TrueBlue Inc (TBI) 2008 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q1 2008 TrueBlue earnings conference call. My name is Denise and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Stacey Burke. Please proceed, ma'am.

Thank you. Here with me today is TrueBlue's CEO and President Steve Cooper and CFO Derrek Gafford. They will be discussing TrueBlue's 2008 first quarter earnings results, which were announced after market closed today. Please note that our press release and the accompanying income statement, balance sheet, cash flow statement and financial assumptions are now available on our Web site at www.TrueBlueInc.com.

Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note that on this conference call, management will reiterate forward-looking statements contained in today's press release and may make or refer to additional forward-looking statements relating to the Company's financial results and operations in the future. Although we believe the expectations reflected in these statements are reasonable, actual results may be materially different. Additional information concerning factors which could cause results to materially differ is contained in the press release and in the Company's filings with the Securities and Exchange Commission including our most recent Form 10-Q and 10-K. I will now hand the call over to Steve Cooper.

Thank you for joining us this afternoon to discuss our first quarter of operating results for 2008 and give you a recap of our strategic progress. Earlier today, we reported revenue increased 12% this quarter over the same quarter last year to $324 million. Earnings per share came in at $0.20 for Q1, maxed at the high end of our guidance at $0.18 to $0.20 but below the $0.21 we earned a year ago.

Acquisitions fueled by revenue growth during the quarter contributed a 15% increase in revenue while revenues in our core operations fell about 3%. We lost about 3% of our revenue from the 58 branches we closed over the past four quarters. Excluding the impact of closed branches, we held about even with last year, which is an accomplishment in this tough operating environment.

Net income for the quarter of $8.8 million declined 15% as compared to a year ago. This decline is primarily related to three things. First, the year-over-year increase in the wages we paid our workers continues to outpace the growth in the rates we charge our customers. This gap is primarily driven by the size and volume of minimum wage increases at both the federal and state levels over the past year.

And in addition, we're seeing an increase in the intensity of pricing pressure applied by our customers and competitors. We have closed this gap slightly over the past quarter, and I'm pleased with the progress we have made. I am hopeful that we'll be able to continue to narrow this gap as we're focused on doing so.

The second thing that contributed to our decline in net income is the increased operating expenses we are incurring to support the new platforms we have acquired recently. We have completed four significant acquisitions over the past year. [We believe] that these current investments will hold significant cost leverage in the future, as we go about these important platforms and complete our back office integration plans.

And third, the third contributor to our decline in net income is the higher amortization costs and lower interest income than a year ago after investing cash of more than $80 million in acquisitions and $150 million in share repurchases this past year. The fundamentals and financial stability of our Company remains sound. Earnings before interest, taxes, depreciation, and amortization improved compared to a year ago.

Despite our decline in net income for the quarter, and we continued to produce strong cash flows from our operating activities. We remain debt free and have $75 million of cash at the end of the quarter. Derrek will discuss these items in more depth during his comments today.

The operating environment continues to be challenging and economic conditions have surely had an impact on us this quarter. Until the last few weeks, we maintained essentially flat same branch revenue growth for the past year. Our trends were stable during the first quarter, up until the middle of March. During the last two weeks of March and the first two weeks of April, we'll have seen our same branch revenue decline about 8% to 10%, significantly off the trends we had experienced during the first ten weeks of the quarter and over the past year.

This step down in revenue has been broad-based across many geographies and does not correspond to any one customer or industry. We provided guidance today that revenue for the second quarter will be in the range of $350 million to $355 million, basically flat with last year. We're projecting revenue growth from acquisitions during the second quarter of approximately 12%, offset by core operations experiencing revenue declines of about 12%.

Understanding that our customers have costs to control as their own demand and needs fluctuate is the primary driver of our business model. We're continuing to make investments in our people through more focused sales and customer service training. This training is focused on developing stronger customer relationships and putting ourselves in our customers' shoes to better serve their fluctuating needs.

The scalability of our services is vital for our customers in volatile periods, so they can control their labor costs efficiently as their business slows. That's a big part of the value that we provide. We have taken the challenges of slow demand and found ways to place workers in many different types of jobs. We know that as demand picks up for our customers, we will continue to be there for them to help grow their businesses, help them succeed, and of course, continue to drive the operating leverage in our own business model.

We're projecting lower earnings for our second quarter of 30%, which is likely to result from the same three things I mentioned that impacted the first quarter's 15% decline, with the additional impact related to the declines in same branch revenue we have most recently experienced. Our strategy to grow revenue and income includes broadening our niche approach to serving the blue collar market through three separate lines of business.

First, serving the general labor needs with our 772 Labor Ready branches. Second, serving the longer-term needs in the light industrial markets with our 31 Spartan Staffing branches and the 43 PMI branches we intend to own by the end of April, as announced today. And third, serving the higher blue color skill needs in our skilled trades group with our 87 CLP resources branches, which serve the skilled construction trades; our 10 PLC driver's offices, which serve the transportation markets with experienced truck drivers; and our Playtex operations, which provide experienced aviation mechanics.

Some strategic actions taken most recently include in December 2007 we remain renamed our Company to TrueBlue to codify our niched approach to serving the needs of the labor markets and our growing Company. Also in December 2007, we acquired PlaneTechs, a provider of aircraft maintenance staffing. We are offering PlaneTechs as part of our skilled trades group and are very pleased with their performance last quarter, as our employees are stepping up due to high demand for aviation mechanics in the marketplace.

