VOLT INFORMATION SCIENCES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
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 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, including with respect to the anticipated effects of COVID-19 and related government actions). You can identify these forward-looking statements by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. This MD&A should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2021, as filed with the SECon January 12, 2022(the "2021 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 2021 Form 10-K and Part II, "Item 1A. Risk Factors" of this report. We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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. Our Non-GAAP measures are generally presented on a constant currency basis, and exclude (i) the impact of businesses sold or exited, (ii) the impact from the migration of certain clients from a traditional staffing model to a managed service model ("MSP transitions") as we believe that the difference in revenue recognition accounting under each model of the MSP transitions could be misleading on a comparative period basis and (iii) the elimination of special items. Special items generally include impairments, restructuring and severance costs, as well as certain income or expenses which the Company does not consider indicative of the current and future period performance. We believe that the use of Non-GAAP measures 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 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.
Our reportable segments are (i) North American Staffing, (ii) International Staffing and (iii) North American MSP. All other business activities that do not meet the criteria to be reportable segments are aggregated with corporate services under the category Corporate and Other. Our reportable segments have been determined in accordance with our internal management structure, which is based on operating activities. We evaluate business performance based upon several metrics, primarily using revenue and segment operating income as the primary financial measures. We believe segment operating income provides management and investors a measure to analyze operating performance of each business segment against historical and competitors' data, although historical results, including operating income, may not be indicative of future results as operating income is highly contingent on many factors including the state of the economy, competitive conditions and customer preferences. We allocate all support-related costs to the operating segments except for costs not directly relating to our operating activities such as corporate-wide general and administrative costs. These costs are not allocated to individual operating segments because we believe that doing so would not enhance the understanding of segment operating performance and such costs are not used by management to measure segment performance. We report our segment information in accordance with the provisions of the
Financial Accounting Standards Board("FASB") Accounting Standards Codification 280, Segment Reporting ("ASC 280"), aligning with the way the Company evaluates its business performance and manages its operations. 16 --------------------------------------------------------------------------------
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. We operate in approximately 65 of our own locations and have an on-site presence in over 60 customer locations. Approximately 88% of our revenue is generated in
the United States. Our principal international markets include Europe, Asia Pacificand Canadalocations. The industry is highly fragmented and very competitive in all of the markets we serve.
Environmental, Social and Governance (“ESG”) Matters
The Company recognizes the importance of ESG matters, with a specific focus on
Human Capital Management, as integral to creating a sustainable foundation for our long-term business strategy. While the Nominating and Corporate Governance Committeeof the Board of Directors holds primary responsibility for ESG oversight and guidance, our entire Board of Directors, composed of independent directors, is fully engaged in these efforts.
Volt operates on the fundamental philosophy that people are our most valuable asset as every person
whoworks for us has the potential to impact our success as well as the success of our clients. As a staffing company, identifying quality talent is at the core of everything we do and our success is dependent upon our ability to attract, develop and retain highly qualified employees, both in-house and for our clients. The Company's core values of integrity, customer centric, ownership, innovation, empowerment, collaborative change and teamwork establish the foundation on which the culture is built and represent the key expectations we have of our employees. We believe our culture and commitment to our employees attract and retain our qualified talent, while simultaneously providing significant value to our Company and its shareholders.
January 30, 2022, we employed approximately 14,600 people, including approximately 13,500 whowere on contingent staffing assignments with our clients, and the remainder as full-time in-house employees. Approximately 70% of the full-time in-house employees are located in North Americaand the remaining are within Asia Pacificand Europe. The workers on contingent staffing assignments are on our payroll for the length of their assignment with the client.
