TrueBlue Inc (TBI) 2012 Q4 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 CEO Steve Cooper and CFO Derrek Gafford. They will discuss TrueBlue's 2012 third-quarter earnings results, which were announced today.

At this time, I would like to hand over to Ms. Stacey Burke for reading the Safe Harbor. Please go ahead, Ms. Burke.

Thank you. Here with me today is TrueBlue's CEO and President Steve Cooper and CFO Derrek Gafford. They will be discussing TrueBlue's Q4 and full-year 2012 results, which were announced before market opened today. Please note that slides providing additional background on our results were included in our 8-K filing today, including a description of any non-GAAP terms. The Company's press release, the accompanying financial schedules, and the result slides are now available on our website 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 differ materially is contained in the press release and in 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 TrueBlue's CEO, Steve Cooper.

Thank you, Stacy, and good morning, everyone. This morning we made two exciting announcements at TrueBlue. First, we had steady growth of revenue of 4% this quarter, aside from the reduction of our project with Boeing. Second, we have closed a transaction to acquire MDT Personnel, the third-largest general labor staffing firm in the United States, serving industries such as construction, manufacturing, disaster recovery, hospitality and many other service industries. We welcome those new employees with us today. These are two very important and exciting announcements, as they both support our position as the leading provider of blue collar staffing. We will discuss the impact of both of these with you this morning.

Our 2012 fourth-quarter revenue was $345 million. This was slightly ahead of our high-end guidance due to the [Boeing] revenues $10 million in Q4 versus the $5 million we had projected. We are encouraged by the 4% growth in our core business during the quarter. We expect this same trend to hold in Q1 2013. We are projecting the Boeing business to be about $10 million in Q1 and then stabilize at $5 million during Q2 and going forward, which is about $50 million less in 2013 for this project than it contributed in 2012. Other general trends across geographies and industries remain fairly consistent with Q3 trends.

Over the past two quarters, we have experienced a slight deceleration in manufacturing, distribution, and retail, while we've experienced a slight improvement in overall construction. This construction improvement is a mix between residential and commercial, mostly with remodels. We are encouraged by the new housing starts we are beginning to see. We remain well equipped and ready to serve contractors as new housing starts develop and show growth. Our overall construction revenue is approximately 40% lower than our peak prior to the recession five years ago. We are encouraged this business is starting to improve. During 2012, our construction gross margins were over 4% higher than our average of the rest of our business. Construction remains a very promising upside for us.

Generally speaking, most of the other areas of our business performed as expected during the fourth quarter. Expanding our operating margin in 2012 by 20 basis points was an accomplishment with the changing mix of revenue that I have discussed with you here this morning. During 2012, we grew our core revenue by approximately $105 million, while our Boeing revenue declined by about $30 million. The core revenue growth had new costs associated with it, and we did not reduce SG&A costs associated with the Boeing decline as we are investing in new markets with those salespeople and recruiters. These two things combined held back our operating margin growth in 2012, and it will do so again in 2013 since we have forecast an additional fall-off in Boeing revenue of $50 million.

Our operations that serve Boeing is not been reduced despite the fall-off in revenue because we are reliant on that same group to grow our mechanics staffing business with military and ground transportation accounts. Both of these strategies are moving forward nicely, yet it takes time to build the trust and relationships to enter these niches appropriately. Continuing to expand our operating margins remains a high priority for our team. We know revenue growth is key to driving operating margins in a positive direction. We also believe that maintaining our specialized approach of bringing our services to market allows us to sustain higher net industry gross margins. We remain focused on growing revenue and remaining specialized in our approach to produce strong operating leverage in our future results.

Our second exciting announcement today was closing the transaction to acquire MDT Personnel. MDT has approximately $200 million in annual revenue. They serve 8000 customers across 25 states through 105 branches and several on-site locations with very little overlap in customers served between MDT and TrueBlue. We plan to integrate the MDT business into our existing business lines. This will result in closing their corporate office and consolidating 60 of the branch locations with our existing operations. In the branch consolidations, we will use some of the MDT offices and some of our existing offices. After integration, we will operate 45 new locations plus the on-sites.

The nonrecurring integration costs incurred in 2013 will be approximately $6 million, with $4 million of that happening in Q1. Related to the MDT transaction, in 2013, we expect approximately $185 million of revenue growth and $8 million of adjusted EBITDA growth excluding the nonrecurring costs. Once the nonrecurring costs are eliminated, this transaction will be accretive to our EBITDA margin in 2014. We are excited to blend the combined sales and service teams of MDT and TrueBlue. MDT has a great track record of growth, and they have a similar culture to ours in terms of accountability and performance. As we blend this team, we are confident the results will be improved in sales and service for our combined customers.

