TrueBlue Inc (TBI) 2024 Q3 法說會逐字稿

Greetings and welcome to the TrueBlue 3rd Quarter 2024 Earnings Call.

All participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press "*0" on your telephone keypad [Instructions].

As a reminder, this conference is being recorded at this time. I want to remind everyone that today's call and slide presentation contain forward-looking statements, all of which are subject to risks and uncertainties and management assumes no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and SEC filings could cause actual results to differ materially from those in the forward-looking statements. Management uses non-GAAP measures when presenting financial results. You are encouraged to review the non-GAAP reconciliations in today's earnings release or at TrueBlue dotcom under the investor relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated. Lastly, a copy of the company's prepared remarks will be provided on TrueBlue investor website at the conclusion of today's call and a full transcript and audio replay will be available soon after the call. It is now my pleasure to turn the call over to Taryn Owen, President and Chief Executive Officer.

Thank you, operator and welcome, everyone to today's call. I am joined by our Chief Financial Officer, Carl Schweihs. We appreciate you being here with us as expected market conditions remain challenging. Revenue for the quarter was 382 million, down 19% compared to the prior year. As uncertainty and client caution continued away on the staffing industry leading to reduced business spend and curb hiring trends. Customers are looking for market confidence to grow before making significant adjustments to their workforce strategy. This hesitancy is apparent in both current client volume as well as new business trends with engagement starting at subdued levels following an elongated decision process. Given the labor dynamics at play, we are focused on the areas we can control to meet the needs of the current market and ensure we are well positioned to support demand as workforce needs expand. Our teams are doing tremendous work, meeting customers where they are today with short duration and flexible solutions while also establishing new relationships that will drive future growth. For example, as the economy slowed one of our long standing national onsite customers, a Fortune 100 retailer, reduced their contingent labor as their own volumes declined. We maintained a strong connection with the customer while serving fewer locations. As the customer reopened and launched new facilities, we were there to support their needs, expanding to the new sites and deepening our relationship. Another example comes from our PeopleScout team who secured an RPO engagement early in the year with a multinational food products company driven by our exceptional service and execution. That client relationship has recently expanded to encompass MSP and professional search services. These examples are a testament to our team's ability to adapt and create opportunities for additional growth as our teams stay highly engaged with clients to address both their immediate and evolving needs. We are also scaling our operating structure to align with current market demand while delivering efficiencies to ensure we are ready as customer volumes return. We understand the current labor dynamics and we are managing through the cycle with the discipline and agility needed to ensure we are even better positioned as conditions improve. We are also committed to advancing our strategic priorities to capture market share and enhance our long-term profitability. We made significant progress during the quarter accelerating our digital transformation, expanding our presence and attractive in market and simplifying our organizational structure to better leverage our inherent strengths. As we look to capture the growth opportunities ahead, positioning our contingent staffing business to better compete in a digital forward future is a key strategic priority. Our expansive local presence powered by our national footprint and differentiating technology sets us apart as a market leader. We have successfully rolled out our new proprietary job-stack app across our network and national account base well ahead of our year-end goal. This transition marks a significant milestone in the digital transformation of our business as the proprietary technology allows us to control our road map and quickly address evolving user needs increasing the ease in which customers and associates engage with us. We are excited by the early success of our launch as we leverage real time insights to implement enhancements. For example, customers share their desire for an easy way to get high performing associates back on their work site and we responded quickly with an exclusive invite feature that connects the associate to the customer using a fast and seamless experience. These insights allow us to implement competitive enhancements faster, rapidly improving our products and services and continually expanding the value we bring to our customers and associates. We look forward to developing additional features and we strengthen our market position through a differentiated experience that combines our technology with our expansive market presence and expertise. Another key strategic priority is our expansion in high growth, less cyclical and under penetrated in markets to capitalize on secular growth opportunities. We have continued to expand our health care presence across the organization, and we have developed a strong position in attractive skilled trade markets including commercial driving services and renewable energy work leveraging our deep expertise and expanded service offerings. We delivered our third consecutive quarter of growth in commercial driving services. While our renewable energy work did not grow in the quarter, we are up double digits for the year. Fluctuation in client volumes is expected given the nature of these projects and the pipeline remains healthy, positioning us well to capture further growth opportunities in this space. We have also continued to diversify our RPO business into higher skilled placements including professional search and leverage our flexible solutions to capture growth opportunities in attractive end markets such as technology and professional services. We are energized by our early success, winning new deals and expanding existing relationships with higher skilled roles and serving high growth and high value in markets as customer volumes return the scale of these engagements will drive further opportunities for revenue expansion. A third strategic priority is simplifying our organizational structure to drive enhanced focus growth and profitability, streamline, increased opportunities to reduce inefficiencies and brings our teams closer to our clients and associates to deliver operational excellence. We have made notable strides in this area and continue to operate with discipline to create greater agility and flexibility to scale. As we look to realize future growth, we reduced our operating costs by 17% for the quarter. Beyond that, we are already seeing benefits from our efforts in the form of increased synergies and cross selling as we eliminate silos and enhance our focus on our core specialties. Although current labor market dynamics are challenging, the long-term staffing outlook remains positive. We are managing through the cycle with the discipline and agility needed to ensure we are strategically positioned for even stronger growth and profitability. When customer demand volumes return, evolving workforce needs and structural staffing shortages will create compelling opportunities for our business and our competitive strengths, tremendous assets and clear strategic priorities position us well for growth, we are excited about the opportunities ahead and we are confident that we have the right people, technology and resources to drive our strategic priorities forward, enhancing shareholder value and advancing our mission to connect people and work. I will now pass the call over to Carl who will share further details around our financial results and outlook.