In the first quarter 2008 we acquired TLC, a recruiter and provider of truck drivers. TLC will join our growing skilled trades group as we further penetrate the transportation market with experienced truck drivers for both set fee positions and short-term temporary positions.

TLC operates out of 10 offices, mainly in West Coast locations. Our strategy is to take this business nationwide through a combination of acquisitions and organic openings. The opportunity to grow this service is great, as the talent shortage for drivers has been identified by both the 2007 Manpower survey and the US Department of Labor 2007 study as one of the highest areas of talent shortages today, and most importantly, in the future.

As you can see, the skilled trades group of TrueBlue is coming together to serve the higher skill sets within the blue collar labor markets where we continued to see high demand for these type of workers. Earlier today, we announced our signed agreement to acquire Personnel Management, a light industrial staffing company with 43 branches mainly in the Midwest. We were excited to add PMI to our TrueBlue family.

PMI will join forces with our Spartan Staffing brand to continue the growth of our light industrial platform, which we will represent a combined force of 74 branches operating in the Southeast and Midwest regions. The light industrial staffing segment in the US is a $9 billion market and is projected to continue to grow at over 6% throughout the next decade. We're excited about our expanding footprint and leadership in the light industrial marketplace.

We welcome the employees of all these strategic investments into the TrueBlue family and look forward to great growth opportunities in these exciting markets. We believe that our niche approach to branding and going to market will set us aside as the leading provider of blue collar staffing.

The acquisitions over the past four years, starting with Spartan Staffing in 2004 and CLP in 2005 up to these most recent acquisitions, have made a positive contribution to our revenue, EBITDA, and cash flows and they have produced excellent returns on invested capital, all the while providing the clarity we want in the marketplace which will provide great long-term growth opportunities in the years ahead.

Through the application of our strategy to grow through acquisitions, we have not only provided above-average returns on invested capital, we have added depth to our management team, improving our own operating performance by sharing best practices across brands. And perhaps most importantly, we have established new regional platforms that we can expand and grow into a national presence.

Our main focus over the next year will center on integration and optimization of our current structure in each one of our current brands. Although there is short-term uncertainty in the economy and labor markets, we are optimistic about the long-term demand for both skilled and unskilled blue collar labor, especially in the small to medium-sized business markets which is where our services are most widely used.

At this time, I'm going to turn to call over to CFO Derrek Gafford for further details on our operating and financial trends and then we will open up the call for questions.

Thanks Steve. Good afternoon. I will spend a few minutes following up on Steve's business discussion by pointing out the key operating and financial trends, starting off with revenue. Revenue for the quarter was $324 million which represented growth over the same quarter a year ago of 11.6%. Revenue was above our initial estimate of 312 million to 317 million due to stronger than expected performance from PlaneTechs, which was acquired in December 2007, and the acquisition of TLC services during February of 2008.

Of the 11.6 percentage points of revenue growth this quarter, 15 percentage points was from acquisitions completed in the last 12 months offset by a decline in organic revenue of 3.4 percentage points.

I would like to summarize the components of this quarter's organic revenue decline. Branches closed within the last 12 months decreased revenue by 3.2%. Same branch revenue decreased by 1.6%. Revenue from new branches opened in the last 12 months provided 1.3% of growth. The Easter holiday occurring in first quarter this year versus its occurrence in second quarter last year decreased revenue by 0.5%. And last, currency fluctuation provided 0.6% of growth.

I also want to highlight our monthly same branch revenue trends this quarter in comparison with the same period last year.

January decreased by 0.2%. February decreased by 0.1%. March decreased by 3.8%. The rate of decline in our same branch revenue declined further during the last two weeks of March and into the first two weeks of April. During this four-week period, same branch revenue declined at 8% to 10%.

For the second quarter of 2008, we expect revenue in the range of $350 million to $355 million. This represents growth from acquisitions of 12% and a decline in organic revenue of 12%, resulting in total sales for Q2 this year being about the same as Q2 last year.

It does not include revenue from the acquisition of PMI. If the PMI transaction closes at the end of April as anticipated, it would add approximately $20 million of revenue to the second quarter. We do not expect the acquisition to impact our dilutive earnings per share estimate due to integration costs and the amortization of intangible assets.

Now, let's discuss the trends in gross margin this quarter. Gross margin was 30.4% this quarter, which was close to our estimate of 30.5%. Please keep in mind when comparing our quarterly gross margin this year to the same period last year, that the acquisition of PlaneTechs lowers our blended gross margin by about one percentage point.

Pay rates have been growing faster than bill rates for several quarters as a result of minimum wage increases, a lower mix of construction business, and a competitive price environment associated with a slowing economy. However, we have made some progress in this area. During Q4 2007, pay rates were in excess of bill rates by 1.7 percentage points. During Q1 this year, the gap between pay and bill rates dropped to 1.4 percentage points. This continues to be a key focus for us as we move through the rest of 2008.

Our estimate for gross margin for Q2 of 2008 is 30.5%. Sales general and administrative expense as a percentage of revenue was 25.5% this quarter, in line with our expectation for the quarter of 25.3% to 25.7%. In dollars, SG&A increased by $5 million this quarter compared to Q1 last year.