We recognize that we must balance our cost structure to match our revenue as we work through the strategies we feel are important to drive shareholder value. I want to discuss two of these strategies with you further. First, specialization -- our sales and service strategy has expanded over the past few years to bring more focus to our customers' industry specialization. We will remain focused on growing our expertise in several industry markets, as this is exactly what customers are asking for today. Our sales and service approach uses a blend of centralized teams focused on national accounts along with our heritage of selling and serving the local markets. Our strategy to be more diverse in relation to our overall industry approach by serving local customers as well as national accounts. This has helped us produce more consistent and sustainable results.

Second, driving productivity through the use of technology. We've made a great progress in implementing technology that is focused on recruitment, communication and assignment of our workforce. In the past, most of our workers have been recruited through our neighborhood branch locations. We have recently invested in two key areas, one centralizing common operations to a higher degree, and two, furthering the implementation of our mobile solutions. We believe these will drive further efficiencies in our business in the back half of 2013.

Let me speak to centralizing our common operations. We have been successful in several areas of our business in recruiting, dispatching, paying and communicating with workers from a central location. We have begun to consolidate operations in certain markets, leveraging our customer service and support teams from a central location. The result is less of a reliance on multiple physical locations. We plan to continue to centralized services in more markets during 2013, improving service while reducing operating costs.

Mobile recruitment solutions continued to show great results and promise, particular texting, recruiting, and filling customer job openings in a very efficient manner. As we rely on -- more on technology to communicate with our workforce, we can further reduce our dependency on our neighborhood branch locations. While reducing operating cost, technology also gives us access to more workers with a faster, more consistent fill rate for our customers. Our technology not only advertises job openings, it allows workers to respond when they are ready to work. Time and time again, we are seeing certain jobs filled within five minutes and the workers dispatched immediately to a location close to where they currently are or based on where they live. We have also added the ability to pay workers shortly after their work shift ends by using a pay card. These combined process improvements have substantially reduced our need for our high branch count.

By Q3 of this year, we are estimating that the impact of these two strategies, centralized operations and mobile technology, could improve EBITDA per quarter by $5 million through a combination of improved revenue, improved gross margins and reduced costs. I strongly believe that by sticking to our sales and service strategy of being specialized for our customers, along with our focus on driving internal productivity, we will continue to provide outstanding returns for our shareholders. Our decision to acquire MDT's operations, along with moving forward on two of the key operating strategies I discussed with you today, reflects our overall optimism about growth in the staffing industry. We have more room to grow, and we will continue to pursue both organic growth along with further acquisitions.

I'll now turn the call over to Derrek to review some of the trends and details with you about the fourth-quarter results and the forecast we see for 2013. Derrek?

Thanks, Steve. I'll start off today with a high-level discussion of this quarter's results and the key operational and financial trends. Then we'll spend some time with the MDT acquisition and finish with future expectations. Any reference to our performance is based on a comparison to the same period a year ago unless stated otherwise. Diluted net income per share was $0.19 for the quarter or $0.03 above our high-end expectation due to higher than expected revenue and gross margin.

Now let's review some of the key financial trends in this quarter's results, starting with revenue. Revenue of $345 million was $3 million above our high-end expectation due to additional revenue for Boeing. While Boeing revenue was higher than expected, it was lower than the same quarter a year ago. Excluding the impact of Boeing, total revenue would have increased by 4%.

Now let's discuss gross margin. Gross margin for the quarter of 27.4% was higher than expected and 120 basis points above Q4 last year. The increase over Q4 last year was the result of mix, pricing and lower worker's compensation expense. Boeing carries a lower gross margin than the blended company average, and the decline in revenue resulted in a positive mix contribution. We continue to be selective in the customers we serve and diligent in setting appropriate bill rates, contributing to our pricing success this quarter. We also continue to make great progress controlling our worker's compensation expense. 2012 was another record year for us in reducing accidents through continued improvement in our safety practices.

Now let's discuss sales, general and administrative expense. Excluding the impact from Boeing, revenue increased by $15 million this quarter, and the variable SG&A associated with this revenue drove the $2 million increase in SG&A. Compared to Q4 last year, SG&A as a percentage of revenue increased by 110 basis points. Decline in Boeing revenue, combined with the fixed cost of PlaneTechs' centralized delivery model, contributed to the increase. This was largely offset by higher gross margin, keeping operating margin about the same. Our effective income tax rate of 32% was lower than expected due to certain favorable adjustments in our year-end provision. Capital expenditures of $18 million for the year was higher than our normal level of about $12 million due to additional technology investments.

