UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended April 28, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from          to          .
 
Commission File Number: 001-09232  
 
VOLT INFORMATION SCIENCES, INC.
(Exact name of registrant as specified in its charter)
New York
13-5658129
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
50 Charles Lindbergh Boulevard, Uniondale, New York
11553
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
(516) 228-6700

 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.10
VISI
NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   x  Yes     ¨   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x   Yes   ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company x
Emerging growth company  ¨
 
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ¨    No x

As of May 31, 2019, there were 21,211,828 shares of common stock outstanding.

 



PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
 
Three Months Ended
 
Six Months Ended
April 28, 2019
 
April 29, 2018
 
April 28, 2019
 
April 29, 2018
 
 
NET REVENUE
$
252,070

 
$
263,219

 
$
505,506

 
$
516,557

Cost of services
215,813

 
225,918

 
431,550

 
443,247

GROSS MARGIN
36,257

 
37,301

 
73,956

 
73,310

 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
Selling, administrative and other operating costs
38,939

 
42,916

 
78,749

 
89,854

Restructuring and severance costs
724

 
104

 
783

 
622

Impairment charge
347

 
155

 
347

 
155

OPERATING LOSS
(3,753
)

(5,874
)
 
(5,923
)
 
(17,321
)
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
Interest income (expense), net
(699
)
 
(631
)
 
(1,445
)
 
(1,413
)
Foreign exchange gain (loss), net
(314
)
 
(497
)
 
(101
)
 
206

Other income (expense), net
(166
)
 
(55
)
 
(405
)
 
(583
)
TOTAL OTHER INCOME (EXPENSE), NET
(1,179
)
 
(1,183
)
 
(1,951
)
 
(1,790
)
 
 
 
 
 
 
 
 
LOSS BEFORE INCOME TAXES
(4,932
)
 
(7,057
)
 
(7,874
)
 
(19,111
)
Income tax provision (benefit)
233

 
630

 
506

 
(730
)
NET LOSS
$
(5,165
)
 
$
(7,687
)
 
$
(8,380
)
 
$
(18,381
)
 
 
 
 
 
 
 
 
PER SHARE DATA:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net loss
$
(0.24
)
 
$
(0.37
)
 
$
(0.40
)
 
$
(0.87
)
Weighted average number of shares
21,082

 
21,032

 
21,081

 
21,030

Diluted:
 
 
 
 
 
 
 
Net loss
$
(0.24
)
 
$
(0.37
)
 
$
(0.40
)
 
$
(0.87
)
Weighted average number of shares
21,082

 
21,032

 
21,081

 
21,030

See accompanying Notes to Condensed Consolidated Financial Statements.

1



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(unaudited)
 
Three Months Ended
 
Six Months Ended
April 28, 2019
 
April 29, 2018
 
April 28, 2019
 
April 29, 2018
 
 
NET LOSS
$
(5,165
)
 
$
(7,687
)
 
$
(8,380
)
 
$
(18,381
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments net of taxes of $0 and $0, respectively
(179
)
 
(947
)
 
(21
)
 
457

COMPREHENSIVE LOSS
$
(5,344
)
 
$
(8,634
)
 
$
(8,401
)
 
$
(17,924
)
See accompanying Notes to Condensed Consolidated Financial Statements.

 

2



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
 
April 28, 2019
 
October 28, 2018
 
(unaudited)
 
 
ASSETS
 
 
 
          CURRENT ASSETS:
 
 
 
                   Cash and cash equivalents
$
39,689

 
$
24,763

                   Restricted cash and short-term investments
9,925

 
14,844

                   Trade accounts receivable, net of allowances of $104 and $759, respectively
139,213

 
157,445

   Other current assets
5,659

 
7,444

          TOTAL CURRENT ASSETS
194,486

 
204,496

          Other assets, excluding current portion
7,779

 
7,808

          Property, equipment and software, net
24,880

 
24,392

TOTAL ASSETS
$
227,145

 
$
236,696

LIABILITIES AND STOCKHOLDERS EQUITY

 

          CURRENT LIABILITIES:

 

                   Accrued compensation
$
23,403

 
$
27,120

                   Accounts payable
26,183

 
33,498

                   Accrued taxes other than income taxes
18,316

 
15,275

                   Accrued insurance and other
28,217

 
23,335

                   Income taxes payable
1,404

 
1,097

          TOTAL CURRENT LIABILITIES
97,523

 
100,325

          Accrued insurance and other, excluding current portion
10,816

 
13,478

          Deferred gain on sale of real estate, excluding current portion
21,244

 
22,216

          Income taxes payable, excluding current portion
608

 
600

          Deferred income taxes
509

 
510

          Long-term debt, excluding current portion, net
54,169

 
49,068

TOTAL LIABILITIES
184,869

 
186,197

Commitments and contingencies

 



 

STOCKHOLDERS EQUITY:

 

          Preferred stock, par value $1.00; Authorized - 500,000 shares; Issued - none

 

Common stock, par value $0.10; Authorized - 120,000,000 shares; Issued - 23,738,003 shares; Outstanding - 21,211,828 shares and 21,179,068 shares, respectively
2,374

 
2,374

          Paid-in capital
77,931

 
79,057

         (Accumulated deficit) retained earnings
(656
)
 
9,738

          Accumulated other comprehensive loss
(7,091
)
 
(7,070
)
          Treasury stock, at cost; 2,526,175 and 2,558,935 shares, respectively
(30,282
)
 
(33,600
)
TOTAL STOCKHOLDERS EQUITY
42,276

 
50,499

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
$
227,145

 
$
236,696

See accompanying Notes to Condensed Consolidated Financial Statements.

3




VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except number of share data)
(unaudited)

 
Six Months Ended April 28, 2019
 
Common Stock
$0.10 Par Value
 
Paid-in
Capital
 
(Accumulated Deficit) Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Total
Stockholders’ 
Equity
 
Shares
 
Amount
 
 
 
 
 
BALANCE AT OCTOBER 28, 2018
23,738,003

 
$
2,374

 
$
79,057

 
$
9,738

 
$
(7,070
)
 
$
(33,600
)
 
$
50,499

Net loss

 

 

 
(3,215
)
 

 

 
(3,215
)
Share-based compensation

 

 
(113
)
 

 

 

 
(113
)
Issuance of common stock

 

 
(35
)
 
(206
)
 

 
241

 

Effect of new accounting principle

 

 

 
426

 

 

 
426

Other comprehensive income

 

 

 

 
158

 

 
158

BALANCE AT JANUARY 27, 2019
23,738,003

 
$
2,374

 
$
78,909

 
$
6,743

 
$
(6,912
)
 
$
(33,359
)
 
$
47,755

Net loss

 

 

 
(5,165
)
 

 

 
(5,165
)
Share-based compensation

 

 
(95
)
 

 

 

 
(95
)
Issuance of common stock

 

 
(883
)
 
(2,234
)
 

 
3,077

 
(40
)
Other comprehensive loss

 

 

 

 
(179
)
 

 
(179
)
BALANCE AT APRIL 28, 2019
23,738,003

 
$
2,374

 
$
77,931

 
$
(656
)
 
$
(7,091
)
 
$
(30,282
)
 
$
42,276


 
Six Months Ended April 29, 2018
 
Common Stock
$0.10 Par Value
 
Paid-in
Capital
 
(Accumulated Deficit) Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Total
Stockholders’ 
Equity
 
Shares
 
Amount
 
 
 
 
 
BALANCE AT OCTOBER 29, 2017
23,738,003

 
$
2,374

 
$
78,645

 
$
45,843

 
$
(5,261
)
 
$
(37,607
)
 
$
83,994

Net loss

 

 

 
(10,694
)
 

 

 
(10,694
)
Share-based compensation

 

 
435

 

 

 

 
435

Issuance of common stock

 

 
(10
)
 
(40
)
 

 
50

 

Other comprehensive income

 

 

 

 
1,404

 

 
1,404

BALANCE AT JANUARY 28, 2018
23,738,003

 
$
2,374

 
$
79,070

 
$
35,109

 
$
(3,857
)
 
$
(37,557
)
 
$
75,139

Net loss

 

 

 
(7,687
)
 

 

 
(7,687
)
Share-based compensation

 

 
557

 

 

 

 
557

Issuance of common stock

 

 
(80
)
 
(119
)
 

 
139

 
(60
)
Other comprehensive loss

 

 

 

 
(947
)
 

 
(947
)
BALANCE AT APRIL 29, 2018
23,738,003


$
2,374


$
79,547


$
27,303


$
(4,804
)

$
(37,418
)

$
67,002


See accompanying Notes to Condensed Consolidated Financial Statements.


