TrueBlue Inc (TBI) 2016 Q2 法說會逐字稿

Good afternoon. My name is Mike, and I will be you conference operator today.

At this time, I would like to welcome everyone to the Q2 2016 TrueBlue earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Derrek Gafford, TrueBlue's CFO. You may begin your conference.

Good afternoon, everyone. Here with me is CEO Steve Cooper.

Before I begin, I want to remind everyone that any forward-looking statements made by Management during today's call are subject to the Safe Harbor statements found in TrueBlue's press release and SEC filings. Any forward-looking statements in today's call speak only as of the date at which they are made, and we assume no obligation to update or revise any forward looking statements.

The Company's second-quarter earnings release and related financial information are available on TrueBlue's corporate website at www.TrueBlue.com under the Investor Relations section. This call is being recorded, and a replay will be available on the Company's website.

The discussion today contains non-GAAP measurements, including but not limited to, adjusted net income, adjusted earnings per share, and adjusted EBITDA. Adjusted net income excludes the following from net income or loss: Acquisition and integration costs, amortization of intangible assets, accretion expense related to acquisition earn-out, goodwill and intangible asset impairment charges, third-party processing fees associated with the work opportunity tax credit, and also adjusts income taxes to our ongoing expected rate of 32%. Adjusted net income and diluted shares are used to calculate adjusted EPS. Adjusted EBITDA further excludes depreciation, interest, and income taxes from adjusted net income.

These are measurements used by Management in assessing performance, and in our opinion, provide investors with additional insight on the underlying trends of the business. Please refer to the non-GAAP reconciliations on our Investor Relations website for a complete perspective of both current and historical periods.

I'll now turn the call over to Steve.

Thank you, Derrek. Good afternoon, everyone.

Today we reported our 2016 second-quarter revenue grew 7% to $673 million. Adjusted EBITDA of $37 million was comparable to a year ago. Adjusted EBITDA for the quarter exceeded our expectations.

Revenue trends continued to be mixed during the quarter, just as we saw in Q1. However, we managed and scaled our cost appropriately during the quarter, and we are pleased with how our teams have continued to improve the spread between our bill rates and our pay rates. We are definitely taking the right steps to preserve our profit margin, and continue producing long-term growth for our shareholders.

Our outlook for the third quarter includes adjusted EBITDA growth of approximately 20% on revenue growth of 6%. I'm pleased with the actions we have taken in our business this year that have put us in a position to provide an outlook of 20% adjusted EBITDA growth in Q3.

I want to share five areas impacting our results today, and the outlook that we've provided. First, revenue trends are mixed, with both some positives and some soft spots. Second, gross margin improvements, which relate to both the bill rate increases and positive business mix changes.

Third, cost containment measures implemented this year to date show our Q3 SG&A outlook more in line with our current revenue outlook. Fourth, the services provided to our largest customer have met or exceeded our revised expectations following the change in scope of services we announced in April of 2016. Fifth, the recent acquisitions are performing better than expected.

The first area that I'd like to cover, revenue trends have been mixed, with both some positives and some soft spots during the past few months. On a positive note, our managed services businesses of RPO -- that's the recruitment process out-sourcing -- and the MSP, which is our vendor management business, grew organically double digits in Q2. Our outlook includes continued organic growth in Q3.

In our staffing services businesses, we grew skilled construction trades double digits in Q2. More specifically, we continue to see strong growth in residential construction, along with manufacturing clients showing growth two quarters in a row now. Although organic revenue growth has slowed in our staffing services group as a whole, our small and mid-size customers continue to grow at mid-single digits during the quarter.

Some of the soft spots we have seen this quarter include large accounts in our staffing services business, with some slight declines. This includes the impact of the change in scope of services with our largest customer, along with a couple other large accounts that have had significant declines due to the changes in their businesses. Excluding these accounts within staffing services, our overall organic growth would have been approximately 3%.

The outlook we have given today for revenue growth has been impacted by the mixed trends I've just discussed with you. Regarding our outlook, it remains promising that we have seen smaller accounts and our local accounts continuing to grow. In particular, residential construction continues to perform well.

The decline in our larger accounts seems to be a pause in project-based work, such as remodels and resets inside of retail stores, rather than the general services related to ongoing support of retail sales, distribution, and other ongoing positions in the areas of their business.