Thank you, Taryn. Total revenue for the quarter was 382 million. A decline of 19%. Overall market demand for temporary labor and permanent hiring continues to be suppressed as clients focus on reducing their operating costs and remain hesitant to make full time hires due to uncertainty in their workforce needs. While these factors led to overall subdued client volumes, our commercial driving services showed strength delivering double digit growth for the quarter. This marks the third consecutive quarter of growth for our commercial driving services. our team continues to capitalize on this momentum. Pursuing additional growth opportunities in this space. Gross margin was 26.2% for the quarter and flat compared to the prior year, there were a couple of offsetting components for this quarter. Changes in revenue mix both from more favorable trends in our lower margin people management segment, as well as the decline in our highest margin. Businesspeople scout to a decline of 80 basis points pricing pressures consistent with the current market environment contributed another 60 basis points of decline. These factors were offset by 140 basis points of expansion from lower workers' compensation costs driven by favorable development of prior year reserves. We reduced SG&A by 17% as we remain committed to enhancing our profitability. We are focused on the areas we can control, which is demonstrated by our disciplined actions to better align our cost structure with client demand while also creating greater flexibility to scale as industry demand rebounds. We have made significant progress, simplified our organizational structure and created efficiencies that are already driving improved results. Looking forward our profitability traditionally expands quickly as revenue grows. With our lean cost structure and improved efficiencies, we are even better positioned to deliver enhanced profitability as conditions improve. We reported a net-loss of 8 million this quarter which included 1 million of income tax expense, primarily associated with our foreign operations and essentially zero income tax benefit on us operations due to the valuation allowance in effect on our U.S deferred tax assets. As a reminder, the valuation allowance has no impact on our operations, liquidity or debt covenants. Adjusted net-loss was 3 million while adjusted EBITDA was 5 million. Now, let's turn to the specifics of our segments. PeopleReady revenue decreased 24%, which includes 2 points of decline from the sale of our on-demand business in Canada and segment profit margin was down 200 basis points. Lower client volumes continued to drive reduced demand across most verticals and geographies. We entered the quarter behind our typical sequential build which continued in July. As we progressed through the quarter, we did return to historical sequential trends in August and September renewable energy work, we did not grow in the quarter due to the lower volume on existing solar projects, mainly driven by high temperatures in the Southwest United States as well as a delayed new project starts given the nature of these renewable energy projects, these types of delays and fluctuations and volumes are expected. We continue to produce double digit growth for the year as we capitalize on the secular growth opportunities with a strong market position. From a margin perspective. The contraction was largely driven by lower operating leverage as revenue declined, people scout revenue decreased 31% and segment profit margin was down 490 basis points. The decline in demand was driven by lower client volumes as businesses continue to navigate challenging market dynamics. Responding to cost pressures and uncertainty around their workforce needs results for the quarter were also impacted by the loss of a large hospitality client which accounted for eight points of the revenue decline. The loss was due to the client's decision to insource the hiring of high-volume roles as part of a broader strategy change. At the same time, our team is doing a great job adding clients to the portfolio and has already outperformed in the prior year in new business wins. While many of these new wins are starting at subdued levels, we expect these relationships to drive further revenue expansion as customers higher end volumes return the margin contraction was driven by lower operating leverage as we as revenue declined, people management revenue decreased 5% while segment profit margin was up 90 basis points, the decline in demand was driven by lower onsite client volumes consistent with the macro conditions evident in the verticals we serve such as retail. This was partially offset by double digit growth in our commercial driving services which delivered its third consecutive quarter of growth in Q3. PeopleManagement's segment profit margin expanded due to disciplined cost management actions to better align our cost structure with client demand and improved efficiencies. Now let's turn to the balance sheet. We finished the quarter with no debt 15 million in cash and 133 million of borrowing availability. We repurchased 4 million of common stock during the quarter leaving 34 million remaining under our authorization while operating cash flows are down, largely driven by changes in revenue mix and the associated working capital. We have a solid balance sheet and a strong liquidity position. This provides us with great flexibility as we look to drive future growth opportunities. Turning to the outlook for the fourth quarter, we expect a revenue decline of 24 to 18%. This includes 6% points of headwind from the extra 14th week in our fiscal fourth quarter last year, as well as 1% point due to the sale of our on-demand business in Canada. Our outlook reflects a continuation of current market trends because while there are some bright spots and signs of improvement, we have yet to see an indication as to when overall demand trends will turn. We expect SG&A and a of 98 to 102 million, which represents a reduction of roughly 30 million compared to the prior year period as we manage through this market cycle with a commitment to enhance our profitability and ensure we are well positioned as the demand environment rebounds. Additional information on our outlook can be found in the earnings presentation shared on our website today. Before we open the call up for questions, I want to turn it back over to Taryn for some closing remarks.

