TrueBlue Inc (TBI) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to TrueBlue's conference call. Today's call is being recorded. Joining us today is TrueBlue's CEO, Steve Cooper. He will discuss TrueBlue's 2009 second quarter results which were announced today. If you have not received a copy of this announcement please contact Theresa Berkmann at 1-800-610-8920, extension 8206 and a copy will be faxed to you. At this time, I would like to hand the call over to Ms. Stacey Burke for the reading of the Safe Harbor, please go ahead, Ms. Burke.

Thank you, here with me is TrueBlue's CEO and President, Steve Cooper. He will be discussing TrueBlue's 2009 second quarter earnings results which were announced after market close 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 website at www.TrueBlueInc.com.

Before I hand you over to Steve, I would 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 differ materially is contained in the press release and the Company's filings with the Securities and Exchange Commission, including our most recent Forms 10-Q and 10-K. I'll now hand this call over to Steve Cooper.

Good afternoon. Thank you for joining us today to discuss our second quarter results and our outlook for the third quarter of 2009. Derrek Gafford, our CFO is not with us today as his wife just delivered a new baby and Derrek is with the family today. We congratulate the Gaffords on the addition of their new baby boy.

Today, we reported net income of approximately $4 million or $0.09 per share for the second quarter on revenue of $247 million. Compared to our earlier midpoint expectations of a losses of $0.05 per share on expected revenue of $230 million. Our better than expected results for the quarter were driven by broad geographic and broad industry improvement across most of our business units along with one large customer using more of our services than had been forecast. Our gross margins were about 1 point higher than expected due to continued favorable results in our risk management programs, resulting in the ongoing reduction in accidents per hours worked. In addition, we have maintained our aggressive and well executed cost management throughout the organization.

The combination of these well executed tactics by our motivated employees across our organization has resulted in us beating the mid-point of our revenue guidance by $17 million and our earnings guidance by $0.14 per share. I would like to extend my thanks Companywide to these dedicated employees woe have fought through the most difficult period of time this staff and industry have faced and are performing better than could be expected given the environment we have been operating in.

Our expectations for the third quarter are build off the momentum we have developed these past few months. For the third quarter, we expect revenue in the range of 267 million to $277 million and net income per share to be $0.10 to $0.15. Although demand for our services have fallen over the past year we have successfully executed the flexibility of our business model by scaling our costs to match the current demand. We also continued to provide our clients the ability to flex their own cost structures and I believe our customer relationships have grown to be stronger than ever during this most difficult period of time.

We continue to be excited about the leverage available on our business model. When revenue ramps up on a per office basis and we are able to hold costs in line, we will experience strong bottom line improvement with each additional dollar of revenue going forward. A large component of our cost cutting during the down cycle has been closing offices. During the quarter, we closed 36 additional branches, bringing our total closures since the beginning of 2008 to 179 offices. After seeing some improvement in our results and based on our that some of underlying economic events may be behind us for now, we feel our office closings should subside, going forward. We only have a small handful of branches we are currently considering closing. The others we have been watching are beginning to show signs of improvement.

We will continue to invest in these branches and move them back to strong performers. With this said though, we have and will continue to match our cost structure to current demand as this is one of the strengths of our business model. And just as we experienced significant operating leverage after the last recession, we are confident we will experience this during the anticipated recovery and we believe we will once again be the first to see it and enjoy that strong bottom line impact with any slight pickup on the top line.

The year-over-year declines we have been experiencing continue to be broad based along most industries served and all geographies that we operate in. In most of our businesses, the declines are fairly similar with the exception of our skilled mechanics business line that has experienced continued growth throughout the recession and our truck driver business line, which has held steady.

On the down side, our skilled construction trades nationwide and our automotive business in the Midwest are both declining at steeper rates. Acquisitions are not a significant component of our growth of this quarter as we have not made an acquisition since the end of April of 2008. Our team continues to track the projects included in the economic stimulus plan. The bulk of this stimulus money has yet to be released and it appears at this point most of these projects will not even start until early 2010. We continue to believe we are prepared and best suited to provide labor quickly for each project. At the general contractor or subcontractor level.

