TrueBlue, Inc. — Q1 2023 Form 10-Q
Reporting period: Thirteen weeks ended March 26, 2023; comparisons are with the thirteen weeks ended March 27, 2022, unless otherwise noted. TrueBlue provides contingent staffing, recruitment outsourcing, and workforce-management services through PeopleReady, PeopleScout, and PeopleManagement.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $465.3 million | $551.5 million |
| Gross profit / margin | $123.1 million / 26.5% | $139.8 million / 25.4% |
| SG&A expense | $122.6 million | $120.6 million |
| Operating income (loss) | $(5.9) million | $12.0 million |
| Net income (loss) | $(4.3) million; $(0.13) diluted EPS | $10.5 million; $0.30 diluted EPS |
| Operating cash flow | $9.2 million | $26.4 million |
- Revenue fell 15.6%. PeopleReady revenue declined 17.4% to $252.6 million, PeopleScout declined 15.3% to $69.5 million, and PeopleManagement declined 12.6% to $143.2 million.
- Gross margin expanded 110 basis points, mainly from lower workers’ compensation costs and bill rates rising ahead of pay rates; mix toward lower-margin staffing partly offset the improvement.
- SG&A rose 1.7% despite lower revenue, reflecting workforce-reduction costs and investments in PeopleReady sales resources. Operating margin fell to negative 1.3% from positive 2.2%.
- Segment profit was $0.9 million at PeopleReady versus $16.2 million; $8.9 million at PeopleScout versus $11.0 million; and a $0.2 million loss at PeopleManagement versus $3.0 million profit.
- Cash and cash equivalents were $47.2 million at March 26, 2023, down from $72.1 million at December 25, 2022. Cash, cash equivalents, and restricted cash totaled $109.6 million. Restricted cash and investments were $212.8 million.
- There was no outstanding revolving-credit borrowing; $292.8 million was available after $7.2 million of letters of credit, giving reported total liquidity of $340.0 million. The $300 million facility matures March 2025. The company reported compliance with covenants and a 0.08 leverage ratio.
- Net cash used in investing was $8.4 million, including $8.1 million of capital expenditures. Net cash used in financing was $26.8 million, primarily including $24.7 million of share repurchases. $64.3 million remained under the repurchase authorization.
Material changes and management commentary
- Management attributed the revenue decline to macroeconomic uncertainty, lower hiring volumes, clients using permanent employees for work previously outsourced, and the absence of prior-year post-pandemic demand surges.
- PeopleReady’s segment profit was particularly affected by lower revenue and operating deleverage. PeopleScout and PeopleManagement also cited lower volumes and relatively fixed cost structures.
- Workers’ compensation cost was $4.8 million, compared with $11.3 million in the prior-year quarter, partly reflecting favorable development of prior-year reserves. Management expects favorable reserve adjustments to diminish as opportunities for further reductions in accident frequency and severity lessen.
- Workers’ compensation reserves, net of discount, were $239.4 million; related excess-claim receivables were $72.5 million. Total collateral commitments were $205.8 million. Management noted collateral requirements can change independently and may increase.
- PeopleScout and PeopleManagement reduced costs during the quarter; management expects these actions to generate $11 million of savings over the remainder of 2023. The company recorded $1 million in workforce-reduction costs in Q1.
- The company repurchased 1.36 million shares under its public program at a weighted-average price of $18.21 per share. The board authorization does not require repurchases of any particular amount.
Outlook, risks, and contingencies
- For Q2 2023, management expected revenue to decline 10%–14% year over year, gross-margin contraction of 20–60 basis points, and SG&A of $120–$124 million.
- For fiscal 2023, management expected gross margin to range from a 20-basis-point contraction to a 40-basis-point expansion; SG&A of $495–$501 million; an effective tax rate of 9%–13%; and capital expenditures plus software-as-a-service spending of $36–$40 million.
- Fiscal 2023 includes a 53rd week, expected to add $22–$27 million of revenue but not significant net income. Management expected approximately 31 million diluted weighted-average shares for Q2.
- Demand is cyclical and sensitive to economic conditions and labor-market trends. Weekly associate payroll alongside client payment terms generally of 90 days or less can create working-capital needs; management also noted higher days sales outstanding for receivables with longer terms.
- The company’s workers’ compensation program is substantially self-insured, and claim estimates, insurance collateral demands, and favorable reserve development are important uncertainties. Legal proceedings in the ordinary course were described as immaterial based on management’s estimates; actual outcomes could differ.
- Effective March 30, 2023, the credit agreement replaced LIBOR with SOFR plus a 0.10% adjustment; management did not expect a significant financial-statement impact.
- The filing reported no material changes to previously disclosed risk factors and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue declines across all three segments stabilize or worsen as customer hiring and labor demand respond to economic conditions.
- Whether the announced $11 million of cost savings are realized and offset continued fixed-cost deleverage without impairing growth investments.
- Whether gross-margin performance is sustainable as favorable workers’ compensation reserve adjustments diminish and segment mix changes.
- Whether receivable collections, workers’ compensation claim payments, and collateral requirements support liquidity while the company continues capital spending and repurchases.
- Whether Q2 and fiscal-year guidance, including the effects of the 53rd week, remains achievable.