Diversity and Inclusion
Volt values building diverse teams, embracing different perspectives and fostering an inclusive, empowering work environment for our employees and clients. We have a long-standing commitment to equal employment opportunity as evidenced by the Company's Equal Employment Opportunity policy. Of our North American in-house employee population, approximately 71% are women and approximately 48% have self-identified as Hispanic or Latino, Native American, Pacific Islander, Asian, Black or
African American, or of two or more races. As part of Volt's commitment to continued enhancements in this area, we launched our Expert Momentum Diversity and Inclusion Program. This program involved the creation of a task force made up of a group of employees from across the organization. The program has established initiatives to strengthen the promotion of workplace diversity for our employees and clients, to create a collaborative environment that promotes authenticity and a culture that celebrates our differences, and embraces a collaborative environment with unique experiences and diverse perspectives. The program's task force will enhance company-wide engagement on diversity and inclusion, provide education opportunities for our employees, help identify areas for improvement and monitor progress against these initiatives.
Benefits and Compensation
Critical to our success is identifying, recruiting, retaining, and incentivizing our existing and future employees. We strive to attract and retain the most talented employees in the staffing industry by offering competitive compensation and benefits. Our pay-for-performance compensation philosophy is based on rewarding each employee's individual contributions and striving to achieve equal pay for equal work regardless of gender, race or ethnicity. We use a combination of fixed and variable pay including base salary, bonus, commissions and merit increases which vary across the business. In addition, as part of our long-term incentive plan for executives and certain employees, we provide share-based compensation to foster our pay-for-performance culture and to attract, retain and motivate our key leaders. 17 -------------------------------------------------------------------------------- As the success of our business is fundamentally connected to the well-being of our people, we offer benefits that support their physical, financial and emotional well-being. We provide our employees with access to flexible and convenient medical programs intended to meet their needs and the needs of their families. In addition to standard medical coverage, we offer eligible employees dental and vision coverage, health savings and flexible spending accounts, paid time off, employee assistance programs, voluntary short-term and long-term disability insurance and term life insurance. Additionally, we offer a 401(k) Savings Plan and Deferred Compensation Plan to certain employees. Our benefits vary by location and are designed to meet or exceed local laws and to be competitive in the marketplace. In response to the COVID-19 pandemic, government legislation and key authorities, we implemented changes that we determined were in the best interest of our employees, as well as the communities in which we operate. This included having the majority of our employees work from home for several months, while implementing additional safety measures for employees continuing critical on-site work. We continue to embrace a flexible working arrangement for a majority of our in-house employees, as well as a portion of our contingent workforce where we continue to provide key services to customers remotely.
We believe a key factor in employee retention is training and professional development for our talent. We have training programs across all levels of the Company to meet the needs of various roles, specialized skill sets and departments across the Company. All field associates receive Volt's General Safety Orientation prior to assignment and site-specific job task training from our clients. Volt offers the Federal Ten Hour and other specialty safety programs to key employees and clients as a value-add feature of our services. Volt is committed to the security and confidentiality of our employees' personal information and employs software tools and periodic employee training programs to promote security and information protection at all levels. Additionally, in the second quarter of fiscal 2021, we invested in an online educational platform to upskill our field associates across
North America. This platform provides significant benefit and support to our employees in furthering their education and achieving their personal and professional goals, while at the same time cultivating a better-skilled pool of talent for our clients. We utilize certain employee turnover rates and productivity metrics in assessing our employee programs to ensure that they are structured to instill high levels of in-house employee tenure, low levels of voluntary turnover and the optimization of productivity and performance across our entire workforce. Additionally, we have implemented a new performance evaluation program which adopts a modern approach to valuing and strengthening individual performance through on-going interactive progress assessments related to established goals and objectives. Communication and Engagement We strongly believe that Volt's success depends on employees understanding how their work contributes to the Company's overall strategy. To this end, we communicate with our workforce through a variety of channels and encourage open and direct communication, including: (i) quarterly company-wide CEO update calls; (ii) regular company-wide calls with executives; (iii) frequent corporate email communications; and (iv) employee engagement surveys.
