TrueBlue, Inc. — Q1 2018 Form 10-Q
Reporting period: Thirteen weeks ended April 1, 2018; comparisons are with the thirteen weeks ended April 2, 2017. TrueBlue provides contingent staffing, workforce management and recruitment outsourcing through PeopleReady, PeopleManagement and PeopleScout.
Financial performance
| Metric | Q1 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $554.4 million | $568.2 million |
| Gross profit / margin | $143.3 million / 25.8% | $139.4 million / 24.5% |
| Operating income / margin | $7.4 million / 1.3% | $6.4 million / 1.1% |
| Net income | $8.8 million | $4.7 million |
| Diluted EPS | $0.22 | $0.11 |
| Operating cash flow | $44.8 million | $54.1 million |
- Revenue declined 2.4%. PeopleReady revenue fell 4.7% to $316.8 million; PeopleManagement fell 4.1% to $183.9 million; PeopleScout grew 22.1% to $53.7 million.
- Gross margin improved 1.3 percentage points, attributed to PeopleScout growth and efficiency gains, plus lower workers’ compensation costs. SG&A rose to $125.8 million, or 22.7% of revenue, from 21.4%, including approximately $2 million of cloud-system investment and higher PeopleScout costs.
- Net income benefited from higher operating income, a 9.0% effective tax rate versus 27.9%, and a preliminary $1.4 million pretax gain on the PlaneTechs sale. The filing attributes the lower tax rate primarily to the Tax Cuts and Jobs Act and hiring credits; the quarter included $0.3 million of additional prior-year hiring credits.
- Operating cash flow decreased year over year. Investing activities provided $9.7 million, including $8.5 million cash proceeds from the PlaneTechs divestiture. Financing activities used $48.6 million, including $46.3 million of net revolving-credit-facility repayments.
Balance sheet, debt and liquidity
- At April 1, 2018, cash and cash equivalents were $26.6 million; restricted cash and investments were $242.8 million, principally collateral for workers’ compensation obligations.
- Management reported $132 million available under the revolving credit facility and total liquidity of approximately $159 million. The facility has a maximum commitment of $300 million, matures June 30, 2019, and is subject to borrowing-base limits. The company said it was in compliance with covenants.
- Long-term debt, less current portion, was $69.6 million, versus $116.5 million at December 31, 2017. The filing does not provide a clear total-debt figure in the presented balance-sheet data.
- Workers’ compensation reserves, net of discount, were $269.7 million, including $75.7 million current. Total collateral commitments were $247.3 million.
Management outlook, risks and unusual items
- Management cited limited visibility into future demand and gave no quantified earnings or revenue guidance. Priorities for the remainder of fiscal 2018 include organic revenue and gross-profit growth, disciplined pricing to recover wage and benefit increases, and cost control to improve operating leverage.
- Management expects PeopleScout growth to outpace other segments, citing the RPO market, client wins and technology, including Affinix. It also highlighted investments in PeopleReady’s Jobstack platform and other digital tools.
- PeopleReady faced weaker demand in certain industries, branch sales-professional turnover (especially in the Southeast), and solar-project delays associated with new tariffs. Tight labor markets and minimum-wage increases raised worker costs; higher bill rates may weigh on near-term revenue trends.
- PlaneTechs was sold in March for a stated purchase price of $11.4 million: $8.5 million cash, a $1.6 million note due within six months, and a remaining working-capital adjustment. The sale included transition services of up to seven months and was not classified as discontinued operations.
- Key exposures include economic and client-demand swings, recruiting and wage pressures, workers’ compensation claims and collateral needs, tax-credit variability, competition, and technology, cybersecurity and system-implementation risks. Management expects favorable workers’ compensation reserve adjustments to diminish over time. Ordinary-course legal proceedings were not expected to materially affect results or financial condition.
Important facts for investors to verify
- Whether PeopleReady’s volume trends and sales-team attrition improve, and whether pricing offsets higher labor costs without further weakening demand.
- Whether PeopleScout’s growth and Affinix investments translate into sustained segment profit and cash generation.
- The sustainability of the low effective tax rate, including availability of Work Opportunity Tax Credits and any subsequent Tax Act accounting adjustments.
- Workers’ compensation reserve development, collateral requirements, and the collectability of insurance recoverables, particularly from carriers in liquidation.
- Collection of the PlaneTechs note and working-capital adjustment, and refinancing or renewal plans for the credit facility before its June 2019 maturity.