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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 second quarter.
Second quarter revenue was $516 million, an increase of 44% compared to the second quarter of the prior year.
Growth was driven by both new client wins and higher existing client volumes as we capitalize on strong demand in the markets and industries we serve.
We delivered net income of $16 million in the second quarter versus a loss of $8 million in the second quarter of the prior year, and adjusted EBITDA was up $30 million year-over-year with the related margin up 640 basis points.
Before turning to our segment results, I want to highlight three performance areas as they relate to our second quarter results and some thoughts regarding worker supply going forward.
First, we are excited our PeopleManagement and PeopleScout segments have nearly recovered to their pre-pandemic revenue for the second quarter.
At PeopleManagement revenue is down just 1% versus Q2 2019 supported by a doubling of new client wins through June versus this time last year.
Revenue for PeopleScout was down only 2% versus Q2 2019 as the travel and leisure segment rebounded strongly growing over 200% during the quarter.
Revenue for PeopleReady was down 19% versus Q2 2019.
PeopleReady has not rebounded as quickly as the other segments.
The worker supply shortage hits this segment harder due to the short notice period we receive from customers to deliver contingent workers.
In addition, the federal unemployment benefits provide more compensation than typical low-wage, on-demand jobs.
We are seeing both dynamics in certain industries, such as commercial construction, which is 12% of our mix and has only recovered 60% of Q2 2019 revenue.
Secondly, segment profit margins are improving across all segments.
In our staffing segments, favorable workers' compensation trends, combined with improving bill/pay rate spreads were the primary drivers of the margin expansion.
In PeopleScout, higher volumes and utilization of our recruiting staff are leading to improved operating leverage.
Now, I'd like to take a moment to touch on worker supply.
Like many companies across the United States, we are experiencing some pressure on worker supply at PeopleReady and PeopleManagement.
To proactively address the situation, both segments have launched programs to retain existing associates, reengage former associates and source new candidates.
For our current associates, we started to provide attendance bonuses and rewards to our top performers.
To reengage, we launched a campaign in states eliminating the federal unemployment programs targeting those who have not worked over the last 18 months.
Finally, we are running a JobStack referral program to attract new workers.
For our full-time employees, we are providing incentives to our recruiting team for putting people to work.
We expect worker supply to gradually improve during the third quarter as broader federal unemployment program ends for all states and schools reopen.
However, we are monitoring the impact of the latest stimulus payments that started on July 15th, focused on providing support for families with children, which could prolong the challenges.
Now let's turn to our results by segment, starting with PeopleReady.
PeopleReady is our largest segment representing 58% of trailing 12 month revenue and 64% 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 a national footprint of physical branch locations as well as our JobStack mobile app.
PeopleReady revenue was up 43% during the quarter versus down 13% in Q1.
PeopleManagement is our second largest segment representing 32% of trailing 12 month revenue and 16% 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 multiyear, multimillion-dollar onsite or driver relationships.
PeopleManagement revenue is reaching pre-pandemic levels with year-over-year growth of 28% in the second quarter versus growth of 7% in Q1.
Turning to our third segment, PeopleScout represents 10% of trailing 12-month revenue and 20% of segment profit.
PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings.
PeopleScout revenue is also nearing pre-pandemic levels with year-over-year growth of 106% in the second quarter versus a decline of 13% in Q1.
We are very excited about the accelerated pace of their recovery.
Now I'd like to shift gears and update you 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.
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.
So this, along with our nationwide footprint, is what makes us a leading provider within industrial staffing.
Since rolling out JobStack to our associates in 2017 and our clients in 2018, digital fill rates have increased 3 times to nearly 60% with 788,000 shifts filled via the app during the quarter.
Our JobStack client user count ended the quarter at 27,100, up 12% versus Q2 2020.
Driving heavy client user growth continues to be a key focus.
A 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, with the Q2 2021 growth differential exceeding 40 percentage points on a same customer basis.
This growth differential is largely driven by wallet share takeaways from competitors as heavy client users tell us a major reason they are moving share to PeopleReady is due to JobStack's unique capabilities.
Heavy client users are becoming more material in our overall results as they now account for 46% of PeopleReady US on-demand revenue compared to 30% in Q2 2020.
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.
Combining the strength of our geographic footprint, JobStack technology, and repurposed job roles, PeopleReady is well-positioned to more effectively and efficiently serve clients.
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 more than 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 change 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'll continue to provide updates as the pilots progress.
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 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 $63 million of annualized new business wins so far this year compared to $32 million this time last year.
Finally, we are investing in customer and associate care programs in an effort to better serve our clients' needs 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 in-sourcing, with some clients bringing more recruitment functions in-house.
Many of the in-house teams were reduced or eliminated during the pandemic, and we are seeing companies return to hybrid and fully outsourced models.
To capitalize, we have made investments in our sales team.