Commitment to Values and Ethics through Governance
Along with our core values, we act in accordance with our Code of Business Conduct and Ethics ("Code of Conduct"), which sets forth expectations and guidance for employees to make appropriate decisions. Our Code of Conduct covers topics such as anti-corruption, discrimination, harassment, privacy, appropriate use of company assets, protecting confidential information and reporting Code of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, responsible and ethical manner and also provides direction for reporting complaints in the event of alleged violations of our policies (including through an anonymous hotline). Our executive officers and supervisors maintain "open door" policies and any form of retaliation is strictly prohibited. We take all reports of suspected violations of the Code of Conduct and unethical behavior seriously and will take appropriate actions to correct the situation. Environmental As a global provider of staffing services, Volt does not produce or manufacture any products or materials and therefore our environmental impact has been relatively small. Nevertheless, we understand that certain areas of our business and operations have an impact on the environment and we are dedicated to promoting internal sustainability initiatives and keeping our ecological footprint to a minimum. In addition to certain on-going internal initiatives, including office waste reduction practices such as printing less and recycling furniture and electronics, we were able to take advantage of more impactful opportunities using actions implemented during the COVID-19 pandemic. During fiscal 2020, we were able to quickly shift to a fully remote in-house workforce and we continue to have the majority of our in-house employees work remotely thereby reducing the environmental impact of commuting and office energy consumption. This work model has allowed us to further decrease our carbon footprint by exiting and consolidating certain 18 -------------------------------------------------------------------------------- offices. We have also been able to reduce certain business travel by using virtual and collaborative tools whenever possible, further limiting our ecological impact. Volt is committed to enhancing its environmental protection measures and continuing to promote an eco-friendly culture both internally and in the communities it serves. COVID-19 and Our Response The global spread of the COVID-19 pandemic created significant volatility, uncertainty and global macroeconomic disruption. Our business experienced significant changes in revenue trends at the mid-point of our second quarter of fiscal 2020 through the beginning of our third quarter of fiscal 2020, as a number of countries and
U.S.federal, state and local governments issued varying levels of stay-at-home orders and other restrictions and mandates. Our business was largely converted to a remote in-house workforce and remained open as we provided key services to essential businesses, both remotely and onsite at our customers' locations. Beginning in the second half of fiscal 2020, revenue steadily increased as a result of a combination of existing customers returning to work, expanding business with existing customers and winning new customers. We continue to operate on a hybrid-model with certain locations fully staffed and others opening on a limited voluntary basis. Our COVID-19 Incident Response Teamcontinues to monitor the most up-to-date developments and safety standards from the Centers for Disease Control and Prevention, World Health Organization, Occupational Safety and Health Administrationand other key authorities to determine an appropriate response for our employees and clients. While this team is continuing to monitor COVID-19 developments globally, we remain focused on the regulations and vaccine requirements in the U.S.to ensure we are complying with all relevant regulations. We are also monitoring developments related to vaccine mandates from certain customers. We expect the global business environment will continue to operate in various stages of economic turbulence. We are encouraged by the increase in order activity and demand throughout the Company, however, the pace of such increase may be impacted if a resurgence in COVID-19 infections leads to additional disruptions, government mandates or increased lack of available talent to match our customers' demands.
For additional discussion of the uncertainties and business risks associated with COVID-19, see Part I, “Item 1A. Risk Factors” of the 2021 Form 10-K.
Critical Accounting Estimates Casualty Insurance Program We purchase workers' compensation insurance through mandated participation in certain state funds and the experience-rated premiums in these state plans relieve us of any additional liability. Liability for workers' compensation in all other states as well as automobile and general liability is insured under a paid loss deductible casualty insurance program for losses exceeding specified deductible levels and we are financially responsible for losses below the specified deductible limits. The casualty program is secured by a letter of credit against our financing arrangement ("DZ Financing Program") with DZ Bank AG Deutsche Zentral-Genossenschaftsbank ("
DZ Bank") of $20.9 millionas of January 30, 2022. We recognize expenses and establish accruals for amounts estimated to be incurred, both reported and not yet reported, policy premiums and related legal and other claims administration costs. We develop estimates for claims as well as claims incurred but not yet reported using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the length of time over which payments are expected to be made. Actuarial estimates are updated as loss experience develops, additional claims are reported or settled and new information becomes available. Any changes in estimates are reflected in operating results in the period in which the estimates are changed. Depending on the policy year, adjustments to final expected paid amounts are determined through the ultimate life of the claim. At January 30, 2022and October 31, 2021, the casualty insurance liability was $14.2 millionand $13.9 million, respectively.