Now let's turn to consolidated Q1 expectations for 2013. We expect revenue of $335 million to $345 million, which is total revenue growth of 9% and includes the MDT acquisition. Also included in our Q1 estimate are the following two assumptions. First is an organic revenue decline of about 1%, and second is an organic revenue growth of about 5%, excluding the impact of Boeing. We expect loss per diluted share to be $0.05 to breakeven for the quarter.

Gross margin should be 25% to 25.4%. Excluding the impact of MDT, our gross margin range would be about [60] basis points higher, which would be about 30 basis points higher than Q1 last year. We expanded gross margin in 2012 and believe we can sustain this momentum in 2013 aside from the impact of MDT. SG&A as a percentage of revenue is expected to be 25.5% to 26.5% of revenue. Included in our SG&A estimate is about $4 million of integration costs related to the MDT acquisition.

In January 2013, the Worker Opportunity Tax Credit was renewed. This is an income tax credit for hiring certain disadvantaged individuals as defined by the federal government, which should bring our underlying annual rate in at about 35%. This credit was also renewed retroactively for 2012, and the impact will be recognized in Q1 this year, adding about $3 million of income tax benefit to Q1. The benefit received in Q1 and the approximate 35% rate expected for Q2 through Q4 should result in an income tax rate of about 30% for the year. Capital expenditures for 2013 will be about $12 million, with about $4 million occurring in Q1.

Now let's discuss the full year impact of the MDT acquisition. The MDT purchase price was $48 million; $12 million was paid in cash, $34 million in the form of an unsecured bank loan, and $2 million in other assumed debt. The $34 million loan bears interest at 150 basis points above Libor and carries a five-year term with five one-year extensions, where each extension becomes effective based on continued compliance with our senior credit facility. We expect MDT to add about $185 million of revenue based on 11 months of ownership and contribute about $8 million of adjusted EBITDA for 2013. Adjusted EBITDA excludes $6 million of total nonrecurring costs related to integration, and we expect integration to be substantially complete by Q2 this year. We also believe there are additional adjustments that can be made to enhance performance as we head into 2014 to bring the MDT EBITDA margin to 6%, which would be accretive to the current TBI margin of 5.2%. We expect no more than $6 million of annual intangible asset amortization.

Now we want to discuss events that will impact our 2013 results, starting with the mobile technology strategy mentioned by Steve. We expect the strategy could add up to $10 million of incremental EBITDA spread across the back half of 2013, excluding about $2 million of reorganization costs. We expect half of the incremental EBITDA to come from additional revenue as we fill -- as we reduce unfilled orders and win additional business. The other half of the EBITDA will come from lower occupancy costs created by branch consolidations.

Let me address the annual impact expected from our Boeing relationship. Compared to 2012, we expect about $10 million less in EBITDA from Boeing due to an expected $50 million drop in revenue. Included in the slide deck filed with our 8-K is a summary of these items, as well as assumptions related to our core business. While these estimates will differ from actual results, we believe they provide investors with valuable transparency about our business. Based on these assumptions, we expect about $85 million of adjusted EBITDA or nearly 20% growth over 2012. Put another way, incremental adjusted EBITDA margin in our organic business is about 16% net of the Boeing impact. A mid-teen incremental EBITDA margin is where we expect the business to perform.

We're excited about the future of our business for a few reasons. First, we expect continued momentum in our organic revenue growth without sacrificing gross margin. Q1 organic revenue is expected to grow 5% excluding Boeing. Second, our mobile technology strategy creates a platform for efficiency and continued growth of our EBITDA margin into 2014. And third, we see additional opportunities to continue our growth through acquisitions.

All right, that's it for prepared remarks. Please open the call for questions.

(Operator Instructions)

Sara Gubins, Bank of America.

I'm hoping we could get some more details on various segments in your core business that you saw in the fourth quarter maybe headed into the first. So what you were seeing on manufacturing, I know that had gotten weaker last quarter, what you're seeing on green energy trends?

As I mentioned in my prepared remarks, manufacturing and a little bit of the wholesale retail business performed about like it did in Q3, which is just slightly negative, in the 2% to 3% range negative. And that was really pretty consistent across all geographies in those various manufacturing distribution accounts. And then the segments that grew happened to be in the construction area. And again, combined just enough to offset that drop in manufacturing, construction rates are up 4%, 5%, so combined, that drew on our results. So it's not a wide variance either way.

Okay, and then the green energy projects?