The primary business events driving the increase are the SG&A expenses from companies acquired in the last 12 months, new branches opened within the last 12 months, less the SG&A from branches closed within the last 12 months. These items will continue to be components impacting our SG&A next quarter.

Based on our revenue estimate, we expect SG&A for the second quarter of 2008 to be about 24% of revenue.

During 2007, we did a thorough review of our branch network, resulting in the closing of 58 branch locations. As our customers adjust their needs for our services, we too must make adjustments. Based on revenue trends we have discussed with you today, we are readdressing our branch, field and corporate expenses to scale our cost structure to meet current demand levels. We don't have any details to share with you today, but we will share them with you as we take further action to control our operating expenses.

Interest income was $1.4 million less than the same quarter a year ago due to a lower investment yield and a lower cash balance related to acquisitions and stock repurchases over the last year. Our income tax rate for the quarter was 36.5% and at the high end of our expectation of 36% to 36.5%. We also expect our income tax rate for Q2 of 2008 to be 36% to 36.5%. Diluted net income per share for the second quarter of 2008 is estimated to be between $0.28 to $0.30, and it's based on an estimated weighted average share count for the second quarter of 43.7 million.

I will finish off here with some highlights on the cash flows and balance sheet. We finished the quarter with $75 million of cash. Cash flow from operations declined by $14 million this quarter in comparison with the same quarter last year, primarily due to timing differences associated with income tax payments.

Our allocation of capital between strategic acquisitions and stock buyback will continue to follow the same disciplined ROI approach we have used in the past. The ROI on potential acquisitions must exceed our return on equity goal of 20%. Otherwise, excess capital will be invested in share buyback. Since the beginning of 2007 we have repurchased $150 million of our common stock, and with the acquisition of PMI our investment in acquisitions will reach a total of about $100 million.

Depreciation and amortization increased 1.5 million this quarter in comparison with the same quarter last year. $1.1 million of the increase is due to the amortization of intangible assets associated with our recent acquisition. Our total acquisition expense for intangible assets was $1.5 million this quarter.

Days sales outstanding increased to 38 days this quarter compared to 36 days in the same quarter a year ago. The increase is related to a longer cash receipt cycle for the PlaneTechs business. PlaneTechs customers are comprised of large, well capitalized companies that have a history of maximizing their accounts payable leverage. Excluding PlaneTechs from the quarter, DSO would've been about 35 days.

In regard to capital expenditures, we expect CapEx of about 7 million for Q2 this year. We also announced earlier this week that we renewed our existing $80 million credit facility for a three-year term with one important addition. With the bank's approval, our new facility allows us to expand our credit line up to the lesser of 160 million or 2.5 times our trailing EBITDA.

While we have no immediate plans to use this extra liquidity, it does position our already strong balance sheet with additional capital if needed.

While the current economy is presenting us with some challenges, our top priorities haven't changed -- driving profits in our core operations and scaling our business to meet current demand remains at the top of our list. That's it for our prepared remarks. We will now open the call for questions.

(Operator Instructions). T. C. Robillard, Banc of America Securities.

I just wanted to drill down a little bit on the margin structure, on an operating margin structure as we look at skilled trades. Clearly seems like there's a lot to be gained. You guys are doing a good job on the acquisition side, diversifying the business.

Can you just give us a sense of how that compares? I mean I know construction has historically has been kind of your high margin business. How does PlaneTechs, how does TLC compared to your other services?

It's probably best to focus on PlaneTechs for now, TLC because if we're looking on a year-over-year basis, that's where the majority of the impact is. Roughly speaking, PlaneTechs decreases our gross margin by about 20 basis points -- or about 100 basis points. But net net, it increases operating margin by about 20 basis points. So it's actually additive to the margin.

Do you expect TLC to have a similar type of profile once that gets kind of normalized into your business, or is that a situation where you need greater scale because of the small amount of geographic focus?

Right now, it's so small that it's not really much of an impact. But we would expect it to approximate our current operating margin and we're going to need some more scale there. Right now, we've only gotten branches. So it's a good start for us, but it's just a start.

Now, is that an area where you -- there are other decent sized acquisition candidates that could give you a geographic footprint quicker? Or do you get the sense that this is much more of a multiyear organic story -- the TLC specifically?

Yes, it's a combination on this deal. There are some other like-sized companies out there. But our first approach is going to see if we can't use some of the bricks and mortar we already have, and place the leases of other brands and do some office sharing and really leverage this cost up a lot.

So, that's our first approach this year but if we can look at these other regional companies along the way, we will. But we're quite excited that the way we do dispatch in this business is on a centralized basis to control the compliance out of one centralized location. So, we can expand the sales and the recruiting piece quite quickly where we see the demand by throwing these folks in one of our existing brands. That's where we're most excited about this business.

Can you give us a -- Derrek or Steve, can you give us a sense as to what TLC's revenue base was, let's say for 2007?

It was about 25 million.

For the full year? I'm sorry, that was for all of 2007?

Yes.

Is there any major seasonality in that business?

Not like you see in our current business. It's pretty steady-state.

Okay. And then just lastly and I will jump back into the queue, what gives you the comfort in terms of continuing to narrow down that bill rate, pay rate gap? Is it just coming down to a sense of anniversarying that issue? Or are you starting to get some traction with your customer base in terms of accepting the fact that it's minimum wage, it's not as if you guys are trying to jack-up your profit margin? Can you just give us a little more color around your comfort there and when you should start to see that -- when you would expect to see that gap at zero?