February 4, 2022, we reported that our Chief Financial Officer, Herbert Mueller, is currently unable to perform his duties due to a medical illness and will temporarily step away from his role as Chief Financial Officer. In Mr. Mueller'sabsence, the Company's former Chief Financial Officer, Paul Tomkins, will serve as Interim Chief Financial Officer, effective February 4, 2022, and will assume the day-to-day responsibilities of such role until further notice. The Company and Vega Consulting, Inc.("Vega"), an affiliate of ACS Solutions, a global provider of information technology solutions and services, announced on March 14, 2022, that Volt and Vega entered into a definitive merger agreement under which Volt will be acquired for $6.00per share in cash. This per share purchase price represents a premium of 99% to the Company's closing stock price on March 11, 2022. Vega will commence a tender offer no later than March 25, 2022, to acquire all outstanding shares of Volt for $6.00per share in cash. The merger agreement was approved by Volt's board of directors, which recommends that Volt stockholders tender their shares in the tender offer. Additional information related to the Merger Agreement can be found within the Form 8-K filed by the Company on March 14, 2022. 19 --------------------------------------------------------------------------------
Consolidated results by segment
Three months completed
North American International North Corporate and (in thousands) Total Staffing Staffing American MSP Other Eliminations Net revenue
$ 226,928 $ 191,196$ 26,018 $ 9,709$ 78 $ (73) Cost of services 191,835 163,145 20,800 7,921 42 (73) Gross margin 35,093 28,051 5,218 1,788 36 - Selling, administrative and other operating costs 34,976 21,409 4,280 815 8,472 - Restructuring and severance costs 591 67 70 - 454 - Impairment charge 23 - - - 23 - Operating income (loss) (497) 6,575 868 973 (8,913) - Other income (expense), net (569) Income tax provision 153 Net loss $ (1,219)
Three months completed
North American International North Corporate and (in thousands) Total Staffing Staffing American MSP Other Eliminations Net revenue
$ 217,958 $ 184,216$ 24,013 $ 9,669 $ 119$ (59) Cost of services 185,276 157,636 19,851 7,784 64 (59) Gross margin 32,682 26,580 4,162 1,885 55 - Selling, administrative and other operating costs 33,747 20,646 3,788 1,353 7,960 - Restructuring and severance costs 632 (241) (8) - 881 - Impairment charge 31 - - - 31 - Operating income (loss) (1,728) 6,175 382 532 (8,817) - Other income (expense), net (391) Income tax provision 327 Net loss $ (2,446)
Consolidated operating results (Q1 2022 vs. Q1 2021)
Net revenue in the first quarter of fiscal 2022 increased
$8.9 million, or 4.1%, to $226.9 millionfrom $218.0 millionin the first quarter of fiscal 2021. The net revenue increase was primarily due to an increase in our North American Staffing segment of $7.0 millionand an increase in our International Staffing segment of $2.0 million. Excluding the negative impact of foreign currency fluctuations of $0.8 million, net revenue increased $9.8 million, or 4.5%. Operating results in the first quarter of fiscal 2022 improved $1.2 million, to an operating loss of $0.5 millionfrom $1.7 millionin the first quarter of fiscal 2021. Excluding the restructuring and severance costs and impairment charges, operating results improved $1.2 millionto operating income of $0.1 million. This increase in operating results of $1.2 millionwas primarily the result of improvements in our North American Staffing segment of $0.7 million, our International Staffing segment of $0.6 millionand our North American MSP segment of $0.4 million, partially offset by a $0.5 millionincrease in operating loss in the Corporate and Other category. 20 --------------------------------------------------------------------------------
Operating results by segment (Q1 2022 vs. Q1 2021)
The North American Staffing segment revenue in the first quarter of fiscal 2022 increased
$7.0 million, or 3.8%, to $191.2 millionfrom $184.2 millionin the first quarter of fiscal 2021. The increase is attributable to new business wins in a combination of retail and mid-market clients, combined with the expansion of business within existing clients and improvements in direct hire revenue. The International Staffing segment revenue in the first quarter of fiscal 2022 increased $2.0 million, or 8.3%, to $26.0 millionfrom $24.0 millionin the first quarter of fiscal 2021, primarily due to increased direct hire revenue in the United Kingdomand Singapore, as well as increases in other staffing business in France, Belgiumand the United Kingdom. Excluding the negative impact of foreign exchange rate fluctuations of $0.8 million, revenue increased $2.8 million, or 12.3%.