The second area I'd like to cover is gross margins. The improvement related to both the bill rate improvement and positive business mix changes are improving our overall profitability and profit margins. Our gross margins improved overall by 100 basis points this quarter compared to prior year. The improvement was primarily due to the impact of investing in higher gross margin acquisitions the past year in comparison to our blended Company average, and also the growth of our construction services, which produced higher gross margins.

We have also continued to make improvement in the spread between our bill rate and pay rates. The current environment, which combines slightly slowing demand with rising labor costs, has created some sensitivity in pricing compared to a year ago. However, in Q2 compared to Q1, we made great improvement in getting our target market rates passed through.

The third area, cost containment measures implemented year to date now show our Q3 SG&A outlook more in line with the current revenue outlook. During 2015 we made significant investments by adding local sales and recruiting professionals in several markets, which helped produce the organic revenue surge at the end of 2015, and the specific growth we are seeing here in 2016. About $8 million of the increase in SG&A in Q2 compared to a year ago is related to these investments, along with the variable costs related to supporting higher organic revenue, and $10 million of the increase is related to the new acquisitions in the past year.

We mentioned on our Q1 call that with the slow-down in growth during the current year, cost-containment programs have been commenced. We have selectively cut our costs, which some have already shown up in our Q2 results, and many others showing up in our Q3 outlook. On a year-over-year basis in our Q2, our SG&A percentage of revenue was up 150 basis points. With our cost containment now in place, our SG&A as a percentage of revenue will be back to being comparable to prior year.

Our fourth area, services for our largest customer have met or exceeded our revised expectations following the changes in scope of service we announced in April. In April, we were notified by Amazon of their intent to shift our scope of services over the next year. This shift is to assist them with their highest-growth segment of their delivery system, as they ramp up more local delivery systems over the next few years.

We are slightly ahead of our expectations with our adjusted level of service with Amazon, which is a result of our continued good service and partnership that exists. We expect this account will grow in 2017 beyond the outlook for 2016. As they execute their strategy, we expect growth beyond 2017 in connection with this shift.

Our fifth area, our recent acquisitions of SIMOS and Aon's RPO business are performing better than we expected them to at the date of acquisition. On December 1, 2015, we acquired SIMOS Insourcing Solutions, a leading provider of on-premise workforce management solutions. They specialize in helping clients streamline warehouse and distribution operations to meet the growing demand for online commerce and supply chain solutions. This has been a strategic move on our on-premise teams, as we see many new opportunities to infuse our current operations for clients with these special services.

On January 4, 2016, we acquired Aon Hewitt's RPO services. These acquired operations expand and complement our PeopleScout services, and have quickly been fully integrated with our PeopleScout service line here in 2016.

Innovations within our Company, along with additional acquisitions, combine well with our existing business to put us in a strong position for the future to be the leader of talent solutions. We believe the RPO market has tremendous potential on a worldwide scale, which is why we are so pleased we could bring the Aon Hewitt RPO operations into our PeopleScout brand here in 2016.

Hopefully these five areas of our business and our outlook will be helpful to you, as you can see our core business remains strong, and should provide expanding margins as we execute the actions mentioned here today.

Our top priority remains to produce strong organic revenue growth across all aspects of our business, and leverage our cost structure to generate increasing EBITDA margins. We believe these steps outlined here today put us on track to do just that. Acquisitions have been a key element of our growth strategy, improving shareholder returns through ramping up the most current acquisitions, along with sourcing, acquiring, and integrating additional companies, will remain a focus for our team.

Although we disclosed today a non-cash impairment charge related to acquired businesses, which was primarily associated with the change in scope of services with our largest account, we strongly believe these acquisitions have provided, and will continue to provide, shareholder growth and returns.

We have heard time and time again from our current customers and prospective customers that they will need to rely on experts like us for strategic workforce management and recruiting. Our business is built on the premise of making it easier for our customers to grow their businesses. We do this by helping them adjust their workforce needs to their business strategies.

Although we have seen a few changes resulting from large accounts adjusting their current needs, these customers continue to thrive, and we continue to have relevant relationships with them. They appreciate our business model in times of contraction, and really appreciate it at times of expansion. We will continue to be viable and relevant to each and every customer during times of softness and times of growth.

From our outlook today, you can see our adjusted EBITDA margins have remained strong, and we anticipate further expansion beyond this year. I will now turn the call over to CFO Derrek Gafford for further analysis and details on our results and outlook. Derrek?

Thanks, Steve. I'll start off by giving an overview of the key aspects of our results this quarter, and then provide additional color on our operating trends.

