TrueBlue, Inc. — Q1 2019 Form 10-Q
Business context and period: The filing covers the 13 weeks ended March 31, 2019, compared with the 13 weeks ended April 1, 2018. TrueBlue provides contingent staffing and workforce-management services through PeopleReady, PeopleManagement and PeopleScout.
Financial results
| Metric | Q1 2019 | Prior-year quarter |
|---|---|---|
| Revenue | $552.4 million | $554.4 million |
| Gross profit / margin | $148.4 million / 26.9% | $143.3 million / 25.8% |
| Operating income / margin | $8.8 million / 1.6% | $7.4 million / 1.3% |
| Net income | $8.3 million | $8.8 million |
| Diluted EPS | $0.21 | $0.22 |
| Operating cash flow | $21.5 million | $44.8 million |
- Gross margin improved 1.1 percentage points, helped by lower workers’ compensation costs; this was the 13th consecutive quarter of gross-margin expansion. SG&A rose to $129.7 million from $125.8 million, increasing to 23.5% of revenue from 22.7%.
- Operating cash flow declined year over year, reflecting less cash from working-capital changes. Cash and cash equivalents were $26.3 million at quarter-end, down from $47.0 million at December 30, 2018. Including $251 million available on the revolving facility, reported liquidity was $277 million.
- Long-term debt, less current portion, was $42.2 million, versus $80.0 million at year-end. The company repaid $37.8 million net on its revolving facility during the quarter. Restricted cash and investments of $229.7 million primarily support workers’ compensation collateral and are not equivalent to unrestricted cash.
- Total assets were $1.10 billion and total liabilities were $501.7 million at March 31, 2019. Adoption of the lease standard added operating lease right-of-use assets and liabilities; reported operating lease liabilities totaled $41.4 million.
Material changes and segment performance
- PeopleReady: Revenue increased 3.2% to $326.9 million; segment profit rose to $11.5 million from $9.5 million. Management cited broad-based growth and lower workers’ compensation costs.
- PeopleManagement: Revenue fell 14.1% to $158.0 million; segment profit declined to $2.3 million from $5.6 million. Drivers included the PlaneTechs divestiture, loss of Amazon’s Canadian business, and lower volume and pricing at another client.
- PeopleScout: Revenue increased 25.7% to $67.4 million, including the contribution from TMP, acquired in June 2018. Segment profit fell to $10.4 million from $11.9 million and margin declined to 15.5% from 22.2%, reflecting client mix, a lost client and TMP’s lower margins.
- Net income and EPS were below the prior-year quarter, in part because the prior-year period included a $1 million after-tax gain on the PlaneTechs divestiture.
Outlook, commentary and risks
- Management expected Q2 2019 revenue to range from negative 1% to positive 1% year over year, citing the absence of prior-year revenue from Amazon’s Canadian business and a PeopleScout client acquired by another company. No specific full-year revenue or earnings guidance is provided.
- Management’s priorities include organic revenue and gross-profit growth, pricing to offset higher wages and employment costs, cost control, and investment in digital platforms JobStack and Affinix. It expects PeopleScout to outgrow the other segments over time.
- Management cautioned that future demand is difficult to forecast and depends on economic and labor-market conditions. Other significant risks include attracting workers amid tight labor markets and passing through wage increases, client concentration and loss of major accounts, competition, technology and cybersecurity risks, and compliance and employment-related claims.
- Workers’ compensation is a material exposure: the company is substantially self-insured, had $262.1 million of net workers’ compensation reserves, and had $229.4 million of collateral commitments. Management said favorable reserve adjustments may diminish as improvements in accident frequency and claim severity become harder to achieve.
- Ordinary-course legal proceedings were not expected by management to materially affect results or financial condition. The company reported effective disclosure controls as of March 31, 2019; it had transitioned to a new ERP system at the start of 2019.
Investor verification points
- Track whether PeopleManagement stabilizes after the Amazon business loss and whether PeopleReady growth can offset the decline.
- Assess PeopleScout’s organic growth, TMP contribution and margin recovery, including the effects of client mix and pass-through media costs.
- Monitor workers’ compensation claims, reserve development, carrier recoveries and collateral requirements, especially as favorable adjustments potentially taper.
- Compare operating cash flow with earnings and review unrestricted liquidity, revolving-facility borrowings and share repurchases.
- Evaluate execution of the Q2 revenue outlook and whether higher wages and benefits can be passed through without harming demand or margins.