Revenues from the North American MSP segment in the first quarter of fiscal 2022 were flat compared to the first quarter of fiscal 2021. The slight improvement was mainly due to increased demand in its payroll services business , partially offset by a decline in its managed services business.
Cost of services in the first quarter of fiscal 2022 increased
$6.5 million, or 3.5%, to $191.8 millionfrom $185.3 millionin the first quarter of fiscal 2021. This increase is primarily due to a $5.5 millionincrease in our North American Staffing segment related to the 3.8% increase in revenue and slightly unfavorable workers' compensation development in the current period partially offset by an increase of $0.3 millionin government wage subsidies. In addition, our International Staffing segment increased $0.9 millionprimarily as a result of the 8.3% increase in revenue. Gross margin as a percent of revenue in the first quarter of fiscal 2022 increased to 15.5% from 15.0% in the first quarter of fiscal 2021. Our North American Staffing segment gross margin as a percent of revenue increased primarily due to a mix of higher margin business, partially offset by slightly unfavorable workers' compensation development in the current quarter. Our International Staffing segment gross margin as a percent of revenue primarily increased due to an increase in direct hire revenue. Our North American MSP segment gross margin as a percent of revenue decreased primarily due to the mix of business. Government wage subsidies accounted for 40 basis points of the increase in the first quarter of fiscal 2022 compared to 30 basis points in the first quarter of fiscal 2021.
Selling, administrative and other operating expenses
Selling, administrative and other operating costs in the first quarter of fiscal 2022 increased
$1.3 million, or 3.6%, to $35.0 millionfrom $33.7 millionin the first quarter of fiscal 2021. The increase was primarily due to $0.7 millionin labor as a result of changes in headcount and $0.5 millionin equity compensation, partially offset by an increase in government wage subsidies of $1.4 million. In addition, there was an increase in professional fees of $0.8 millionand depreciation expense of $0.3 million. As a percent of revenue, selling, administrative and other operating costs were 15.4% and 15.5% in the first quarter of fiscal 2022 and 2021, respectively.
Restructuring and redundancy costs
Restructuring and severance costs remained consistent at
$0.6 millionin both the first quarter of fiscal 2022 and 2021. Restructuring and severance costs in the first quarter of fiscal 2022 were primarily due to $0.5 millionin ongoing costs of facilities exited in fiscal 2020. Restructuring and severance costs in the first quarter of fiscal 2021 primarily included $0.3 millionof severance costs resulting from the elimination of certain positions as part of our continued efforts to reduce costs and $0.6 millionrelated to the ongoing costs of facilities exited in fiscal 2020 partially offset by a $0.3 millionlease termination gain. Other Income (Expense), net Other expense in the first quarter of fiscal 2022 increased $0.2 million, to $0.6 millionfrom $0.4 millionin the first quarter of fiscal 2021 due to an increase in non-cash foreign exchange losses primarily on intercompany balances.
