TrueBlue, Inc. — Q1 2011 Form 10-Q
Business context and period: TrueBlue provides temporary blue-collar staffing through Labor Ready, Spartan Staffing, CLP Resources, PlaneTechs and Centerline. The unaudited quarter comprised 13 weeks ended April 1, 2011; comparison is with the 13 weeks ended March 26, 2010. Fiscal 2011 has 52 weeks, versus 53 weeks in 2010.
Key financial results
| Metric | Q1 2011 | Comparable 2010 |
|---|---|---|
| Revenue | $274.3 million | $239.9 million |
| Gross profit / margin | $70.0 million / 25.5% | $61.1 million / 25.5% |
| Operating income (loss) / margin | $1.0 million / 0.3% | $(4.2) million / (1.7)% |
| Net income (loss) | $0.8 million; $0.02 diluted EPS | $(2.3) million; $(0.05) diluted EPS |
| Operating cash flow | $(4.6) million | $3.5 million |
| Investing cash flow | $(5.4) million | $1.5 million |
| Cash and cash equivalents, quarter-end | $152.8 million | $163.2 million at Dec. 31, 2010 |
- Revenue grew 14.4% year over year; excluding lower revenue from Boeing and affiliates, management reported growth of 23.8%.
- SG&A was $65.2 million, or 23.8% of revenue, versus $61.2 million, or 25.5%. Depreciation and amortization was $3.9 million. Net interest and other income was $0.3 million.
- Operating cash use primarily reflected a $12.3 million increase in accounts receivable associated with revenue growth. Capital expenditures were $1.7 million.
- At April 1, total assets were $550.0 million, total liabilities $234.2 million and shareholders’ equity $315.8 million. Workers’ compensation reserves totaled $186.8 million, including $41.3 million current.
- Restricted cash and investments were $123.8 million. The company reported $69.0 million of unused revolving-credit capacity and $224.2 million of liquidity under its facility definition, against a $30 million minimum; it said it was in compliance with covenants. The $80 million secured facility expires June 2012. The filing does not provide a clear total debt balance.
Changes, outlook and risks
- Revenue growth and a lower SG&A ratio moved the company from an operating and net loss to profit. Gross margin was unchanged. Workers’ compensation expense increased to 3.7% of revenue from 3.3%, as favorable reserve reductions were smaller than a year earlier; HIRE Act incentives partly offset the increase.
- Management expected revenue growth to continue in 2011 as the economy recovered, but anticipated slower growth rates from tougher comparisons and reduced Boeing revenue as multi-year projects conclude. Boeing revenue was $23.2 million in Q1, which management viewed as a best estimate for subsequent quarters.
- Management expected operating margin to improve as revenue growth leveraged fixed costs. It estimated 2011 capital expenditures of approximately $8 million. Higher unemployment taxes could reduce gross profit by 0.6% of revenue absent bill-rate increases; the HIRE Act benefits expired in 2010, and management expected workers’ compensation expense of about 4% of revenue in future quarters.
- On March 11, the company moved $89.1 million of workers’ compensation collateral from Chartis into a Bank of New York Mellon trust, with $3.1 million invested at quarter-end. The trust permits the company to manage those assets; collateral remains restricted.
- Key exposures include economic and staffing-demand fluctuations, customer concentration and Boeing project runoff, workers’ compensation costs and collateral needs, insurer collectability, regulatory and employment-related claims, competition, and information-system disruption. Two former insurers are in liquidation; a $7.9 million valuation allowance was recorded against their insurance receivables. Management said ordinary-course legal proceedings were not expected to materially affect results or financial condition.
- Management noted interim results may not indicate full-year performance because of seasonality. The filing gives no specific full-year revenue or earnings target. Disclosure controls were concluded effective; no material internal-control changes were reported.
Important facts for investors to verify
- Whether revenue growth persists as the recovery and customer demand evolve, particularly after Boeing project reductions.
- Cash conversion and working-capital needs as receivables rise with sales growth.
- Workers’ compensation reserve assumptions, collateral requirements, and collectability of claims recoveries from troubled insurers.
- Actual impact of higher payroll taxes, expired HIRE Act incentives, and workers’ compensation costs on margins.
- Liquidity and covenant headroom, including the facility’s June 2012 expiration and the distinction between unrestricted cash and restricted collateral.
- Execution and reliability of the proprietary information-system replacement, and any resulting cost or service disruption.