Net loss was $64 million for the quarter. Included in our results is a non-cash goodwill and intangible asset impairment charge of $99 million, which is equivalent to $80 million net of tax, or $1.91 per share. $67 million of the pre-tax charge is within the staff management reporting unit related to a change in the scope of services with our largest customer, which was reported by TrueBlue in April 2016. The remaining impairment charge occurred within the plain tax and HRS reporting units in connection with outlook changes reflecting recent economic and industry trends.

Adjusted EBITDA of $37 million was above the upper end of our previous outlook, while total revenue growth of 7% was near the low end of our previous outlook. Strong progress on the spread between bill and pay rates kept total gross profit dollars toward the mid-point of our previous outlook, and disciplined cost management further contributed to adjusted EBITDA results. These actions helped position us for adjusted EBITDA growth and margin expansion in Q3 this year, which I will cover later in my discussion, versus the flat growth and 50 basis points of margin contraction in Q2 this year.

Total revenue grew by 7%, while organic revenue declined by 1%. Excluding our largest customer, organic revenue grew by 2%.

Staffing services continued to experience a moderate pace of demand, while managed services delivered another strong set of results. Revenue for the staffing services segment was up 4%, or down 2% on an organic basis. Revenue with our largest customer was down versus prior year, but met our expectation for the quarter. Excluding our largest customer, organic revenue grew by 1% in staffing services.

Revenue growth for the staffing services segment were mixed for the quarter. Trends softened on the West Coast and in the northeast, while we saw improvements in the southeast and southwest, with steady results in the Midwest. Construction and transportation industry trends were more moderate, and retail weakened, while manufacturing continued to improve.

Revenue from the SIMOS acquisition was lower than expected, from a slower roll-out pace with a couple of customers. However, as we enter the third quarter, new customer roll-outs are ramping as expected.

Turning to managed services, revenue was up 76%, or low double digits on an organic basis. Contributing to the strong results were additional projects in the legacy RPO business and same-customer volume increases in the acquired RPO business.

Now we'll give some background on operating trends impacting our profitability. Gross margin of 25.3% was 110 basis points higher than Q2 last year. Approximately 120 basis points of expansion is from the favorable impact of our recent acquisitions, which carry a higher gross margin than the Company average, and from positive sales mix within the organic business.

Excluding these items, gross margin declined 10 basis points, which is an improvement compared to the decline of 50 basis points reported in Q1 this year. Our teams continue to make good progress managing the spread between customer bill rates and contingent employee pay rates.

SG&A as a percentage of revenue was 20.2%, or nearly 150 basis points higher than the same quarter a year ago, primarily from higher costs in the organic business. On a dollar basis, SG&A was $136 million, up $18 million compared to Q2 last year. $10 million of the increase is from ongoing operating costs associated with the acquired businesses, and $8 million in the organic business from investments made in 2015.

The effective income tax rate was a benefit of 18% this quarter, lower than our ongoing expectation of about 32%, due to permanently non-deductible items associated with the impairment charge. Excluding the impact of the impairment charge and the related non-deductible items, the income tax rate was in line with expectation.

Turning to the balance sheet, Q2 finished with $150 million of total debt, $16 million less than Q1 2016. Total liquidity, defined as cash plus borrowing availability on the revolving credit facility, was $149 million.

Year-to-date cash flow from operations was exceptionally strong at $184 million, nearly $80 million higher than the same period last year, primarily due to accounts receivable de-leveraging. Accounts receivable hit a historic peak in Q4 2015 from record revenue -- from it being a record revenue quarter, as well as a higher days sales outstanding metric, which has since dropped to a comparable level with the prior year.

Looking ahead to the third quarter, the outlook for total revenue growth is about 5% to 7%, 3% to 5% for staffing services, and 50% to 60% for managed services. The outlook for net income is $24 million to $26 million, and earnings per diluted share of $0.57 to $0.62, or $0.73 to $0.78 on an adjusted basis. The outlook for adjusted EBITDA is $51 million to $54 million, representing growth of roughly 20%, or 80 basis points of margin expansion in comparison with Q3 last year.

Profitable organic growth is our top priority, and we're taking the right steps to manage through a choppy demand environment. Ensuring our bill rates are priced properly and our operating costs are managed in a disciplined manner continue to be key focus areas for us as we manage the year ahead.

That ends our prepared remarks for today. We can now open the call for questions.

(Operator Instructions)

Your first question is from Jeff Silber from BMO Capital Markets.