4



VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
Six Months Ended
 
April 28, 2019
 
April 29, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(8,380
)
 
$
(18,381
)
Adjustment to reconcile net loss to cash provided by operating activities:

 

Depreciation and amortization
3,358

 
3,726

Release of doubtful accounts and sales allowances
(281
)
 
(220
)
Unrealized foreign currency exchange (gain) loss
(109
)
 
386

Impairment charges
347

 
155

Amortization of gain on sale leaseback of property
(972
)
 
(972
)
Loss (gain) on dispositions of property, equipment and software
6

 

Share-based compensation
(208
)
 
992

Change in operating assets and liabilities:


 


Trade accounts receivable
19,316

 
7,855

Other assets
1,323

 
4,980

Accounts payable
(7,310
)
 
3,227

Accrued expenses and other liabilities
1,978

 
(2,159
)
Income taxes
390

 
889

Net cash provided by operating activities
9,458

 
478

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Sales of investments
97

 
460

Purchases of investments
(118
)
 
(297
)
Proceeds from sale of property, equipment, and software

 
1

Purchases of property, equipment, and software
(4,058
)
 
(1,298
)
Net cash used in investing activities
(4,079
)
 
(1,134
)
CASH FLOWS FROM FINANCING ACTIVITIES:

 

Repayment of borrowings
(15,000
)
 
(109,696
)
Draw-down on borrowings
20,000

 
109,696

Debt issuance costs
(177
)
 
(1,411
)
Withholding tax payment on vesting of restricted stock awards
(40
)
 
(60
)
Net cash provided by (used in) financing activities
4,783

 
(1,471
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(249
)
 
(571
)
Net increase (decrease) in cash, cash equivalents and restricted cash
9,913

 
(2,698
)
Cash, cash equivalents and restricted cash, beginning of period
36,544

 
54,097

Cash, cash equivalents and restricted cash, end of period
$
46,457

 
$
51,399

 
 
 
 
Cash paid during the period:

 
 
Interest
$
1,560

 
$
1,482

Income taxes
$
216

 
$
1,132

 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
39,689

 
$
34,177

Restricted cash included in Restricted cash and short-term investments
6,768

 
17,222

Cash, cash equivalents and restricted cash, end of period
$
46,457

 
$
51,399

See accompanying Notes to Condensed Consolidated Financial Statements.

5




VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Fiscal Periods Ended April 28, 2019 and April 29, 2018
(Unaudited)

NOTE 1: Basis of Presentation

Basis of Presentation
The accompanying interim condensed consolidated financial statements of Volt Information Sciences, Inc. (“Volt” or the “Company”) have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Annual Report on Form 10-K for the year ended October 28, 2018. The Company makes estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates and changes in estimates are reflected in the period in which they become known. Accounting for certain expenses, including income taxes, is based on full year assumptions, and the financial statements reflect all normal adjustments that, in the opinion of management, are necessary for fair presentation of the interim periods presented. The interim information is unaudited and is prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), which provides for omission of certain information and footnote disclosures. This interim financial information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended October 28, 2018.
Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation.

NOTE 2: Recently Issued Accounting Pronouncements

New Accounting Standards Not Yet Adopted by the Company

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of Accounting Standards Codification (“ASC”) 820. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. ASU 2018-13 is effective for the Company in the first quarter of fiscal 2021. The Company does not anticipate a significant impact upon adoption.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in Topic 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, which for the Company will be the first quarter of fiscal 2020. The Company does not anticipate a significant impact upon adoption.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. In April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, was issued to clarify and address certain items related to the amendments in ASU 2016-13. The amendments are effective for fiscal years beginning after December 15, 2019, which for the Company will be the first quarter of fiscal 2021. Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not anticipate a significant impact on its consolidated financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The amendments are effective for fiscal years beginning after December 15, 2018, which for the Company will be the first quarter of fiscal 2020. The Company has preliminarily evaluated the impact of the pending adoption of ASU 2016-02 on its consolidated financial statements on a modified retrospective basis, and currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption, which will increase the Company’s total assets and total liabilities that the Company reports relative to such amounts prior to adoption. In addition, the Company’s deferred gain on real estate will be recognized as a cumulative-effect adjustment to equity upon adoption.

6



Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures.

Recently Adopted by the Company

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption of the amendments is permitted including adoption in any interim period. The amendments in ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company early adopted this standard on a prospective basis in the second quarter of fiscal 2019. Adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted this ASU in the first quarter of fiscal 2019, resulting in no significant impact on the Company’s consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Non-financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets. This ASU clarifies the scope and application of Subtopic 610-20 on the sale or transfer of non-financial assets and in substance non-financial assets to non-customers, including partial sales. The Company adopted this ASU in the first quarter of fiscal 2019, resulting in no significant impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows and requires the entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted this ASU retrospectively in the first quarter of fiscal 2019, resulting in no significant impact on the Company’s consolidated financial statements besides a change in the presentation of restricted cash on the Consolidated Statements of Cash Flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments: A Consensus of the FASB Emerging Issues Task Force. The amendments provide guidance on eight specific cash flow classification issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, corporate and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The Company adopted this ASU in the first quarter of fiscal 2019, resulting in no significant impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The FASB issued subsequent amendments to improve and clarify the implementation guidance of Topic 606. This standard was adopted by the Company in the first quarter of fiscal 2019. Please refer to Note 3. Revenue Recognition for additional disclosures.
All other ASUs that became effective for Volt in the first half of fiscal 2019 were not applicable to the Company at this time and therefore did not have any impact during the period.  

NOTE 3: Revenue Recognition

Adoption of ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”)

As of October 29, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of October 29, 2018. Results for reporting periods beginning on October 29, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting guidance.


7



The cumulative impact of adopting ASC 606 resulted in an increase of $0.4 million to opening retained earnings. The impact is primarily driven by an adjustment to deferred revenue due to a change in the required criteria for defining customer contracts under the new guidance. As of and for the three and six months ended April 28, 2019, the consolidated financial statements were not materially impacted by the implementation of ASC 606.

Revenue Recognition

All of the Company’s revenue and trade receivables are generated from contracts with customers. Revenue is recognized when control of the promised services is transferred to the Company's customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company's revenue is recorded net of any sales or other similar taxes collected from its customers.

A performance obligation is a promise in a contract to transfer a distinct service to the customer. The majority of the Company's contracts contain single performance obligations. For performance obligations that the Company satisfies over time, revenue is recognized by consistently applying a method of measuring progress toward satisfaction of that performance obligation. The Company will generally utilize an input measure of time (e.g., hours, weeks, months) of service provided, which depicts the progress toward completion of each performance obligation.

Volt generally determines the standalone selling prices based on the prices included in the customer contracts. The price as specified in its customer contracts is typically considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar customer. Certain customer contracts have variable consideration, including rebates, guarantees, credits, or other similar items that reduce the transaction price. The Company will generally estimate the variable consideration using the expected value method to predict the amount of consideration to which it will become entitled, based on the circumstances of each customer contract and historical evidence. Revenue is recognized net of variable consideration to the extent that it is probable that a significant future reversal will not occur. The Company's estimated amounts of variable consideration are not material and it does not believe that there will be significant changes to its estimates.