Provision for income tax
The income tax provision of
CASH AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flows generated from operations and proceeds from the DZ Financing Program. Both operating cash flows and borrowing capacity under our financing arrangement are directly related to the levels of accounts receivable generated by our business. Our primary capital requirements include funding working capital, operating lease obligations and software-related expenditures. We define our working capital as cash plus trade accounts receivable minus current liabilities. Our working capital requirements consist primarily of payroll, employee-related benefits and employment-related tax payments for our contingent staff and in-house employees and trade payables, offset by collections of customer receivables. Our most significant current asset is trade accounts receivable, which are generally on 15 - 45 day credit terms, and our most significant current liabilities are payroll related costs, which are generally paid weekly. Consequently, as the demand for our services increases, we generally see an increase in our working capital requirements, as we continue to pay our contingent employees on a weekly basis while the related accounts receivable is outstanding for much longer, which may result in a decline in operating cash flows. Conversely, as the demand for our services declines, we generally see a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level. This may result in an increase in our operating cash flows; however, any such increase would not be expected to be sustained in the event that an economic downturn continued for an extended period. Our business is subject to seasonality with our first fiscal quarter billings typically the lowest due to the holiday season and generally increasing in the third and fourth fiscal quarters when our customers increase the use of contingent labor. Accordingly, the first and fourth quarters of our fiscal year are generally the strongest for operating cash flows. We manage our cash flow and related liquidity on a global basis. As mentioned, we fund payroll, taxes and other working capital requirements using cash generated by operating activities supplemented as needed from our borrowings. Our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately
$16.0- $17.0 million. We generally target minimum global liquidity to be 1.5 times our average weekly requirements taking into account seasonality and cyclical trends. We also maintain minimum effective cash balances in foreign operations and use a multi-currency netting and overdraft facility for our European entities to further minimize overseas cash requirements. We believe our cash flow from operations, as well as our borrowing availability under our financing program, will be sufficient to meet our cash needs for the next twelve months based on current business plans. Our capital allocation strategy is focused on strengthening our balance sheet and financial flexibility, as well as continuing to invest in our growth and profitability initiatives. This strategy includes effectively managing working capital to maximize operational efficiency, re-investing in our core growth initiatives, in both technology enhancements and sales and recruiting talent. These priorities demonstrate our ongoing commitment to Volt shareholders as we continue to execute on our overall strategic plan and return to sustainable profitability.
End of the first financial quarter
Our available liquidity and capital resources are influenced by four key elements: cash, including cash equivalents and restricted cash, operating activities, investing activities and financing activities, as shown below. below compared to the previous year.
Cash flows from operating, investing and financing activities, as reflected in our condensed consolidated statements of cash flows, are summarized in the following table (in thousands):
January 30, 2022 January 31, 2021 Net cash used in operating activities $ (11,916) $
Net cash used in investing activities (641)
Net cash used in financing activities (16)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (597)
Net decrease in cash, cash equivalents and restricted cash $ (13,170)
Cash Flow – Operating Activities
The net cash used in operating activities in the three months ended
January 30, 2022increased $5.4 millionfrom the cash used in operating activities in the three months ended January 31, 2021. This increase resulted primarily from a $6.6 millionincrease in cash used in operating assets and liabilities, primarily from a $13.1 millionpayment made towards deferred tax payments (discussed below), partially offset by an increase related to customer receipts and vendor payments. This increase in cash used in operating activities was partially offset by a decrease in net loss of $1.2 million. Cash generated from operations was supplemented by the enactment of laws providing COVID-19 relief, most notably the CARES Act which allowed for the deferral of payments of the Company's U.S.social security taxes between March 27, 2020and December 31, 2020. As a result, $26.2 millionof employer payroll tax payments were deferred with $13.1 millionpaid on January 3, 2022and the remaining amounts payable with the December 31, 2022tax payment in January 2023. In addition, certain state governments have delayed payment of various state payroll taxes for a shorter period of time. State payroll taxes of approximately $4.4 milliondeferred from the fourth quarter of fiscal 2021 were paid beginning in the first quarter of fiscal 2022. The Company's payment of approximately $5.1 millionof state payroll taxes will be deferred from the first quarter of fiscal 2022 with payments scheduled to begin in the second quarter of fiscal 2022. Additionally in fiscal 2021, we determined that we were eligible for the employee retention tax credit ("ERTC") under the CARES Act for certain wages paid through September 30, 2021, as our operations were fully or partially suspended due to government orders enacted in response to the COVID-19 pandemic. These credits reduced our payroll tax payments during fiscal 2021 through the first half of fiscal 2022 by $12.2 millionand were treated as government wage subsidies.