We believe the relationships we have if place and our approach to placing both general labor and skilled labor in the construction industry will provide us several opportunities to serve our customers as they ramp up their businesses to take on these projects as they become available. We experienced significant improvement in our monthly year-over-year same branch revenue declines this quarter. This quarter marked the first time we have experienced consistent improvement since entering negative territory during December of 2007.

Monthly, same branch revenue trends over the last four months were as follows, March was negative 35%. April, was negative 31%, May was negative 29% and June, was negative 24%. While we experienced improvements in our monthly same branch revenue trends throughout most of our operations, about half of the improvement was associated with the one large customer that I mentioned earlier. This success is not related to anything uniquely different about the customer, it's just a result of providing great service and the right people at the right time to help our customers succeed.

We have a strong financial position that improved during the quarter. First, our earning cash position remained unchanged from Q1 at $104 million, despite funding a $15 million increase in accounts receivable associated with our recent revenue growth. Second, we entered into a new three year $80 million credit facility at the end of June. The new facility enhances our liquidity as it ties our borrowing base to certain assets versus our previous facility where our borrowing ability was based on EBITDA. We have currently $80 million borrowing base and $49 million of letters of credit issued resulting in a $31 million of available for future use. Additional credit facility details are included in the 8-K filed on June 25.

Third, we announced the signing of a $100 million shelf registation today. We believe this to be an essential part of sound corporate financial planning. Once it is effective, it will allow us to quickly and efficiently taylor a security issuance to the market conditions using a wide selection of choices and obtain the most economical terms. With over $100 million of cash and over $30 million of borrowing available on our new facility we have no current need or plans at this time to offer securities for sale.

As you can see, we had a lot of positive events occur during the second quarter. Starting with the improvement in revenue trends from week to week. Second, continued improvement in our accident trends further reducing worker's compensation expense and improving gross margins. And third, continued aggressive cost management. In addition to these items, positively impacting liquidity, our new credit facility and our ability to issue registered securities when the registration statement comes effective makes our financial position even stronger. At this time, I will open up calls for any questions that you have.

(Operator Instructions) The first question comes from the line of Mr. Jim Janesky with Stifel Nicolaus. Please proceed.

Hi, Steve. I wanted to drill down a little bit into the large customer, you said about half of the improvement in the same store sales came from one large customer, can you give us an idea of how long you expect to have that customer and what the visibility is maybe just what industry it's in, so, we can get an idea of any seasonality.

Yes. We don't disclose our business lines or our customer names or events so I'll be real careful here. But there is some good visibility here because it's a project that's got some tenure to it and the customer definitely needs our people on this project. So it's not something that would I go away from us on any given week. However, it is a project. And there is an end date to it. Whether that's 6 months, 12 months, it's hard for me to tell from here, but it's definitely longer than 90 days.

Okay, so, it's longer than 90 days and can you talk about the percentage of your revenues in the residential and commercial construction industry? Has there been any relief there?

There hasn't been a lot in construction at this point. Most of our growth has come from manufacturing distribution, a little bit on the large construction projects which I would call industrial, putting wind mills up, power plants, doing overhauls of manufacturing facilities. Our skilled trades group has taken these skilled people and while there is not residential construction going forward or at the current time or even small commercial projects like shopping centers and such, we have found the ability to stabilize our results through larger industrial projects in our construction division. As far as seeing an uptick in residential, we haven't seen it, but we do feel we have seen some sort of a base. It just hasn't taken off forward.

Okay, and then any changes in seasonality that you would expect coming into the December-quarter? Not looking for guidance, necessarily, but is there anything on the horizon that would change any normal seasonal patterns going into December?

Not that we see at this point in time.

Okay.

The seasonality curve will follow. Our results are beating normal seasonal trends right now, normal seasonal trends we don't see anything as significantly changing it.

Last question, Steve, can you tell us what at the beginning of July was in the same branch that drove this point and what is kind of baked into your guidance?

I think it's pretty similar to the way we have answered this question the last few quarters is about the way we finished the last month of the quarter. The first month seems to be taking off. When we gave guidance back at the beginning of Q2, April was responding much like March, but then we had a nice little pick up in May and June. So it's a nice little surprise to us. July is taking off much like June finished right now. Which we are happy because June finished strong.