Thank you, Carl. As you have heard from us today, we remain committed to advancing our strategic priorities and managing through this challenging market cycle with the agility and discipline needed to strategically position us for even stronger growth and profitability. When industry demand rebounds. We are confident that our strategic priorities, in combination with our many strengths and assets will enable us to advance our mission to connect people and work while delivering long term shareholder value. This concludes our prepared remarks. Operator, please open the call now for questions.

Thank you. At this time, we will conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press "*2". If you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, ask a question. Press star one on your telephone keypad.

Our first question comes from Jeff Silber with BMO capital markets. Please state your question.

Good afternoon. Thanks so much. This is Ryan on for Jeff. I was just wondering if you could provide a feel for how the customer account has been moving. I think at this point in time, the labor market demand weakness is pretty well understood, but perhaps that is more of a volume issue than customer attrition issue. then additionally, is there anything you can tell us about the number of customer wins? How the retention has been trending and how those two have been playing into the net customer account, is it up or down this year. Just trying to understand whether the current revenue weakness is volume driven or is anything going on? Thank you.

Hi Ryan. Thank you so much for the question. Despite the ongoing market challenges and subdued customer demand, our teams are continuing to retain and expand existing customer relationships as well as when new customers positioning true blue favorably for significant growth when volume returns to historical levels and our PeopleReady on demand. Business. Although revenue for the quarter declined sequentially from quarter two, our customer count continued to grow sequentially into quarter three, which is a trend that did continue from the prior quarter in our people scout business. That that business has nearly doubled the total of new annualized wins in compared to in comparison to this time last year. of those wins are in attractive markets like health care as well as higher skilled professional roles and then our people management business, new wins are up double digit year-to-date on annualized win volume within that center line, as we mentioned, continues to outperform the market delivering double digit growth for the quarter. now three consecutive quarters of growth in a row. in that business, we saw both significant expansion with an existing customer as well as new logo wins being added to the portfolio. So, certainly the strong customer retention scope expansion and new customer wins is positioning us very nicely. To capture market share as volumes, return to normalized levels, both with our current customers and the new customers that we are bringing on board.