Cash Flow – Investing Activities
The net cash used in investing activities in the three months ended
January 30, 2022was $0.6 million, as a result of purchases of property, equipment and software primarily relating to our investment in updating our business processes, back-office financial suite and information technology tools. The net cash used in investing activities in the three months ended January 31, 2021was $1.0 million, principally for the purchases of property, equipment and software.
Cash flow – Financing activities
The net cash used in financing activities was minimal in the three months ended
January 30, 2022. The net cash used in financing activities in the three months ended January 31, 2021was $0.2 millionas a result of debt issuance costs.
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, that subsidiary may request that
DZ Bankmake loans from time-to-time to that subsidiary which are secured by liens on those receivables. The Maximum Facility Amount, as defined in the DZ Financing Program is $100.0 million. In December 2020, the Company amended the DZ Financing Program, which was originally executed on January 25, 2018. The modifications to the agreement were to (1) extend the Amortization Date, as defined in the DZ Financing Program, from January 25, 2023to January 25, 2024; (2) extend the Facility Maturity Date, as defined in the DZ Financing Program, from July 25, 2023to July 25, 2024; (3) revise an existing covenant to maintain positive net income in any fiscal year ending after 2020 to any fiscal year ending after 2021; (4) replace the existing Tangible Net Worth("TNW") covenant requirement, as defined in the DZ Financing Program, to a minimum TNW of $20.0 millionthrough the Company's fiscal quarter ending on or about July 31, 2021and $25.0 millionin each quarter thereafter; and (5) revise the eligibility threshold for the receivables of a large North American Staffing customer from 5% of eligible receivables to 8%, which increased our overall availability under the Program by $1.0- $3.0 million. All other terms and conditions remained substantially unchanged. Loan advances may be made under the DZ Financing Program through January 25, 2024and all loans will mature no later than July 25, 2024. Loans will accrue interest (i) with respect to loans that are funded through the issuance of commercial paper notes, at the 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 Governorsof the Federal Reserve Systemfor determining the reserve requirements with 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%. 23 -------------------------------------------------------------------------------- The DZ Financing Program also includes a letter of credit sub-facility with a sub-limit of $35.0 million. As of January 30, 2022, the letter of credit participation was $22.1 millioninclusive of $20.9 millionfor the Company's casualty insurance program and $1.2 millionfor the security deposit required under certain real estate lease agreements. The DZ Financing Program contains customary representations and warranties as well as affirmative and negative covenants. 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 is subject to certain financial and portfolio performance covenants under the DZ Financing Program, including (1) a minimum TNW, as defined in the DZ Financing Program, of $20.0 millionthrough the Company's fiscal quarter ending on or about July 31, 2021and $25.0 millionin each quarter thereafter; (2) positive net income in any fiscal year ending after 2021; (3) maximum debt to TNW ratio of 3:1; and (4) a minimum of $15.0 millionin liquid assets, as defined in the DZ Financing Program. At January 30, 2022, the Company had outstanding borrowings under the DZ Financing Program of $60.0 million. Borrowing availability, as defined under the DZ Financing Program, was $2.7 millionand global liquidity was $49.6 millionat January 30, 2022.