Well, there are some opportunities here and there are some challenges. You know, on the opportunity side, our team has been focusing on it. We've made good progress on it over the last quarter and it's something that we've been making some progress on actually each month really since we closed down 2007. So, it's definitely a key area of focus between -- with all of our operators and we're making some good progress on it.

But we're not done with minimum wage increases yet this year. This is a -- we're probably about one-third of the way through minimum wage increases and there are some more coming during the back half of the year. So, there's still some challenges there. I can't give you a date on when we will have that thing to zero. I don't have perfect clarity into what the rest of this year will look like and what this economy is going to present in terms of challenges, and that will certainly have a bearing on it.

Can you share anything as two what's been the success so far that your team has done? I mean is it just a much harder kind of pitch to your customers? Is it just a situation where you are getting some market benefits here where some of the competition is seeing the same issues? I'm just trying to get some examples, I guess.

I think there's a couple of things. One is, we're certainly coming around on some anniversarying going on here and that's helping us push the limits on sales. But you know it's been tough all the way around to the industry, and I think that's starting to set in with some of the competitors that -- I mean, there's only so far this can go. And thirdly, I would say our own operating team is just making it a bigger part of their discussions and their action plans for each month as far as operating activity.

Christina Woo, Morgan Stanley.

I will continue along the line of questions regarding some of your acquisition. With the PlaneTechs business, I'm curious to see what impact we will see if any from the recent closures of some of the smaller airlines.

I don't believe that's going to have a fast impact on us. It may make some mechanics more available, which would be a net win for us in this industry. The -- even all this noise that American Airlines has created isn't providing a big win for us there because they don't outsource their maintenance -- American Airlines.

But in general, there's just a growing need because the aircrafts are aging out there, and they strip these things down every 30,000 takeoffs and landings. And there's a huge need for the maintenance and repair of these aircraft.

The real battle that we're fighting here to gain more revenue, and we've really grown our revenue nicely in this industry, is finding more mechanics. The amount of open orders that exists out there are fantastic and we wish we could fill them all today.

But our teams are gradually filling those orders as the airlines, and especially these in between providers, these maintenance repair organizations, are coming to grips with the fact that they are going to have to pay these mechanics more in this tough environment that's out there. They are actually giving into that. So, we're seeing nice bill rate increases in that business, which is also making it easy to recruit, which is the largest part of the growth gain for us in PlaneTechs.

Right, if I were a mechanic, is the compensation relatively equal to go work for a PlaneTechs type of business versus going and working directly for an airline?

It's pretty close. Because when we put these mechanics on the floor, usually in one of these maintenance repair organizations, we will have about one-third of the employees on the floor and they will take two-thirds. And that way, they can match their peaks and valleys using our staff.

So the pay rates have to be fairly close, especially included in the travel per diem that they get to go out there and be on-site. It actually ends up being better for the temporary workers with the travel per diem. They are just out of town while they are doing it.

Switching gears a bit to the PMI acquisition, I was wondering if you could share what the revenue run rate has been, maybe in the last 12 months.

Yes, it's been around $10 million a month.

Okay so, it sounds like there could be some revenue upside, given the 20 million you talked about. Or did your 20 million assume about a 10 million run rate with the acquisition closing at the end of April?

Right. Yes, because it would give us May and June.

Okay. When would you expect the company to contribute to earnings? You said we shouldn't expect an EPS impact in the second quarter.

Well a lot of it, we need to get some growth from here. But we bought this at a good enough price that we can really withstand the current economic pressures that we're seeing out there. So, we feel very good about 2008. But a lot of it has to do with the amortization and that takes a few years to run off.

What we like is the upside in the EBITDA and the cash flows that it creates. So, we're measuring these on a cash on cash return basis and trying to keep that return on equity high, especially on a cash on cash basis. But it will take four to seven years to run off most of the increase in amortization that we're picking up because of these acquisitions.

So, the real answer there is it's going to take some growth from this $10 million. But we're most excited about this is the scale that it has given us to have 74 offices now doing this in a very tight region, and the increase in the leadership team. So, in my prepared remarks made the comment about it's now time to integrate and optimize and make sure that we're really ready going forward.

From here, we don't need to -- we need to do more of a tuck-in type acquisition, because we now have the right size of team and support structure that we believe we can expand and really leverage the cost structure that we just put in place now.

I don't believe that we're going to go hard at that during 2008. Again, we like the economics of this deal we put together. But we have some integration work to do before we're ready to start expanding. That's where most of that question gets answered, though, is when we start growing the same branch revenue and expanding the operations in the upturn of the economy.

One last follow-up question. You talked about the amortization. What sort of amortization impact can we expect on a quarterly basis once you do complete the transaction?

One second here. We will come back to you, Christina. We've got a spreadsheet locked up right now. So we will come back and answer that one before we get off the call.

Mike Carney, Coker & Palmer Inc.

I got -- I don't know where to start but I will throw you a couple of questions. The California is obviously pretty ugly. So, is it reasonable to assume that the 10% change in comps really fast, a lot of that was coming from California? Or are you guys just describing if there's any difference in the regions?

Mike, actually California is not the cause of this change over the last four weeks. California, who has already been giving us giving us some headaches, but the trend change was not driven by California. It's still under pressure but that was not it. It was really broad-based.