Yes. We definitely finished the year strong on those, and taking off here in '13 about like we did. We had a lot of growth last year in green energy, and it somewhat leveled towards the end of Q3 and throughout Q4. And we are forecasting that just a whole consistent during 2013 with last year. Not providing a lot of growth, but there's plenty of projects in the pipeline to keep doing that business for us.

Okay, and then construction, could you talk about -- I know you mentioned that it was remodeling, just some more details on kind of what you were seeing in residential versus nonresidential trends towards the end of the year and so far during the month of January. And then maybe what you're assuming for the 5% core business outlook for 2013. Thank you.

Okay, great. The construction has been really spotty. Throughout the year, we've seen a few head fakes where we've participated on some of the new housing starts, but it hasn't held up, and then we've seen commercial remodels really take off from time to time. And so we haven't seen any consistent trend over a two or three quarter period in any of these areas, so it's hard for us to say, well, what we saw the last month of the year or this first month of the year is really going to drive a trend because this last three or four years, it's been spotty all over the place when we see things take off.

We are encouraged by the number of housing starts and the building permits that are being issued, and we do have a couple pockets, namely Florida, that is performing really well in both commercial and residential. I think that's important to understand. As Florida recovers from this, they were hit the hardest and the longest, and we are really excited about what we're seeing in Florida. We believe that will translate, I'm not sure in how many months, to some of the other states in Arizona and Southern California and across other construction new housing states that we expect to boom. I think we're on the front end of that, Sara.

Great. And just one quick one on the acquisition. Are the operational metrics similar to your core business in terms of revenue per branch, other metrics that you were looking at? Thank you.

Okay, thank you. That business looks a lot like our combined Labor Ready Spartan business. They participate in both, which is they're ready for on-demand jobs, but they also do really well on long-term staffing jobs, and so their blended gross margin is just slightly lower than our blended gross margin. However, their cost structure was -- they did produce more per branch. Now our strategy isn't really to take all 105 bridges and just lever up from there. We're going to blend this into our current operations.

Here within the next few minutes, as we kick off with our employee teams, we're quite excited about the prospects of blending these teams and taking the power of selling and servicing together. The net result is our average branch volume is going to go up a lot in these areas where we have combined operations because we're going to take that across the same account. We're blending the teams, we're bringing those employees over, shutting down the occupancy costs of those 60 offices, and shutting down the occupancy costs and the headcount of corporate during this integration period. I think it's going to be a real exciting acquisition for us. One of the better ones that we've done.

Paul Ginocchio, Deutsche Bank.

Thanks, just a quick question, can you give us what the revenue growth rate of MDT was maybe for the last couple quarters? If I missed that I apologize. Then I've got a couple of follow-ups.

No, we didn't give that. They're a lot smaller than us. Therefore their geographies look different than our average, and if we gave those rates, they may not blend and look like our average. They're heavily weighted in Florida, and they have been doing very well in Florida, just like we have been. They are really strong in disaster recovery, and they participated really well with the Sandy cleanup, a little bit more than we did. There were a little bit more prepared.

We're excited about their disaster team that's joining us. It will increase our preparation. They had a great fourth-quarter, I'll tell you that. And it's translated into the first half of the year. They have a strong sales force, and they have some specialties, number one speaking this disaster recovery, that we are really excited to blend our teams on.

And it looks like the Boeing revenue in the first quarter is a little bit higher than the rest of the year, at least that's what you're guiding to. As that due to some of the issues they're facing and some rework for the Dreamliner?

No, I wouldn't characterize It that way, Paul. What I would say is that, in addition to some of the core work we've been doing with Boeing, we have some additional projects with them from time to time. We have a little bit of that work going on right now, but it doesn't have anything to do with the recent press with the Dream liner.

Great, and just sort of two more on the core business organic revenue growth rate for 2013. I'm just wondering how long you are willing to carry the PlaneTechs SG&A if you're not able to generate some sales, and you've got the same growth rate in the first quarter as the full-year. Is there any way -- you're not expecting any acceleration. I'm just wondering why you haven't factored in any acceleration over the year. Thanks.

Yes, I'll take that question on PlaneTechs. We've put a great group together there that has serviced not only Boeing but -- what their core was, was servicing maintenance repair and overhaul businesses of the aircraft, and that went -- that part of the business, the MRO business, went through a lull during the recession. As airliners grounded aircraft, they did not need to be repaired, and actually, the ones they grounded were the ones that needed repairs, so they didn't have to invest. So that business was hurt a bit during the recession, but it's recovered nicely. Is growing at a 20% plus rate right now as airliners are calling on those aircraft that they had put on the ground and now they need overhauled, and there's really -- they're getting up close to maximum capacity with a pretty big backlog of servicing planes. So we're excited about that business. And we're using some of these recruiters to recruit into those roles.

