trailing 12-month revenue and 62% of total 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 a national footprint of physical branch locations as well as our JobStack mobile app.
Year-over-year, PeopleReady revenue was up 19% during the quarter.
PeopleManagement is our second largest segment, representing 31% of total trailing 12-month revenue and 13% of total segment profit.
PeopleManagement provides on-site industrial staffing and commercial driving services in the North American industrial staffing market.
The essence of a typical people management engagement is supplying an outsourced workforce that involves multiyear, multimillion-dollar on-site or driver relationships.
Year-over-year, PeopleManagement revenue grew by 7% in the third quarter.
Turning to our third segment.
PeopleScout represents 11% of total trailing 12-month revenue and 25% of total segment profit.
PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing services as well as offering managed service provider solutions.
PeopleScout revenue surpassed pre-pandemic levels with year-over-year growth of 108% in the third quarter.
We are very excited about the accelerated pace of recovery.
Shifting gears, I will now provide an update on our key strategies by segment, starting with PeopleReady.
Our most important strategy at PeopleReady is to further digitalize our business model, to gain market share and improve the efficiency of our service delivery cost structure.
The U.S. temporary day labor market is highly fragmented, and there are very few large players in the industrial staffing segment where PeopleReady competes, with the bulk of the market made up of smaller companies.
These smaller regional companies are typically not able to spend the type of investment required to deploy something like our JobStack mobile app.
So this, along with our nationwide footprint, is what makes us a leading provider within industrial staffing.
Our goal is to use JobStack to deliver value through differentiated associate and client experiences, leading to increased market share and operational efficiencies.
Since rolling out the application to associates in 2017, and our clients in 2018, associate adoption has grown to over 90%, and our JobStack client user count ended the quarter at 29,100, up 11% versus Q3 2020.
We continue to focus on converting clients to heavy users.
As a reminder, a heavy user has 50 or more touches on JobStack per month, whether it's entering an order, rating a worker or approving time.
Overall, heavy client users account for 56% of PeopleReady U.S. on-demand revenue compared to 31% in Q3 2020.
We've also seen continued growth in our digital fill rates, which have increased 3 times to nearly 60% with 940,000 shifts filled via the app during the quarter.
With the foundation of our digital strategy in place, we've expanded our focus on how to better serve existing clients and reach new ones more effectively.
At the end of the first quarter, we launched two market pilots that utilize centralized service centers responsible for recruiting, onboarding and local delivery.
The service centers increase our accessibility as they operate 85 hours per week versus 60 hours for a typical branch.
This enhanced go-to-market approach includes repurposed job roles with the creation of dedicated account managers, who are responsible for growing and building client relationships.
We believe we will be able to use the cost savings from reducing non-client-facing roles to offset the cost increases from adding more client-facing roles such as account managers.
This fundamental shift in how we deliver our services requires thorough training and changed management for our employees.
While it is still early, we are gathering key learnings that will improve our operating model, leading to higher digital fill rates, increased productivity and higher customer satisfaction.
We are excited with the progress of the pilots, and we'll continue to provide updates.
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 as well as warehouse and distribution clients, and made investments in our sales teams to enhance productivity.
With these initiatives implemented, we have broadened the strategy to expand our geographic footprint by targeting more local and underserved markets.
We are seeing strong results as PeopleManagement secured $22 million of new deals in August, bringing the year-to-date annualized new business wins to $86 million, up more than 40% versus the three prior year comparable average.
Additionally, we are investing in customer and associate care programs in an effort to better serve our clients' needs and improve retention.
Turning to PeopleScout, our strategy leverages our strong brand reputation to capture opportunities in an industry poised for growth.
Many companies reduced or eliminated their in-house recruiting teams during the pandemic.
And now we are seeing companies return to hybrid and fully outsourced models.
To capitalize, we made investments in our sales teams to expand wallet share at existing clients and obtain new clients.
Our efforts are delivering results with annualized new wins of $38 million so far this year, versus the three prior year comparable average of $9 million.
In addition, many of our clients were forced to reduce their employee base during the pandemic, especially within travel and leisure, our largest industry vertical.
Our ability to hire large volumes of workers quickly has us well positioned to help our clients restaff quickly.
This has led to a rapid recovery in the third quarter, where revenue exceeded pre-pandemic levels by 9%.
I'll now pass the call over to Derrek, who will share greater detail around our financial results.