Thank you so much. Last quarter you provided annual guidance. I'm wondering if you can revisit that. Are you still comfortable with what you gave us last quarter?

Hi, good afternoon, Jeff. We're not making any update to guidance this quarter. While we did update it last quarter because of the event with Amazon, our intentions weren't originally to update that guidance. We just felt that we needed to last quarter because of that event, and we're going back to giving quarterly guidance, so no re-affirmation of that guidance today.

Okay, understand. Can you talk about monthly trends in your two divisions, and any color you can give us on how things are going on in July so far would be great. Thanks.

Sure. In our staffing services group, if we just take a look through the quarter, there wasn't much inflection point in those organic revenue trends that we just shared. It was pretty steady-state, at least on an aggregate basis, certainly different things going on in different geographies; but pretty steady-state on a monthly trend basis, and really the same went for the managed services group.

As the guidance we've given overall today is pretty close with the results that we gave -- that we reported here in Q2. The outlook that we've got coming in July is really directionally in alignment with results we just reported, and very consistent with the guidance we've given for the third quarter.

Great, that's helpful. Then just a couple numbers questions. What share count is embedded in your 3Q EPS guidance, and what should we be modeling for capital spending for the year? Thanks so much.

Yes, share count will be a little under $42 million -- call it $41.8 million-ish. CapEx, we're looking at $5 million-ish for Q3, which is really about the pace that we've been on as we move through the first half of the year.

Okay, great. Thanks so much.

The next question is from Randy Reece from Avondale Partners.

Afternoon.

Afternoon, Randy.

First of all, I wanted to check on the impairment. It seemed like you had some cushion at the end of last year as far as the goodwill value on PlaneTechs. I was just wondering what happened in the first half of this year that led to an impairment?

Sure. Well PlaneTechs has been one that we've been disclosing in the SEC filings. That's been in there most consistently. There might have been a year here or there that it wasn't, as far as the headroom being less than 20%. When you say cushion, I'm referring to headroom. That's in regard to the assessment of what the enterprise value is at that point in time, and in comparison with the carrying value of the assets on the books, and that comparison.

Really, the thing with PlaneTechs is PlaneTechs has been running in the $90 million-ish of revenue range. Seems like each quarter, each year, we've had a larger project generally tied somehow to Boeing. As we enter this year, there's just not any projects in with that division. Year to date we're running beneath where we were last year on our own forecast. We're talking maybe about $10 million or $15 million less than we did last year.

That's in our -- no change in our run rate through the first two quarters, but as we took a look at the outlook for the rest of the year, combined with where we stand at the middle of the year, that seemed appropriate to make an assumption that's going to be the trend for this year, at least in our modeling out into the future with a mild growth rate.

No real changes, Randy, there in the operation. We're still set to ramp up and do those projects. We just don't have one currently in place. That really changed the way that valuation looked.

Okay. Did the -- was there a significant difference in revenue versus expectations in the regular staffing lines versus the outsourced workforce management business in the second quarter?

Yes. Overall, the company was about -- down to about maybe at the lower point of our guidance range, so maybe $10 million less than had we been talking about the mid-point of the range earlier -- a little bit more than that in staffing services, because managed services came in better. If you break that down a bit, really the organic piece of the on-premise business came in really right as we had expected.

I talked about SIMOS, our acquisition, being down a little bit because of some customer implementations, but nothing to read into there; and then the rest of the business really filling that gap in our branch base business being a bit softer. That's the primary reason that the growth came in a point or two less this quarter.

You consolidated some branches this quarter. In the past, you've had some concerns, I guess, about losing -- having some revenue leakage whenever you consolidated branches. Have you done anything strategically or tactically to forestall that potential?

Yes, we haven't consolidated very many, and we're still going to be careful. It's really technology-driven and adding recruiters are the two things that give us the confidence to consolidate branches. Overall, we're combining teams to work in larger groups and units to cover for each other. If there's an area that has three branches that have been working together, there might have been some confidence that the recruiting efforts are strong enough out of the nearby branches that a branch could be consolidated.

Really, going forward the way we are looking at it is if we have other methods to find -- do our recruiting and find our people that the branch would be the least preferable. As we bring on our new technology and our mobile app in -- late here in 2016 and we see it running well in 2017, that could be a large driver of consolidations.

We're seeing great results where that's up and running, and the amount of reach that it has to pull people out of the market without having to come to a branch. That's our thought process there is if we can limit the traffic inside of a branch, then we can consolidate the team and really recruit a different kind of person on our team to do the work -- less transactional and more professional recruiting, and meeting the needs of the customers.