But more importantly, there's a couple of strategic areas of PlaneTechs that we're working on. One is military, and we've put a great sales team together, and that did raise the SG&A there by quite a bit as we put some key people together. We actually brought in some officers that had served in the military and retired, and people that know that business really well over the last 12 to 18 months. And we're not going to take that cost down too fast, Paul, because those relationships are building, and we're winning some accounts, and we really believe that when that ball gets rolling, it's going to be a big one for us.

So don't count on any reduction there in the next 12 to 18 months of PlaneTechs. We have some great, great things happening. We've also been investing in ground transportation of mechanics, and that business is growing nicely too. So we're going to hang in there. We have a lot of confidence in that team that has performed very well for us in the past and that they'll do so in the future also.

It seems like you -- can I ask how much does PlaneTechs add of that 5% core growth you are looking for in 2013?

Well, let me handle your questions you first asked, Paul, because I think that was a pretty good question, so I'll repeat it for everyone's benefit here. The question was, we, excluding Boeing out of our organic business, we are forecasting a growth rate of about 5% for Q1. And in the slide deck that we've laid out, we put some information out there for the full year in that regard to our business and also showing a 5% growth rate there. So just to keep things simple, we have left that alone, and the intent of that slide at the end of our deck is to provide more transparency of all these moving parts. It's not to try to apply a certain level of precision on revenue forecast for the year. But I think 5% is a reasonable rate. There are other things that could cause it to be greater than that like construction picking up. So I would say to anyone, feel free to use a high rate if you like.

Jeff Silber, BMO Capital Markets.

Derrek, in the past few quarters, you've been kind enough to give us a breakdown of your business by end market. I'm wondering if we could do it, though, kind of pro forma basis with MDT what the business looks like now.

Yes, I can give you a breakdown of how we stand right now. Pro forma with MDT, I'm not prepared to be able to do that. We just have not matched all history between the two entities to that level.

I'll take whatever you have.

Okay. So let me give it -- I'll give it to you as it stands right now. However, I don't expect there should be a significant difference from our breakdown on how Labor Ready and Spartan breaks down, but here's where we stand right now as of the end of 2012 on a TTM basis. So mix-wise, residential and commercial construction combined gives about 20%. Our industrial practice, which includes energy, is about 10% of our mix. Manufacturing about 20%, transportation about 10%, wholesale about 10%, retail about 5%, aviation -- that's all PlaneTechs -- so about 10%, and services and other is right between 10% and 15%. So whatever you need to do to balance it out to 100.

Okay great, that's very helpful. Another thing that's been talking about is the potential impact of Obamacare that small companies might use temporary staffing firms to stay under that 50 full-time employee threshold. One, I'm just wondering if you could give us a rough average client size, how many employees your typical client has, and two, have you heard this from any of your customers? Thanks.

Yes, thanks Jeff. We've been working on this for almost three years with Washington DC, and we've been very involved both with the American Staff Association and our lobbyists to impact that bill to a way that would help the staffing industry and make it good for us. So we feel like we're on top of this and where it's going. The interesting part is now that we're in 2013 and getting close to implementation, questions like yours are coming up -- not just what is the bill going to do and how is it going to be absorbed and what is the cost impact. And we're getting excited here about the view of one, trying to control this legislation to a point where it didn't put staffing businesses in harm's way, if you will, that it didn't make us go backwards. And I think we did that as an industry.

And now the excitement is, well, how can we serve? How can we help customers work through this, and how can we be there? So your question is spot on, Jeff, of where we're going as an industry and where we're growing as a company and the questions we are answering. I don't have a breakdown for you on our customer size, employee account. That is a stat that we haven't collected and worked on, but it's a good one for us to pay attention to now with this legislation.

What we have done is we've looked at situations where how long they are using our people, and how that might impact the future. How many of those will now qualify for healthcare, and how we will help them get that and find access to it, either through our own plans or going to the exchange. And we're very comfortable that we've got the process down. So that sets us up well for your question is, well, what are customer saying now? And they're a bit behind the eight ball, if you will. They're not prepared, and we are. So I think we're going to come out of this very well in 2014, that we can be those consultants. We can be that company that offers the flexible solution and the contingent labor to help our customers work through this.

I think as it gets closer, some of the questions -- the detailed questions you've asked will be more prepared for as far as exactly can we see what it is going to do to revenue and what is that demand driving. But is going to be an interesting summer. We have started off 2013 with training for our people and started to get the word down of how our people that have feet on the street out there will be communicating with customers. We've set up an internal website for our people to access with all the talking points that they need for both customers and workers. And we're making great headway here. So thanks for that question, Jeff.