Understood. Thank you. Then, you typically provide the revenue growth rate by segment. I was just wondering if you have that and then if you have the bill pay spread for the quarter. Thank you very much.

Yeah, of course. Thanks for the question. If we just look on Q4 guidance, I am going to start with TrueBlue, then walk us through. We have got a couple of items that I want to call out and then I will give it on a comparable basis. When you are thinking about Q4 guidance and I am going to give midpoints here, Ryan, but TrueBlue is at -21. We also have Canada that is causing about a point of a negative point of growth for TrueBlue and then two points of decline for PeopleReady , which will lapse as we get over those comps in Q1 here. Then also it is just a reminder our prior year Q4 had an extra week and that is creating a headwind of about six points in total on TrueBlue So, to take it back for Q4 on a GAAP basis, midpoint of down 21% for TrueBlue, down 24% for PeopleReady . Down 13% for PeopleManagement and down 30% for PeopleScout. When you take it on a comparable basis, those midpoints are down 14% for true blue, down 15% for PeopleReady , down 7% for people management, down 28% for PeopleScout. Then you also asked about bill pay spreads, just on bill pay spreads. So, our pay rates were up about 1.5% while our bill rates were up 0.2% in our PeopleReady business, as I mentioned under prepared remarks that led to about a 60 basis points decline in margin. As we talked about on the last call, Ryan, we have seen our pay rate growth continue to moderate throughout the year and this is from the all-time high that we experienced post pandemic. We were in the 10% pay rate growth in 2021 that moderated to like 7% growth in 2023. Now we are sitting at 1.5 we would expect for this same trend to continue in Q4, and we have e seen that pay rate trend continue to get lower as well into October.

Great. Thank you very much.

Thank you. Our next question comes from Mark Marcon with Baird. Please state your question.

Hey, good afternoon. I had a couple of different questions. One just wondering about hurricane impacts both in terms of negatives relative to positives. Obviously, anybody who looks at one of your one of the maps, can see that there is a lot of PeopleReady branches around Tampa and Sarasota. So, wondering, how much disruption did you end up seeing? Then sometimes you end up getting a lot of clean-up work. How much clean-up work are you getting? how much, how is that factoring into the guide?

Hi, Mark. Thank you for the question. As we are dealing with the hurricanes, our first priority is always to ensure the safety of our staff and provide support to our impacted team members in a situation like this and be able to really resume operations just as quickly as possible because we do play a critical role in the clean-up efforts in the communities in which we serve PeopleReady provides on-demand support in disaster recovery efforts. We are currently working with more than 20 organizations that are focused on those clean-up efforts in the upcoming months. As construction plans are approved and permits are awarded, our PeopleReady skilled trades business will play a role in restoration and rebuilding. In regard to Helene and Milton, specifically, we were able to quickly resume operations in all impacted areas. Our branch offices in Asheville, North Carolina was damaged. So, the team is working from a mobile unit for business continuity in that area and because the associate pool is quite limited in Asheville, we have brought in our traveling teams to meet the customers' needs. And again, be able to play the critical role of supporting the community.

Just to add on to that. I know you are from a financial standpoint. You are asking for the impact, these typically have an immediate negative impact for us mark and then they tend to be call it net-neutral, slightly positive for us as we do those clean-up efforts that Taryn was talking about. The timing of these hurricanes did have a slight impact on Q3 and in Q4 with both of them, there was about 700,000 for Q3 with Helene and proximately a negative impact of about 900 -1,000 for Milton in October here. Do not think that the subsequent rebound in terms of all the work is going to be significantly more than what the negative was. If we look at this over time, I will say it is net-neutral to net-positive, depending on the impact and where our clean-up efforts are. We have those in our guides, and we would start to see that over a longer period of time as those recoveries come in and that is included into our outlook.

Okay. Can you talk a little bit about the renewables business? You mentioned that it slowed down and understandable in terms of the weather impacts, but how quickly do you expect that to resume? Particularly now that it is getting a little bit cooler.