In certain scenarios where a third-party vendor is involved in the Company's revenue transactions with its customers, the Company will evaluate whether it is the principal or the agent in the transaction. When Volt acts as the principal, it controls the performance obligation prior to transfer of the service to the customer and reports the related consideration as gross revenues and the costs as cost of services. When Volt acts as an agent, it does not control the performance obligation prior to transfer of the service to the customer and it reports the related amounts as revenue on a net basis. The Company generally demonstrates control over the service when it is responsible for the fulfillment of services under the contract, responsible for the workers performing the service and when it has latitude in establishing pricing. Volt generally acts as an agent in its transactions within its MSP programs where the Company provides comprehensive management of its customer’s contingent workforce and receive fees based on the volume of services managed within each program. The Company is the agent in these transactions since it does not have the responsibility for the fulfillment of the services by the vendors or contractors (referred to as associate vendors). In these transactions, the Company does not control the third-party providers’ staffing services provided to the customers prior to those services being transferred to the customer.

Revenue Service Types

Staffing Services
Volt’s primary service is providing contingent (temporary) workers to its customers. These services are primarily provided through direct agreements with customers, and Volt provides these services using its employees and, in some cases, by subcontracting with other vendors of contingent workers. Volt’s costs in providing these services consist of the wages and benefits provided to the contingent workers as well as the recruiting costs, payroll department costs and other administrative costs. The Company recognizes revenue for its contingent staffing services over time as services are performed in an amount that reflects the consideration it expects to be entitled to in exchange for its services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The customer simultaneously receives and consumes the benefits of the services as they are provided. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.

Direct Placement Services
Direct placement services include providing qualified candidates to the Company's customers to hire on a permanent basis. These services are primarily recognized at a point in time when the qualified candidate is placed and begins permanent employment which is the point when control has transferred to the customer and the Company has the right to payment for the service. Each placement is a single performance obligation under the Company’s contracts and the related consideration is typically based upon a percentage of the candidates' base salary. Direct placement revenue is recognized net of a reserve for permanent placement candidates that do not remain with the customer through the contingency period, which is typically 60 days or less. This contingency is estimated based on historical data and recorded as a refund liability.

8




Managed Service Programs ("MSP")
The Company's MSP programs provide comprehensive solutions for delivery of contingent labor for assignment to customers, including supplier and worker sourcing, selecting, qualifying, on/off-boarding, time and expense recordation, reporting and approved invoicing and payment processing procedures. Since the individual activities are not distinct, the Company accounts for these activities as a single performance obligation. The Company’s fee for these MSP services is a fixed percentage of the staffing services spend that is managed through the program. The Company recognizes revenue over time for each month of MSP services provided as the customer simultaneously receives and consumes the services it provides. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.

Call Center Services
The customer care solutions business specializes in serving as an extension of its customers' relationships and processes, from help desk inquiries to advanced technical support. The Company earns a fee based upon the type, volume and level of services provided as part of the call center operations. Since the individual activities are not distinct, the Company accounts for them as a single performance obligation. The Company recognizes revenue over time as the customer simultaneously receives and consumes the services it provides. The Company applies the practical expedient to recognize revenue for these services over the term of the agreement commensurate to the amount it has the right to invoice the customer.

Disaggregation of Revenues

The following table presents our segment revenues disaggregated by service type (in thousands):
 
Three Months Ended April 28, 2019
Segment
Total
North American Staffing
International Staffing
North American
MSP
Corporate and Other
Eliminations
Service Revenues:
 
 
 
 
 
 
Staffing Services
$
239,406

$
206,771

$
26,953

$
5,776

$
174

$
(268
)
Direct Placement Services
3,601

2,100

1,179

674


(352
)
Managed Service Programs
3,806


677

3,129



Call Center Services
5,257




5,257


 
$
252,070

$
208,871

$
28,809

$
9,579

$
5,431

$
(620
)
 
 
 
 
 
 
 
Geographical Markets:
 
 
 
 
 
 
Domestic
$
222,146

$
208,049

$

$
9,439

$
5,257

$
(599
)
International, principally Europe
29,924

822

28,809

140

174

(21
)
 
$
252,070

$
208,871

$
28,809

$
9,579

$
5,431

$
(620
)



9



 
Six Months Ended April 28, 2019
Segment
Total
North American Staffing
International Staffing
North American
MSP
Corporate and Other
Eliminations
Service Revenues:
 
 
 
 
 
 
Staffing Services
$
478,139

$
416,405

$
51,586

$
10,385

$
346

$
(583
)
Direct Placement Services
6,954

4,314

2,042

1,376


(778
)
Managed Service Programs
7,482


1,447

6,035



Call Center Services
12,931




12,931


 
$
505,506

$
420,719

$
55,075

$
17,796

$
13,277

$
(1,361
)
 
 
 
 
 
 
 
Geographical Markets:
 
 
 
 
 
 
Domestic
$
448,300

$
419,157

$

$
17,531

$
12,931

$
(1,319
)
International, principally Europe
57,206

1,562

55,075

265

346

(42
)
 
$
505,506

$
420,719

$
55,075

$
17,796

$
13,277

$
(1,361
)

Payment Terms

Customer payment terms vary by arrangement although payments are typically due within 15 - 45 days of invoicing. The timing between the satisfaction of the performance obligations and the payment is not significant and the Company currently does not have any significant financing components or significant payment terms.

Unsatisfied Performance Obligations

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which they will recognize revenue at the amount to which it has the right to invoice for services performed. Unsatisfied performance obligations for contracts not meeting the aforementioned criteria are immaterial.

Accounts Receivable, Contract Assets and Contract Liabilities

The Company records accounts receivable when its right to consideration becomes unconditional. As required under Topic 606, the Company changed its presentation to show this allowance as a liability, whereas under Topic 605, these accounts receivables were recorded net of an allowance. As of January 27, 2019 and April 28, 2019, the reserve balance was $0.7 million and $0.4 million, respectively. Contract assets primarily relate to the Company's rights to consideration for services provided that are conditional on satisfaction of future performance obligations. The Company records contract liabilities when payments are made or due prior to the related performance obligations being satisfied. The current portion of contract liabilities is included in Accrued insurance and other in our Consolidated Balance Sheets. The Company does not have any material contract assets or long-term contract liabilities as of April 28, 2019 and October 28, 2018.

The Company may incur fulfillment costs after obtaining a contract to generate a resource that will be used to provide the MSP services. These costs are related to the set up and implementation of customer specific MSP programs and are considered incremental and recoverable costs to fulfill the Company's contract with the customer. These costs are deferred and amortized over the expected period of benefit of the MSP services provided to the customer, determined by taking into consideration its customer contracts and other relevant factors. Amortization expense is included in Selling, administrative and other operating costs on the Consolidated Statements of Operations. Deferred fulfillment costs were immaterial as of April 28, 2019.


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NOTE 4: Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss for the three and six months ended April 28, 2019 were (in thousands):
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
April 28, 2019
 
 
Foreign Currency Translation
Accumulated other comprehensive loss at beginning of the period
 
$
(6,912
)
 
$
(7,070
)
Other comprehensive loss
 
(179
)
 
(21
)
Accumulated other comprehensive loss at April 28, 2019
 
$
(7,091
)
 
$
(7,091
)

There were no reclassifications from accumulated other comprehensive loss for the three and six months ended April 28, 2019 and April 29, 2018.