We've noticed in particular, I would say the Northwest is a little more challenging than it was during 2007. Oregon, Washington, and even in some of the Rocky Mountain states of Colorado, down into Arizona are a little more challenging. We've seen in the Northeast, a little more challenge also, although Ohio and Oregon -- or excuse me, Michigan, were already hard-hit. We felt increasing pressure there over the last four weeks.

And then moving up out of -- we already talked a little bit about the pressure we've seen in Florida over the last year. That moved up the coast a little bit into the Northern Southeast, along the coast in some of those states. So, this has really spread into these states that we haven't talked about. Florida and California continued at the pace that they were already on and really not the cause of this last four weeks.

So, Steve, the last time I remember, the four weeks of the period, was that -- were they all in the range of 8% to 10%? Or was there some big variation there, or --?

It's a lot of variation. I'm going to have to call those four weeks, because we had to neutralize them, because in our business, the week of Good Friday and Easter actually hurt us worse than most. Even though it's not a day off, they do hurt our business. This year, they were the last two weeks in March. Last year they were the first two weeks of April. So, when those last few weeks of March showed some struggle, that we said well, it's just the holiday weeks. We'll come out of it.

And on a year-over-year basis we should've been knocking the ball out of the park the first two weeks of April, especially since we're comping against two holiday weeks last year. And it didn't happen.

Now I know that this is just four weeks and it's quite a downturn in our projections. But we really needed to do that to put you on notice that we had seen this four-week trend change.

You know, during the last recession, I remember the holiday weeks were -- and coming out of holiday weeks were always our toughest weeks. People react differently and when orders are a little bit shallow, people take extra time off around the holiday weeks, since there's not a lot of backorders -- backlog. And we experienced that in the last downturn and it appears that 2008 might respond a lot like 2001 did in regard to the holiday weeks.

So, the skilled trade segment in Spartan -- is it -- were they down just like Labor Ready? Was there any difference there?

Not quite as much. But the CLP branches were because those are more than construction focused, serving small contractors and things like that. That's really where you see a lot of it. Spartan just kind of ran two normal work weeks and a little more consistent in that business.

So, the -- you could definitely tell that it -- commercial construction kind of was impacted.

Well I don't know about that Mike. It's -- who was impacted was smaller employers and so -- and those people that we refer to more as retail where they're taking two workers for shorter periods of time. And usually that's where we see our first downturn in this business, is on that type of work where smaller contractors that don't have long-term contracts or a lot of employees out, we feel it from them. And so we're reading past experience into this last four weeks and saying we might have some struggles ahead because of it. And it might (multiple speakers) because you have your longer-term types of positions.

Great. And then lastly, if you see this -- what you're talking about, why would you make the acquisition of -- another light industrial acquisition even though it maybe helps you geographically? Just -- you could experience some troubles in the next 12 months. Was it just you thought the price was so right that he would go ahead and do it now?

Well, there's a couple of things there. Number one, we believe in this strategy of putting together this light industrial leg of our business, and we needed one more step here to get some economies of size going and the back office support structure that this PMI deal brings to us we were quite excited about. So, that was the starter. It was a great strategy and we didn't want to -- we had done the work over the last three months and were ready to go.

Yes, we could've pulled the plug. But we worked with the seller of that business and were able to work in a quite large downturn for 2008 that hasn't occurred in that business, yet we priced in as if. And we're quite fortunate that we were able to still put the deal together. Strategically, it was the right time for them to sell and maybe not the exact right time for us to buy because of the uncertainty, but it's still building up into the price that we're okay here.

Was the valuation similar to what you always make or was it lower than?

It was much lower on a trailing 12 month EBITDA basis. But go ahead and say, what if the business declines 20%? And then you model that in. Then it's going to be closer to our standard purchase price.

Okay. But I'm assuming that the light industrial, you're still pretty comfortable that you probably are never going to see the same type of operating margins or whatever that you see in the high Labor Ready business, right? Or do you expect to have 10% in light industrial margins?

You are right. A lot of this has to do with getting the volumes up, and 2008 is not the year to be talking about larger volumes in these branches. I understand that. This is a longer-term strategic play for us, where we didn't have to invest a lot of capital to make a pretty sizable footprint impact to our business.

Clint Fendley, TrueBlue.

I think they got the wrong company there. Derrek, I wondered if you could remind us what the workman's comp as a percentage of revenue was for the quarter.

Sure. And before I do that, I'm going to answer Christina's question. Christina had asked a question about the quarterly amortization for PMI and that will be approximately 300,000 a quarter. Work comp this quarter was 4.2% of revenue.

How have the accident rates trended here in the last quarter or so?

We have still been making some progress on our safety. So, we've had a great track record going for five years now. You know the team is still working really hard on safety.

With the safety thing, there are a couple of new things that we are looking at right now. We haven't rolled anything out new over the last year. But we've still been seeing trends coming down. Now, the more time we spent on safety the more we raise the education level with the operating team and just the more competency that we build into our practices. So we're still seeing some positive traction there.

And could you talk a bit about -- I mean between each of these three recent acquisitions, about the culture that they have around safety and the opportunity that you might have to decrease some of the accident trends within these businesses?

Well, with field services, there was some opportunity there and we've made some nice opportunity. CLP has always had a very safety driven culture, just like ours. And with the tuck-in in underneath CLP we did skilled services. There are (indiscernible) under CLP's operating practices and that same culture. But, like that, there was probably some opportunity there.

