TrueBlue, Inc. — Q2 2022 Form 10-Q
Business context and period: TrueBlue provides contingent staffing and outsourced recruiting services through PeopleReady, PeopleManagement, and PeopleScout. This unaudited report covers the 13 and 26 weeks ended June 26, 2022, compared with the periods ended June 27, 2021.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $569.3 million | $516.0 million | $1,120.8 million | $974.7 million |
| Gross profit / margin | $158.5 million / 27.8% | $136.5 million / 26.4% | $298.4 million / 26.6% | $247.0 million / 25.3% |
| Operating income / margin | $29.3 million / 5.1% | $18.9 million / 3.7% | $41.2 million / 3.7% | $25.2 million / 2.6% |
| Net income | $24.0 million | $15.9 million | $34.5 million | $22.8 million |
| Diluted EPS | $0.72 | $0.45 | $1.02 | $0.65 |
Q2 revenue increased 10.3% year over year; first-half revenue increased 15.0%. Q2 segment revenue growth was 6.2% at PeopleReady, 6.3% at PeopleManagement, and 39.0% at PeopleScout. First-half growth was 11.4%, 7.1%, and 54.6%, respectively. Gross margin expansion reflected bill rates rising ahead of pay rates, favorable customer mix, and PeopleScout’s larger revenue contribution. SG&A was $122.0 million in Q2, up 10.4%; as a share of revenue it was 21.4%, unchanged. First-half SG&A was $242.6 million, up 16.7%.
Cash flow and liquidity: First-half operating cash flow was $53.1 million, versus $47.4 million; investing cash outflow was $1.1 million, versus $4.3 million; financing cash outflow was $64.7 million, primarily due to $60.9 million of share repurchases. Cash and cash equivalents were $32.4 million at quarter-end, down from $49.9 million at December 26, 2021. The company reported no outstanding borrowings, $292.7 million available under its $300 million revolving facility, and total liquidity of $325.2 million. The facility matures in March 2025; the company was compliant with its covenants.
Balance sheet: Total assets were $991.0 million, compared with $1,033.2 million at year-end; total liabilities were $525.1 million, versus $540.2 million. Workers’ compensation reserves, net of discount, rose to $267.6 million from $256.2 million. Restricted cash and investments were $205.8 million, primarily supporting workers’ compensation and deferred compensation obligations.
Material changes, outlook, and risks
- PeopleReady demand slowed during Q2: year-over-year revenue growth declined from 10.8% in April to 2.7% in June as clients reassessed labor needs. Management cited higher bill rates and improving labor supply as offsets.
- Management did not provide customary Q3 revenue guidance. Based on June trends, it expected total-company sequential revenue growth of 3%–5%, compared with historical Q3 sequential growth of about 9% over the prior five years, excluding Q3 2020.
- Expected gross-margin expansion: 120–160 basis points in Q3 year over year and 40–100 basis points for fiscal 2022. Expected SG&A: $126–$130 million in Q3 and $501–$507 million for fiscal 2022, including approximately $3 million and $11 million, respectively, for PeopleReady technology replacement. Fiscal 2022 effective tax rate outlook was 14%–18%; capital expenditures and software-as-a-service spending were projected at $40–$44 million.
- Unusual items included $1.7 million of Q2 PeopleReady technology-replacement costs and a $3.3 million reversal of accrued compensation related to the former CEO’s resignation. Prior-year periods included COVID-19 government employment subsidies. No goodwill or indefinite-lived intangible impairment was recorded.
- Effective July 1, 2022, the per-occurrence workers’ compensation deductible increased from $2.0 million to $5.0 million. The company warns that collateral requirements may rise and that favorable reserve adjustments may diminish.
- Principal risks include economic weakness and lower client demand, labor supply and wage pressures, workers’ compensation claim and collateral exposure, technology execution and cybersecurity, client concentration, and competition. Management stated that ordinary-course legal proceedings were not expected to be material, while acknowledging outcomes could differ from estimates.
Important facts for investors to verify
- Whether the June slowdown in PeopleReady demand continued and how it affected the Q3 sequential-growth outlook.
- Whether projected margin expansion and fiscal 2022 SG&A, tax, and technology-spending ranges were achieved.
- How the higher workers’ compensation deductible affects claims, reserves, insurance costs, and collateral requirements.
- Whether PeopleReady’s technology replacement proceeds on schedule and delivers the expected operational benefits.
- The pace and price of share repurchases: $60.9 million was spent in the first half, with $89.1 million remaining authorized at quarter-end.