TrueBlue, Inc. — FY2018 Form 10-K
Business context and period: TrueBlue provides workforce solutions through PeopleReady (on-demand staffing), PeopleManagement (on-site industrial staffing) and PeopleScout (recruitment process outsourcing and managed services). This filing covers the 52-week fiscal year ended December 30, 2018; comparisons are with FY2017, also 52 weeks. The company connected approximately 730,000 people with work and served about 151,000 clients.
Financial performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $2.499 billion | $2.509 billion |
| Gross profit / margin | $665.6 million / 26.6% | $634.5 million / 25.3% |
| Operating income / margin | $73.9 million / 3.0% | $77.6 million / 3.1% |
| Net income | $65.8 million | $55.5 million |
| Diluted EPS | $1.63 | $1.34 |
| Cash from operations | $125.7 million | $100.1 million |
- Revenue declined 0.4%. Gross margin expanded for a third consecutive year, primarily on lower workers’ compensation costs and payroll burdens, plus PeopleScout growth and efficiency gains. SG&A rose $39.8 million to $550.6 million, from 20.4% to 22.0% of revenue, offsetting much of the gross-profit improvement.
- Effective tax rate fell to 13.1% from 28.5%, reflecting the lower federal tax rate under the Tax Cuts and Jobs Act and hiring-credit benefits. Higher net income also reflected share repurchases.
- Operating cash flow was $125.7 million; capital expenditures were $17.1 million. Investing cash outflow was $20.5 million and financing cash outflow was $75.0 million.
- At year-end, cash was $47.0 million, working capital $204.3 million, and total debt $80.0 million, down from $118.8 million. The $300 million revolving facility had $213.1 million available after draws and letters of credit. Reported total liquidity was $260 million, including cash. Restricted cash and investments of $235.4 million primarily secure workers’ compensation obligations and are not ordinary operating liquidity.
Material changes and segment results
- PeopleReady: Revenue increased 0.7% to $1.522 billion; segment profit rose to $86.0 million from $79.0 million. Management cited broad-based growth and improved local business development.
- PeopleManagement: Revenue declined 9.8% to $728.3 million; segment profit fell to $21.6 million from $27.2 million. Drivers included the PlaneTechs divestiture, loss of Amazon’s Canadian business, and lower existing-client volumes.
- PeopleScout: Revenue increased 30.9% to $248.9 million; segment profit grew to $47.4 million from $39.4 million, while segment margin declined to 19.0% from 20.7%. Growth included the TMP acquisition, new client wins and expanded services.
- TrueBlue acquired UK-based TMP in June for $22.7 million net of cash acquired, and divested PlaneTechs in March for a stated purchase price of $11.4 million, recognizing a $0.7 million pre-tax gain. FY2018 included $2.7 million of TMP acquisition and integration costs and $4 million of accelerated stock compensation tied to the CEO transition.
- Fourth-quarter revenue was $650.1 million versus $669.6 million; net income was $14.9 million versus $16.4 million. Quarterly results are unaudited.
Outlook, risks and contingencies
- For FY2019, management prioritized organic revenue and gross-profit growth, cost control, disciplined pricing and operating leverage. It expected PeopleReady demand to accelerate and PeopleScout growth to continue outpacing the other segments; no specific consolidated revenue or earnings guidance was provided.
- Management forecast FY2019 headwinds of approximately $39 million in revenue and $7 million in segment profit for PeopleManagement from the lost Amazon Canadian business and reduced volume/pricing at another retail client. It forecast PeopleScout headwinds of about $15 million in revenue and $11 million in segment profit from client losses and lower industrial-client volume and margins.
- Key risks include economic cyclicality and uncertain staffing demand; tight labor markets and wage increases that may not be fully passed through; client losses and concentration; workers’ compensation claims, reserve estimates and collateral requirements; regulatory and employment-related claims; competition and technology disruption; cyber/privacy exposure; acquisition integration; variable-rate debt and credit-facility covenants; and UK/EU and foreign-exchange exposure.
- Workers’ compensation reserves were $266.4 million, with $235.5 million of collateral commitments. Management noted favorable prior-period reserve adjustments may diminish. A 6% change in one or more key claims factors could change workers’ compensation expense by approximately $4 million.
- The company reported compliance with its revolving-credit covenants. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Ordinary-course legal proceedings were not expected by management to have a material effect.
Important facts for investors to verify
- Whether PeopleReady growth and PeopleScout expansion can offset PeopleManagement client-related declines and the stated FY2019 headwinds.
- Whether gross-margin gains persist as wage, benefit and workers’ compensation costs change, and whether SG&A growth moderates.
- The assumptions and development behind workers’ compensation reserves, insurance recoverables and required collateral.
- Actual cash availability under the revolving facility after working-capital needs, collateral commitments, debt service and share repurchases.
- Whether TMP integration and Affinix/JobStack investments deliver expected growth, efficiency and returns; assess the impact of client concentration and acquisition-related costs.