TrueBlue, Inc. — Q3 2019 Form 10-Q
Business context and period. TrueBlue provides staffing and workforce solutions through PeopleReady, PeopleManagement and PeopleScout. This unaudited report covers the 13 and 39 weeks ended September 29, 2019; comparisons are with the periods ended September 30, 2018.
Financial performance
| Metric | Q3 2019 | Q3 2018 | 39 weeks 2019 | 39 weeks 2018 |
|---|---|---|---|---|
| Revenue | $636.8m | $680.4m | $1,777.7m | $1,849.1m |
| Gross profit / margin | $169.1m / 26.6% | $184.3m / 27.1% | $475.8m / 26.8% | $493.2m / 26.7% |
| Operating income / margin | $29.2m / 4.6% | $28.4m / 4.2% | $58.8m / 3.3% | $57.0m / 3.1% |
| Net income | $26.7m | $24.4m | $54.4m | $50.9m |
| Diluted EPS | $0.68 | $0.61 | $1.38 | $1.26 |
- Revenue and segments: Q3 revenue declined 6.4%, reflecting weaker client demand and lower volumes. PeopleReady revenue fell 3.6%, PeopleManagement fell 12.1%, and PeopleScout fell 8.7%. For the 39-week period, PeopleScout revenue grew 8.5%, largely due to the TMP acquisition; PeopleReady declined 1.2% and PeopleManagement declined 13.4%.
- Profitability: Q3 gross margin narrowed 0.5 percentage points, mainly from client mix and higher workers’ compensation expense. Lower SG&A—down $14.2m in Q3 through cost controls—more than offset weaker gross profit, lifting operating income. YTD gross margin was broadly stable; operating income increased 3.2%.
- Cash flow: Operating cash flow was $52.5m for 39 weeks, down from $68.6m. Investing used $11.7m, including $18.3m in capital expenditures, while financing used $68.6m, including $31.3m in share repurchases and $36.2m of net revolver repayments. Cash, cash equivalents and restricted cash ended at $75.4m, including $23.6m of unrestricted cash.
- Debt and liquidity: Long-term debt was $43.8m at September 29, versus $80.0m at December 30, 2018; management separately reported total debt of $44m versus $108m at the prior-year Q3 end. The company reported $250m available under its revolving facility and total liquidity of $274m. Restricted cash and investments of $227.0m principally support workers’ compensation obligations and are not equivalent to unrestricted liquidity.
- Balance sheet and returns: Total assets were $1,131.0m and shareholders’ equity $620.7m. The company repurchased $31.3m of stock during the 39 weeks; $26.7m remained under the existing authorization at quarter-end. On October 16, the board authorized an additional $100m repurchase program.
Outlook, risks and notable items
- Management expected further revenue pressure in Q4 2019, citing broad same-client demand weakness across industries and geographies; it provided no numerical earnings or revenue guidance and noted limited visibility into future demand.
- Management highlighted cost discipline and ongoing investment in digital tools, including PeopleReady’s JobStack and PeopleScout’s Affinix. JobStack dispatched 1 million shifts in Q3, with a 40% digital fill rate and 87% worker adoption.
- Key risks include economic and client-demand sensitivity, client concentration and losses, wage and recruiting pressures, workers’ compensation claims and collateral needs, competition and technology disruption, and cybersecurity and regulatory exposure. The company is substantially self-insured for workers’ compensation; its net reserve was $259.3m.
- SIMOS goodwill had an estimated fair-value cushion of about 10% over carrying value, below management’s 20% threshold for “substantially in excess.” A roughly 1 percentage-point increase in its discount rate, 3-point decline in forecast revenue growth, or 1-point decline in gross margin could cause carrying value to exceed fair value. No impairment was recorded.
- The Work Opportunity Tax Credit contributed to the low 10.4% YTD effective tax rate; its authorization was due to expire December 31, 2019 absent extension. The company adopted lease accounting in Q1, adding operating lease assets and liabilities; management said adoption did not materially affect operations or cash flows.
- Management said ordinary-course legal proceedings were not expected to materially affect results or financial condition. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Whether weak same-client demand and the announced Q4 pressure persisted, especially in PeopleManagement and PeopleReady.
- Whether cost controls and pricing can sustain operating margins as revenue declines and wage and workers’ compensation costs evolve.
- Workers’ compensation reserve estimates, collateral requirements, and SIMOS reporting-unit performance relative to its limited goodwill cushion.
- Cash generation, revolver availability, and the effects of continued share repurchases on liquidity and capital allocation.
- The status of the Work Opportunity Tax Credit after its stated year-end 2019 expiration date.