TrueBlue, Inc. 10-Q Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 26, 2009, and the twenty-six weeks ended on that date. TrueBlue, Inc. is an international provider of temporary blue-collar staffing, operating brands such as Labor Ready, Spartan Staffing, and CLP Resources. The company serves approximately 250,000 small to mid-sized businesses across construction, warehousing, hospitality, and other industries. As of July 24, 2009, there were 43,768,789 shares of common stock outstanding.
Key Financial Metrics
| Metric | 13 Weeks Ended June 26, 2009 | 26 Weeks Ended June 26, 2009 |
|---|---|---|
| Revenue from Services | $247.0 million | $471.4 million |
| Gross Profit | $72.8 million (29.5% margin) | $135.5 million (28.7% margin) |
| Net Income (Loss) | $3.7 million | $(1.6) million |
| Diluted EPS | $0.09 | $(0.04) |
| Cash and Cash Equivalents | $103.9 million | $103.9 million (Balance Sheet) |
| Restricted Cash | $123.3 million | $123.3 million (Balance Sheet) |
| Operating Cash Flow (26 weeks) | $7.7 million | |
| Debt | No borrowings under the $80 million Revolving Credit Facility. |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 33.4% year-over-year for the quarter and 32.1% for the year-to-date period. This was driven by a 34.2% decline in organic revenue, partially offset by 0.8% growth from recent acquisitions. Same-branch revenue declined 27.4% for the quarter.
- Profitability: While the company reported a net income of $3.7 million for the quarter, it reported a net loss of $1.6 million for the twenty-six-week period, compared to net income of $25.5 million in the prior year-to-date period.
- Cost Management: Selling, general, and administrative (SG&A) expenses declined 25.1% year-over-year for the quarter due to aggressive cost-cutting measures, including the closure of 36 branches in the second quarter and 77 branches total in 2009.
- Workers' Compensation: Workers' compensation expense as a percentage of revenue improved to 2.8% for the quarter (down from 4.1% in the prior year) due to risk management programs and favorable reserve adjustments.
Guidance, Outlook, and Risks
- Economic Outlook: Management expects a difficult economic environment throughout fiscal 2009 and potentially into 2010 due to the severe global recession. The company anticipates negative same-branch revenue for the full fiscal year 2009.
- Strategic Actions: TrueBlue has no plans to open new branches and will continue to close underperforming branches and implement cost reductions until the economy improves.
- Liquidity and Credit: On June 22, 2009, the company entered into a new $80 million secured revolving credit facility with Wells Fargo and Bank of America, replacing the previous facility. The company is currently in compliance with all covenants, maintaining liquidity of $131 million against a $30 million requirement.
- Key Risks:
- Insurance Concentration: A significant portion of insurance coverage and collateral is held by AIU Holdings, Inc. (formerly AIG Commercial Insurance). Financial distress at AIU could materially impact the company's balance sheet and operations.
- Customer Concentration: Revenue from one large customer is expected to account for 7% to 10% of total revenue in fiscal 2009, increasing exposure to the loss of a single client.
- Collateral Requirements: Deteriorating financial results could lead to increased collateral requirements from insurance carriers, reducing available working capital.
Investor Verification Checklist
- Insurance Counterparty Risk: Verify the current financial stability of AIU Holdings, Inc., given that it holds the majority of the company's restricted cash collateral ($117.7 million) and provides primary insurance coverage.
- Customer Concentration: Assess the stability of the single large customer expected to generate 7-10% of 2009 revenue and the potential impact of its loss.
- Workers' Compensation Reserves: Review the adequacy of the $198.2 million discounted workers' compensation reserve and the potential for future adjustments based on claim development.
- Credit Facility Covenants: Monitor the company's ability to maintain the required $30 million liquidity level and fixed charge coverage ratio under the new asset-based credit facility.
- Branch Closure Impact: Evaluate the long-term revenue impact of closing 77 branches in 2009 and the effectiveness of cost-cutting measures in stabilizing margins.