I will start from a new renewable's perspective. Certainly, our pipeline remains strong. We actually secured four new logos in our PeopleReady renewable business for those large scale utility solar projects in the quarter, which will bring revenue in 2025. So,this is a lumpy business, but we still feel very confident in the mid and long term opportunity here. It was really a weather impact in a couple of states where we had some large sites and some some hot weather. It, I would just say in addition to the Peopleready renewable business that we have talked about historically Mark, we have started to see some wins outside of PeopleReady as well. Our people management business secured wins with a solar company that does solar panel manufacturing in New Mexico. So, we are excited about that as well as another new win where we'll provide skilled roles in solar and electrical and beyond. Then finally, people scout had a recent win with a clean energy company to hire engineering roles. So, as much as we continue to focus on the renewable business that we have talked about, we are starting to get some opportunities outside of that as well.

Then lastly, just with regards to the hospitality company, it sounds like that is a broad based move that they are making towards insourcing can you talk about what you are seeing with some of your other large clients just in terms of, discussions with them, how much of them are, maintaining the contracts, but have, continue to use internal resources to a greater extent? And, and what are your, what are your net promoter scores or any other, form of feedback? How is, How is that trending with, with some of your existing RPO clients?

Yeah, thanks for the question. This, this hospitality client was a unique business decision and I would call it an outlier from what we are experiencing and seeing from our other customers in terms of the business strategy change to outsource for or to insource rather for the, for the long term across the rest of our customer base. We are seeing lower volumes and in cases where where recruiting volumes are extremely low. We do see clients take some of that outsource recruitment in house really in an effort to retain their in house recruiting teams and keep them busy. as we have been talking to these customers, we have the contract alive or staying close to them. we fully expect to be part of their long term solution once those volumes return and exceed the capacity of their inhouse recruiting teams. we have seen this in in prior cycle cycles as well, really by the nature of the RPO business. We are built to support our customers ability to scale up and down during various hiring volumes. we believe that RPO will return to historical growth rates. So, we are getting great feedback from the customers. We check in with them regularly and we are certainly well positioned to support them as their needs change and expand.

Thank you. Our next question comes from Kartik Mehta with North Coast research. Please state your question.

Hi, good evening. Just thoughts on how the quarter trended and what you saw, maybe in October just to get a feel for how business trends up.

Yeah, thanks Kartik for the question. As I mentioned, when we think about October and our Q4 guides, October really trended in line with where those midpoint guides, I gave earlier. So, that is at minus, on a comparable basis minus 14 for true blue minus 15 for PeopleReady minus seven for people management minus 28 people scout. So, right in line with our outlook and guidance.

Just curious to how your customers react or maybe how business is trending because of the holiday season this year in December, holiday out two weeks of business. I am wondering if that is having any impact on your business.

I would say that, just overall from a customer sentiment perspective. There is our customers just continue to communicate that it is an uncertain environment. They are using caution and really being mindful of their future workforce plans, as, and as far as the inflection point, they are certainly looking for more certainty. So, they can feel confident in planning those workforce needs. Our best indicator is when our customers say that they need our help. so we are staying highly engaged to ensure that we are well positioned and, and we are really close to our customers around their workforce needs now and through the end of the year and our, our guidance reflects that.

Just one last question, Carl, I know we talked a little bit about this last quarter, which is the leverage in the business. You know, you've taken some actions in the business to lower the cost. I am wondering, as you look at incremental margins for the business and when we get, when this industry gets back to normalize, and obviously, you'll see some, increased revenue growth. I am wondering what, what are, what type of incremental margins would you expect if we, let's say we get revenue growth of 10-20%?

Yeah, thanks Kartik again for the question. So, yeah, we are, we are, I think we have done a really good job managing costs this year as we, o continued cost management, we have taken out over 70 million of costs this year. we do think it will lead to improved margins. So, I think we talked about this on the last call as well. if you just took a 10% revenue growth across our business, we historically have incremental margin of 15 to 20%. We feel like with the cost actions that we have made, we are going to be north of 20 call it 20 to 22 maybe even do a little bit better depending on the segment where that comes in. if you just took it across the, our model, we would look at anywhere from 30 to 50 basis points of margin improvement to historical margins. So, we are pleased with the work we have done there but still yet to see that indication of that demand returning to those levels. when they do, we would expect for higher profitability.

