TrueBlue Inc (TBI) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter TrueBlue earnings conference call. My name is Philip, and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Stacey Burke. Please proceed.

Thank you. Here with me today is TrueBlue's CEO and President, Steve Cooper, and CFO, Derrek Gafford. They will be discussing TrueBlue's Q2 2013 results, which were announced before the market opened today. Please note that slides providing additional background on our results were included in our 8-K filing today, the Company's press release and accompanying financial statements are now available on our website at www.TrueBlue.com. There is a presentation providing additional information about our Q2 earnings results on our web as well, under Investors/Presentations.

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 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 Form 10-K.

I will now hand this call over to TrueBlue CEO, Steve Cooper.

Thank you Stacey, and hello everyone. Today we reported that 2013 second quarter revenue grew 19% to $422 million. It produced $0.31 per share of net income. The revenue for the quarter was at the high end of our earnings expectations, and the net income per share exceeded our earlier high end expectations by $0.06, primarily due to gross margin improvement, which came by appropriately pricing new business, and improving the lowest performing accounts through price adjustments, or ending the relationship if necessary. This is an important and successful strategy for us during the second quarter.

We understand the importance of maintaining strong gross margins, that reflect the specialization that we bring to the market place. Our second quarter results include the acquisition of MDT Personnel. The integration has gone well. All sales and services integration was completed by the end of Q1, and now the support integration has been completed during this second quarter. Soon after the acquisition closed in February, we quickly integrated our teams in the field, and closed 65 offices. Given we integrated so quickly and seamlessly, we cannot break out our results separately between our prior business and the acquired business. What I can say is the combined business is performing well.

And as you can see in our results today, revenue came in at the high end of our estimates, which is related to how well our blended teams are performing. As we discussed at the beginning of the quarter, our results also include the impact of our work with Boeing slowing. Net of our revenue decline from Boeing, we experienced overall growth of 25% in Q2. The impact from the expected Boeing revenue decline is substantially behind us now, as it has been four full quarters since this significant dropoff in revenue.

We are pleased with the growth we are experiencing and feel our teams across all areas of our service, both geographically and industry are executing well. Seeing revenue growth at these rates and improvement in gross margins is the result of great execution by our teams. As shown in the revenue growth guidance for Q3, we are optimistic with the opportunity to continue the trends we experienced in Q2. While Derrek will share with you in a minute more details about both our revenue and gross margin improvement, and our expectations for these in Q3, he will also share more specifics about our operating costs in 2013 for the first two quarters, and our expectations for these costs in costs in the back half of 2013.

Although it is somewhat difficult to clearly see in our first half results, it is important to know that we do expect to see the leverage in our business return in the back half of 2013. As we move into 2014, we expect to see expansion in our EBITDA margins. As a result of the leverage gained from our core business growing nicely, along with the synergy impact of the significant acquisition of MDT in early 2013. In Q3 we estimate net income per share will grow approximately 30%. This shows the positive movement forward we expect.

I will now turn the call over to CFO, Derrek Gafford, for further analysis, after which I will make some comments regarding our growth opportunities. Derrek.

Thanks Steve. I will start off today with a high level discussion of the quarter, including a summary of key factors driving our results. I will also provide an update on the progress of our acquisition and integration activities, and then jump into a deeper discussion of our business trends, and related expectations for the future. In my commentary 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 of $0.31 was $0.06 above our midpoint expectation. $0.02 of the out performance was from lower income taxes, with the remaining $0.04 from solid operational performance, particularly our gross margin results.

To better understand our performance this quarter in comparison with Q2 last year, I will provide commentary on an EBITDA basis. Q2 2013 EBITDA was $ 22.5 million, which includes two unique items. First we incurred $2 million of integration costs related to the MDT acquisition. Second we have $3 million less in EBITDA due to the expected decline in Boeing revenue. Excluding these two items EBITDA grew by $5 million.

Great progress was made this quarter in our acquisition strategy. As planned we completed the integration of MDT Personnel in five months, which included the consolidation of 65 former MDT branches, switching all operations to our systems, and transitioning all support services. More importantly, we are very pleased with our success in retaining both field employees and customers. Our progress here keeps us on track in realizing the expected value of the deal. We also made a new acquisition in June, Crowley Transportation Services, a Northeast truck driver business doing about $10 million to $15 million of annual revenue.

Now let's review some of the key financial trends in this quarter's results, starting with revenue. Revenue of $422 million grow by 19% for the quarter,which includes the impact of the MDT acquisition. Due to consolidation of MDT branches with our existing branches, and the related customer overlap we cannot accurately segregate organic and acquisition revenue. What I can tell is that the combined business is performing very will, with improvement in our combined revenue trends. Revenue grew at 17% during March of 2013, which was our first full month of combined operations, and our Q2 revenue growth stepped up to 19%.

