TrueBlue, Inc. — Q1 2015 Form 10-Q
Reporting period: Thirteen weeks ended March 27, 2015, compared with the thirteen weeks ended March 28, 2014. TrueBlue provides staffing, recruitment process outsourcing (RPO), and managed service provider (MSP) workforce solutions. Results include Seaton, acquired June 30, 2014; the prior-year comparison does not.
Financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $573.3 million | $396.1 million |
| Gross profit / margin | $129.8 million / 22.6% | $99.6 million / 25.1% |
| SG&A | $111.6 million (19.5% of revenue) | $92.0 million (23.2%) |
| Depreciation and amortization | $10.5 million | $5.2 million |
| Operating income / margin | $7.7 million / 1.3% | $2.4 million / 0.6% |
| Net income | $5.7 million | $1.7 million |
| Diluted EPS | $0.14 | $0.04 |
| Operating cash flow | $95.8 million | $23.5 million |
- Revenue increased 44.8%; Seaton contributed $175.8 million and 44.4 percentage points of growth. Legacy TrueBlue organic revenue grew 0.4%, or 2.6% excluding green-energy services.
- Gross margin declined 2.5 percentage points year over year. Management attributed an approximately 2.9-point reduction to Seaton’s lower-margin mix, partly offset by approximately 0.4-point improvement in legacy TrueBlue, including disciplined pricing.
- SG&A rose by $19.6 million, principally reflecting Seaton; it included $1.2 million of integration costs. Legacy TrueBlue SG&A decreased approximately $2.0 million. Management expected Seaton integration to be completed by mid-2015.
- Operating income increased 219.7%. Net income benefited from a lower effective tax rate: 20.5% versus 40.0%, including $1.3 million of discrete prior-year hiring-credit benefits.
Cash, debt, and liquidity
- Cash and cash equivalents were $17.8 million at March 27, down from $19.7 million at December 26, 2014. Restricted cash and investments were $172.0 million, largely collateral for workers’ compensation obligations and not generally available for operating needs.
- Operating cash flow was $95.8 million, including a $67.4 million cash inflow from accounts receivable. Management said the year-over-year seasonal pattern changed after Seaton’s acquisition, with receivables now de-leveraging in Q1. Investing activities used $5.9 million; financing activities used $90.3 million, primarily reflecting $88.0 million of net revolving-credit repayments.
- Total debt was $113.1 million, down from $201.7 million at December 26, 2014. The revolving facility balance was $84.0 million and the term loan was $29.1 million.
- The $300 million revolving facility had $151.9 million available for additional borrowing at quarter-end. Reported excess liquidity was $167.0 million against a $37.5 million minimum; the company reported compliance with its credit covenants. The facility matures June 30, 2019.
- Current assets were $342.5 million and current liabilities were $183.8 million. The filing reports $242.998 million of workers’ compensation reserves, net of discount, including a $61.8 million current portion.
Outlook, risks, and unusual items
- No numerical full-year earnings or revenue guidance was provided. Management’s stated priorities were organic revenue and gross-profit growth, operating-income leverage, technology investment, and continued acquisition opportunities.
- Management expected green-energy declines to reduce organic revenue growth by approximately 1.0% through Q2 2015. It also described Seaton’s RPO services as having growth potential and said the acquisition was integrating well.
- Management intended to apply excess cash toward revolving-debt repayment and considered liquidity adequate for foreseeable requirements. It noted that workers’ compensation collateral requirements may grow with the business and can change independently of its reserve estimates.
- Key risks include economic and customer-demand fluctuations; pricing and labor-cost pressures; workers’ compensation claim estimates, insurance availability and collateral needs; debt and borrowing-base constraints; acquisition integration and impairment; customer concentration; employment-related claims; regulation and taxes; and technology, cybersecurity, and data-privacy risks.
- The company reported no material expected effect from ordinary-course legal proceedings. Certain former workers’ compensation insurers are in liquidation and have not paid some excess claims; the company recorded a valuation allowance against receivables from those insurers.
Most important facts for investors to verify
- How much of subsequent revenue and earnings growth reflects Seaton versus organic growth, particularly after the acquisition enters both periods of comparison.
- Whether legacy organic growth and gross-margin improvement continue, and whether the lower-margin Seaton mix limits consolidated profitability.
- Whether the Q1 operating-cash-flow benefit from receivables is seasonal and repeatable; assess cash generation across the full year.
- Changes in revolving debt, borrowing availability, covenant headroom, and interest expense.
- Workers’ compensation reserve development, collateral demands, and collectability of insurance receivables, including exposures to insurers in liquidation.
- The extent to which tax benefits, integration costs, and acquired-intangible amortization affect future reported earnings.