NOTE 5: Restricted Cash and Short-Term Investments

Restricted cash primarily includes amounts related to requirements under certain contracts with managed service program customers, for whom the Company manages the customers’ contingent staffing requirements, including processing of associate vendor billings into single, combined customer billings and distribution of payments to associate vendors on behalf of customers, as well as minimum cash deposits required to be maintained as collateral. Distribution of payments to associate vendors is generally made shortly after receipt of payment from customers, with undistributed amounts included in restricted cash and accounts payable between receipt and distribution of these amounts, where contractually required. At April 28, 2019 and October 28, 2018, restricted cash included $6.2 million and $11.3 million, respectively, restricted for payment to associate vendors, and $0.5 million in both periods, respectively, restricted for other collateral accounts.

Short-term investments were $3.2 million and $3.1 million at April 28, 2019 and October 28, 2018, respectively. These short-term investments consisted primarily of the fair value of deferred compensation investments corresponding to employees’ selections, primarily in mutual funds, based on quoted prices in active markets.

NOTE 6: Income Taxes

The income tax provision reflects the geographic mix of earnings in various federal, state and foreign tax jurisdictions and their applicable rates resulting in a composite effective tax rate. The Company’s cumulative results for substantially all United States and certain non-United States jurisdictions for the most recent three-year period is a loss. Accordingly, a valuation allowance has been established for substantially all loss carryforwards and other net deferred tax assets for these jurisdictions, resulting in an effective tax rate that is significantly different than the statutory rate.

The Company adjusts its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate, consistent with ASC 270, Interim Reporting, and ASC 740-270, Income Taxes – Intra Period Tax Allocation. Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. The Company’s future effective tax rates could be affected by earnings being different than anticipated in countries with differing statutory rates, increases in recorded valuation allowances of tax assets, or changes in tax laws.

The Company’s provision (benefit) for income taxes primarily includes foreign jurisdictions and state taxes. The income tax provision in the second quarter of fiscal 2019 and fiscal 2018 of $0.2 million and $0.6 million, respectively, were primarily related to locations outside of the United States. For the six months ended April 28, 2019, the income tax provision of $0.5 million was primarily related to locations outside of the United States. The income tax benefit in the first six months ended April 29, 2018 of $0.7 million included the reversal of reserves on uncertain tax provisions that expired. The Company’s quarterly provision (benefit) for income taxes is measured using an estimated annual effective tax rate, adjusted for discrete items that occur within the periods presented.

On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (“Tax Act”) into law. The Tax Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35.0% to 21.0%, and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.

The Tax Act reduced the U.S. statutory tax rate from 35.0% to 21.0% effective January 1, 2018. U.S. tax law required that taxpayers with a fiscal year that begins before and ends after the effective date of a rate change calculate a blended tax rate based on the pro-rata

11



number of days in the fiscal year before and after the effective date. As a result, for the fiscal year ending October 28, 2018, the Company’s statutory income tax rate was 23.4%. The Company's statutory rate is 21.0% for the fiscal year ended November 3, 2019. Other provisions now effective under the Tax Act include limitations on deductibility of executive compensation and interest, as well as a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”). The Company has analyzed these provisions and there will be no material impact due to the Company's net operating loss carry-forward and valuation allowance.

The Company did not record any change to its U.S. net deferred tax balances as of the enactment date since its U.S. net deferred tax assets are fully offset by a full valuation allowance. The Company reduced its net deferred tax assets and corresponding valuation allowance by approximately $26.8 million for the fiscal year ended October 28, 2018.

Under the Tax Act, the Company may be subject to a transition tax on the untaxed foreign earnings of its foreign subsidiaries by deeming those earnings to be repatriated (“Transition Tax”). Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the remaining earnings are taxed at an 8.0% rate. In calculating the Transition Tax, the Company must calculate the cumulative earnings and profits of each of the non-U.S. subsidiaries back to 1987. The Transition Tax did not have a material impact on the Company.


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NOTE 7: Debt

The Company’s primary sources of liquidity are cash flows from operations and proceeds from its financing arrangements. Both operating cash flows and borrowing capacity under the Company’s financing arrangements are directly related to the levels of accounts receivable generated by its businesses. The Company’s operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for the Company’s contingent staff and in-house employees; federal, foreign, state and local taxes; and trade payables. The Company’s level of borrowing capacity under its financing arrangements increases or decreases in tandem with any change in accounts receivable based on revenue fluctuations.

The Company manages its cash flow and related liquidity on a global basis. The weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $20.0 million. The Company generally targets minimum global liquidity to be approximately 1.5 times its average weekly requirements. The Company also maintains minimum effective cash balances in foreign operations and uses a multi-currency netting and overdraft facility for its European entities to further minimize overseas cash requirements.

On January 25, 2018, the Company entered into a long-term $115.0 million accounts receivable securitization program (“DZ Financing Program”) with DZ Bank AG Deutsche Zentral Genossenschafsbank (“DZ Bank”) and exited its financing relationship with PNC Bank (“PNC Financing Program”). The new agreement increases available liquidity and provides greater financial flexibility with less restrictive financial covenants and fewer restrictions on use of proceeds, as well as reduces overall borrowing costs compared to the PNC Financing Program. The size of the DZ Financing Program may be increased with the approval of DZ Bank.

The DZ Financing Program is fully collateralized by certain receivables of the Company that are sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. To finance the purchase of such receivables, the Company may request that DZ Bank make loans from time to time to the Company that are secured by liens on those receivables.

On June 11, 2018, the Company amended its DZ Financing Program to modify a provision in the calculation of any eligible receivable, as defined. This amendment permits the Company to exclude the receivables of a single large, high-quality customer from its threshold limitation, resulting in additional borrowing capacity of approximately $10.0 million.

On January 4, 2019, the Company amended the DZ Financing Program. Key changes of the program were to: (1) extend the term of the DZ Financing Program to January 25, 2021; (2) revise an existing financial covenant to maintain Tangible Net Worth (as defined under the DZ Financing Program) of at least $30.0 million through fiscal 2019, which will revert back to $40.0 million in fiscal 2020; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2019; and (4) increase the eligibility threshold for obligors with payment terms in excess of 60 days from 2.5% to 10.0%, which will add flexibility and borrowing capacity for the Company. All other material terms and conditions remain substantially unchanged. At April 28, 2019, the Company was in compliance with all debt covenants. At April 28, 2019, there was $22.2 million of borrowing availability, as defined under the DZ Financing Program.

On February 15, 2019, the Company amended the DZ Financing Program to modify certain provisions related to the calculation of reserves used to determine the Company's borrowing capacity from time to time under the DZ Financing Program. Under these new reserve calculations, the Company anticipates additional daily borrowing capacity, which will enhance overall global liquidity for the Company. This amendment took effect retroactively on January 25, 2019 and does not otherwise modify or eliminate any relevant receivables from the terms of the DZ Financing Program.


On June 4, 2019, the Company entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool under our DZ Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer has experienced internal processing issues related to specific Volt purchase orders resulting in significant payment delays, which have negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program. Although, this change will improve the delinquency rate, it will also temporarily decrease the Company's borrowing availability under the DZ Financing Program by approximately $2.0 - $3.0 million. These payment delays are not credit related and the Company anticipates a resolution and collection of these past due amounts no later than July 26, 2019, at which time the receivables from this customer will be added back to the securitization pool under the original terms of the agreement. 
 
Loan advances may be made under the DZ Financing Program through January 25, 2021 and all loans will mature no later than July 25, 2021.  Loans will accrue interest (i) with respect to loans that are funded through the issuance of commercial paper notes, at the commercial paper (“CP”) rate, and (ii) otherwise, at a rate per annum equal to adjusted LIBOR. The CP rate will be based on the rates paid by the applicable lender on notes it issues to fund related loans. Adjusted LIBOR is based on LIBOR for the applicable interest period and the rate prescribed by the Board of Governors of the Federal Reserve System for determining the reserve requirements with

13



respect to Eurocurrency funding. If an event of default occurs, all loans shall bear interest at a rate per annum equal to the prime rate (the federal funds rate plus 3%) plus 2.5%.