Now let's cover gross margin. Gross margin for the quarter of 26.5%, 50 basis points above the high end of our expectation, driven mostly by disciplined management of our operations. Gross margin was about the same as Q2 last year, but there are offsetting trends I want to point out. MDT carried a lower gross margin, creating an estimated decrease in the blended Company average of 100 basis points. The decrease from MDT is offset by the positive impact of revenue mix, and our management of the business. The decline in Boeing revenue which carries a lower gross margin than the blended Company average, creates a positive revenue mix impact to our gross margin. From operational perspective, our team continues to do an outstanding job of ensuring new customer relationships and are billed at appropriate rates, and that existing relationships meet our economic expectations.

Now let's discuss Sales, General, & Administrative expense. SG&A as a percentage of revenue which is 21.2%, and in line with our expectations for the quarter. Compared by Q2 last year SG&A was up by $18 million, which breaks down into the following categories. An estimated $10 million for ongoing branch and field management expense that came with the MDT acquisition, $2 million of nonrecurring integration costs, and the remaining increase relates to variable costs tied to our organic growth.

Let's switch gears and look at SG&A from a leverage perspective. SG&A as a percentage of revenue was 21.2%, or 100 basis points above Q2 last year. It increases from mostly two items the first of which is the nonrecurring integration expense. Second is a drop in Boeing revenue combined with the fixed costs of the plain text centralized delivery model. Excluding these items, SG&A as a percentage of revenue would have decreased by 40 basis points compared to Q2 last year. Depreciation & Amortization of $5.2 million was in line with our expectations. Our effective income tax rate of 29% was lower than our 35% expectation, due to additional worker opportunity tax credits.

Now let's turn to our expectations of Q3 of 2013. We expect revenue of $450 million to $460 million representing growth of about 20%. Gross margin should be about 26.8% to 27.2%. Excluding the impact of the MDT acquisition, our expectation equates to 30 to 40 basis points of pro forma gross margin expansion. With the MDT integration costs behind us, as well as most of the Boeing revenue headwinds, we expect the strong operating leverage of our business to show. For Q3, SG&A as a percentage of revenue is expected to be 19% to 20%. Based on the midpoint of this range, this represents a decrease of 100 basis points compared to Q3 last year. For Depreciation & Amortization we expect $4.5 millionto $5 million, and our effective income tax rate is expected to be about 35%.

We are excited about the future for a few reasons. First is the strong operating leverage of our business. With the MDT integration costs behind us, and most of the Boeing headwinds, we expect expansion in our operating margins. Second our organic growth strategies are working well. Our specialized approach, the blue collar market provides us with differentiation, and we are using our technology in new ways, to create value for both customers and workers. Third, we have developed strong business competencies in acquiring and integrating acquisitions, and believe there are more opportunities ahead for us in this area.

I will turn it back over to Steve.

Thanks Derrek, for the analysis on the second quarter, and our third quarter outlook. As you have heard here today in our estimates, the current economic climate allows us to continue to pursue further acquisitions, while we also aggressively pursue organic growth through the execution of our sales strategies. Our main criteria for selecting acquisition opportunities continues to be first, ensuring it fits our strategy, second can we get the expected ROI on that opportunity, and third, can we integrate the target into our organization, to ensure that all of our objectives are met, especially expanding opportunities to better serve our customers. There seems to be adequate opportunities available for us to continue to seek growth through acquiring strong companies. That will expand our vision to be the leading provider of blue collar staffing.

We are more encouraged by the opportunities to grow revenue organically. We are encouraged by the new housing starts we have seen in 2013, and the level of building permits in general we have seen. We remain well-equipped and ready to serve contractors, as construction continues to improve and show growth. We are seeing our strategies in two areas work well.

First our sales and service strategy has expanded over the past few years to bring more focus to our customers industry specialization. We 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 competency of selling and serving in local markets. Our strategy to be more diverse in relation to our overall industry approach has helped us produce more consistent and more sustainable results.

Second, we have made great progress in implementing technology that is focused on recruitment, communication and assignment of our workforce to our customers. In the past, most of our workers have been recruited through our neighborhood branch locations. We have been investing in two key areas that we remain committed to, and believe will further drive efficiencies in our business, by eliminating our dependency on a high number of branch locations, and enable us to fill more orders through access to more workers using technology. This technology is assisting us in centralizing common operations to a higher degree, and communicating with our workforce through mobile solutions. As we rely more on technology to communicate with our workforce, we can reduce our dependency on the high number of neighborhood branch locations. This will reduce operating costs while giving us access to more workers, with a faster and 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. On a recent occasion, we received an order for 42 workers at 4.00 PM in the afternoon for the next morning. We literally had all 42 positions filled and communicated within five minutes. We have also built in the ability to pay these workers shortly after their work shift ends by using a pay card. These combined process improvements have substantially reduced our dependency on our high branch count.