Thanks, Steve.

The next question comes from the line of Mr. Jeff Silber with BMO Capital Markets.

Steve, in your prepared remarks, you talk a little bit about the leveragability in the business model. Can you remind us, longer term, what you expect the variable margin contribution to be on an increase in revenues?

It's really hard at these revenue levels we are, Jeff, because it's not like it was coming out of the last recession. What I can tell you is on a percentage of revenue basis our variable expense structure is about 6% of revenue. And so as long as the business mix holds the same, and we can hold our margins you can develop it from there but contribution margins, they are a little different because this first bit of leverage is going to be stronger. So coming out of the shoot since we are so close to breakeven on a -- at one point in time we called it a 4 to 1 model where every 1% of revenue drove 4% on the bottom line. It could even be stronger than that in the initial outcome just because the way the math works, but I would work off the 6% variable cost structure.

That's helpful, thanks. If I could circle back to gross margins, you mentioned some of the work you are doing on the accident side. If you can give us a little color on that and I am also wondering were there any reversals of order comp accruals in the quarter as well?

Yes, there were and they matched second quarter of prior year, which was a larger percentage because our revenues were down, but dollar wise, they matched and I would like to just -- the color I would like to add to that is, these are really credits from prior year because accidents were being reduced. During 2008 we approached 10% accident reduction. That was coming off of '06 and '07 that were above 10%. Now, even again here in '09, we are running around 5%. We have had a nice little trend going all the way back to 2003 when these accident reductions started. Really a result of a little better screening and a little bit better management on the work site of these people and some training involved.

It has paid off, number one, our workforce is safer. They are injury free. Our customers are happier, the quality of the worker is higher and then there is the financial win that comes to us. Now, as you know, these credits don't last forever because we continue to bring down our ongoing accrual rate to try to match what we think the best estimate of what that expense should be. It just happens to be when you are continuing to reduce accidents, the actuaries and the process doesn't bleed in your current run rate until a year afterwards, so with accidents reductions slowing down to only 5% this year which we are still very proud of after having a five-year run of over 50% during that five year run, the credits will slow down and then eventually go away because we are trying to make our best estimate every day of what we should accrue based on our current situation.

That's helpful, as well. Just keeping on the gross margin theme, we have got an increase in minimum wage coming up at the end of the week. Can you tell us what impact that would have on gross margins in the third quarter?

Well, we hope it to be slight, but we know it will have some impact, especially on our divisions that are closer to minimum wage. We have had some great success in the past year in training, teaching our employees and having a process developed, this one is going to be less than last year. It's hard for me to give a number because we have so much momentum going into this one.

Let me ask the question another way then. Should we expect gross margins to increase in the third quarter relative to the second quarter, the 29.5 just reported?

No, and they would probably come back. If you look at our 8-K assumption, the page that we filed with our press release today, you will see the expected margins for the year as a whole of 28.5 to 29% and we would expect the third quarter to come back into that range.

I know you are not giving guidance for the fourth quarter, but would it make sense for it to be in that range as well?

I would think so because that math would work for the year as a whole to bring us back into the range.

Okay, I'll jump off and let somebody else ask. Thanks..

Thanks, Jeff.

The next question comes from the line of Mr. Mark Marcon with R.W. Baird.

Good afternoon, nice job in terms of cutting expenses. It's nice to see things turning up a little bit. How -- where, aside from that one client where are the other areas that you are really seeing signs of stress either geographically or by vertical? How are you achieving it?

Well, it's interesting, I made the comment a couple of times in my prepared remarks that it is very, very broad based. If you look across the United States, we are seeing good impact almost everywhere, and outside of residential construction and commercial construction most industries are picking up. Mainly manufacturing is picking up a bit, outside of the automotive group and distribution across the board. So, that's strong. We have had some big wins in the waste industry in our Labor Ready division. We have had some big wins in our skilled group, in the industrial -- building power plants, windmills, that's become a larger part -- larger customers across the board are becoming a larger piece of our business. I think that's coming from a focus on servicing these customers and taking well care of them, but they are also the ones that are experiencing the growth nationwide. If there is any difference that I have noticed, it's large customers across the board are the ones that are feeling the momentum out there.