Then we have historically.

If I could add to that, there is another benefit that has come from the org structure work that we have done as an organization. We are seeing improvement in several of our key metrics. Things like fill rates, associate utilization, improved safety scores, and our cross-selling efforts and wins have increased as well. Just a couple of examples from the quarter, we won a joint pursuit by PeopleReady and people management to serve a scrap metal company and people scout just secured a new win, serving a pharmaceutical client in partnership with our people management team. So, the ability to break down some of these silos and have our teams working closer in collaboration has been a real benefit.

Thank you very much.

Thanks.

Thank you.

Just a reminder to the audience to ask a question. Press "*1"on your telephone keypad to remove yourself from the queue. Press "*2"... [Instructions].

Our next question comes from Marc Riddick at Sidoti & Company. Please state your question.

Hi, good evening. So, I was wondering if we could talk a little bit about Job stack and the commentary around the timing and how things are going with the rollout. it, it certainly sounds like it is encouraging from a, from an initial perspective, maybe to talk a little bit about, I, I think, I guess the, the commentary wasn't being ahead of schedule and then maybe you could talk a little bit about what your initial and pressures are or if there is any areas that as far as feedback that you're, that you are receiving that you can share, there would be great. Thank you.

Thanks for the question, Marc. Yes, we are very happy to have successfully rolled out our new proprietary job stack app across our branch network and national account base. Well ahead of schedule. Just as a reminder this new version allows us to control our road map and quickly address our evolving users, user needs both on the customer as well as the associate side. we are already gaining some positive momentum from the initial launch with our enhanced ability to really quickly address their feedback and their needs. So,I will just give a couple of examples. First, we implemented a text by feature that makes it easier for our candidates to access our new app, which enhances their user experience and ultimately streamlines the job search process for them. the first couple of months, we have seen an improvement to the adoption rates as more candidates are turning to the app to engage with our services. We have made an order extension feature more intuitive, making it easier for a customer to essentially extend an associate that is working on their customer site in a, in a very easy and user-friendly way. As we move forward here, we have a robust road map that is really focused on features and functionality that is designed to enable growth for the organization. So, we are really excited about it and anxious to continue to build on this on this asset.

Excellent. then I was thinking about the, maybe we share some thoughts as to any of the, I think you are prepared remarks and make some commentary around certain areas and certain places that might be viewed as bright spots. I was wondering if you could talk a little bit about maybe is, is that industry focus, one is sector focus raw or geographically or, or where our, where our bright spots are at this point?

Yeah, I will get us started a couple that I would highlight is renewable. I mentioned earlier that, we have continued to get some wins in the in the People Ready business as we as we prepare for further growth, as we move forward here and see the wins in this space in businesses outside of PeopleReady is something that we are really excited about on the skilled side. We have had nice growth in our commercial trucking business where we have seen some customer expansions and new logo wins there and in health care, people Scout has secured six new ones in health care so far this year supporting a variety of clinical roles and we had a recent win in people management, supporting a pharmaceutical company with, with driver positions in health care. then finally, we have talked about our efforts to expand the roles we serve in. People scout to higher skilled placements. so happy to report that people scout won a full cycle RPO deal recently with a U.S based global technology firm where we'll hire 250 professional and technical hires in their insurance services business in Australia. we'll then move to further expand support in India us and beyond so making some really good progress in that area as well.

Okay, great. I guess that is it for me. Thank.

Thanks, Marc.

Thank you. at this time, I am showing no additional questions, so I will hand it back to Taryn Owen for closing remarks. Thanks.

Thank you, operator, and thank you everyone for joining us today. I also want to take this opportunity to thank the entire true-blue team for their tremendous efforts in providing our customers and associates with exceptional service and for their commitment to advancing our mission to connect people and work. We look forward to speaking to you at upcoming investor events and on our next quarterly call. If you have any questions, please do not hesitate to reach out. Have a great evening. Thank you.

Thanks. That concludes today's call.