But it's not a high accident business. The frequency there's much lower slower than we see in our other branch. And with PMI, they've done a pretty good job. We'll just have to understand more about what we can decrease as we get further into actually owning them and deeper into their practices. But I think there's some opportunity there.

Okay. And I guess shifting bears a bit and I apologize if I missed this, I know you gave us the differential between the bill rate and the pay rate changes. Did you actually have the individual components?

Sure. Bill rates increased 1.6% and pay rates increased 3%.

Okay. And finally, could you just comment on your outlook for share repurchases from this point going forward?

Well, you know when we talked about the use of capital we've always talked about it from two perspectives. And we've weighed the opportunities and the ROI of acquisitions and bounced that against share repurchases. So, we will continue to evaluate share repurchases based off of ROI of acquisition opportunities that come along. And if there aren't any acquisition opportunities that make our ROI thresholds, that would be our second option.

Okay. And did the acquisitions prevent you from being more active this quarter than you would've liked?

Well, it's hard. Once we get involved with an acquisition, and we start negotiating and talking through a purchase agreement, really at that point we're blacked out. We black ourselves out. We consider ourselves having material information. So we didn't have much time this quarter to take a look at share repurchase because of the PMI transaction.

Mark Marcon, Robert W. Baird.

Good afternoon, Steve and Derrek. Just wondering with regards to PMI, what sort of margins were they running?

They were running mid-teens.

Mid-teens on the gross?

Yes, that's on the gross.

And operating or EBITDA?

We haven't disclosed that by brand for a while, but it's market -- this business looks a lot like our Spartan business when we first purchased it, and the fact that both at the gross margin at the gross margin level and the operating margin level we felt we could get those margins up. And sure enough, over the first three years of ownership of Spartan, on the gross margin level we moved those up approximately 4% and we're quite pleased with that.

We believe we have -- I'm not sure about that kind of opportunity here, because Indiana looks much different than Florida looked as far as what kind of clients we're serving there. But we do believe we have the opportunity to move the gross margins up. And like I said, we have -- as we expand this business, and this gives us a great platform, we do believe that the operating margins will be stronger.

They may not match the Labor Ready margins to hit through the Labor Ready margins, but they are still good margins. We're going to stay very focused on retail type business, small and medium customer type business. So it's going to look different than the large national account type business.

Okay. So right now they are primarily small and medium-sized business?

They serve a lot of large accounts for being such a small company.

Oh, they do serve large accounts right now?

They do. Being there in Indiana they've served the auto industry quite heavily -- the foreign auto industry and other manufacturers. We believe we have the opportunity to move this business more into distribution and other services that we've been successful with in the other parts of our business that will move those margins up.

And where would the opportunity for synergies be if you're working with small and medium-sized businesses with Spartan?

The synergies between Spartan and PMI?

Yes, or PMI in general.

The first step is we just need to get some economy, some size going here. When we bought Spartan it only had nine offices and we knew that we wanted to make a significant dent in this niche here of service in light industrial to small and medium-size businesses. But nine offices isn't very much when we're national on their other businesses. So we've been opening offices.

Well, you run into the dilution problem there on having too many young offices, and so that strategy wasn't going to hold up on a nationwide basis. It helped to expand Spartan in the Southeast and got us a good foothold, but at some point in time you start diluting earnings and you don't have strong enough relationships.

So, this next step does two things for us. It gives us some great tenured leadership and managers that we welcome to the team and it gives us a stronger support structure that we had not built up around Spartan as they grew from 9 to 32. We were supporting them out of our Labor Ready operation.

Now, we have very specified support structure just for our small light industrial clients, and so there starts to be a synergy there. So, it's almost reverse that rather than build up a support structure at Spartan, it was already been paid for through this through this PMI deal and now we can support the 32 offices of Spartan through this PMI deal. And together, these 74 offices, now we have a platform that we can growing start growing from.

So, it's very strategic at this point in time. That's why it's not driving the earnings impact that a PlaneTechs or even when we bought SSC a year ago, how we tucked it under another strong platform. And as I mentioned, we did this platform at 74 strong. The leadership team and the support structure from there forward, new openings and especially new acquisitions do become stronger faster because we can take more support structure costs out as we grow this.

So, this was a very strategic move at the right price with the right team and the right culture that fits and we're quite excited about it for those reasons.

Are you going to -- I'm assuming you have been working on this for a while. Now that you are seen the same branch revenue trends in terms of the declines accelerate, are you going to just focus on integrating your current acquisitions and hold off on any new ones until things stabilize? Or are you going to keep looking at other things as well?

That is a great question. The last four weeks have been quite confusing and chaotic and uncertain for not just TrueBlue but for the market in general.

For everybody.

I don't have a very strong answer for you there, Mark. It really depends -- if things stayed on the current trend, it would absolutely be -- shut the pipeline off. And so that is that side.

We would like to see you hold off until things stabilize.

Yes, I think that makes sense. We are -- as I mentioned my prepared remarks, our current focus is all about integration and optimization. And nothing is going to get in the way of that. We have a lot of costs that we can leverage going forward and I would view this as a preparation time, this downturn in the economy, that we can do this preparation work in the structure that we've built.