If I can sneak in one more, you had mentioned that MDT benefited from the Sandy cleanup. I'm just wondering if your own business did and if there's any expectation for that to continue in the current quarter. Thanks.

Yes we didn't get a net benefit. Boy did that cause some destruction and put some of our good customers down for some time. The lost revenue that we had from those customers was made up with other customers of cleanup. But net-net, we grew slightly, but not enough to really say it changed the quarter results. The initial cleanup that people call on on-demand to go out and do that initial cleanup -- that settled at this point in time. However, there's a long-term rebuild, and our teams are focused on now building relationships with those contractors that will have that long-term rebuild taking place. And we have great -- good people in place and moving forward.

Now over to MDT. They got a little larger chunk of the cleanup. First, they're not as large as we were. They moved that disaster team, and they got on top of it fast. Where we were looking at our current customers first, seeing how we could help them, MDT was able to attack it with their disaster team and serve a different customer base. We're quite proud of the work that MDT did, and it is settling a bit, but they're still doing some cleanup. So I think the combination of both who we are in that area and with MDT, we're a superpower no that can do both.

Great, thanks so much.

(Operator Instructions)

Mark Marcon, Robert W. Baird.

Wondering if you could give us a little bit of an update with regards to how the retail initiative went during the fourth quarter.

Yes, it didn't spring the business strongly. We had done really well in the fourth quarter of 2011, so we had some big numbers on the retail side to pick up. One of the large customers that we serve in that category is Walmart, and we matched to the business of 2011. There was a large pick up there though in 2011. Walmart got a little creative this year in how they staff temporary help and allowing family members to bring in people on a temporary basis, and they got a little more creative on how they were going to go about that.

Not saying it hurt our business, but it did hold back another forward movement there. As far as serving other retailers, it wasn't a great season on retail for us. It didn't go backwards, but we surely didn't go forward. I don't know if that was economy driven or we were focused on -- a lot of that retail business comes out of the Northeast, by the way, whether we were focused on Sandy or Sandy hurt us. But all mixed together, Mark, it wasn't a positive nor was it a huge drain either.

Okay. What are you thinking about for next year? What can you do a little bit better -- what didn't work? Because I was under the impression that you were going to expand what you did with Walmart to a bunch of other retailers.

Well, I think that's a good expectation. We're working on that. We have to build those teams up. We have one great relationship there with Walmart, and we have a few others in that category. But I think you are still spot on. We believe in that category, and we've learned how to serve one, and we need to learn how to serve more. So I think that there is more to come still in that market. It wasn't the punch we wanted in Q4, but we're still working it.

Okay. And then in terms of the alternative energy, it sounds like that's about 10% of the business at this point? Is that right?

That's right.

Okay. And you are pretty comfortable that, that plateaus but not going to fall off.

Well, I don't think it's plateaued. The energy business is growing, and I know there is some mixed comments out there about what's going on with solar and is it going to be sustainable or not, but we believe it is. And even if that is not, there's a lot of other energy work going on in the mid-states and now in Canada, and we have teams that are focused on that. So I think our energy business is just getting started. I don't think it's plateaued. I can't tell you what the bloom will be in '13. I'm just saying strategically on a long-term basis, we are continuing to invest in teams that know how to serve the energy business.

Great. And then can you give us an update with regard to the beta test in terms of the mobile technology? You mentioned that you were rolling that out in January. I know it's early, but can you give us a little bit of a feel for how that's going?

It's the piece that we are the most excited about. I would say from a big picture perspective, the mobile technology is on track. It's about where we expected to be. Feedback from our temporary associates that are involved with it, they are extremely excited about it. Our branch staff, as they get to understand the power of it, have really embraced it. So I think we are directionally on track on having this rolled out on a widespread basis amongst our Labor Ready operations for the back half of this year like originally planned.

And the fulfillment is going well in terms of being able to get the right people at the right spots?

Mark, right now, yes. We are investing right now on front-end recruiting solutions because most of that texting that's going on and the successes we're seeing, it's happening with people that we've already recruited through our front-end office. And so yes, the fill rates are high, those workers are excited, and where we're shifting our focus now is in the area of, well, if we didn't have five branches in a market, we go down to three or two, how will we interface with those that need to come in to the mobile territory? So I really can't answer that question about what about new workers that are coming into the system that weren't recruited through a branch. We've got processes in play, and that's what's being tested now, so that is why we're being a bit cautious and waiting until the tail end of the year to know the true impact that we can close these offices for sure. Is we've got to bring the pool of workers in the front door somehow still.

