TrueBlue, Inc. — Q3 2020 Form 10-Q
Business context and period. TrueBlue provides workforce solutions through PeopleReady (on-demand staffing), PeopleManagement (on-site staffing and driver services), and PeopleScout (recruitment process outsourcing and managed services). The quarter ended September 27, 2020, comprised 13 weeks; year-to-date figures cover 39 weeks. COVID-19 significantly reduced client demand, although revenue trends improved from Q2.
Financial performance
| Metric | Q3 2020 | Q3 2019 | 39 weeks 2020 | 39 weeks 2019 |
|---|---|---|---|---|
| Revenue | $474.5M | $636.8M | $1,327.7M | $1,777.7M |
| Gross profit / margin | $110.5M / 23.3% | $167.7M / 26.3% | $319.8M / 24.1% | $471.1M / 26.5% |
| Operating income (loss) | $12.7M | $29.2M | ($184.0M) | $58.8M |
| Net income (loss) | $8.8M | $26.7M | ($149.9M) | $54.4M |
| Diluted earnings (loss) per share | $0.25 | $0.68 | ($4.20) | $1.38 |
| Operating cash flow | Not separately stated | Not separately stated | $98.8M | $52.5M |
Q3 revenue declined 25.5% year over year, versus a 39.0% decline in Q2. Segment Q3 revenue changes were PeopleReady down 28.9%, PeopleManagement down 7.6%, and PeopleScout down 47.6%. The 300-basis-point Q3 gross-margin decline reflected bill/pay-rate pressure, client mix, and lower PeopleScout volumes. SG&A fell 30.6% to $90.1M, partly reflecting cost reductions and $4.1M of Canadian and Australian wage subsidies.
The 39-week operating loss includes a $175.2M non-cash goodwill and intangible-asset impairment recorded in Q1: $140.5M goodwill and $34.7M client relationships. The charge followed COVID-related demand and valuation deterioration; it did not affect current cash or credit covenants. Q3 operating income remained positive but fell year over year as lower demand and margins more than offset cost cuts.
Cash, debt and liquidity
- At September 27, cash and cash equivalents were $28.2M; total debt was $1.5M. Restricted cash and investments were $229.8M, largely collateral for workers’ compensation, and are not equivalent to unrestricted cash.
- Cash from operations of $98.8M included a $55.4M cash source from lower receivables and $36.3M of deferred employer payroll taxes under the CARES Act. These sources may not recur; management expects receivables to consume cash as revenue recovers.
- Cash used in investing was $23.5M, including $16.2M of capital expenditures; cash used in financing was $91.0M, including $52.3M of share repurchases and a $35.6M net reduction in revolving-credit borrowings.
- The $300M revolving facility matures in 2025. The company reported $138.5M available for additional borrowing under its most restrictive covenant and compliance with effective covenants. The filing cites liquidity of $320.6M under the covenant definition, but elsewhere reports total liquidity of $166.7M (and $167.0M in one passage); see verification items below.
- Workers’ compensation reserves totaled $254.8M net of discount, including $188.9M long term. Collateral commitments were $223.4M.
Outlook, risks and notable items
- Management projected Q4 2020 gross-margin decline of 190–250 basis points year over year and full-year decline of 210–270 basis points, citing expected volume and mix improvement.
- Cost actions were expected to reduce operating expenses by $23–27M in Q4 and $102–106M for fiscal 2020 versus comparable prior-year periods. Q4 capital expenditures were forecast at approximately $11M, including $4M of Chicago headquarters build-out costs expected to be reimbursed by the landlord.
- Management said COVID-19’s duration and effects were difficult to predict and expected continued material adverse impact on revenue, profitability and liquidity. Risks include prolonged demand weakness, client payment difficulties, wage and recruiting pressures, and further goodwill or intangible impairment if recovery is delayed or key clients are lost.
- The credit amendment restricts share repurchases until July 1, 2021. The company had repurchased $52.3M of shares year to date before the restriction; $66.7M remained under authorization.
- The company deferred $36.3M of employer Social Security taxes, payable in installments by December 2021 and December 2022, and expected to defer a further $18–20M in Q4.
- Subsequent event: possession of Chicago office space began October 1, 2020; the 15-year lease commences April 1, 2021. A $29.5M right-of-use asset and lease liability were recorded upon possession.
- Management reported disclosure controls were effective; ordinary-course legal proceedings were not expected to have a material effect.
Important facts for investors to verify
- Reconcile the reported $320.6M covenant liquidity with the $166.7M/$167.0M total-liquidity figures and the stated $138.5M borrowing availability.
- Assess the quality and sustainability of operating cash flow, particularly the receivables release and payroll-tax deferral, as revenue recovers.
- Track demand, margins, and profitability by segment, especially PeopleScout’s exposure to travel and leisure and the remaining goodwill and client-relationship asset balances.
- Evaluate workers’ compensation reserve estimates, collateral requirements, and potential insurance availability or cost changes.
- Monitor upcoming credit-covenant thresholds, deferred payroll-tax repayments, and the impact of the Chicago lease commitment.