Despite the fact that the mix has changed a little bit more towards large customers, the gross margins seem like they are holding in there?

Yes, they are and even outside of this work comp credit. We are really pleased with where our margins are. In our on demand division, where it's closer to the minimum wage, I'm so proud of that group that has dug in and managed on an day by day basis, transaction by transaction to not give that margin away. It's hard work, but, they have fought through that and that's why when I was answering the question for Jeff a few minutes ago, its really hard for me to make an estimate there because we know that it's going to have an impact, yet that group has had such favorable results in the training and the process and the discipline they put in place. So, it's not as impactful as it was when these minimum wage increases started up on us a couple of years ago.

Are you, in terms of the -- so, the larger clients are also paying close to the corporate average or--?

Well, there is also a little bit of mixed change between our divisions going on. That's hard to filter out, but that mix change is larger customers in itself, also, but some of it is driven by skill set, so, more of our skilled divisions are growing, now, versus straight general labor or straight warehousing. It's interesting, the businesses that are growing actually have the higher bill rates and pretty strong margins, specialty businesses that can drive the margins that we feel we need.

And in terms of the -- in terms of construction, how big is that at this point? Is that still around 30% of revenue or has that shrunk as other businesses picked up?

Hang on just a second, I'll grab that number.

And Steve, while you are looking, I was wondering if you could put some more color with regards to--?

It slipped a couple of points, Mark, so it's about 28% of our business, now. What was the last question?

In terms of the stimulus package and the comments you were making around there. It sounds like what you were saying is that hasn't really kicked in. I'm wondering, depending on the quarter that we've talked, it sounded like maybe we were hopeful or less hopeful in terms of the size of the potential impact. This quarter, my sense is that you are probably more hopeful about the size of the impact if I'm reading the tone of your comments correctly.

I'm not sure I understand your question.

The stimulus package, first of all, has it kicked in and number two how big do you think that could be when it does?

Okay, the first answer is not significantly kicked in, but slightly so. What it's hard for us to tell is maybe we are not working on one of the stimulus jobs, but, some of our customers then have to real indicate their workforce to work on that and this initial money that has gone out is not very much based on the billions that are about to go out. We have a team that has this tracked right to the dollar and by state and what entity is going to receive the money. And not very much of it has been released and it has only been released on a couple of large jobs and there were some handcuffs tied to who could do that work i.e. Unions and what type of job it was.

So, there is not much out there, however, what has been released, there is a potential that we are working on other stuff for those customers, even though we are not working on the stimulus, itself. And the way I can measure that is what we call prevailing wage, which is government based wages. That's a higher percentage of our business than it had been in the previous quarter and even the previous year, so our prevailing wage jobs are increasing just slightly, but it's going in the right direction, which means we are participating in more government based jobs. It's just not the stimulus jobs, yet, so we'll take what we can get. We'll help our customers work on something else while their other employees get allocated to the stimulus jobs. There just hasn't been much of that money released, yet, and we are hoping it starts flowing toward the back half of '09. That maybe that work won't start being performed until early 2010 at this point.

Thank you. I'll jump off for now.

The next question comes from the line of Clinton Fendley with Davenport, please proceed.

Good afternoon, Steve. Question here on PlaneTechs. Obviously we don't talk about this as much but we have seen lots of planes idled and a tremendous amount of capacity has been taken out of the system, you mentioned that the businesses continued to grow throughout the cycle. Are you seeing more frequent touch points on fewer planes here and what's your outlook going forward and if you can remind us, just, generally, the size of this business, as well?

Yes, this business is growing and it is about a $100 million last year PlaneTechs and it has grown off of that this year. It has a mix, a diverse business that it runs, a big portion of it is the maintenance repair and overhaul business, which is down this year. So there is a portion of the PlaneTechs business that is shrinking even though the business overall is growing. That's because there are fewer planes and there's fewer overhauls being done. However, there was such a backlog in that business of finding good aviation mechanics that we were able to continue to fuel those for our clients. It hasn't dropped as much as the plane stock line has dropped. However on a long-term basis or as far as our outlook looks, that business isn't growing, either.