Okay. Great. And with regards to MDT, can you just give us a sense for -- I know there was a question about last couple quarters, but can you give us a sense for just over the last two years what the growth rate has been for them?

Yes, I think if we take out any spikes of business around special events, it's been a healthy high single-digit to team type of growth rate.

And that's been fairly consistent over the two years? In other words, it didn't spike up in 2011 and then slow down as 2012 evolved?

It's a pretty consistent. I would say most companies have followed that trajectory that you just mentioned that between the two years. I would --

That's why brought it up.

I would say that it's been less so at MDT, and they introduced at the beginning of this year a different approach to sales and how they structure and organize that in the branches. Which by the way we really like and think there is some opportunity for us to use on our side from a best practice perspective. But I think that, that has certainly made a difference in their performance this year or during 2012.

Okay. And is any of the management sticking, or how should we think about the commitment of the founders?

Yes, so the founder of MDT is not going to stay on with us. He's going to help us transition, though, and he is committed through a certain period of time, both one, to help transition out the corporate support services, but most importantly those key relationships that he has. We have three key executives that reported to him, and they're all joining us. Field and sales level executives. The back-office executives will be transitioned out. The CFO, the CIO, the head of HR, the head of administration and that entire team that supports the business as we transition that over to our support center over the next 60 days. So we're excited about the customer facing employees, and these three executives that we brought on are taking on key roles said TrueBlue.

Great. And with regards to their locations, so they -- you were going to integrate about 60 of them out of the 115 that they have? Or 105?

Yes, yes, so more than half will be integrated. They're competing for the same worker and competing for the same customer. However I did mention when we look at these customer bases, it's mostly new customers for TrueBlue now. So we're not -- that's one of the reasons we stepped into this quickly and made the decision to bring all those employees over. We have a lot of locations that are competing for the same worker. They're on the same street or with a mile of each other, and it just makes too much sense to --we've got to combine those teams as fast as possible. Yes, it's nice for the cost savings, but most importantly, we can't have them competing with each other out there for the workforce.

Yep. And how do you combine those? Are you going to combine them primarily into Labor Ready or Spartan branches? Because it sounded like they service both titans of work out of the same office if I heard you right.

Right. Most -- all of their on-site business will be transitioned into Spartan, and a little bit of the other, but most of this retail business is going to be transitioned to the Labor Ready because the footprint is larger and it just makes more sense. We're in the locations they are in. Spartan is not in the same locations where Labor Ready and MDT are located. So they are more centralized, they're in an office park or in a different place. So the bulk of the consolidation is going to happen in the Labor Ready branches.

So it's not all Labor Ready branches, it's not all MDT. We're taking the best real estate, the best location, and combining there. We're also doing the same thing with the employees. We're giving both sides a chance to say who is going to lead that market, and that process is going on over the next two weeks. And in the meantime, we're just running the MDT brand, and we're going hard at that and encourage them to stay forward and pushing forward on all they're serving while we're making these decisions of who's going to run what market. It's going to happen fast, and we're engaging those employees quickly.

It's only been going on for just -- it's just happening as we're speaking, and we're hearing good results back. Last night we on-boarded a lot of the leaders, and we heard great, great, great feedback and excitement about it. Mostly focused on the customer, by the way. This is good for our customer because they wanted us in more locations that we are currently in. Wow, now we have the firepower behind us. We have the ability to grow and access better insurance plans and all the things that growth takes that holds a smaller company back. They've got some key employees that are really thrilled with that opportunity now.

Great. What is your average bill rate?

It's pretty close to ours. We are competing for the same customers, the same worker, so as we blend those together, I think you are going to see it's not going to impact our blended rate.

So kind of in the $10 to $12 range?

No, it's higher than that.

Our average bill rate that Labor Ready runs about $15 and Spartan is not far from that. So they would be in this general range.

Okay, and how does it work with their affiliate locations? What are those?

What are you speaking to there?

I'm just looking at their website, and they've got 105 offices and 3500 affiliate locations.

Okay. So their founder runs a matching service where if they can't fill the order, then the affiliate service well. We're not going to need that because we're nationwide. We're in every state, we're in every market. And given they were primarily in the Southeast, when they had customers that they needed to fill orders in California or out west or up midwest even northeast, they had to dish those orders out, and we're not going to do that.

And what are the receivables you are bringing on?

Oh, approximately $30 million.

We have a great working capital base with this business at the rate that we pay. It can sustain itself, and we're really excited about that.

Why did it sell for the price that it did, just out of curiosity? It seemed like an attractive purchase price.