I strongly believe by sticking to our sales and service strategy and being specialized for our customer, along with our focus of driving our internal productivity, we will continue to provide outstanding returns for our shareholders. We remain optimistic about the staffing industry. There are strong economic drivers along with continued government regulation that make our industry an attractive solution for businesses that are growing, and need help with their blue collar workforce solutions. We have more room to grow, and we will continue to pursue both organic growth and further acquisitions. We will now open the call up to you for any questions that you may have.

(Operator Instructions). Your first question comes from the line of Jeff Silber from BMO Capital Markets. Please proceed.

Thank you so much. If I remember correctly last quarter you had adjusted your adjusted EBITDA guidance for the year upwards. I was wondering if you could revisit that? Are we expecting any change or are you still comfortable with what you gave us last quarter?

Jeff, we haven't reiterated that annual guidance. We felt we needed to do that in the beginning of the year so you could clearly see through the first two quarters. But with the strong quarter, second quarter behind us now and our third quarter guidance, we believe that it is easier for the Street to build estimates off of the third quarter now, and we haven't reiterated that annual guidance.

That is fair enough. I appreciate that. Going back to the results in the quarter that just ended, I know it is difficult to break out acquisitions, but you seem to be able to do so from a gross margin and SG&A perspective. Can we get a rough estimate what organic growth was in revenues? I think last quarter you said it was roughly 5% to 6%. I am just wondering if that figure accelerated during the second quarter?

I think it is pretty close to the same. It might be more in the 7% to 8% range.

That is actually very helpful, Derrek. I appreciate it. And my final question you mentioned about some of the low performing accounts that you are going through and making price adjustments or ending the relationships. Is that exercise done, or is that something that we should expect to continue going forward?

That is an ongoing process, especially when we bring on approximately $2 million of new revenue from MDT. There was an immediate culling of where are we on those accounts, and where do we want to go? We made the decision we were not going to pass through a general price increase to all of those customers, however we did get to work on looking at some of the lower end accounts, and making a decision do we want to serve them, and setting a time line with those customers of how long we would serve them under those conditions and under those terms of service. Some of it was right there on the acquired accounts. However in our ongoing business, you are always under those opportunities to improve, and we stay focused on that. We want to ensure that as we bring this specialization to the market place that we continue to be rewarded on our margins for that.

Great. Appreciate the color. I will jump back in the queue. Thank you so much.

Your next question comes from the line of John Healy from Northcoast Research. Please proceed.

Thank you. I wanted to ask you about the gross margins a bit more. The performance you had was very impressive. When I think about the specialization and where are you guys are taking the business, I was interested in your thoughts by vertical of brand, where you think the most opportunity lies for optimizing what you are bringing to the customer, and improving those gross margins. And with that as well, the guidance you give on the gross margin, if I try to assume that there is no more positive benefit from the Boeing roll off on the gross margin, I am struggling to get to what would cause you to be kind of below at least the midpoint of the gross margin range, given the performance you had on the second quarter assuming that performance continues in the back half of the year?

The first half of that question, John, is that the verticals that are important to us, where we see an opportunity to hold ourselves out, obviously we over the last few years we have been investing heavily in drivers. We have been investing heavily in those skilled trades that conserve the energy business, which has continued to be very strong for us, by the way. It is not really the huge driver of growth, but it is a huge consistent stabilized workforce that we have out on those energy projects. We see the opportunity to stay focused and take advantage of the construction markets, which we historically have been a leader in. As those markets return we want to be right on top of that. Historically that brought the largest gross margins available, so being rewarded for that specialization is really important.

Where some of the other diversification has come is we look at the services business, where hospitality is and banquets and serving food service, and serving hotels, and serving those in that service business, it has been a growing engine. And we believe that there is an opportunity to bring a qualified, compliant workforce to that industry, and so we are heavily focused there. There are others, but we are staying focused in these jobs that companies have a hard time filling. If they have a hard time filling them, then that is a specialization we want to be in. We know we can recruit, we can find, we can rally, we can screen, do some training, baseline training in this, and bring a workforce to the client that they value, versus just chasing generalized staffing. So that is our main focus.

The second half of that question I will have Derrek take that, and answer a bit more for you, John.

John I would answer the question from a couple perspectives on gross margin. One, I think that there is quite a bit of color on the different things driving our gross margin and the results this quarter. I think that can give some additional color to the third quarter, and the trend that I talked about. Simply put, MDT as we have talked about is impacting our margins by about 100 basis points on a blended average basis. So if you, based on the midpoint of the gross margin range I gave today call it 27%, that was about the midpoint, throw 100 basis points of MDT impact on that, pro forma gross margin would be in our guide in say 28%. It would be lead to expansion of say 30 to 40 basis points compared to Q3 last year. That was the commentary in my script.