However, what we have done is we've diversified that business, so, at PlaneTechs they're doing more than just aviation mechanics. We are working on all types of transportation technicians, diesel engine mechanics, working on school buses, working on big diesel engines in trucks, ships, going in that direction, at the same time, we have diversified over and we are working on manufacturing clients. People that are putting planes together for the first time. We were able to service some of that business. That has helped offset the shrinkage in the MRO business.

Then on the related issue, I saw the new website for TLC and saw where you've expanded with new offices in two cities there. Could you remind us, is this a centralized staffing model similar to PlaneTechs or what is your expansion outlook for this unit?

We are excited about TLC, it was a California based business we bought doing about $30 million worth of business. Although they have lost some business because of the downturn in California, they have been able to replace it with other business. And in my prepared remarks I talk about how it has held steady. We are proud of what they are doing because of the growth opportunity that's available. So the expansion ideas for us in this area is moving it out of the West Coast and moving into offices of our other businesses. And not opening up new real estate for this business. So since Labor Ready and/or Spartan or CLP are located in all of the major cities where we want to be with TLC, they are going to start sharing space where appropriate. The only space we really need is somebody out there selling to local businesses and recruiting drivers, then it turns into a centralized business from there. Once we have recruited a driver and we've found a customer, it's managed out of a centralized location. The dispatch and the management of that driver and his compliance and the programs that comes with compliance it is all managed on a centralized basis.

So it's a neat little model and the fact that you just need somebody out there getting drivers and customers, but not managing it day in and day out, connecting points or administrative duties that go along with managing the drivers that were placed, we really like the business model. We feel that we can expand it quickly given the right opportunity. The cost to expand is really a sales person and/or a recruiter in any given market. We are doing some foundation work on that right now. We don't want to get ahead of ourselves, but we do believe this is a huge growth opportunity for us when all of the I's are dotted and T's are crossed on this one.

Is it safe to assume that possibly these two units are what you have in mind with the shelf offering that you've announced today?

Not necessarily because it is not going to take capital, it is going to take operating expense. We have plenty of operating capital available to us. The shelf signing that we announced today early, as I made the comments, we have no intent right now behind it, it was just for good corporate financial governance to have the ability to access the most efficient capital if we ever need to, whether it be for general corporate purposes or for an acquisition of which we currently don't have intent or a current need for. But they are really not related. Our growth plans that are going to be driven out of our current operations are going to be funded from current operations. Once we expand TLC, get expanding Spartan, they are only in seven or eight states. We have 50 locations in the southeast. That business can be taken west. That's a great opportunity for us. We've found that we can roll those businesses together. We just got hit by this downturn in the automotive business a little harder than we thought we would the past year or we would be further along in that expansion. But it doesn't take our excitement away from our ability to grow the Spartan business. There is great opportunity in both of those, Spartan and the drivers business of TLC, for expansion opportunities.

Thanks, Steve.

(Operator Instructions) The next question comes from the line of Mr. Paul Ginocchio with Deutsche Bank.

Steve, just a quick question about that one customer again. Was the size of that -- did it help your June same branch revenue trends or did it help the whole quarter? Just trying to size the revenue impact. Thanks.

It helps each month, actually, that I quoted, definitely, April, May and June and it helped.

So it's the difference between the minus 33% same branch growth in the first quarter and the minus 24 in the second quarter? It's half of that difference?

Yes, it's half of that difference.

Great. It sounds like you are winning new deals, is that because the competitors are going out of business? Should we think that is the reason you are outperforming or is it more just a general proof of the economy? And then I have to one more question.

Well, there's actually another option and that is that through great strategies and the right team at the right place is doing the right thing. And I think it's more of that than anything. We have not seen our competitors falling, dang it. That doesn't seem to have been the opportunity, yet. We thought there might be more consolidation this spring than there was. This past quarter somewhat shocked me, with the significant downturn in Q1 put a lot of staffing companies in a cramp for capital and we thought Q2 would be a chance to take advantage of that, but it just wasn't. I don't think it's competitors fallen at this point in time. It's a well executed sales team with great strategies, focused on the right things and going after very specific targets with the right people with the right message. So it's more about that.

Finally, on the SG&A, it looks like ex the charges in the first quarter was sort of flat Q on Q. Would we expect it to be down, again in the third quarter because of new branch closings?