The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of April 28, 2019, the letter of credit participation was $24.2 million inclusive of $22.8 million for the Company’s casualty insurance program, $1.2 million for the security deposit required under certain real estate lease agreements and $0.2 million for the Company's corporate credit card program. In the first quarter of fiscal 2018, the Company used $30.0 million of funds available under the DZ Financing Program to temporarily collateralize the letters of credit, until the letters of credit were established with DZ Bank on January 31, 2018.

The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants, with such covenants being less restrictive than those under the PNC Financing Program. The agreement also contains customary default, indemnification and termination provisions. The DZ Financing Program is not an off-balance sheet arrangement, as the bankruptcy-remote subsidiary is a 100%-owned consolidated subsidiary of the Company.

The Company used funds made available by the DZ Financing Program to repay all amounts outstanding under the PNC Financing Program, which terminated in accordance with its terms, and expects to use remaining availability from the DZ Financing Program from time to time for working capital and other general corporate purposes.

Until the termination date, the PNC Financing Program was secured by receivables from certain staffing services businesses in the United States and Europe that were sold to a wholly-owned, consolidated, bankruptcy-remote subsidiary. The bankruptcy-remote subsidiary’s sole business consisted of the purchase of the receivables and subsequent granting of a security interest to PNC under the program, and its assets were available first to satisfy obligations to PNC and were not available to pay creditors of the Company’s other legal entities. Borrowing capacity under the PNC Financing Program was directly impacted by the level of accounts receivable. In addition to customary representations, warranties and affirmative and negative covenants, the PNC Financing Program was subject to termination under standard events of default including change of control, failure to pay principal or interest, breach of the liquidity or performance covenants, triggering of portfolio ratio limits, or other material adverse events, as defined in the PNC Financing Program.

At April 28, 2019, the Company had outstanding borrowings under the DZ Financing Program of $55.0 million with a weighted average annual interest rate of 4.3% during the second quarter of fiscal 2019 and 4.2% for the first six months of fiscal 2019. At April 29, 2018, the Company had outstanding borrowings under the DZ Financing program of $50.0 million, with a weighted average annual rate of 3.4% during both the second quarter of fiscal 2018 and the first six months of fiscal 2018.

Long-term debt consists of the following (in thousands):
 
April 28, 2019
 
October 28, 2018
Financing programs
$
55,000

 
$
50,000

Less:
 
 
 
Deferred financing fees
831

 
932

Total long-term debt, net
$
54,169

 
$
49,068


    

14



NOTE 8: Earnings (Loss) Per Share

Basic and diluted net loss per share is calculated as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Six Months Ended
 
April 28, 2019
 
April 29, 2018
 
April 28, 2019
 
April 29, 2018
Numerator
 
 
 
 
 
 
 
Net loss
$
(5,165
)
 
$
(7,687
)
 
$
(8,380
)
 
$
(18,381
)
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Basic weighted average number of shares
21,082

 
21,032

 
21,081

 
21,030

Diluted weighted average number of shares
21,082

 
21,032

 
21,081

 
21,030

 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.24
)
 
$
(0.37
)
 
$
(0.40
)
 
$
(0.87
)
Diluted
$
(0.24
)
 
$
(0.37
)
 
$
(0.40
)
 
$
(0.87
)

Options to purchase 922,193 and 2,360,174 shares of the Company’s common stock were outstanding at April 28, 2019 and April 29, 2018, respectively. Additionally, there were 383,962 unvested restricted units and 300,928 outstanding at April 28, 2019 and April 29, 2018, respectively, and 176,989 unvested performance share units outstanding at April 28, 2019. These awards were not included in the computation of diluted loss per share in fiscal 2019 and 2018 because the effect of their inclusion would have been anti-dilutive as a result of the Company’s net loss position in those periods.

NOTE 9: Share-Based Compensation Plans

For the three and six months ended April 28, 2019, the Company recognized share-based compensation expense of $0.6 million and $0.7 million, respectively. For the three and six months ended April 29, 2018, the Company recognized share-based compensation expense of $0.5 million and $1.0 million, respectively. These expenses are included in Selling, administrative and other operating costs in the Company’s Consolidated Statements of Operations.
Liability Awards
During fiscal 2018, the Company granted performance share units (“PSUs”) and restricted stock units (“RSUs”) that are classified as a liability at fair value, which is computed using a Monte Carlo simulation and re-measured periodically based on the effect that the market condition has on these awards. The liability and corresponding expense are adjusted accordingly until the awards are settled. As of the second quarter ended April 28, 2019, the total fair value of these PSUs and RSUs was approximately $1.0 million and $1.4 million, respectively.
Vesting of the PSUs is dependent on the achievement of target stock prices at the end of each of the one-year, two-year and three-year performance periods. The ending stock price is the average price of the last 20 trading days prior to and including the final day of each performance period. The payout percentages can range from 0% to 200%. The RSUs vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates.
Upon vesting, the PSUs and RSUs may be settled in either cash or stock at the Company’s election, with any stock settlement being subject to the Company having a sufficient number of shares then available under its equity incentive plan to satisfy such awards. Any awards settled in cash will be capped at two times the Company’s closing stock price on the grant date, multiplied by the number of awards vesting.
In fiscal 2017, the Company granted phantom units in the form of cash-settled RSUs to certain senior management level employees. The total fair value at the grant date was approximately $0.3 million with a weighted average fair value per unit of $4.35. The units vest in equal annual tranches over three years, provided the employees remain employed on each of those vesting dates. These awards are classified as a liability and re-measured at the end of each reporting period based on the change in fair value of one share of the Company’s common stock. As of the second quarter ended April 28, 2019, the total fair value was $0.1 million and 12,022 phantom units were outstanding.

15



Equity Awards
For RSUs granted in the prior fiscal years that are classified as equity awards, the grant date fair value is measured using the closing stock price on the grant date. For stock options granted in the prior fiscal years, the fair value of the option grants was estimated using the Black-Scholes option-pricing model. These awards vest in equal annual tranches over three years, provided the employees remain employed with the Company on each of those vesting dates.
Summary of Equity and Liability Awards
The following tables summarize the activities related to the Company’s share-based liability and equity awards for the six months ended April 28, 2019:
Performance Share Units
Number of
 
Weighted Average
 
Shares
Grant Date Fair Value
Outstanding at October 28, 2018
276,396

 
$3.38
Forfeited
(99,407
)
 
$3.38
Outstanding at April 28, 2019
176,989

 
$3.38

Restricted Stock Units
Number of
 
Weighted Average
 
Shares
Grant Date Fair Value
Outstanding at October 28, 2018
582,831

 
$3.53
Forfeited
(146,938
)
 
$3.66
Vested
(15,048
)
 
$5.13
Outstanding at April 28, 2019
420,845

 
$3.43

Stock Options
Number of
Shares
 
Weighted Average Exercise Price
 
Weighted Average Contractual Life (in years)
 
Aggregate Intrinsic Value (in thousands)
 
Outstanding at October 28, 2018
1,600,040

 
$5.25
 
7.27
 
$—
Exercised
(200,000
)
 
$4.35
 
 
Forfeited
(302,792
)
 
$5.54
 
 
Expired
(175,055
)
 
$6.36
 
 
Outstanding at April 28, 2019
922,193

 
$5.74
 
7.51
 
$343

For the six months ended April 28, 2019, there was no issuance of any share-based payment awards. As of April 28, 2019, total unrecognized compensation expense of $1.2 million related to PSUs, stock options, RSUs and phantom units will be recognized over the remaining weighted average vesting period of 1.7 years, of which $0.4 million, $0.6 million, and $0.2 million are expected to be recognized in fiscal 2019, 2020 and 2021, respectively.
NOTE 10: Restructuring and Severance Charges

The Company incurred total restructuring and severance costs of $0.7 million and $0.1 million for the second quarter of fiscal 2019 and 2018, respectively, and $0.8 million and $0.6 million for the six months ended April 28, 2019 and April 29, 2018, respectively.
2018 Restructuring Plan
On October 16, 2018, the Company approved a restructuring plan (the “2018 Plan”) based on an organizational and process redesign intended to optimize the Company’s strategic growth initiatives and overall business performance. In connection with the 2018 Plan, the Company incurred restructuring charges comprised of severance and benefit costs and facility and lease termination costs. The 2018 Plan is expected to be completed by the Company's fiscal year end on November 3, 2019. The Company incurred restructuring and severance costs of $0.5 million for the second quarter 2019. The total costs since inception through the second quarter of fiscal 2019 are approximately $4.8 million, consisting of $1.0 million in North American Staffing, $0.3 million in International Staffing and $3.5 million in Corporate and Other. As of April 28, 2019, the Company anticipates payments of $1.1 million and $0.6 million will be made in fiscal 2019 and 2020, respectively. The remaining $1.3 million related to facility and lease termination costs will be paid through December 2025.