Okay. And then I just wanted to ask and I don't know if I missed it, but can you give some color on just how the construction business performed in the quarter, and maybe any commentary you have in terms of confidence of how fast and how strong that business is coming back online for you?

I think we have seen it in a stable state, John, the construction business. Building permits, housing starts all kind of took off at the end of last year and the first part of this year, and we have seen some stabilization in the last three to four months. Our own business shows that also. There are some trading, is remodel growing are new starts growing, and stuff like that. In a material state looking forward we are bullish about it. Still I think that there are various drivers that cause this thing to show head fakes here and there, but it didn't fall off. It is moving forward, it is just not our strongest grower right now. But I think long term it is.

Okay. I just wanted to ask on the acquisition side it sounds like you made another deal in the quarter. Do you have a goal, or what you aspire to do in terms of acquisitions over the next 12 to 18 months, is there any goal in terms of amount of revenue that you want to add, or how many deals that you want to close? Is there anything you can talk to there?

A lot of that has to do with, sometimes a small deal takes as much time as a large deal. It is not always revenue based. Strategic fit is first. What is available? We are always open. We are in the market. We have got a significant number of contacts that we screen. We probably screened 20 deals this past quarter. There is a good flow of activity. We are looking for strategic fit first. The way we would look at that is specialization is most important. How are they serving their customers, and how does that fit in where we are? We want to make sure it fits into the blue collar family of work, and fits into the TrueBlue company. So that is first and foremost.

Geographical expansion of a current service would be second to say, okay, we don't offer all of our services in every market. However, there is a great company over here that does what we do. We have interest in that, but there is only so much of that we can chase. We would rather do deals like MDT. Those aren't available. We are right on top of each other. We can synergize the business quickly, and we are going to show great returns over the next four quarters, or beyond because of that. It creates a little bit of mess in the first couple of quarters that you are doing it because of the high cost of integration, but those deals would be great if we can find a like company. That is not really what we are chasing. I think it still comes back to first and foremost specialization matters most, and then a geographic expansion.

The challenge with geographic expansions is that they are expensive ongoing, because you can't synergize them. However we want to be across all of the markets in the United States, so that we can serve our customers better. So that ispart of our strategy. But we have to govern that one, so we don't overload the organization with new costs as we are growing. I think it is a balance. I can't give you an exact formula.

We have to balance it with our own internal resources of how many we can sort through, how we can integrate it quickly, like Derrek talked about. That great strength that we have built internationally, but we only have so much of that resource, and those people and that opportunity available. We are pretty picky on it right now to tell you the truth, given the number of opportunities that are there. We are taking just a couple at a time, and whittling away.

Thank you guys.

Your next question comes from the line of Randy Reece from Avondale Partners. Please proceed.

Good afternoon.

Hi, Randy.

I was wondering if we could talk a little more about how you make the decision to go for price with a particular deal? Do you have a short-term goal with trying to take out businesses at a very low contribution margin after your costs, or do you have some sort of broader goal of trying to defend your pricing in your market?

I assume you are talking about the gross margin increase, and the way we culled out some accounts?

Yes.

Well --

It is hard to walk away from earnings even if it is at a particularly low margin?

No, that is not hard. Our resources are valuable. The recruiting we do is valuable. The screening that we do is valuable. The difference we can make to a business is valuable. To call it a commodity and say it is equally valuable to everybody, lowers that value. We don't look at it that way.

We want to do specialized things for customers that value what we do. As I mentioned in my earlier comments some of that culling was done on accounts that we purchased. So that helped. We set an expectation at the beginning of the quarter what the blended gross margins would look like, and so some of that was culling on some of those accounts that we bought. We know that we only have so much resource in each community, to both do the recruiting and placement of workers, and so it is not as hard as you would think when you are in a community, and when you are in a market place, and the economic situation is pretty good and the people are looking for workers. There is pretty good demand out there. You have to stay true to what you are good at, and make a good valuable decision that fits you and your customer. Obviously you can't just raise prices for everybody, and you can't push that economic value across the board. On low end accounts it is not hard to cull as you might imagine.

Speaking of MDT, what more do you know now about the MDT business since you have had it in the fold?

I don't think there has been much surprise. I think we knew what we were getting into. As Derrek talked about the integration plan went well, and very quickly we pulled these teams together. I don't think there has been a lot of surprises. That one was easier for us to anticipate, because we ran that exact business model. We have been competitors for years in the same marketplaces.

So not a lot of surprises on that one, just good hard work. Every manager in our business pulled this together and made these relationships work. An acquisition can create a sense of loss for employees, loss of who they were and what they thought they were working on. And bringing them into the TrueBlue family took a lot, it takes a lot of talent by a lot of people making those employees feel welcome, so we can then in turn help customers and the workforce feel good here. So I think we are on track. It has been a great, great acquisition. There are always things to learn. I hate to answer it that way, but I think that our eyes were pretty wide open as we stepped into it.