On an overall basis probably not, because sales are ramping up and so there is going to be that 6% variable factor you would have to add in. I think if you took Q2 as a flat line and then took same store sales on top of that, and took 6% of it you would get pretty close.

Sorry to keep going back to that customer, that one customer, was there an ongoing project already before you came over and took that over? If so, how long was that project going on or how long has it been going on (inaudible) going on? Thank you.

It's somewhat of a new project and it has taken our customer by surprise too, the demand that they need. It's a significant project. It's a serious one and it's more of a ramp up model, they were not using temporary staffing on it before, we're their first vendor on it.

You said you think you have at least six months on that one?

Three to six. It's not being pulled out from under us in Q3.

The next question comes from the line of Mr. Mark Marcon with R.W. Baird. Please proceed.

Just a follow-up on the SG&A question, the offices that you did close in the prior quarter, did most of those close at the beginning of the quarter or towards the later stages of the quarter? And then if we think about the normal seasonality and we think about the SG&A would we typically see the SG&A come down in Q4 to the second quarter level or below?

Yes, those 36 were pretty much spread throughout the quarter.

Okay.

Will that drive SG&A lower? Yes, you will see some pickups from tha 36 going away, no doubt. That's one thing I left off the equation for Paul was you take baseline Q2 and you would have to make an adjustment for those 36.

Yes, okay, great. In some states like Massachusetts, we traveled there, together and because of some changes that have occurred from a regulatory perspective. Can you talk a little bit about what sort of impact changes and (inaudible) provisions can have in some states?

Yes, so, you bring up Massachusetts which was really the first significant implementation of standardized health care or at least a charge to businesses to help pay for the indigent care that was already going on in that state. It worked out fine for us. We were able to participate in the Legislative process there that we did not get significantly damaged in our business model because of a temporary work situation. That's the largest thing that really can impact us, is if they put a standard annualized fee on a per employee head count for a company and even if they cut that in half for part timers which some states and some -- the federal level have proposed. That kind of model hurts us, Massachusetts did not do that. They carved out or at least made what we'll call a pro rata charge for us. That it was by the hour or at least by the day that we would be charged.

Other states there really has not been that significant impact. There is a strong federal movement right now going on. We track that closely and give input to that Legislative process, the best that we can we are giving the same input that we gave to Massachusetts. Let's be careful about attendant consequences for those that need work the worst. The very people you are helping and providing healthcare to, you could be taking jobs away from. Let's make sure that doesn't happen. Let's work together and figure out a way to make it work. We are not opposed to where we are heading for these ideas and concepts. We just want number one, a level playing field. We want it to be proportionate by the hour to the people it applies to and to not hurt these very people that need healthcare. They need jobs also. Let's be careful there. So far so good. We didn't have any overwhelming concerns.

It sounds like you are finding some people that are being fairly receptive to that message that you--?

Well, we are fortunate. We do spend some time with the Legislative process each year in ensuring that people understand temporary staffing and why it's different than full-time employment. How it looks different than full time employment and how the regulations need to be careful when they put any sort of regulation in place for a full-time employee. Of why that might look different for a temporary. It's easy for this process to think that a temporary employees looks just like a full-time employee. It's just trying to decide whose employee it is. That's not the case especially at TrueBlue. At TrueBlue we're very temporary. In some of our cases, we put people to work for eight hours at a time and that's the only time we see that person and we surely can't afford to pay a whole month worth of healthcare for somebody that shows up for eight hours one day, or for one day. So, we try to keep the message loud and clear through the Legislative process, that these people that need one day of employment. Whether it's fill in for extra money or in between jobs or trying to find full time employment through working a temporary job, whatever the case may be, these people that work on day are still valid people. And let's not take their jobs away from them just because you put a big charge on us. And they get it. We feel good that the process is hearing us and understands our business situation and again, we are not fighting the concept of healthcare reform, we just want to ensure that it doesn't damage our business.

If it ends up being a situation where you just get charged for one day's worth that's something you should be able to absorb without too much?

Everybody else will be absorbing it, Mark, our customers, our competitors and we will be fine. As long as it is all fair, we're very comfortable that we can compete in the regulatory environment. We do that very well here.