Our DZ financing program is subject to termination upon certain events of default, such as breach of covenants, including financial covenants. AT
The following table shows our global cash and liquidity levels at the end of our last five fiscal quarters (in thousands):
January 31, 2021 May 2, 2021
Cash and cash equivalents (a) $40,062
$49,595 $71,373 $54,864
Total outstanding debt $60,000
60,000 $ 60,000 $ 60,000 Cash in banks (b)(c) $ 36,962
$ 39,288$ 43,076 $ 52,938 $ 46,930 DZ Financing Program 2,225 2,868 3,990 6,046 2,657 Global liquidity 39,187 42,156 47,066 58,984 49,587 Minimum liquidity threshold 15,000 15,000 15,000 15,000 15,000 Available liquidity $ 24,187 $ 27,156$ 32,066 $ 43,984 $ 34,587 a.Per financial statements. b.Amount generally includes outstanding checks. c.Amounts in the USB collections account are excluded from cash in banks as the balance is included in the borrowing availability under the DZ Financing Program. As of January 30, 2022, the balance in the USB collections account included in the DZ Financing Program availability was $7.5 million.
As previously noted, our primary sources of liquidity are cash flows from operations and proceeds from our financing arrangements. Both operating cash flows and borrowing capacity under our financing arrangements are directly related to the levels of accounts receivable generated by our businesses. Our level of borrowing capacity under the DZ Financing Program increases or decreases in tandem with any increases or decreases in accounts receivable based on revenue fluctuations. While we believe our cash provided by operating activities and borrowing availability under the DZ Financing Program will be sufficient to meet our operating working capital and capital expenditure requirements at a minimum for the next twelve months, the extent to which any on-going or resurgence of COVID-19 related impacts could affect our business, financial condition, results of operations and cash flows in the short- and medium-term cannot be predicted with certainty. We may also face unexpected costs or an adverse impact on our business operations in connection with government mandated COVID-19 vaccine-related policies and procedures. Any of the above could have a material adverse effect on our business, financial condition, results of operations and cash flows and require us to seek additional sources of liquidity and capital resources. Many governments in countries and territories in which we do business have announced that certain payroll, income and other tax payments may be deferred without penalty for a certain period of time as well as providing other cash flow related relief packages. As noted above, we determined that we qualify for the payroll tax deferral under the CARES Act which allows us to delay payment of the employer portion of payroll taxes and we are evaluating whether we qualify for certain employment tax credits. If we qualify for such 24 -------------------------------------------------------------------------------- credits, the credits will be treated as government wage subsidies which will offset related operating expenses. We continue to monitor these relief packages to take advantage of all of those which are available to us. Entering fiscal 2022, we have significant tax benefits including federal net operating loss ("NOL") carryforwards of
$210.0 million, U.S.state NOL carryforwards of $226.3 million, international NOL carryforwards of $8.3 millionand federal tax credits of $53.3 million, which are fully reserved with a valuation allowance which we will be able to utilize against future profits. As of October 31, 2021, the U.S.federal NOL carryforwards will expire at various dates between 2031 and 2038 (with some indefinite), the U.S.state NOL carryforwards will expire at various dates beginning in 2022 (with some indefinite), the international NOL carryforwards will expire at various dates beginning in 2022 (with some indefinite) and federal tax credits will expire between 2022 and 2040. In addition to our discussion and analysis surrounding our liquidity and capital resources, our significant contractual obligations and commitments as of January 30, 2022, include:
• Debt securities and interest payments – From
• Lease obligations – From
•Software-Related Expenditures - As of
January 30, 2022, we had contractual commitments for software-related expenditures of $3.7 million. We anticipate capital expenditures in fiscal 2022 of approximately $4.0- $5.0 millionas we continue to support our strategic initiatives through improved technology, as necessary. While the majority of our software-related contractual obligations does not currently extend beyond fiscal 2022, we anticipate annual payments of approximately $5.5 millionfor the on-going use of our core technology. •Casualty Insurance - As of January 30, 2022, we had accrued casualty claims of $14.2 millionunder our Casualty Insurance Program. While we cannot accurately predict future insurance claim liability, we estimate our related expenditures in fiscal 2022 to be in the range of $8.0- $11.0 million, based on historical data.
Off-balance sheet arrangements
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