What does your branch count look like now between Labour Ready and MDT?

I didn't hear the last part of your question, Randy, but I will give you the branch count in the second quarter it is 737 branches.

That includes the acquired branches?

Yes.

Alright. Finally, I wanted to talk a little about how what kind of strategy you have to bring along workers and clients at the same time as you are trying to build this business that you can serve by mobile? The idea of getting unshackled from the small perimeter of a local office is really exciting, but it seems like you have to have maybe a different kind of customer to appeal to a different kind of worker.

That is a very interesting question. We haven't seen much change on the client base so far. These are pretty good jobs that we are placing folks with, they are pretty clean, they are pretty in and out, and there is a pretty talented workforce. Will that change over time? I am not sure. We haven't seen a lot of change on the client because of the mobilization of the workforce.

On the workforce side, I made the comment in my prepared remarks that we have pretty much nailed the front end of the equation where we are communicating with the workforce, we are asking them if they want the position. The computer system is helping us screen who might be most qualified, and who might live close to the opportunity, how long they have worked with us, and it is bringing forth the suggestions for the best match. We are sending a leverage number, maybe five per opening, five text messages to people per opening, finding a really good response rate, and then one of our customer service reps has to screen that to say, okay did we get to the best match and approve it. And that is the front end. And they don't need to come to the branch. We are happy about that side of the equation.

The back half, having them paid on a pay card within 20 minutes of the work ending, and finding an opportunity to pay them on a pay card that there is no cost out of their pocket, and honoring that relationship has been amazing. So where we are in this, this is the question you have asked, is without branch locations of which we haven't done a massive closing yet, We are still exploring, well how do you find workers outside of that network? We know how to handle the transaction, but how do we do the recruiting, and how do we do the initial contact. That is what you are going to hear more from us over the next few quarters, is exploring those new methods of engaging the workforce, recruiting a work force, and screening and qualifying that workforce without the branch location. So you are right. Your question is just spot on to where we are in our exploration and our journey.

When I first started to get to know you guys back in the 1990s, I spent some time at 5.00 in the morning waiting for work at some of your offices, just to get a feel for what that is like. There has to be a much larger universe of people you can address, if they don't have to do that. It is not the easiest thing to do, I will tell you that.

I think you are right. There are two demographics especially that we are looking for that has to do with age demographics, the younger workforce and then the older workforce. Both have not, the younger workforce saying I don't want to go through that process in your branch. The older workforce just maybe they have retired, and maybe they are in a different spot, maybe they want to work two or three shifts a week, maybe they will work at a banquet, or some other service opportunity. It is not all ditch digging, and it is not all hard manual labor. But there is a lot of work to be done. So working with those two groups of populations on our mind, and how to find them and bring them into the fold is important for us. What you have called out is spot on. We have to meet them where they are, and that is our goal.

Excellent. Thank you very much.

Your next question comes from Kevin McVeigh from Macquarie. Please proceed.

Good afternoon. This is actually [Derrick Sprodman] in for Kevin. Just going back real quickly to the acquisitions you talked a lot about looking for specialization that fits what you are looking for. Can you maybe talk about any specific specializations where are you seeing opportunities, or is it really across the board?

Well, it is not across the board. We have to be pretty spot on to what we are looking for. Obviously we did a small deal this past quarter in drivers. There is a big need for drivers. We are expanding our own internal business as fast as we can, opening up new markets. However, that small deal, although small, brought 200 drivers onto our records that we can now interact with, we retained those customers, but more importantly we retained those drivers. Getting drivers onto our records is really important. Finding those drivers, bringing them on, and that is a specialty that the businesses are having a hard time filling. That is probably the best example I could give you.

The ones that we have talked about in the past, electricians, pipe fitters, these folks that are working out on energy sites, putting up solar panels , working with that workforce is a specialty that is important to us. You might be saying, well you do those already. The point is, that is right. Because we pick those that have the best payoff where we can spend our resources. There was a question a little earlier, what about what new? And that might be what you are asking is, what is new, what else? What might we be looking for?

We have to look for those areas that are growing. As I mentioned earlier, the services business is one that is growing. Whether it be working in kitchens or working in banquets, or working in hotels, or working in the service business in venues, I believe that business needs our services. There are some people that have specialized in it. We first are trying to grow organically in those businesses, and do a pretty good job to out prove that there is demand and that we can hold up our margins, and hold up our specialty. That is kind of how we go about it. But I would say that the services industry is one that we want to be in. And one reason is just as I have answered in the last question, that industry appeals to the younger worker and the older worker. There are larger populations that we are not putting to work in those demographics, and the services business is an area we can put both of those demographics to work in.

