TrueBlue, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 27, 2020 (52 weeks); the filing is an annual report, not a standalone Q4 report. TrueBlue provides staffing, on-site workforce management, recruitment process outsourcing and managed service provider solutions through PeopleReady, PeopleManagement and PeopleScout.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,846.4 million | $2,368.8 million |
| Gross profit / margin | $440.6 million / 23.9% | $619.9 million / 26.2% |
| SG&A expense | $408.3 million (22.1% of revenue) | $516.2 million (21.8%) |
| Operating income (loss) | $(174.9) million | $66.2 million |
| Net income (loss) | $(141.8) million; $(4.01) diluted EPS | $63.1 million; $1.61 diluted EPS |
| Net cash from operations | $152.5 million | $93.5 million |
| Capital expenditures | $27.1 million | $28.1 million |
FY2020 operating loss included a $175.2 million non-cash goodwill and intangible-asset impairment charge. The company recorded a $31.4 million income tax benefit. Operating cash flow benefited from a $57.1 million reduction in receivables and $55.1 million of increased accrued wages and benefits, primarily reflecting deferred employer payroll taxes.
At year-end, cash and cash equivalents were $62.5 million, restricted cash and investments were $240.5 million, and long-term debt was zero (versus $37.1 million debt in FY2019). The $300 million revolving facility had $6.1 million of letters of credit outstanding; $160.9 million was available for additional borrowing under the most restrictive covenant. Workers’ compensation reserves were $255.5 million, including $189.5 million long-term. Total assets were $980.6 million and shareholders’ equity was $437.2 million.
Changes and segment results
- Revenue fell 22.1% year over year, primarily because of COVID-19-related reductions in customer demand. The quarterly year-over-year decline improved from 39.0% in Q2 to 25.5% in Q3 and 12.3% in Q4.
- FY2020 segment revenue and segment profit: PeopleReady $1,099.5 million and $43.2 million (profit margin 3.9%); PeopleManagement $586.8 million and $11.7 million (2.0%); PeopleScout $160.1 million and $4.5 million (2.8%). Revenue declined 25.4%, 8.6% and 36.6%, respectively.
- Q4 year-over-year revenue trends improved: PeopleReady declined 18.5%, PeopleManagement grew 4.6%, and PeopleScout declined 23.8%. PeopleScout was particularly affected by travel and leisure clients.
- Gross margin contracted 230 basis points, reflecting staffing bill/pay-rate pressure and PeopleScout’s lower volume and client mix. SG&A fell $108.0 million, but increased as a share of revenue to 22.1% from 21.8%.
- The impairment followed a sharp stock-price and market-capitalization decline and reduced forecasts during the pandemic. PeopleManagement On-Site goodwill was fully impaired; remaining PeopleScout RPO and MSP goodwill was $23.6 million and $9.7 million, respectively.
Outlook, risks and notable items
- FY2021 outlook: Management projected gross-margin decline of 50–10 basis points versus FY2020, primarily from bill/pay-rate pressure and the absence of a prior-year health-benefit cost adjustment, partly offset by improving PeopleScout volume. Q1 2021 gross margin was forecast to decline 290–250 basis points year over year.
- Management expected Q1 2021 operating expenses to be $13–$17 million lower year over year due to cost actions, and forecast a FY2021 effective tax rate of 23%–27% before job tax credits, with $8–$10 million of such credits.
- FY2021 capital expenditures were forecast at $37–$41 million, including Chicago support-center build-out costs; management expected $7 million of landlord reimbursement for those costs. The company expected to repay $57.1 million in deferred payroll taxes by September 15, 2021.
- Management stated it had sufficient resources for expected cash needs over the next 12 months, while noting limited visibility due to COVID-19. Revenue recovery, working-capital needs and collateral demands remain uncertain.
- COVID-19 effects, economic cyclicality, client demand and collections, pricing and recruiting pressures, workers’ compensation claims and collateral, regulatory exposure, cybersecurity, technology investment and customer/industry concentration are material risks. The ten largest clients represented 19.0% of FY2020 revenue; the largest single client represented 3.2%.
- The company repurchased $52.4 million of shares in FY2020; further repurchases were prohibited under the credit amendment until July 1, 2021. No cash dividend had been declared. The credit facility matures March 16, 2025 and includes financial covenants; covenant terms were amended during 2020 and clarified in January 2021.
- Government subsidies and payroll tax credits reduced operating expenses by $9.9 million in FY2020. The filing also reports $8.9 million of workforce-reduction costs and a $2.8 million one-time employee bonus.
- The auditor gave unqualified opinions on the financial statements and internal controls. Goodwill impairment valuation and workers’ compensation reserves were identified as critical audit matters.
Important facts for investors to verify
- Whether demand, bill/pay rates and gross margins recover as management projected, particularly in PeopleScout and COVID-affected industries.
- Whether operating cash flow remains sustainable as receivables rise with a revenue recovery and deferred payroll taxes are repaid.
- Available borrowing capacity and compliance with post-June 2021 credit covenants; distinguish $160.9 million of covenant-limited borrowing availability from the filing’s separately defined $356.4 million covenant-liquidity measure.
- Workers’ compensation reserve adequacy, future collateral requirements and insurance-carrier recoverability.
- Whether further declines or delayed recovery trigger additional goodwill or intangible-asset impairments.