16



Change in Executive Management
Effective June 6, 2018, Mr. Dean departed from his role as President and Chief Executive Officer of the Company and is no longer a member of the Board of Directors of the Company. The Company and Mr. Dean subsequently executed a separation agreement, effective June 29, 2018. The Company incurred related severance costs of $2.6 million in the third quarter of fiscal 2018, which is payable over a period of 24 months.
Exit of Customer Care Solutions Business
In the third quarter of fiscal 2019, the Company will exit its customer care solutions business, which is currently reported as a part of the Corporate and Other category. This exit will enable the Company to further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability. As a result of this exit, the Company incurred severance costs of $0.2 million during the second quarter of fiscal 2019.
 
Other Restructuring Costs
During the second quarter of fiscal 2018, there were other restructuring actions taken by the Company as part of its continued efforts to reduce costs and achieve operational efficiency. The Company recorded severance costs of $0.1 million in the second quarter of fiscal 2018 primarily resulting from the elimination of certain positions.
Accrued restructuring and severance costs are included in Accrued compensation and Accrued insurance and other in the Consolidated Balance Sheets. Activity for the first six months of fiscal 2019 is summarized as follows (in thousands):
 
 
April 28, 2019
Balance, beginning of year
 
$
5,702

Charged to expense
 
783

Cash payments
 
(2,295
)
Ending Balance
 
$
4,190

The remaining balance at April 28, 2019 of $4.2 million, primarily related to Corporate and Other, includes $2.5 million related to the cost reduction plan implemented in fiscal 2018 and $1.4 million related to the change in executive management.
NOTE 11: Commitments and Contingencies

(a)     Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. The Company’s loss contingencies not discussed elsewhere consist primarily of claims and legal actions arising in the normal course of business related to contingent worker employment matters in the staffing services segments. These matters are at varying stages of investigation, arbitration or adjudication. The Company has accrued for losses on individual matters that are both probable and reasonably estimable.
Estimates are based on currently available information and assumptions. Significant judgment is required in both the determination of probability and the determination of whether a matter is reasonably estimable. The Company’s estimates may change and actual expenses could differ in the future as additional information becomes available.

(b)    Other Matters

As previously disclosed in the Annual Report on Form 10-K for the year ended October 28, 2018, certain qualification failures related to nondiscrimination testing for the Company’s 401(k) plans consisting of the (1) Volt Technical Services Savings Plan and the (2) Volt Information Sciences, Inc. Savings Plan occurred during plan years prior to 2016. The Company currently estimates that it will need to contribute approximately $0.9 million to the plans to correct the failures. The Company has obtained the approval from the Internal Revenue Service regarding the method for curing the failures and anticipates making the contribution in the second half of 2019.

NOTE 12: Segment Data

We report our segment information in accordance with the provisions of ASC 280, Segment Reporting.

During the fourth quarter of fiscal 2018, in accordance with ASC 280, the Company determined that its North American Managed Service Program (“MSP”) met the criteria to be presented as a reportable segment. To provide period over period comparability, the Company has recast the prior period North American MSP segment data to conform to the current presentation in the prior period.

17


This change did not have any impact on the consolidated financial results for any period presented. Our current reportable segments are (i) North American Staffing, (ii) International Staffing and (iii) North American MSP. The non-reportable businesses are combined and disclosed with corporate services under the category Corporate and Other.

In the third quarter of fiscal 2019, the Company will exit its customer care solutions business, which is currently reported as a part of the Corporate and Other category. This exit will enable the Company to further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability. The Company’s other non-reportable businesses will continue to be combined and disclosed with corporate services under the category Corporate and Other.

Segment operating income (loss) is comprised of segment net revenue less cost of services, selling, administrative and other operating costs, and restructuring and severance costs. The Company allocates to the segments all operating costs except for costs not directly related to the operating activities such as corporate-wide general and administrative costs. These costs are not allocated because doing so would not enhance the understanding of segment operating performance and are not used by management to measure segment performance.

Financial data concerning the Company’s segment revenue and operating income (loss) as well as results from Corporate and Other are summarized in the following tables (in thousands):
 
Three Months Ended April 28, 2019
 
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
252,070

 
$
208,871

 
$
28,809

 
$
9,579

 
$
5,431

 
$
(620
)
Cost of services
215,813

 
179,678

 
24,095

 
7,186

 
5,474

 
(620
)
Gross margin
36,257

 
29,193

 
4,714

 
2,393

 
(43
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
38,939

 
26,439

 
3,894

 
1,252

 
7,354

 

Restructuring and severance costs
724

 
210

 
192

 
41

 
281

 

Impairment charge
347

 

 

 

 
347

 

Operating income (loss)
(3,753
)

2,544


628

 
1,100

 
(8,025
)
 

Other income (expense), net
(1,179
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
233

 
 
 
 
 
 
 
 
 
 
Net loss
$
(5,165
)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended April 29, 2018
 
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
263,219

 
$
218,090

 
$
31,904

 
$
6,339

 
$
7,817

 
$
(931
)
Cost of services
225,918

 
187,929

 
27,100

 
4,498

 
7,322

 
(931
)
Gross margin
37,301

 
30,161

 
4,804

 
1,841

 
495

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
42,916

 
28,586

 
3,915

 
1,397

 
9,018

 

Restructuring and severance costs
104

 
4

 
71

 
27

 
2

 

Impairment charge
155

 

 

 

 
155

 

Operating income (loss)
(5,874
)
 
1,571

 
818

 
417

 
(8,680
)
 

Other income (expense), net
(1,183
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
630

 
 
 
 
 
 
 
 
 
 
Net loss
$
(7,687
)
 
 
 
 
 
 
 
 
 
 


18


 
Six Months Ended April 28, 2019
 
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
505,506

 
$
420,719

 
$
55,075

 
$
17,796

 
$
13,277

 
$
(1,361
)
Cost of services
431,550

 
361,363

 
46,233

 
13,104

 
12,211

 
(1,361
)
Gross margin
73,956

 
59,356

 
8,842

 
4,692

 
1,066

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
78,749

 
52,717

 
7,636

 
2,559

 
15,837

 

Restructuring and severance costs
783

 
208

 
274

 
68

 
233

 

Impairment charge
347

 

 

 

 
347

 

Operating income (loss)
(5,923
)
 
6,431

 
932

 
2,065

 
(15,351
)
 

Other income (expense), net
(1,951
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
506

 
 
 
 
 
 
 
 
 
 
Net loss
$
(8,380
)
 
 
 
 
 
 
 
 
 
 

 
Six Months Ended April 29, 2018
 
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
516,557

 
$
424,325

 
$
61,483

 
$
14,819

 
$
18,064

 
$
(2,134
)
Cost of services
443,247

 
366,287

 
52,177

 
11,259

 
15,658

 
(2,134
)
Gross margin
73,310

 
58,038

 
9,306

 
3,560

 
2,406

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
89,854

 
57,084

 
8,287

 
2,799

 
21,684

 

Restructuring and severance costs
622

 
9

 
299

 
79

 
235

 

Impairment charge
155

 

 

 

 
155

 

Operating income (loss)
(17,321
)
 
945

 
720

 
682

 
(19,668
)
 

Other income (expense), net
(1,790
)
 
 
 
 
 
 
 
 
 
 
Income tax benefit
(730
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(18,381
)
 
 
 
 
 
 
 
 
 
 

(1) Revenues are primarily derived from Volt Customer Care Solutions.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions.

