TrueBlue, Inc. — Q1 2014 Form 10-Q
Business context and period. TrueBlue provides temporary blue-collar staffing in the U.S., Canada, and Puerto Rico. This report covers the 13 weeks ended March 28, 2014; comparisons are with the 13 weeks ended March 29, 2013. The company attributed growth primarily to the prior-year acquisitions of MDT and The Work Connection, alongside organic growth across most geographies and industries. Severe weather dampened demand, with activity returning toward normal in March.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $396.1 million | $346.5 million |
| Gross profit / margin | $99.6 million / 25.1% | $86.6 million / 25.0% |
| SG&A / revenue | $92.0 million / 23.2% | $88.4 million / 25.5% |
| Operating income (loss) | $2.4 million | $(7.0) million |
| Net income (loss) | $1.7 million | $(1.1) million |
| Diluted EPS | $0.04 | $(0.03) |
| Operating cash flow | $23.5 million | $6.1 million |
- Revenue increased 14.3%. The filing does not quantify the organic-growth contribution separately.
- Gross margin rose 0.1 percentage point. Better pricing and revenue mix were largely offset by the acquired businesses’ lower margins.
- SG&A fell to 23.2% of revenue from 25.5%; the prior-year period included $4.2 million of non-recurring MDT acquisition and integration costs. Excluding those costs, the prior-year ratio was 24.3%.
- Q1 2014 tax expense was $1.1 million, an effective rate of 40.0%. The prior-year $5.4 million tax benefit included about $3.2 million from retroactive restoration of the Work Opportunity Tax Credit (WOTC), making earnings comparisons less directly comparable.
- Operating cash flow improved by $17.4 million year over year. Cash and cash equivalents ended the quarter at $128.8 million; cash, cash equivalents, and marketable securities totaled $165.1 million. Investing cash outflow was $15.0 million, including net purchases of marketable securities; financing cash outflow was $1.5 million.
- Total assets were $721.7 million and total liabilities $324.9 million at March 28, 2014. Term-loan debt was $31.4 million ($2.3 million current and $29.1 million long-term); no revolving-facility borrowing was reported. The company had $74.0 million of additional borrowing availability and reported $223.2 million of facility-defined liquidity, above its $12.0 million minimum. It was in compliance with facility covenants.
- Workers’ compensation reserves were $215.1 million net of discount, including $48.8 million current. Restricted cash and investments were $151.4 million; total collateral commitments, including letters of credit and surety bonds, were $165.5 million.
Changes, outlook, and risks
- Management cited operating leverage, cost control, and technology-enabled efficiency improvements. It consolidated 20 branches in Q1 and expected to consolidate another 40 during the rest of 2014.
- Management’s stated priorities were organic revenue and gross-profit growth, operating leverage, investment in sales/recruiting/customer service, and pursuing acquisitions. It expected minimum-wage, Affordable Care Act, and other statutory costs to rise, and planned to seek recovery through customer bill rates. No quantitative earnings or revenue guidance was provided.
- WOTC had not been renewed for 2014 at the time of filing. The company noted uncertainty around its ability to pass through workers’ compensation and other payroll-related cost increases.
- Workers’ compensation estimates and collateral needs are significant and may change with claim trends, costs, regulation, and business growth. Certain former insurers in liquidation had not paid some excess claims; the company recorded a $4.9 million valuation allowance against related receivables.
- Other disclosed risks include economic sensitivity, customer credit losses, staffing competition and worker availability, employment-related claims, regulatory costs, acquisition and integration execution, and technology, data-security, and vendor disruptions. Management said ordinary-course legal proceedings were not expected to materially affect results or financial condition.
- The company changed its annual goodwill impairment assessment date to the first day of fiscal Q2, to better align with planning and forecasting; the change will be applied prospectively. Management said it does not delay, accelerate, or avoid potential impairment recognition.
Important facts for investors to verify
- How much of revenue growth reflects ongoing organic demand versus the MDT and TWC acquisitions, and whether weather-related softness recurs.
- Whether pricing and productivity gains sustain margins as statutory labor costs rise and acquired operations carry lower gross margins.
- Development of workers’ compensation claims, reserves, insurer recoveries, and collateral requirements, including exposure to insurers in liquidation.
- Customer credit quality and the higher doubtful-account provision, particularly in construction.
- WOTC legislative status and the resulting effect on taxes and year-over-year earnings comparability.
- Execution of planned branch consolidation, recruiting-technology deployment, and any further acquisitions.