That actually serves a good segue to my next question. In the last couple of quarters you talked about alternative energy, and some of the progress you are seeing there. I was wondering if you could just talk about if you are still seeing good growth there, and also maybe historically you have given us the organic growth rate for that segment if you have that? That would be very helpful as well.

As I mentioned a little bit ago, probably a quarter or so ago we hit the year-over-year point where that annualized to a pretty significant number for our business that we were serving, the alternative energy. It has grown from there, but it is just at normal growth rates at this point in time. We feel really good where we are, serving that, and what we have proven is that when one project ends that customer is taking us to the next project. We feel confidence-wise a lot better this year than we did a year ago. Because we hadn't proven out that, okay we served you on these three projects. Will you take us to your next three or your next five? We have proven that model out that we are moving with that customer across new projects. On a year-over-year growth I think that it is really close to our organic number that Derrek shared just a little bit ago it is within material range of that.

Understood. That is very helpful. Nice job guys, thank you.

Your next question comes from the line of Sara Gubins from Bank of America. Please proceed.

Thanks, good afternoon. I am sorry if I missed any of these comments, but you mentioned that construction didn't fall off, but it wasn't the strongest grower in the quarter. Can you talk about what the fastest growing segment was, and any additional comments about trends by type of work?

Sara, giving exact growth rates is something that is really challenging for us because of the MDT acquisition, but I can give some directional color. Construction is still our best overall performing segment. Steve's comments were just to, the context around that is same kind of demand levels we were seeing in Q1. So still strong, but not any real change in the trends. If I were to call out something on the other side, I would say manufacturing has still been a little soft, a little spotty. The other industries that we serve I would say all fall in the middle range of pretty steady growth.

Great. And then in looking at the slides it looks like revenue growth decelerated very slightly during the quarter when you look at it excluding Boeing. Is there anything worth highlighting here?

I don't think so. April grew at 20%. June was in at 18%. We are guiding to 20% revenue growth. I wouldn't read too much into it.

Okay. And in looking at some of the growth data that you gave, it looks like Boeing was about $8 million in the second quarter. Is that right, and should we expect it to continue to come down in the third and fourth quarter?

That is about right, Sara. I would say probably 2, 3, maybe $5 million or $6 million of revenue from Boeing.

And then last question, has the delay in healthcare reform and the employer mandate slowed the pace of client conversations? I know that there has been discussions about that potentially being a driver for small businesses that want to say the 58 employee mark. I am wondering if that has changed the nature of your conversations at all in the last couple of weeks? Thank you.

Thank you, Sara. No, that really hasn't driven a change in our current trend. For one we were not playing the game of helping somebody that has 55 employees get down to 49. That was something that we are not going to do. We will honor what the intent of what this law is about. We will help clients learn to comply with it, and temporary work, contingent work is a good method to use to comply with the law. Those conversations have continued. Our sales force is still curious. They are asking us questions and worth teaching them on what to talk to clients about. This law, the reprieve has not really pulled off. It is only the penalties that are not going to be applied. They have asked us to move forward and offer benefits.

And so we are moving forward, and our continued search and understanding of the law of how we can implement that. We think it is important that we live up to this law. We honor it and we help our clients understand it and where it goes. I believe it will be a significant driver in the back half of 2013. Companies are still looking for ways that they know they need to comply with this law. Although the penalty doesn't apply, the law still does. The search goes on of how to get ready to implement this law that will most likely go forward with some more guidance coming out this fall.

The nice part is we have got a great head start on this. We have a great understanding of how to comply as a staffing company. How we will track the data, report the data, be on top of it. We have finished that work. We feel very comfortable as a Company where we stand. That gives us the confidence to step forward and help companies, our clients understand how they can comply. And do it in an honorable way.

Maybe those other questions, about how do I get below 50, maybe those are happening somewhere, but most of our questions are just in general how would a balanced workforce of contingent labor work with my full time labor? And what are my opportunities? What are some strategies I can apply. How can I ensure that I am living up to both the letter and spirit of what was asked for in this law. I think there is more to come, but we are still positive about the impact that it will have here in the back half of 2013, and especially as we work through 2014.

Great. Thanks a lot.

(Operator Instructions). Your next question comes from the line of Mark Marcon from Robert W. Baird. Please proceed.

Good afternoon. I was wondering if you can split out a little bit the percentages of revenue that you are getting from the various lines at this point, just so we can get a better feel of the acquisitions, how much is Center Line, how much is Spartan, et cetera?

As far as mix of business, Mark?

Right.

Let's see here what I have got.

If you don't have that, we can just follow-up offline.

I will get it to you. I will give it to you on a couple of ways here. It is probably a little misleading to just give it on a quarterly basis. Let me give it to you with TTM, although it wouldn't be dramatically different. Labour Ready is a little over 60%. CLP is about 15%. Spartan about 10%. Center Line about 5%. PlaneTechs about 5%.