We have been quite aggressive the last year where we performed these deals and build out these platforms, renamed the Company. And it's all been good strategically. And this short-term execution problem is going to give us this opportunity to say okay, brakes on longer-term issues. Let's focus on the integration, the optimization and make sure we are caring for our current core business, which I just want to give you an assurance, it is being handled by different teams.

So, the team that runs the Labor Ready business, which is our legacy business, our core business has really been focused on by a team that's been here for a lot of years, and they have not been distracted one bit by these acquisitions that we do. So, the teams have been kept separate and I don't believe that's caused any of our issues.

Along the lines of the declines in the same branch revenue, are you seeing an accelerating pace of price competition?

I don't know about an accelerated level. But we've seen the fall off in demand the last four weeks. But, definitely we're in the stage of the downturn where smaller competitors especially are gasping for air and it feels to them like price cuts is the best thing to do.

And that does come into play why their revenue falls, because while they are gasping we tighten our belts and we don't follow that lead. We believe that protecting our margins is very important and we will do what it takes first to protect that. And still take care of our current customers and work through their current short-term issues with them, but we've got some value here that others don't bring.

We have a strong compliance culture here, a proven track record of working with governmental agencies, of proving out of our compliance both with the Department of Labor on wage and hour, the EEOC. And now, entering a partnership that's going to be very strong and announced soon with the group that used to be called the INS for immigration, now called ICE, that we're going to be one of the leading partners as part of helping them out.

This strong -- this strength of a compliance culture and a compliance company, there's a lot of our customers that recognize that. And while smaller companies are gasping for air and first go to price moves, they know that they can't replicate what we bring them. Especially as immigration tightens up and you hear day after day rates that are taking place and companies are failing in their compliance, we will not fail in this area. And that's going to be a stronghold for us going forward.

So we're going to remain true to who we are and if we have to give up a little revenue along the way, we will. But we will remain the compliance leader and the strength that the marketplace needs.

That's great to hear. With regards to the workers comp, did you give us the workers comp accrual comp accrual reversal for this quarter?

I can give it to you, Mark. This quarter it was about 140 basis points of revenue.

You mentioned earlier, Steve, that you are going to look at potential steps that you can take to generate even more savings. Would that be both in the field as well as at various corporate headquarters, or where would the potential savings -- what are some of the things that we should think of that you could potentially do?

Well, the first is watching the revenue per branch and treating every branch as if it's our only branch, and making sure that we have the right reports especially on payroll costs on an every two weeks basis as we see this, each month watching the expense controls of every branch. And the hardest thing about a downturn is, you can't predict which branch, which customer is going to impact you next.

So, some would like to fill -- or it would be a nice dream if we had a crystal ball to say we know exactly what state and we know exactly which customer is going to impact as next us next. And we don't. Therefore, you hang on and you fight with every branch you have open. On a very long-term basis you fight a short-term issue.

Time in and time out, we see branches suffer and large customers stop using temporary labor and we'll continue to make a decision every month about the long-term nature of that branch. And if a certain amount of revenue is dried up, we will look at consolidating it with a neighboring branch or just pulling out of the market altogether. And we can't make those calls ahead of time. We just have to make them timely as we see the data coming in.

The payroll information, we can make those decisions every two weeks as we see where the revenue trends are and how many employees are working in each branch. So, that's how we control costs first and foremost at the branch level.

As far as corporate support goes, there is a little bit of leverage we can pickup just in ongoing operations. But a longer-term project, that is integration and optimization words that we've been using is, we pull these platforms together and we get everybody on common systems which will take us 12 to 18 months to work through.

There is a significant amount of leverage to pickup to be picked up there, Mark. It's hard to quantify right now as we start working through it. But we do have the vision to run these multiple brands as one company on one system with one process, and really get the leverage out of this network that we dream of.

And that's where Derrek says more to come on that, because it hasn't all been quantified. But that's where the real vision and dream comes from is of operating these multiple brands, is putting them all on a common platform.

Jeff Silber, BMO Capital Markets.

I know it's late. I'll try to be quick. Just to go back to the decline in your same branch revenue, was it more of a pricing issue than volume? You mentioned the competitors being a little bit more price aggressive.

Over the last four weeks, no. It doesn't appear that we just dropped our prices to cause the fall off. This was definitely a volume issue the last of what we --.

And then just drilling down on that, are you -- is it your existing customers cutting back dramatically or are you just not adding new customers like you were a year ago? A combination of both?

It is hard to tell. And it's such a short-term thing we haven't had a chance to totally analyze all the trends branch by branch of what might be causing it. But really what happens here Jeff is, at Labor Ready, it's so project oriented that only about 50% of the revenue in any one given year comes from existing customers, that being customers that used you in the previous 12 months.

So that's why Labor Ready always feels the downturn first. They always have to be selling and finding that new next project. So, Labor Ready felt it first. That's got us reacting and moving. And I made a comment a little earlier that we have noticed that not only hour other brands feel it on a delayed reaction, but the staffing industry as a whole feels it on a delayed reaction of what Labor Ready feels it because of 50% of our revenue comes from selling into new projects at all times.

Knowing that history repeats itself, it's somewhere in that category, Jeff, that yes, this last four weeks probably was -- not a lot of people were buying and so that 50% (multiple speakers)

That's actually helpful. Assuming that the PMI acquisition does close at the end of this month, what should we be looking for for depreciation and amortization in 2008?

