TrueBlue, Inc. 10-Q Summary: Quarter Ended March 26, 2010
Business Context and Reporting Period
This report covers the thirteen-week period ended March 26, 2010, for TrueBlue, Inc., a leading provider of blue-collar staffing services operating under brands such as Labor Ready and Spartan Staffing. The company serves approximately 175,000 businesses across various industries. The 2010 fiscal year is a 53-week year, with the extra week falling in the fourth quarter.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenue | $239.9 million | $224.4 million |
| Gross Profit | $61.1 million | $62.7 million |
| Gross Margin | 25.5% | 27.9% |
| Operating Loss | $(4.2) million | $(9.8) million |
| Net Loss | $(2.3) million | $(5.3) million |
| Diluted EPS | $(0.05) | $(0.12) |
| Cash from Operations | $3.5 million | $3.6 million |
| Cash and Equivalents | $128.5 million | $103.5 million |
| Restricted Cash | $121.7 million | $124.0 million |
| Debt Availability | $66.0 million (Unused) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 6.9% year-over-year, driven by an 11.5% increase in same-branch revenue. This growth occurred despite a decline in the construction sector and reduced revenue from the company's largest customer, Boeing.
- Margin Compression: Gross margin declined to 25.5% from 27.9% due to competitive pricing pressures, increased state unemployment taxes, and a shift in revenue mix toward larger customers with lower margins.
- Expense Management: Selling, general, and administrative (SG&A) expenses decreased 10.4% to $61.2 million, improving the SG&A ratio to 25.5% of revenue from 30.4% in the prior year.
- Profitability Improvement: The net loss narrowed significantly to $2.3 million from $5.3 million in the prior year, reflecting improved operational leverage and lower workers' compensation costs (3.3% of revenue vs. 3.9% previously).
Guidance, Outlook, and Risks
Outlook: Management expects improved revenue performance for fiscal year 2010 compared to 2009, driven by economic recovery trends. However, this is expected to be partially offset by a significant reduction in revenue from Boeing, which dropped from $37 million in Q1 to an estimated $22 million in Q2. The company anticipates continued competitive pricing pressure but plans to offset this through margin improvement programs.
Liquidity: The company maintains strong liquidity with $128.5 million in cash and $66 million available under its revolving credit facility. It is in compliance with all covenants, including a liquidity requirement of $30 million.
Risks and Contingencies:
- Insurance Concentration: A significant portion of workers' compensation coverage and collateral is held by Chartis (a subsidiary of AIG). Financial distress at Chartis could materially impact the company's balance sheet and operations.
- Customer Concentration: Revenue from Boeing and affiliates accounted for 13.4% of 2009 revenue. A substantial lapse in this revenue could materially affect profitability.
- Regulatory Changes: New federal health care reform legislation may increase expenses starting in 2014 if the company cannot pass costs to customers.
- Collateral Requirements: The company must maintain significant collateral (cash, letters of credit, bonds) for workers' compensation obligations, totaling $149.1 million as of March 26, 2010.
Investor Verification Checklist
- Verify the sustainability of same-branch revenue growth excluding the impact of Boeing.
- Monitor the trajectory of gross margins given the stated competitive pricing pressures and rising unemployment taxes.
- Assess the financial stability of Chartis/AIG and the potential impact on the company's restricted cash and insurance coverage.
- Review the adequacy of workers' compensation reserves and the valuation allowance for claims against insolvent insurers (Legion and Reliance).
- Track the utilization of the $66 million available credit facility and compliance with liquidity covenants.