TrueBlue, Inc. — Q3 2022 Form 10-Q
Reporting period: Fiscal third quarter and thirty-nine weeks ended September 25, 2022; comparisons are to the corresponding 2021 periods. TrueBlue provides contingent staffing and outsourced recruiting through PeopleReady, PeopleManagement and PeopleScout. Amounts below are in millions, except per-share data.
Financial performance
- Q3 revenue: $575.7, down 0.2%. Gross profit was $155.9, up 6.4%; gross margin increased to 27.1% from 25.4%.
- Q3 operating income: $24.1 versus $21.3; operating margin was 4.2% versus 3.7%. Net income was $20.7, up 11.0%, and diluted EPS was $0.63 versus $0.53.
- Thirty-nine-week results: Revenue was $1,696.5, up 9.3%; gross profit was $454.3, up 15.4%, with gross margin of 26.8% versus 25.4%. Operating income was $65.3 versus $46.5; net income was $55.2 versus $41.4. Diluted EPS was $1.65 versus $1.17.
- Segment revenue, Q3: PeopleReady $334.6, down 4.1%; PeopleManagement $163.6, up 3.7%; PeopleScout $77.5, up 10.4%. Year-to-date, the segments grew 5.4%, 5.9% and 37.5%, respectively.
- Cash flow: Operating activities provided $80.1 year to date, compared with $0.6 in 2021. Investing used $3.9 and financing used $64.7, including $60.9 of open-market share repurchases. Cash, cash equivalents and restricted cash totaled $112.1 at period end; unrestricted cash was $43.8.
- Liquidity and debt: No revolver borrowings were outstanding. The $300.0 million credit facility had $292.8 available after letters of credit, giving reported total liquidity of $336.6 including cash and cash equivalents. The company was in compliance with facility covenants.
- Balance sheet: Total assets were $982.8 and total liabilities $496.0. Restricted cash and investments were $208.7. The company had repurchased $60.9 of stock year to date; $89.1 remained authorized for repurchase.
Changes and management commentary
- Q3 revenue was broadly flat as PeopleReady experienced softer demand, with some clients pausing contingent labor. PeopleManagement benefited from commercial driving demand; PeopleScout grew on higher existing-client volumes and new short-term projects.
- Gross-margin expansion reflected higher bill rates relative to pay rates and lower workers’ compensation costs, including favorable prior-year reserve development and fewer injuries. Management cautioned that favorable reserve adjustments are expected to diminish.
- SG&A rose 4.7% in Q3, including higher employee compensation and $1.9 of PeopleReady technology-upgrade costs. Year-to-date SG&A rose 12.3%, with technology-upgrade costs of $6.2; the prior-year comparison included $4.0 of COVID-related government employment subsidies.
- Effective tax rates were 16.5% for Q3 and 16.9% year to date, below the 21% federal statutory rate primarily due to hiring tax credits, including WOTC.
Outlook, risks and notable items
- Q4 2022 outlook: Management expected revenue to decline 8%–12% year over year, gross-margin contraction of 30–70 basis points, and SG&A of $129–$133, including about $2 of PeopleReady technology-upgrade costs. Expected diluted weighted-average shares were about 33 million, excluding potential repurchases; the expected fiscal-year tax rate was 14%–18%.
- Fiscal 2023: The 53rd week was expected to add $22–$27 of revenue, with no significant net-income contribution expected because it falls between Christmas and New Year’s.
- Workers’ compensation: Effective July 1, 2022, the per-occurrence deductible increased from $2.0 to $5.0 million, making the business substantially self-insured. The net reserve was $251.9; related collateral commitments were $204.9. Management noted insurers could increase collateral requirements.
- Key risks include economic and labor-market cyclicality, client reductions in staffing demand, labor availability and wage inflation, workers’ compensation claims and insurance terms, competition, technology execution, cybersecurity and data privacy, and regulatory or employment-related claims. The filing says ordinary-course legal contingencies were not expected to be material, while acknowledging outcomes could differ.
- No goodwill or indefinite-lived intangible impairment was recorded year to date. The company reported $7.1 of year-to-date unrealized losses on investments supporting deferred compensation, included in SG&A.
Important facts for investors to verify
- Whether the Q4 revenue and margin outlook was achieved, and how quickly PeopleReady demand softened.
- Whether bill-rate gains continue to outpace pay-rate increases, and how workers’ compensation reserve development affects margins.
- Actual workers’ compensation collateral needs and the financial impact of the higher deductible and self-insured exposure.
- The sustainability of operating cash flow, given working-capital movements and weekly payroll obligations.
- Capital allocation, including subsequent share repurchases, remaining authorization and available revolver capacity.
- Whether PeopleScout growth and planned technology investments translate into durable, profitable growth.