Yes, the amortization is about $300,000 a quarter and there will be a minimal amount of depreciation.

And I'm sorry, if you could just remind us -- I don't know if you had given guidance for the year as a whole and then I guess we could just add that incrementally.

Yes, we haven't given any guidance for the year. There is an assumptions page that's out with our 8-K that's put out that gives a D&A number for the year of 8 million.

And I'm sorry, that was just filed with your 8-K, just filed tonight?

Yes. And that's got all the key assumptions on there. It does not include PMI. So what I've just talked to you about on PMI as far as a quarterly amortization rate if we close that transaction, you would need to add that into your assumptions.

All right, I will take a look at that. Will that have CapEx guidance as well or CapEx assumptions?

Yes it does.

Fantastic. I will take a look at that. Thanks so much Derrek.

Michael Morin, Merrill Lynch.

I was wondering does the second quarter outlook include any consideration for potential cost reductions that you alluded to, Derrek?

Nothing that we hadn't been working on previously. So, as we move through the fourth quarter, there were some projects that we worked on as far as the cost structure. There are some things that we had already initiated prior to this four-week trend that we have seen. But we're still reevaluating from this four-week trend additional actions that we want to take.

Okay great. And I was wondering, can you talk a little bit about the trends on a per segment perspective? By trends I mean the revenue or same-store sales trends. Is it across-the-board, you know every segment including CLP, which are experiencing a change in trend here?

Well, I will talk about the trends broad-based from an end markets perspective more focusing on Labor Ready, just because we get the data more timely. And this last four-week trend hasn't given us a lot of time to slice the data for all of the brands. But you know if we take a look at where trends were running in January and February and then we take a look at this last four-week period and say, what were the main things, there is a couple of areas that I would point out where while we've seen this broad-base across multiple end markets, manufacturing took a hit. Services and other took a hit. Those were probably the two main areas that took a hit. Transportation a little bit too. But we saw an acceleration in virtually really every end market during that four-week period versus the comp trend that I was talking to you about in January and February.

So actually, things like commercial construction are -- is still going well.

Commercial construction has been interesting. It, for us, has been following more a trend of in the Labor Ready brand based on whichever geography we are in. So, if a particular geography is down and other and markets are down, construction has been down. For CLP, commercial construction has actually been growing for them. So they have been offsetting hits that they have been taking on the residential side with actually growth on the commercial side.

For the most part, this was -- this last four weeks wasn't construction driven. It was probably the ancillary support structure around that and just the economic issues in general.

Then just quickly on PlaneTechs and on the contribution from M&A. Is PlaneTechs performing as expected?

That business, when we were in the middle of due diligence it was ramping up nicely as it was and it has continued to ramp up nicely. So it is ahead of expectations, no doubt, where we went through due diligence and last -- the end of the third quarter and into the first part of the fourth quarter last year. We're very pleased with the way PlaneTechs is performing and is continuing.

The open orders almost match as many people when we have placed. We have 1300 mechanics placed and we could place that many more as we find mechanics. And that's really what this whole business process is built around is the systems and the team that we have doing the recruiting in mechanics. And they have filled a lot of orders in the last quarter and that is driving the revenue even further. That's the game is finding the mechanics.

In terms of your guidance here including 12% from M&A in the second quarter, down from 15%, is there a specific reason why there is that deceleration going on?

Well, when -- we anniversary skilled services in the second quarter. So, it's not a sequential de-acceleration or deceleration from many of the acquisitions we've bought. We just hit the one year anniversary in the second quarter of skilled services.

T. C. Robillard.

Just real quick I want to follow up on the non res construction side. What do you think is the reason that you're seeing growth coming in CLP? Because a lot of the broader-based data that you see out of the government is showing -- while still growing, you're seeing a deceleration in growth. So if you look at your CLP branch, are your growth rates accelerating or decelerating? Just trying to get a sense if you guys are gaining share, if you just happen to be in regions where there's bigger non res projects. Just a little more granularity there.

Yes, I think most of it has to do with backlog. Going into the downturn we had plenty of backlog at CLP and small contractors of commercial projects had it. I don't have a good indicator in whether that backlog is drying up or not, but my gut would tell me it is. So we have still been servicing that and we still had opportunity to do that.

Where there is a longer-term blunder period of downturn in residential, we're seeing the trends in commercial start to fall off. So that's where my gut feeling comes from is, the Florida and California that have been hit by residential and construction the longest. We're almost coming up on two years of when Florida -- when we started announcing the falloffs in construction in Florida. And it takes about that long. And we're seeing the commercial and construction in the state of Florida be hit pretty hard.

We're not on our two year anniversary yet for California, but it's definitely over a year and I think that's kind of the trend that we will see there. And it's hard to get a deeper grasp on that. You have to understand, the size of the construction sites we're working on aren't -- even though they are commercial, we're not working on roads and bridges and big tall buildings. These are remodeling shopping centers and remodeling multiunit or building multiunit housing which has still held up fairly strong, even though single housing, residential housing has been weak. But people have got to live somewhere. So it's either going to go into multiunit or it's going to go into single-family and this will rebound.

There are no more questions in the queue. I will now turn the call back over to Mr. Steve Cooper for closing remarks.

Thank you. We appreciate your continued interest in TrueBlue and the questions that have been answered here today and your attendance on this call. We thank you for your participation.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.