TrueBlue, Inc. — Q1 2021 Form 10-Q
Reporting period: Thirteen weeks ended March 28, 2021; comparisons are to the thirteen weeks ended March 29, 2020. TrueBlue provides workforce solutions through PeopleReady, PeopleManagement and PeopleScout. Amounts below are in U.S. dollars; financial statement figures are generally in millions.
Financial results and liquidity
| Metric | Q1 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $458.7 million | $494.3 million |
| Gross profit / margin | $110.6 million / 24.1% | $126.2 million / 25.5% |
| SG&A expense / revenue | $97.4 million / 21.2% | $117.4 million / 23.7% |
| Operating income (loss) | $6.2 million | $(175.5) million |
| Net income (loss) | $6.9 million; $0.20 diluted EPS | $(150.5) million; $(4.04) diluted EPS |
| Cash from operations | $27.9 million | $27.6 million |
| Capital expenditures | $10.0 million | $7.0 million |
- Gross margin was 140 basis points lower year over year. Staffing margin pressure included weaker bill-pay spreads; lower workers’ compensation costs partly offset it. The prior-year quarter benefited from a non-recurring ACA-related cost adjustment.
- Operating results improved substantially versus the prior-year loss, principally because Q1 2020 included a $175.2 million goodwill and intangible-asset impairment charge. Q1 2021 had no impairment charge.
- At March 28, 2021, cash and cash equivalents were $88.0 million, with no debt outstanding. The company reported $150 million of additional borrowing availability under its most restrictive covenant. It separately reported $381.9 million of covenant-defined liquidity, using aggregate revolving commitments; these measures have different definitions.
- Restricted cash and investments were $231.2 million, principally collateral for workers’ compensation obligations, and should not be treated as unrestricted operating cash. Total workers’ compensation reserves were $254.0 million.
- Operating cash flow was nearly unchanged year over year. Cash increased $22.6 million during the quarter when including restricted cash; operating cash flow benefited from lower receivables, partly offset by seasonal cash uses and other working-capital movements.
Material changes and segment performance
- Total revenue declined 7.2% year over year, attributed mainly to continuing COVID-19 effects. Management said trends improved from Q4 2020’s 12.3% decline, with improving client volumes and new business wins.
- PeopleReady revenue fell 13.0% to $260.4 million; PeopleManagement revenue grew 7.2% to $151.8 million; PeopleScout revenue fell 12.7% to $46.6 million. Segment profits were $11.9 million, $3.1 million and $4.0 million, respectively.
- SG&A fell $20.0 million year over year, reflecting cost-reduction actions; Q1 2021 expense also benefited from $1.4 million of Canadian wage subsidies. Depreciation and amortization declined to $7.0 million, partly because of the prior-year impairment.
- The prior-year quarter included $52.3 million of common-stock repurchases and $256.4 million of revolving-credit borrowings; neither occurred in Q1 2021. Q1 2021 financing cash outflow was $2.4 million, including $2.6 million of shares withheld for employee taxes.
Outlook, risks and contingencies
- For Q2 2021, management forecast sequential revenue growth of 7%–12% and gross-margin expansion of 180–220 basis points versus Q2 2020. For fiscal 2021, it forecast gross-margin expansion of 40–100 basis points.
- Expected SG&A was $108–$112 million for Q2 and $446–$454 million for fiscal 2021. Expected capital expenditures were approximately $14 million for Q2 and $37–$41 million for the year.
- Management said COVID-19 continued to adversely affect demand and worker availability, and that its duration and financial effects remained difficult to predict. It cited worker-supply challenges in some PeopleReady markets, including the effects it attributed to stimulus payments and elevated unemployment benefits.
- The company expected to repay the $60 million cash-flow benefit from deferred payroll taxes in Q3 2021, while using CARES Act net operating loss carryback provisions. It stated that cash from operations and capital resources should cover cash requirements for the next 12 months.
- Material risks include a prolonged or renewed COVID-19 impact, economic and client-demand volatility, worker shortages, workers’ compensation claims and collateral requirements, insurance availability, competition, technology execution and cybersecurity, and covenant compliance. The company’s share-repurchase program was prohibited until July 1, 2021; $66.7 million remained authorized at quarter-end.
- Workers’ compensation collateral commitments were $220.2 million. Management noted that insurers may increase collateral requirements. Legal proceedings in the ordinary course were described as immaterial, with no material effect expected based on the information provided.
Important facts for investors to verify
- Whether revenue recovery and the stated Q2 and full-year margin, SG&A and capital-expenditure outlooks were achieved, particularly given ongoing pandemic uncertainty.
- The definitions and availability of reported liquidity: $150 million under the most restrictive covenant versus $381.9 million of covenant-defined liquidity, and the restrictions on workers’ compensation collateral.
- The timing and cash impact of the planned payroll-tax repayment and CARES Act tax benefits.
- Workers’ compensation reserve development, future collateral demands, and the extent to which favorable claims adjustments continue.
- Whether staffing margins, worker availability and PeopleScout demand improve as management expected; Q1’s low 1.7% effective tax rate benefit was primarily driven by hiring credits and may vary.