Volt Information Sciences, Inc. (VOLT) is a global provider of staffing services, focused on delivering workforce solutions to meet the evolving needs of its customers. With a rich history spanning over 70 years, Volt has established itself as a trusted partner, renowned for its expertise in contingent workforce management, personnel recruitment, and managed service programs (MSP).

Business Overview and History

Volt was founded in 1950 as a technical staffing and consulting services firm, initially providing temporary personnel services to businesses in the New York metropolitan area. Over the decades, the company has undergone a remarkable transformation, evolving from its humble beginnings to become a diversified workforce solutions provider. During the 1980s and 1990s, Volt faced challenges as it navigated economic downturns and increased competition in the staffing industry. The company responded by restructuring operations, improving efficiency, and investing in new technologies to better serve its clients.

A key milestone for Volt came in 2001 when the company launched its managed service program (MSP) business. This service allowed Volt to take on the management of clients' contingent workforce programs, providing a comprehensive solution for sourcing, qualifying, and managing temporary labor. The MSP offering became an important part of Volt's business mix going forward.

In the late 2000s and early 2010s, Volt weathered the global financial crisis, which significantly impacted the staffing industry. The company responded by further optimizing its operations, tightening cost controls, and diversifying its customer base. Volt also continued to invest in its technology platforms to improve efficiency and better serve clients in this challenging environment.

Today, Volt operates in approximately 65 locations globally, with an on-site presence in over 60 customer locations. The company's staffing services and MSP solutions cater to a wide range of industries, including administrative, light industrial, technical, IT, and engineering sectors. Approximately 88% of Volt's revenue is generated in the United States, with the remaining 12% coming from international markets, primarily in Europe, Asia Pacific, and Canada.

Financials

Financial Performance and Ratios

Volt's financial performance has been marked by a focus on operational efficiency and strategic investments. As of the latest reporting period, the company's current ratio stood at 1.87, indicating a healthy current liquidity position. The quick ratio, a more stringent measure of liquidity, was also a robust 1.87, further demonstrating Volt's ability to meet its short-term obligations.

Gross Profit Margin

The company's gross profit margin has shown improvement, increasing to 15.5% in the first quarter of fiscal 2022 from 15.0% in the same period of the prior year. This increase was primarily driven by the North American Staffing and International Staffing segments, partially offset by a decrease in the North American MSP segment. This suggests that Volt has been able to effectively manage its cost of services, maintaining a balanced and profitable business model. However, the company's operating profit margin has faced some challenges, hovering around 0.5% in recent quarters, highlighting the need for continued cost optimization and operational improvements.

Debt and Interest Coverage

Volt's debt-to-equity ratio is relatively high at 3.20, indicating a heavier reliance on debt financing compared to equity. This capital structure may expose the company to increased interest rate risk and potential liquidity constraints if not managed prudently. The company's interest coverage ratio of 2.54 suggests that it is currently able to service its debt obligations, but this metric bears close monitoring going forward.

Revenue and Segment Performance

In the first quarter of fiscal 2022, Volt reported total revenue of $226.93 million, representing a 4.1% increase compared to the same quarter last year. The company operates in three primary reportable segments:

1. North American Staffing: This is Volt's largest business, generating $191.20 million in revenue during the first quarter of fiscal 2022, an increase of 3.8% compared to the same period in the prior year. The revenue increase was attributable to new business wins with retail and mid-market clients, as well as expansion of business with existing clients and improvements in direct hire revenue.

2. International Staffing: This segment generated $26.02 million in revenue during the first quarter of fiscal 2022, an increase of 8.3% compared to the same period in the prior year. Excluding the negative impact of foreign exchange rate fluctuations of $0.80 million, revenue increased 12.3%. The revenue increase was primarily due to increased direct hire revenue in the United Kingdom and Singapore, as well as increases in other staffing business in France, Belgium and the United Kingdom.

3. North American Managed Service Programs (MSP): This segment generated $9.71 million in revenue during the first quarter of fiscal 2022, remaining relatively consistent with the first quarter of the prior fiscal year. The slight improvement was primarily attributable to increased demand in the segment's payroll service business, partially offset by a decline in its managed service business.

Profitability and Expenses

Despite the revenue growth, Volt reported a net loss of $1.22 million for the most recent quarter. Selling, administrative and other operating costs increased 3.6% to $35.00 million but decreased as a percentage of revenue to 15.4% from 15.5% in the prior year period. Restructuring and severance costs remained consistent at $0.59 million in the first quarter of both fiscal 2022 and 2021.

Liquidity

Liquidity and Cash Flows

Volt's liquidity position is supported by its operating cash flows, which have been positive in recent years, although the amounts have fluctuated. The company's free cash flow generation has also been solid, with a free cash flow margin of around 2.3% in the latest quarter. This cash flow generation has enabled Volt to fund its capital expenditures and maintain a reasonable level of financial flexibility.

At January 30, 2022, the company had $54.86 million in cash and cash equivalents and $2.70 million in borrowing availability under its $100 million DZ Financing Program. This liquidity position provides Volt with a buffer to manage its operations and invest in growth opportunities.

The company's accounts receivable turnover ratio stands at 6.96, indicating that it collects its receivables relatively quickly, which is crucial in the staffing industry where timely collections are essential. Volt's payables turnover ratio of 20.30 suggests that the company is managing its supplier relationships effectively, maintaining a balance between optimizing working capital and ensuring positive vendor relationships.

Risks and Challenges

While Volt's business model has proven resilient, the company faces several risks and challenges that warrant close attention. The staffing industry is highly competitive, with Volt competing against both large, multinational firms and smaller, specialized providers. Maintaining a competitive edge through innovative service offerings, superior customer service, and effective cost management will be crucial.

The company's heavy reliance on debt financing also presents a risk, as rising interest rates or any deterioration in its financial performance could strain its ability to service its debt obligations. Volt must continue to carefully manage its capital structure and liquidity to mitigate this risk.

Another key challenge for Volt is the cyclical nature of the staffing industry, which is heavily influenced by macroeconomic conditions. Navigating periods of economic uncertainty and fluctuations in client demand will require the company to maintain a nimble and responsive operational strategy.

Furthermore, the ongoing shift towards digitalization and automation in the workforce presents both opportunities and risks for Volt. The company must stay at the forefront of technological advancements, investing in digital capabilities and automation tools to enhance its service offerings and operational efficiency.

Guidance and Outlook

In its latest guidance, Volt has expressed cautious optimism about its near-term prospects, citing the continued recovery in economic and employment trends. The company expects revenue growth in the range of 5-8% for the upcoming fiscal year, driven by a combination of new client wins, expansion of existing client relationships, and improved direct hire placement activity.

However, Volt has also acknowledged the potential headwinds posed by persistent inflationary pressures, supply chain disruptions, and lingering effects of the COVID-19 pandemic. The company has indicated that it will remain vigilant in managing its cost structure and working capital to maintain profitability and cash flow generation.

Conclusion

Volt Information Sciences has a rich history of adapting to the evolving needs of the workforce solutions industry. As the global economy navigates the ongoing shifts towards electrification, digitalization, and automation, Volt is well-positioned to leverage its expertise and breadth of services to capitalize on these transformative trends. By maintaining a focus on operational efficiency, strategic investments, and prudent financial management, Volt is poised to continue powering the future of the workforce solutions industry. The company's ability to grow revenue across its key segments, particularly in North American Staffing and International Staffing, demonstrates its resilience and adaptability in a challenging market environment. However, Volt must continue to address its profitability challenges and manage its debt levels to ensure long-term sustainability and growth.