Total revenue for Q3 2021 was $577 million, representing growth of 22%, driven by new business wins and higher existing client volumes.
We posted net income of $19 million or $0.53 per share, an increase of $10 million compared to net income of $9 million in the prior year.
Revenue growth and gross margin expansion contributed to the net income growth.
Adjusted net income was $21 million or an increase of $13 million, which is greater than the increase in GAAP net income, primarily due to $4 million of government subsidies in Q3 2020 that were excluded from adjusted net income.
We delivered adjusted EBITDA of $29 million, an increase of $11 million and adjusted EBITDA margin was up 130 basis points, again driven by revenue growth and gross margin expansion.
Gross margin of 25.4% was up 210 basis points.
Our staffing segments contributed 110 basis points of margin expansion comprised of 70 basis points from lower workers' compensation costs primarily due to favorable development of prior period reserves, and the remaining 40 basis points largely due to increased sales mix from our PeopleReady segment, which has a higher gross margin profile than PeopleManagement.
PeopleScout contributed 100 basis points of expansion driven by operating leverage from higher volumes.
SG&A expense increased 32%, which was higher than our revenue growth of 22% due to the severity of the cost actions taken in Q3 last year.
In Q3 2020, our cost management actions produced a decline in SG&A of 31%, which outpaced the revenue decline of 25% for that quarter.
Q3 2020 also benefited from $4 million in government subsidies, which were excluded from our adjusted net income and adjusted EBITDA calculations.
We are running the company more efficiently today than we did prior to the COVID pandemic based on numerous changes in how we operate and leverage technology.
Compared to Q3 2019, SG&A as a percentage of revenue in Q3 2021 was 20 basis points lower despite having $60 million less revenue.
Our effective income tax rate was 15% in Q3.
Turning to our segments.
PeopleReady revenue increased 19%, while segment profit increased 32% with margin of 70 basis points.
Strong recovery continued across most geographies and industries with the hospitality and service industries, both above Q3 2019 levels.
Construction grew sequentially but was down versus prior year, as projects have been delayed due to building material shortages.
Segment profit margin benefited from lower workers' compensation costs.
We're encouraged by our trends as we enter the fourth quarter.
PeopleReady revenue was up 17% during the first three weeks of October versus growth of 14% in September.
We also saw some improvement in worker supply.
PeopleManagement revenue increased 7%, while segment profit decreased 48% with 160 basis points of margin contraction.
During the quarter, supply chain challenges slowed the pace of recovery but are being offset by new business wins.
PeopleManagement had $86 million of annualized new business wins through September, with $9 million of new business revenue recorded this quarter and approximately $30 million expected for the full year.
The decline in segment profit margin is partially due to the severity of employee-related cost reductions last year, such as cuts in pay and 401(k) match as well as additional recruiting costs to stay ahead of the holiday surge given the tight labor market.
Upfront costs associated with new business wins and a drop in same customer revenue associated with supply chain challenges are also impacting profitability.
PeopleScout revenue increased 108% with segment profit up $9 million and nearly 1,300 basis points of margin expansion.
Revenue benefited from strong recovery in our hardest hit industries, including travel and leisure, which grew over 300%.
New business wins also contributed to revenue growth as PeopleScout delivered $38 million of annualized new wins through September this year versus $9 million in the prior three-year comparable average.
New wins generated $5 million of revenue in Q3 with $28 million expected for the full year.
Operating leverage and increased recruiting staff utilization contributed to the higher year-over-year segment margin.
Now let's turn to the balance sheet and cash flows.
Our balance sheet is in excellent shape.
We finished the quarter with $49 million in cash and no outstanding debt.
While our profitability increased compared to Q3 last year, cash flow from operations decreased largely due to a $60 million payment in Q3 this year for 2020 employer payroll taxes that were allowed to be deferred as part of the CARES Act.
We also had higher levels of working capital associated with our revenue growth, and an increase in days sales outstanding since the beginning of the year, which was a multiyear level.
Compared to Q3 last year, days sales outstanding was down two days.
We like where our business sits today.
Our services are in high demand as businesses increasingly look for solutions to deal with tight labor pools as well as a variety of uncertainties, including COVID and supply chain challenges.
Likewise, our technology strategies are making us increasingly relevant in today's business environment, and along with changes in how we operate the business, more efficient in delivering our services.

user
compname reports q3 earnings per share of $0.53.
q3 earnings per share $0.53.
q3 revenue rose 22 percent to $577 million.

assistant