Do you have a feel or an actual number for how much of the country you are covering with your -- let's say mobile model?

Yes, I really don't. It's up and running well in 30 branches. In another 30 we've got it started, but we've had a little bit of a delay here this quarter to ensure that it's scalable, and that we don't get out there and then people get frustrated with the speed. We've had just a little bit of a slow-down here to ensure the speed's right. There's no long-term trouble there. It'll be up and running by the end of the fourth quarter. I'll have more to share with you definitely as we go into the first quarter.

Great. Thank you very much.

The next question is from Mark Marcon with RW Baird.

Good afternoon. I was wondering if you could talk a little bit about some of the regional differences that you saw, like to what extent are they driven by some of the overall vertical trends that you mentioned, as opposed to something that might be specifically occurring in those markets? When you mentioned the northeast and the west slowing, what exactly is driving that?

Well, I think a piece of what's going on, on the West Coast that we're seeing is -- and we saw this the last time minimum wage went into effect. This is largely being driven by California, a little bit of softness in Washington state. When minimum wage went into effect this year, really that's moving the pay rate up, and the associated burden cost by -- let's call it 15%, a pretty large increase for employers.

When we went through the same exercise in the middle of 2014, we saw about six months where the revenue trends -- whatever growth rate we were on had some level of deceleration in them. We've seen that again here for the first six months with California. You could pretty much say minimum wage went into effect at this point in time, and then lay the two lines of the revenue trends over one another. They look almost identical.

The real question is what happens as we go into Q3. Months seven through nine, when we did this through with California, we started seeing bounce, meaning the revenue trend starting to inflect upwards from its previous trend. I suspect that we'll see something similar here as we work through it this time around.

The south, the east, and southwest have been different stories for us. The southeast has just stayed nice and steady for us, mid-single digit, upper-single digit, in some areas double digits.

The southwest and Texas is probably a little bit more story of recovering from some drop-off from energy. If we were talking about the southwest for us, primarily Texas, we were probably down about 15% year over year in the third quarter. Each quarter that's, as we've anniversaried those comps, that decline has gotten less and less. Then we merged into growth as we ended this quarter and came into the third quarter. That's a little bit of color around those trends.

Great. The northeast, was that the same sort of dynamic as the West Coast, or was it something different?

I think that one's been a bit different. When I'm talking about it weakening, it's not that it's dropping off, but we had some very strong growth, still have good growth there, particularly in skilled trades. It's more just about an inflection of it not being as high as it used to be. It's not an overly weak area for us; it's actually performing at a pretty decent level. It's just not at the same level of growth that it was before. I don't know that there's a real call-out there, Mark.

Okay. Great, Derrek. With regards to Amazon, you mentioned that it's going to do a little bit better than your revised expectations. Can you give a little more color there in terms of exactly what's going on, on the ground, and how materially different the results -- or your expectations are now relative to at the end of the last quarter for the balance of the year?

Yes. It's not material, but what's the nice part is they're doing what they said they would do, and we're participating at those levels. The materiality of it might be that we're six months ahead of where we thought we'd be.

We really haven't adjusted our outlook based on these trends, but it's nice to see that the expectations that we gave in April are -- that they weren't unreasonable, and this account is going to go forward from here, and that it was just truly some adjustments with strategy, and not something deeper there. That's the most important part about that. That news is the relationship is sound. They're moving forward. We're hitting their new expectations. They're moving quickly on their new strategies, and we're performing well on that.

Are you seeing some of those local distribution centers really pick up at this point?

Yes, they're ramping them up fairly fast. Delivery stations is what they call them, and they intend to use more and more of those so they can get the delivery down and control it on their time frame.

How big is that becoming for you at this point?

Well, it's -- we were anticipating it to be about a $50 million run rate by the time we got to next -- to hold that $200 million forecast up, we needed about $50 million in that business. We're on track to perform at that level, a little bit ahead of it right now.

That's great to hear. Then with regards to the adjustments in terms of the expenses, you mentioned you've realized some of them but not all of them. What's the expectation with regards to absolute SG&A sequentially, as we think about that for Q3?

Yes we made a lot of good adjustments really across the business here, so let me hit the bigger picture, then I'll drop down to answer your question specifically, Mark. What we're really trying to do is take an approach here on managing this market by market. We've got some markets that are growing great, and in those areas where we need to, actually investing some resources there. In others where it's either we're not performing there -- particularly if we're not performing in the market conditions there, coupled with our own performances that don't look attractive, scaling back our resources there. That's in a market by market. Most of that is from a people perspective.