NOTE 13: Subsequent Events

On June 4, 2019, the Company entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool under our DZ Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer has experienced internal processing issues related to specific Volt purchase orders resulting in significant payment delays, which have negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program. Although this change will improve the delinquency rate, it will also temporarily decrease the Company's borrowing availability under the DZ Financing Program by approximately $2.0 - $3.0 million. These payment delays are not credit related and the Company anticipates a resolution and collection of these past due amounts no later than July 26, 2019, at which time the receivables from this customer will be added back to the securitization pool under the original terms of the agreement. 



19



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis (“MD&A”) of financial condition and results of operations is provided as a supplement to and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes to enhance the understanding of our results of operations, financial condition and cash flows. This MD&A should be read in conjunction with the MD&A included in our Form 10-K for the fiscal year ended October 28, 2018, as filed with the SEC on January 9, 2019 (the “2018 Form 10-K”). References in this document to “Volt,” “Company,” “we,” “us” and “our” mean Volt Information Sciences, Inc. and our consolidated subsidiaries, unless the context requires otherwise. The statements below should also be read in conjunction with the description of the risks and uncertainties set forth from time to time in our reports and other filings made with the SEC, including under Part I, “Item 1A. Risk Factors” of the 2018 Form 10-K.

Note Regarding the Use of Non-GAAP Financial Measures

We have provided certain Non-GAAP financial information, which includes adjustments for special items and certain line items on a constant currency basis, as additional information for segment revenue, our consolidated net income (loss) and segment operating income (loss). These measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles (“GAAP”) and may be different from Non-GAAP measures reported by other companies. We believe that the presentation of Non-GAAP measures on a constant currency basis and eliminating special items provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations because they permit evaluation of the results of our operations without the effect of currency fluctuations or special items that management believes make it more difficult to understand and evaluate our results of operations.

Special items generally include impairments, restructuring and severance costs, as well as certain income or expenses not indicative of our current or future period performance. In addition, as a result of our Company’s strategic reorganization, which included changes to executive management and the Board of Directors, as well as the ongoing execution of new strategic initiatives, certain charges were identified as “special items” which were not historically common operational expenditures for us. Such charges included professional search fees, certain board compensation and other professional service fees. While we believe that the inclusion of these charges as special items is useful in the evaluation of our results compared to prior periods, we do not anticipate that these items will be included in our Non-GAAP measures in the future.

Segments

We report our segment information in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting.

During the fourth quarter of fiscal 2018, in accordance with ASC 280, the Company determined that its North American Managed Service Program (“MSP”) met the criteria to be presented as a reportable segment. To provide period over period comparability, the Company has recast the prior period North American MSP segment data to conform to the current presentation in the prior period. This change did not have any impact on the consolidated financial results for any period presented. Our current reportable segments are (i) North American Staffing, (ii) International Staffing and (iii) North American MSP. The non-reportable businesses are combined and disclosed with corporate services under the category Corporate and Other.

In the third quarter of fiscal 2019, the Company will exit its customer care solutions business, which is currently reported as a part of the Corporate and Other category. This exit will enable the Company to further strengthen its focus on its core staffing business and align its resources to streamline operations, improve cost competitiveness and increase profitability. The Company’s other non-reportable businesses will continue to be combined and disclosed with corporate services under the category Corporate and Other.

Overview

We are a global provider of staffing services (traditional time and materials-based as well as project-based). Our staffing services consist of workforce solutions that include providing contingent workers, personnel recruitment services, and managed staffing services programs supporting primarily administrative and light industrial (“commercial”) as well as technical, information technology and engineering (“professional”) positions. Our managed service programs (“MSP”) involves managing the procurement and on-boarding of contingent workers from multiple providers. Our customer care solutions specializes in serving as an extension of our customers' consumer relationships and processes including collaborating with customers, from help desk inquiries to advanced technical support.

As of April 28, 2019, we employed approximately 17,400 people, including 16,000 contingent workers. Contingent workers are on our payroll for the length of their assignment. We operate from approximately 85 locations worldwide with approximately 88% of our

20



revenues generated in the United States. Our principal international markets include Europe, Canada and several Asia Pacific locations. The industry is highly fragmented and very competitive in all of the markets we serve.

Goodwill

We perform our annual impairment test for goodwill during the second quarter of the fiscal year and when a triggering event occurs between annual impairment tests. When testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill. International Staffing is the only segment which carries goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
When a qualitative assessment is not used, or if the qualitative assessment is not conclusive and it is necessary to calculate fair value of a reporting unit, then the impairment analysis for goodwill is performed at the reporting unit level using a one-step approach (“Step 1”) under Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. In conducting our goodwill impairment testing, we compare the fair value of the reporting unit with goodwill to the carrying value, using various valuation techniques including income (discounted cash flow) and market approaches. The Company believes the blended use of both approaches compensates for the inherent risk associated with using either one on a standalone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation.
For the fiscal 2019 test performed in the second quarter, we elected to bypass the qualitative assessment and prepared a Step 1 analysis. Our Step 1 analysis used significant assumptions including expected revenue and expense growth rates, forecasted capital expenditures, working capital levels and a discount rate of 15%. Under the market-based approach, significant assumptions included relevant comparable company earnings multiples including the determination of whether a premium or discount should be applied to those comparables. During the second quarter of fiscal 2019, it was determined that no adjustment to the carrying value of goodwill of $5.4 million was required as our Step 1 analysis resulted in the fair value of the reporting unit exceeding its carrying value.
Recent Developments

On June 4, 2019, we entered into an amendment with DZ Bank to temporarily exclude the receivables due from a specific customer from the securitization pool under our DZ Financing Program for three subsequent reporting periods as of May 2019 through July 2019. This customer has experienced internal processing issues related to specific Volt purchase orders resulting in significant payment delays, which have negatively impacted the 90-Day Delinquency Rate, as defined in the DZ Financing Program. Although, this change will improve the delinquency rate, it will also temporarily decrease our borrowing availability under the DZ Financing Program by approximately $2.0 - $3.0 million. These payment delays are not credit related and we anticipate a resolution and collection of these past due amounts no later than July 26, 2019, at which time the receivables from this customer will be added back to the securitization pool under the original terms of the agreement. 


21



Consolidated Results by Segment
 
Three Months Ended April 28, 2019
(in thousands)
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
252,070

 
$
208,871

 
$
28,809

 
$
9,579

 
$
5,431

 
$
(620
)
Cost of services
215,813

 
179,678

 
24,095

 
7,186

 
5,474

 
(620
)
Gross margin
36,257

 
29,193

 
4,714

 
2,393

 
(43
)
 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
38,939

 
26,439

 
3,894

 
1,252

 
7,354

 

Restructuring and severance costs
724

 
210

 
192

 
41

 
281

 

Impairment charge
347

 

 

 

 
347

 

Operating income (loss)
(3,753
)

2,544


628


1,100

 
(8,025
)


Other income (expense), net
(1,179
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
233

 
 
 
 
 
 
 
 
 
 
Net loss
$
(5,165
)







 
 
 
 
 
 
Three Months Ended April 29, 2018
(in thousands)
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
263,219

 
$
218,090

 
$
31,904

 
$
6,339

 
$
7,817

 
$
(931
)
Cost of services
225,918

 
187,929

 
27,100

 
4,498

 
7,322

 
(931
)
Gross margin
37,301

 
30,161

 
4,804

 
1,841

 
495

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
42,916

 
28,586

 
3,915

 
1,397

 
9,018

 

Restructuring and severance costs
104

 
4

 
71

 
27

 
2

 

Impairment charge
155

 

 

 

 
155

 

Operating income (loss)
(5,874
)
 
1,571

 
818

 
417

 
(8,680
)
 

Other income (expense), net
(1,183
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
630

 
 
 
 
 
 
 
 
 
 
Net loss
$
(7,687
)
 
 
 
 
 
 
 
 
 
 

(1) Revenues are primarily derived from Volt Customer Care Solutions.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions.