Great. What are you seeing on the Spartan side just out of curiosity?

Spartan has been I would say nice, steady growth. Overall the manufacturing has been a little spotty, but Spartan has been growing mid-single digit. Pretty consistent with the rest of our business.

Great. And can you talk a little about on the Labour Ready side with the MDT business that you culled, what percentage of the MDT business would you say did get culled,just from a pricing perspective?

It is really small. The most important thing to understand is their business looks a lot like ours, where approximately 50% of the customer base turns over every year anyway because you are serving projects. It is not that we retained 90% of that business when we buy something. It is the sales force, their connection to the market place, and their contacts and leads and pipeline that they have. So two things. One is there was some culling, not highly material, a few really large accounts. But not high in numbers. Second is you have that turnover and the customer gives us a chance to reprice that business overall, the portfolio overall without giving your general customer a raise.

It just takes a little focus on both of those two things. You can make some improvement. So the MDT sales team that has come on, they get it. They are paid by producing more gross profit. They get it. They hear this, and they like the strategy, and they like where we stand on that. It is just hitting a lot of singles, there are no big home runs in there.

Great. And then what percentage of the Labour Ready openings are you now filling via the mobile technology? I guess I am just trying to figure out what inning are we in terms of the roll out?

We are first inning. We completed the roll out during June, although we had early testing that most of our stories have come from, and those that were part of what we call Alpha, that very first group, 33 branches, they quickly went to a point where their sales growth compared to the test group was 3 and 4 times. Derrek quoted some numbers where say for example organic growth was 5% in the general area, we saw some of these test branches in the month of May grow by 20%, by grabbing two or three afternoon orders and filling a couple of weekend things, or grabbing things quicker so that they can move on and get back to selling.

The bulk of our branches, the other 600 especially in our on-demand division is where the bulk of this is going to come from, really just got turned on in June, the four weeks of June. Wave after wave after wave. Here early in July we are seeing use of it, we are hearing great stories. We don't have stats, but we feel very comfortable this is going to be a good driver for us.

It sure sounds like it. And how long did it take those test branches to kind of get up to speed and ramp?

Well, it is a bit unfair. You pick your best teams, best branches to test something like this for you, so a lot of good talent in those 33 branches. Leadership, and a lot of focus, and they participated in the development of it. The ramp in those branches was really fast. It won't follow in the rest of our branches, because those teams weren't here developing, and they look more like the averages rather than we brought our superstars in the first at bat. It is going to work well though, because the adoption rate ends up being really high. It is just hard to benchmark off that first group of 33. I get too excited when I do it. Those are good branches, good people. The rest of the organization we will get good results out of it.

Great. I appreciate. It I will follow-up offline. Thanks.

Your next question comes from the line of Paul Ginocchio from Deutsche Bank. Please proceed.

Thanks. Sorry maybe I missed this earlier, I wasn't clear. You are not backing away from the $85 million of guidance? I just didn't quite understand what you were saying by you are no longer reiterating. That is because you think that you are going to beat it, or can you be clear on that so there is no confusion, particularly for me? And then you talked about the restructuring costs now being behind us, but do you still expect the $2 million of charges for the mobile centralization strategy in the third quarter, and is there any change to your $10 million or $5 million EBITDA quarter from that strategy? Thanks.

Thank you, Paul. I know you are referring back to our earlier comments and filings that we did back in February, and no we just chose not to reiterate annual guidance. It is not something that we have done. We chose to do it at the beginning of the year just so we could work through the confusion of a couple of large strategies. It is really hard to track what creates 20% sales growth. It is easier when a big chunk of it is an acquisition, and we know the impact of that. However, if organic growth is 6 or 7 or 8, whatever the number is, it is really hard to say how much was mobilization, and how much of it was this sales training, and how much of it was focused on this, that, or the other thing.

In the beginning of the year it was easier for us to say we have these strategies and we will put a number on it for you. As the year comes together, we can't break out the acquisitions anymore. I know that we took a shot at it here earlier when Jeff asked a question, but really these numbers are coming out of combined P&Ls, out of combined people. Same with the mobilization. Is that 20% growth in a given market because of the mobilization, and you can quickly find it, or is it because of the combined team, or is it because they just came out of sales training, or is it because a just client moved to town? Those things are really hard to separate. All I can do is celebrate and say yes, it is growing . There are many things that we are doing.

So when we get to this part of the year we can tell you where we are through two quarters, what has happened, where we stand, and how much of it is behind us. That is one of the reasons we haven't reiterated annual guidance. Not in any reason because the future does not reflect what we said earlier, we just don't want to be in the annual guidance business. We will talk about where the business is. We believe that Q3 guidance was clear enough that you can build a go forward estimate off of. If Q3 guidance wasn't clear enough that there was integration going on, or something like that was in there, then we might have had to have extended those trends for you, or helped you see on an annualized basis. That is the reason we pulled back on that annualized number.