Our field organization since the beginning of the year, the totality of this is we've scaled back about 150 positions, even as revenue has ramped a bit. That's primarily what's driving an increase here. This is excluding any adjustments that we've made from a head count perspective related to the Amazon business. The numbers are a little bit bigger there, but all of that was in our prior forecast and things that we shared with you.

Outside of that, we're making variety of other adjustments really across the business, whether it be vendor spends, consolidations of vendor spends, and other things to bring in some efficiencies. Really, the main thing here is managing our field personnel head count, which is the main driver of expense.

If we talk about SG&A on a total dollar amount and look forward to really what's implied in our guidance, we're talking about SG&A that increase of a little north year over year of $10 million -- I don't know, call it $12 million, $13 million, $14 million. Really, what that all is, we got $10 million of SG&A in there that's just from the operations of the acquisitions we've done. Then you've got another -- we've got another $3 million or so in there of costs related for integration efforts related to the acquired Aon Hewitt RPO business.

If you strip all that away and talk about what we're talking about on the organic basis, we're really expecting it to be relatively flat with the prior year, versus the $8 million or so increase on an organic basis that we had Q2 this year. I think we've made the right adjustments across the board to position us well, scale our expense structure to where demand is, and at the same time do it in a smart way that we're still very able to grow in the markets where we've got opportunities.

Great. Last one, and then I'll jump back in the queue. Organic RPO business sounds like it picked up. Can you give a little color there in terms of -- was it one or two big clients? Was it unexpected? What happened there?

Yes, there's been a couple of different moving currents really within our organic RPO business. The acquired business has been doing very well. We'd actually expect some revenue attrition in that business. We've been holding all of that actually getting a bit of an up-tick. The acquisition's been performing really well.

In our organic business, there's been two different trends going on. One, we've been having actually some contraction with a few of our customers. These are larger customers. It's not anything that's been service related, it's just their own level of demand. They've been cutting back, and so that's been dampening the sales trend to a certain degree.

The pipeline of new projects coming on has been -- continued to be healthy. We're still continuing with some roll-outs of some wins that we had in the prior year. There's also been some nice project work coming in that's been powering that, which is nice not just for the quarterly results, but often times these RPO engagements, they start with something small, they start with a project, and that foot in the door to expand to a larger project.

Great, thank you.

(Operator Instructions)

The next question is from Sara Gubins from BOA Merrill Lynch.

Hello, this is Brent Navon calling in for Sara. Think for taking the question. Getting back to guidance, your 3Q outlook calls for 3% to 5% growth in the staffing services on a reported basis. What are those expectations on an organic basis? Then on top of that, you said in Q2 organic growth declined by 2%, and excluding Amazon it was up 1%. That would imply around a $20 million drag from Amazon. What would that drag in 3Q be?

The trend that we're talking about really for staffing services in our guidance is very similar to the revenue trend that you got today. As we're going forward to the third quarter, the difference between total revenue growth -- or excuse me, organic growth with Amazon or the decline in this case -- and organic growth without, it's going to be a very similar spread to what it was here in the second quarter, which is about three points of drag overall really for the Company, and pretty close to the same for staffing services.

Okay, thanks. Then last quarter you also mentioned some difficulty in passing on minimum wage increases and marking up. I think in your prepared remarks you said you were able to do that a little bit. How far along are you in that? Do you expect to see more benefit in the next quarter from that?

Well, we're not all the way finished. We've still got more work to do. I think really the message that we're talking about today is we had a plan really to -- from a trajectory perspective, to diminish that each quarter as we move through the year.

To give you some perspective, the gap between our bill and pay rates -- so I'm talking about what the inflation rate is year over year in our bill rates; and the inflation rate, what it was in our pay rates, and then measuring the gap between the two. That was about 170 basis points in Q1, meaning that pay rates were rising 170 basis points faster than bill rates. We got that gap down to almost about 1%, slightly north of that. Let's say we chop it down into about a third, so we're -- let's say we're three innings through the baseball game here, and another six to go.

Great. Thank you so much for the color.

There are no additional questions at this time. I will now turn the call back over to Steve Cooper for closing remarks.

Great. We appreciate you being with us today, and we'll look forward to talking to you next quarter.

This concludes today's conference call. You may now disconnect.