That's a better way to put it, Mark. It's an attractive purchase price, thank you. We're happy with this deal, and the founder of this business was only in the business two years. This business was bought two years ago from another founder, and this turnaround leader was able to clean the business up and make it sharp, get it customer focused, and they needed capital to grow. And it was a time for him to say -- great, I've earned my keep here, I've done what I've done and produced a great team and got this thing going in the right direction. And that is where we come to play is our ability to grow this business and take these employees further and give more opportunity was very, very apparent to all. It's a great match.

Great, and the workers comp profile, and how they managed that. How is that?

It's pretty similar to ours.

They're self-insured?

They are self-insured to a lower degree than we are. The balance sheet there isn't quite what we have to be able to absorb a higher deductible, but I would say that the general structure -- the general approach to safety is similar to ours. We do think there are certainly some improvements that we can make moving forward, but from a culture perspective and approach to business, I would say we are in the same ballpark on most items.

Great. Thank you.

Randy Reece, Avondale Partners.

Was the energy construction business 10% of revenue in the fourth quarter or was it higher than that?

Well I don't have the breakout, but I could give you the number. And you could run it, Randy. The energy was approximately $30 million in Q4. So it's not quite to that level.

It was kind of sequentially flat.

That's about right. That's pretty close to the TTM average of [10%]. It's close.

So it was pretty much sequentially flat, which is pretty good given seasonality I guess.

That's kind of what we were talking about is during 2012, it was ramping and ramping, and we hit mid third quarter, and it somewhat stabilized. So the stabilization in Q4 is right on point.

Okay. With the MDT acquisition, for years you've been consolidating branches in Labor Ready and felt like you had too much footprint, and now you are buying more offices and doing more consolidation, but you're going to add a lot more offices. I'm wondering how you -- what led you to seek buying another company in that area, and what you see -- what you gain from the deal.

Well that's a great question, and it's an easy answer. We're gaining 300 field level employees, 8000 customers and the ability to go serve those 8000 customers nationwide now. And we can consolidate most of those offices that we did it in, and we picked up 40 new markets that we weren't in that we've got some additional resource specialized customers that we need to stay with those 40 markets, and so it's not a large branch count for the size of the revenue that we're bringing on. And we're really excited to synergize this with our national footprint and see where we can take this with those 8000 customers.

In the past, you've given annual revenue by brand. Do you have those numbers?

You are referring to last year? What the annual revenue was?

You gave them last year. Do you have them for 2012?

Yes I do. Labor Ready about $835 million, Spartan about $140, CLP about $230, PlaneTechs about $130 million, Centerline about $60 million.

Very good. It seems like a phenomenon just across the industry that the business is done increasingly online. And mobile really fits in with your customer base. How are you going to kind of inch out in these markets and prove out to yourself that you can pull in people to fill orders in a timely fashion with a completely different delivery and monitoring model?

Well, we're doing that through pilot testing to ensure that, that assumption that you've just stated is true. And we're finding it to be true. But we have to give it some time to make sure that it holds up under all conditions. So the two fundamental things, one we communicate job openings through texting. They communicate back whether they are available. We communicate back to them through the job match and the instructions of where to go. And this is a computer communicating back with them, not a person on their little phone communicating back.

This is a very automated. So we put an order into the system, and we blast out to the five people that are closest and most qualified for that -- to that job order, and we're getting a match of greater in that five to one. So if we have one opening, we blast out five, and we're getting two or three responses fast, and we're able to make the best selection and move forward. And then as I mentioned, we pay them on a pay card at the end of the day. So that has been proven out that it works.

And now it's time to -- well, let's take it further. Let's see how it works with some consolidations, and let's really see if we can find new workers without these offices. So these are concepts. They're assumptions, they're theories, Randy. There being proved out in smaller pilots and we are expanding those as we go. So we can't bet the farm on this one, but we think we're on point.

You have to tend to the part of bringing people into your system. Does that add a different kind of marketing than you have done before?

Yes definitely. We had not recruited in our on-demand business online. We haven't thrown out there webs to catch them and pull them in and let them do online applications, and that part of our business is now being tested also. Can we really rally up the workforce in an electronic fashion, or do we still need to be in the neighborhoods to do the initial grab and then pull them into the electronic world? So we're testing both assumptions Randy.

Excellent. Thank you very much.

There are no further questions. I'd like to turn the call over to Steve Cooper for closing remarks.

Well thank you for being with us this morning. We appreciate your questions. And the on point comments that you've made here today. And we look forward to updating you at the end of our first quarter. Thank you and have a great day.

Thank you for joining today's conference. This concludes this presentation. You may now disconnect. Have a good day.