Results of Operations Consolidated (Q2 2019 vs. Q2 2018)

Net revenue in the second quarter of fiscal 2019 decreased $11.1 million, to $252.1 million from $263.2 million in the second quarter of fiscal 2018. The net revenue decrease was primarily due to a decrease in our North American Staffing segment of $9.2 million, a decrease in the Corporate and Other category of $2.4 million and negative impact of foreign currency fluctuations of $2.2 million, partially offset by an increase in our North American MSP segment of $3.2 million. Excluding the impact of foreign currency fluctuations and $0.2 million in revenue from a business exited during the period, net revenue decreased $8.7 million, or 3.3%.
Operating loss in the second quarter of fiscal 2019 decreased $2.1 million, to $3.8 million from $5.9 million in the second quarter of fiscal 2018. Excluding restructuring and severance costs and impairment charges, operating loss decreased $2.9 million, or 48.0%. This decrease in operating loss of $2.9 million was primarily the result of improvements in our North American Staffing segment of $1.2 million and North American MSP segment of $0.7 million. In addition, the Corporate and Other category improved $1.1 million primarily as a result of reductions in corporate support costs.

22




Results of Operations by Segment (Q2 2019 vs. Q2 2018)
Net Revenue
The North American Staffing segment revenue decreased $9.2 million, or 4.2%, in the second quarter of fiscal 2019. The year over year decrease in revenue improved from a decline of 6.7% in the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017. This decrease was driven by decreased demand from customers in our professional and administrative and office job categories.
International Staffing segment revenue decreased $3.1 million, or 9.7%, in the second quarter of fiscal 2019. Excluding the impact of foreign exchange rate fluctuations of $2.2 million and $0.2 million in revenue from a business exited during the period, revenue declined $0.7 million, or 2.3%, primarily due to lower demand in the United Kingdom offset by growth in Belgium and France.
The North American MSP segment revenue increased $3.2 million, or 51.1%, due to increased demand in both payroll services and MSP managed services revenue.
The Corporate and Other category revenue decrease of $2.4 million, or 30.5%, was primarily attributable to our customer care solutions revenue decline due to lower demand at our call center.
Cost of Services and Gross Margin

Cost of services in the second quarter of fiscal 2019 decreased $10.1 million, or 4.5% to $215.8 million from $225.9 million in the second quarter of fiscal 2018. Gross margin as a percent of revenue in the second quarter of fiscal 2019 increased to 14.4% from 14.2% in the second quarter of fiscal 2018. Our North American Staffing segment margin as a percent of revenue improved as a result of lower payroll tax rates primarily from a reduction in California unemployment tax rates, partially offset by higher workers compensation costs. Our North American MSP segment margin increased as a result of the increase in revenue and gross margin percent for both managed service and payroll service business. However, total North American MSP margin as a percent of revenue declined primarily due to a higher mix of payroll service revenue. These gross margin improvements were partially offset by lower margins from our customer care solutions business driven by lower headcount from reduced client demand.
Selling, Administrative and Other Operating Costs
Selling, administrative and other operating costs in the second quarter of fiscal 2019 decreased $4.0 million, or 9.3%, to $38.9 million from $42.9 million in the second quarter of fiscal 2018. The decrease was primarily due to on-going cost reductions in all areas of the business, including $3.3 million in labor costs due to lower headcount, increase in net capitalized costs of $0.7 million as we continue to add functionality to our underlying information technology systems, $0.8 million in professional fees and $0.6 million in facility related costs. These improvements were offset by $1.3 million in higher medical claims experience in the second quarter of fiscal 2019. As a percent of revenue, selling, administrative and other operating costs were 15.4% and 16.3% in the second quarter of fiscal 2019 and 2018, respectively.
Restructuring and Severance Costs

Restructuring and severance costs in the second quarter of fiscal 2019 increased $0.6 million, to $0.7 million from $0.1 million in the second quarter of fiscal 2018. This increase was primarily due to severance costs accrued in the second quarter of fiscal 2019 in connection with exiting our customer care solutions business in the third quarter of fiscal 2019, as well as additional severance and lease terminations costs under our 2018 Plan.
Impairment Charges

Impairment charges in the second quarter of fiscal 2019 increased $0.1 million, to $0.3 million from $0.2 million in the second quarter of fiscal 2018. In the second quarter of fiscal 2019, there was a $0.3 million impairment of equipment used in our customer care solutions business. In the second quarter of fiscal 2018, we made the decision to forgo future use of a previously purchased software tool, which resulted in an impairment charge of $0.2 million.
Other Income (Expense), net
Other expense in the second quarter of fiscal 2019 remained at $1.2 million, as a slight decrease in non-cash foreign exchange losses primarily on intercompany balances was partially offset by an increase in miscellaneous other expenses.

23



Income Tax Provision
The income tax provisions of $0.2 million and $0.6 million in the second quarter of fiscal 2019 and fiscal 2018, respectively, were primarily related to locations outside of the United States.
Consolidated Results by Segment
 
Six Months Ended April 28, 2019
(in thousands)
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
505,506

 
$
420,719

 
$
55,075

 
$
17,796

 
$
13,277

 
$
(1,361
)
Cost of services
431,550

 
361,363

 
46,233

 
13,104

 
12,211

 
(1,361
)
Gross margin
73,956

 
59,356

 
8,842

 
4,692

 
1,066

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
78,749

 
52,717

 
7,636

 
2,559

 
15,837

 

Restructuring and severance costs
783

 
208

 
274

 
68

 
233

 

Impairment charge
347

 

 

 

 
347

 

Operating income (loss)
(5,923
)
 
6,431

 
932

 
2,065

 
(15,351
)
 

Other income (expense), net
(1,951
)
 
 
 
 
 
 
 
 
 
 
Income tax provision
506

 
 
 
 
 
 
 
 
 
 
Net loss
$
(8,380
)
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended April 29, 2018
(in thousands)
Total
 
North American Staffing
 
 International Staffing
 
North American MSP
 
Corporate and Other (1)
 
Eliminations (2)
Net revenue
$
516,557

 
$
424,325

 
$
61,483

 
$
14,819

 
$
18,064

 
$
(2,134
)
Cost of services
443,247

 
366,287

 
52,177

 
11,259

 
15,658

 
(2,134
)
Gross margin
73,310

 
58,038

 
9,306

 
3,560

 
2,406

 

 
 
 
 
 
 
 
 
 
 
 
 
Selling, administrative and other operating costs
89,854

 
57,084

 
8,287

 
2,799

 
21,684

 

Restructuring and severance costs
622

 
9

 
299

 
79

 
235

 

Impairment charge
155

 

 

 

 
155

 

Operating income (loss)
(17,321
)
 
945

 
720

 
682

 
(19,668
)
 

Other income (expense), net
(1,790
)
 
 
 
 
 
 
 
 
 
 
Income tax benefit
(730
)
 
 
 
 
 
 
 
 
 
 
Net loss
$
(18,381
)
 
 
 
 
 
 
 
 
 
 

(1) Revenues are primarily derived from Volt Customer Care Solutions.
(2) The majority of intersegment sales results from North American Staffing providing resources to Volt Customer Care Solutions.

Results of Operations Consolidated (Q2 2019 YTD vs. Q2 2018 YTD)