You asked a question about the branch closings and the mobilization. When we started the year we put a number on that and said, we will hit a given number, it will be part of this $85 million of EBITDA. Some of it will come through growth, some of it is going to come through closings. As we get to this point in the strategy, where we can see the environment today we have to make decisions and say, the number one thing is we continue to grow. The head count we have in play, the branch count we have in play and as I commented on a little bit earlier, we haven't come up with a method of rounding up that workforce without those branch locations yet.

We have reduced our dependency in the morning and evening, but we haven't reduced our dependency overall of finding people. Right now with the growth rates we have and to sustain where we are, we have made a choice, well let's don't get out there and rush a closing strategy to save a couple of million dollars in SG&A, and then trip on ourselves on the wonderful growth that we are experiencing, and the margin improvement. Will that come later? I still believe that there will be less branches in the future. I am not putting a number on it right now. So everything just kind of comes together, Paul. I think we put a good third quarter number out there for you to build an estimate off of, and I think you can build an annualized number to figure out where that is.

So there is nothing, I don't think you called it out, there are no charges that are inherent in the third quarter number?

Right. There is no estimate for an integration cost, or a branch closing cost in that third quarter estimate.

And then second, it sounds like today you feel better than you did in February?

I mean, I just have to go off of the numbers. These are pretty good growth numbers that we are in the middle of the summer and we are hitting. I don't know about then versus now. We have a good estimate on the table for Q3.

Let me just add one piece of color here, because I don't want there to be any lack of clarity with the annual EBITDA number. With us not giving that is a sign for something. Because it is not.

When we started this year we gave an $85 million EBITDA number, and the context behind that was there were so many undercurrents going on in our business, we felt that by not giving it and giving some clarity on that, there would be too much confusion on what is going on in our core business. So remember when we started the year, the first half of the year, a lot of headwind with Boeing revenue, and the impact to our profitability and that undercurrent going on. We had just done the MDT acquisition. So there was acclimating everyone to the impact of that, and the integration costs of that.

And now as we come through the second half most of the Boeing headwind is behind us . We have had a couple quarter of trends here with the MDT acquisition in place. And by the way, if we took our year-to-date, well we are not giving the annual guidance, but I will say this, if we had laid it out by quarter with our results for these two quarters and what we have in our forecast for Q3, we would be right on track. And so the only reason we pulled it back is there is just not really any need for it. So but overall we are still right on track with what we had originally expected at the beginning of the year.

Thanks, I appreciate the clarity. Thank you.

(Operator Instructions). Your next question comes from the line of Jeff Silber from BMO Capital Markets. Please proceed.

Sorry, just one more quick one. Derrek, since you gave us the trailing 12-month revenues by your different brands, I was wondering if you can do the same thing by your different end markets?

No, I can't, I really don't have that with me. It gets a little bit more misleading by those end markets with what is going on with the MDT acquisition. I just don't have it normalized on a 12-month basis.

Okay. I will follow-up with you on that one. Thanks so much.

Your next question comes from the line of Mark Marcon from Robert W. Baird. Please proceed.

Just a follow-up to Paul's question. Is there any part of the business that is not, I am talking about verticals. Any part of the business that is not going as well, or that has seemed to take a step back? It sounds like everything is going on plan, and that most of the categories that you in are seeing good growth, other than obviously Boeing?

I think you have called that out. I think our aviation business has been our largest concern and that is mostly driven by one account. We have been pretty open, and on a material basis nothing else has fallen out of the floor and nothing else is actually jumping out of the sky. We have a really good business going across the organization, across geographies, across service lines. There are always superstars out there that are doing something unique, and we love them, but on the averages there is just no one economic driver or industry driver that is causing us more pain than the other, or more opportunity than the other, besides what we have already talked about here.

There are some other companies that have already reported that seems to be a little more optimistic about things getting better just from a macro demand perspective, are you sensing that, or how would you characterize things?

Well, I don't think we said it is bad when they said it was bad, so maybe they are seeing what we have been seeing. I think it is pretty consistent from where we started the year and how things are going, and the economic drivers have been apparent, and the regulation of drivers have been apparent, and I think those are still there, and I am glad to see others are seeing it. It is nice when all boats are rising in the tide. A good economic climate is good for all of us.

Great. Thank you.

Ladies and gentlemen, this will conclude the question and answer portion of today's conference. I would now like to turn the call over to Steve Cooper for closing remarks.

Yes, thank you. Thank you for your questions, and your interest, and joining us today on the call. We appreciate your support, and look forward to updating you here as the quarter proceeds. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.