Terrific. Then going back to the broad based statement, are you even seeing signs of a pickup in California?

Not necessarily. There has been some, that construction was a larger proportion in California than other states.. So, if you filter that out, yes, there is some good signs in California. There is some good movement down there. Our very temporary business, our Labor Ready division is doing pretty good and it's showing some nice pickup outside of the standard construction, full-time construction business. So, I'm pleased with what I'm seeing there, but, yes, construction in Florida and California, are both pretty heavy hit. And those are two pockets that are different than the rest.

It sounds like across the country, aside from that, you are seeing signs of a pickup?

Yes, yes, it's -- everything else is going faster than construction or improving faster. Less shrinkage, it's kind of weird language right now--.

On a daily branch, seasonally adjusted basis, you are actually seeing a pickup?

Yes.

Got it. Great. Thanks.

The next question comes from the line of Mr. Paul Ginocchio with Deutsche Bank. Please proceed.

A couple of follow-ups, was there any charges in the SG&A line in the second quarter that you know about?

There really wasn't anything significant. We closed off 36 branches, that was standard and we closed more than that on the previous five or six quarters on a run rate basis so.

I think you talked about $0.5 million charge going into the quarter. Is that about right?

Yes, hang on just a second. Yes, there were -- there were less charges this quarter than most, but there is nothing of significance there. That's about right.

Gross margin obviously didn't go down much year-on-year. I think in the last couple quarters, you saw a lot of bill pay rates versus bill rate compression. Was the mix that overwhelmed that this quarter, can you talk through why it it wasn't maybe as bad as you thought? Thanks.

There are a couple of reasons, number one are, those businesses that are closest to minimum wage have really dug in and done a great job of managing the pay rate to be in line with where the bill rate needed to be. We closed that gap safely. But the most significant item is the mix change. Our higher bill work has grown faster than our low bill work. On an overall basis, our average bill rate grew 6.3% this quarter while the wages grew 3.9. If we adjust out the business mix change they each grew about 1%. Bill rate was like 80 basis points where pay rate was 100. That's pretty good for where we have been. And on a 20 basis point slide when you filter out the mix change. There is a significant growth in average bill rate going on right now because of the mix change, of serving larger customers, that are using higher skill sets and so really it just proves out that our diversification of what we have been doing at TrueBlue is working well for us. That focused on these higher skill sets, it's paying off because that's what our customers need right now.

If I can sneak one in, when do you get confidence to maybe deploy some of that $100 million in cash to repurchase shares? Is that something you think about or is more acquisition things?

I think on both of those, we are going to be pretty cautious right now, Paul. Share repurchase or acquisitions, preservation of capital is still something that is important to us. We are proud of our liquid position and our financial position, of where we have ended up. With all of the majors that I talked about here on the call, today, we are pleased about that. We put these goals in place. Number one, to have the facility done, registered shares ready if need be, but most importantly turn our operations into a cash flow positive rather than where we were in Q1. So with those things being met, our liquid position looks much stronger than it did four or five months ago and we're pleased about that.

At the same time, we don't have perfect visibility in this economy. We are not out here, today, even though I have made some positive comments about our own results and where we stand within the economic conditions, we are not going out on a limb saying the economic uncertainty is behind us, by any means. We have to be cautious and that's why I throw those statements in there of we don't intend to close very many offices. We are seeing improvement in those offices that were on our watch list. I'm very happy about that progress, but at the same time, we will follow the model of preserving our own situation. With that said, although it feels like it's getting close to a period of time where our equity price is a steal of a deal, because we know we are going to be in the first to balance and move forward, we still have to exercise some caution. We are not putting out a big flag today saying that the uncertainty is behind us all the way.

Thank you.

Ladies and gentlemen, this concludes the question and answer session of today's call. I would now like to turn the call over to Mr. Steve Cooper for any closing remarks.

Thank you, and we sure appreciate you being on the call with us today and the questions you have asked and your attention. If there are any follow-up questions, with Derrek out, I know that he's taken some but you can reach us by calling Teresa Berkmann at 253-680-8206 if you had any follow-up questions and we appreciate you being with us, today. Thank you.

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