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 $33 million of annualized new wins secured by PeopleScout so far this year versus $9 million this time last year.
I'll now pass the call over to Derrek who will share greater detail around our financial results.
Total revenue for Q2 2021 was $516 million, representing growth of 44%, driven by new business wins and higher existing client volumes.
We posted net income of $16 million, or $0.45 per share, an increase of $24 million compared to a net loss of $8 million in the prior year.
Revenue growth, gross margin expansion, cost management and operating leverage contributed to the net income growth.
Adjusted net income was $16 million, or an increase of $21 million, which is less than the increase in GAAP net income, primarily due to $11 million of workforce reduction charges in Q2 2020 that are excluded from adjusted net income.
We delivered adjusted EBITDA of $25 million, an increase of $30 million, and adjusted EBITDA margin was up 640 basis points driven by the same items previously mentioned for net income.
Gross margin of 26.4% was up 320 basis points.
Our staffing segments contributed 70 basis points of margin expansion aided by lower workers' compensation costs due to favorable development of prior year reserves.
Gross margin also benefited from bill rate inflation that exceeded pay rate inflation but was offset by increased sales mix from our energy and industrial business which has a lower gross margin due to the pass-through of transportation and per diem costs.
PeopleScout contributed 250 basis points of expansion with 170 basis points associated with operating leverage from higher volumes.
The remaining 80 basis points was due to non-repeating workforce reduction costs incurred in Q2 2020, which are excluded from our adjusted net income and adjusted EBITDA calculations.
Turning to SG&A expense, we delivered another quarter of favorable results.
SG&A was up 14% but as a percentage of revenue was down 570 basis points.
Excluding the workforce reduction charge in Q2 last year, SG&A was up 24%, which was roughly half the rate of revenue growth, and was down 340 basis points as a percentage of revenue.
We continue to balance cost discipline with preserving our operational strengths to ensure we are well-positioned for continued growth.
We are also piloting opportunities to further reduce the costs of our PeopleReady branch network through greater use of technology, centralizing work activities and repurposing job roles, while maintaining the strength of our geographic footprint.
These pilots will occur throughout 2021, and if successful, could lead to additional efficiencies in 2022.
Our effective income tax rate was 19% in Q2.
Turning to our segments, PeopleReady revenue increased 43% with segment profit margin up 590 basis points.
Trends improved across most geographies and industries.
Year-over-year revenue in our three largest verticals, construction, transportation and manufacturing, improved by over 30 percentage points versus Q1 results.
California, our hardest hit geography and largest market was up 66% versus a decline of 18% in Q1, and hospitality, our hardest hit vertical doubled in Q2 versus a decline of 34% in Q1.
Segment profit margin benefited from lower workers' compensation costs and higher bill rates compared to pay rates, which were partially offset by higher sales mix from our energy and industrial business.
Segment margin also benefited from cost management and operating leverage.
PeopleManagement revenue increased 28%, while segment profit increased 79% with 60 basis points of margin improvement driven by operating leverage.
PeopleManagement had $63 million of annualized new business wins through June, primarily in the retail and transportation industries, with $7 million of new business revenue recorded this quarter and $26 million expected over the remainder of the year.
PeopleScout revenue increased 106% after being down 13% in Q1, with segment profit of $11 million yielding a 16.9% margin versus a loss of $3 million in Q2 last year.
Revenue benefited from strong recovery in our hardest-hit industries, including travel and leisure, which grew 200%.
New business wins also contributed to revenue growth as PeopleScout delivered $33 million of annualized new wins through June this year versus $9 million in the comparable prior year period.
New wins generated $4 million of revenue in Q2 with $20 million expected over the remainder of the year, coming from a variety of industries, including retail, healthcare and transportation.
Segment margin expansion was the result of cost management, operating leverage and increased utilization of recruiting staff.
Now let's turn to the balance sheet and cash flows.
Our balance sheet is in excellent shape.
We finished the quarter with $105 million in cash, no outstanding debt, and an unused credit facility.
While our profitability increased compared to Q2 last year, cash flow from operations decreased largely due to higher levels of working capital associated with our revenue growth and an increase in days sales outstanding largely associated with increased sales mix at PeopleScout, which carries a higher days sales outstanding in comparison with the blended average.
Our cash balance will drop in Q3 due to a repayment of $60 million in government payroll taxes that the government allowed businesses to defer last year and about $35 million of additional working capital from sequential revenue growth associated with the seasonal nature of our business and year-over-year revenue growth.
Looking forward, we are excited about the possibility of achieving a higher EBITDA margin in this economic cycle versus the last cycle.
Our technology strategies provide us with an opportunity to differentiate our services, capture more market share and take advantage of the operating leverage associated with our business model while also creating a more scalable cost structure.

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compname reports q2 earnings per share of $0.45.
q2 earnings per share $0.45.
q2 revenue $516 million versus refinitiv ibes estimate of $508.3 million.

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