TrueBlue, Inc. (NYSE:TBI) Q1 2024 Earnings Call Transcript May 6, 2024
TrueBlue, Inc. beats earnings expectations. Reported EPS is $-0.05459, expectations were $-0.43. TBI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the TrueBlue First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I’d like to remind everyone that today’s call and slide presentations 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 the actual results to differ materially from those in these forward-looking statements.
Management uses non-GAAP measures when presented financial results. You are encouraged to review the non-GAAP reconciliations in today’s earnings release or at trueblue.com 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’s Investors 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.
Taryn Owen: 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 today. As we expected, the challenging market conditions we discussed on our last call continued in the first quarter. Revenue for the quarter was $403 million, down 13% compared to the prior year, and right in line with our outlook as economic uncertainty continued to weigh on businesses, leading to reduced spend and curve hiring trends. While current demand levels are subdued, we continue to manage through this market cycle with agility and discipline. Our teams are staying highly engaged with clients to address their current needs and ensure we are well positioned to support them as their needs change or expand.
We are leveraging our flexible and short duration offerings for those clients that are hesitant to make long-term workforce commitments and tapping into opportunities in high-growth and attractive end markets. We are committed to growing sales by providing excellent service and responding to our clients’ immediate and evolving needs. Alongside our commitment to meet the needs of the market today, we are progressing the strategic priorities we outlined last quarter, which will enable us to capture market share and enhance our long-term profitability. Positioning our contingent staffing business to compete in a digital forward future is a key component to our strategic plans. During the quarter, we continued the rollout of our new proprietary JobStack app, which allows us to control our road map and quickly address evolving user needs.
We are excited about the opportunities this real-time insight creates, allowing us to implement competitive enhancements faster and making it easier for our customers and associates to engage with us. We are on track to complete the rollout this year, which will represent a significant achievement in the digital transformation of our business as we remain focused on driving efficiencies and strengthening our market position through a differentiated experience that combines our technology with our expansive market presence and expertise. Expansion in high growth, less cyclical and under penetrated end markets is a key strategic priority to capitalize on secular growth opportunities. We are leveraging our deep expertise, flexible solutions and expansive service offerings to capture growth opportunities in attractive end markets such as skilled trades and health care.
Within skilled trades, we continue to excel in the renewable energy vertical with strong demand in the first quarter and a healthy pipeline for continued growth potential. Within RPO, we are encouraged to see our efforts gaining momentum with recent wins serving the health care market and diversifying into higher skilled placements. These wins help us to increase our market presence and grow our experience to drive further growth opportunities in high-value and high-growth end markets. As we said last quarter, another key element of our strategic plan is the simplification of our organizational structure to drive enhanced focus and profitability. During the quarter, we completed the sale of our on-demand labor business in Canada, which allows greater focus on our U.S. staffing operations where we are an industry leader.
We also increased synergies within our staffing business through greater leverage of our technology assets across brands and consolidated leadership within our on-site business. Combining these actions with our cost discipline is already driving results with improved profitability for our PeopleManagement segment this quarter despite the weakness in demand. In PeopleScout, we made strides in driving enhanced focus by streamlining our global leadership structure. We further eliminated silos amongst our project management and internal talent acquisition teams enterprise-wide to better leverage experience and synergies and driving innovation across the organization. While we will continue to go to market under our current well established brands, we are aligning our internal organization around two core specialties; commercial staffing and direct hire.
When we talk about commercial staffing, this encompasses our on-demand and on-site industrial staffing services as well as our skilled trades and commercial driving services. Direct hire includes our go-to-market brand PeopleScout with its strong growth and margin prospects, simplifying our organizational structure creates opportunities to drive efficiencies and bring our teams closer to our clients and associates allowing us to reduce costs, eliminate silos and better leverage our combined strengths to deliver long-term profitable growth. As we move forward, we remain laser-focused on leveraging our inherent streaks to capture market share and managing our cost structure with discipline to enhance our long-term profitability. While current market dynamics are challenging, the long-term staffing outlook remains positive.
Structural staffing shortages and evolving workforce needs create compelling long-term opportunities for our business, and we are well positioned to capitalize with our competitive strengths, tremendous assets and clear strategic priorities. 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.
Carl Schweihs : Thank you, Taryn. Total revenue for the quarter was $403 million a decline of 13% and right in line with our outlook. As expected, weakness in demand trends continued in the first quarter with businesses focused on reducing costs and asking more from their existing teams. While economic pressures led to overall softness in market demand, there were some pockets of strength. For example, we roughly doubled our renewable energy work again this quarter. This marks the seventh straight quarter of revenue growth in this vertical and we expect continued success in this space with an attractive pipeline and our strong market position. Gross margin was 24.7% for the quarter, down 180 basis points. The primary driver of the decline was unfavorable changes in revenue mix both from increased renewable energy work as well as a decline in our highest margin business PeopleScout.
The increase in PeopleReady’s renewable energy work reduced our total gross margin, because of the pass-through travel costs involved in that business. Outside of these costs, the underlying margin for renewable energy work is consistent with other large PeopleReady accounts and the impact to total gross margin will normalize as we lapse low-value comparable periods. We reduced SG&A by 13%, matching our revenue decline for the quarter. We are operating with discipline and focus in the areas we can control, as demonstrated by our actions to reduce costs and better align our cost structure with client demand. We are confident in our ability to manage through this market cycle with a focus on enhancing our profitability and ensuring we are well-positioned as conditions improve.
We reported a net loss of $2 million this quarter versus a net loss of $4 million last year. Included in our results for the quarter was an income tax benefit of $12 million due to the favorable impact of job tax credits. Adjusted net income was $1 million versus an adjusted net loss of $2 million last year, while adjusted EBITDA declined to minus $3 million versus positive $3 million last year. Now let’s turn to the specifics of our segments. PeopleReady revenue decreased 12% and segment profit margin was down 260 basis points. Softness in demand trends continued in the first quarter as client volumes declined across most verticals and geographies with the largest being in retail, hospitality and service industries. General market decline was partially offset by continued growth in renewable energy work which roughly doubled for the quarter.
From a margin perspective, the contraction was largely driven by lower operating leverage as revenue declined as well as increased revenue mix from renewable energy work, which includes more pass-through costs. After more than 10 quarters of favorable spread between bill and pay rate inflation, we are beginning to see the type of pricing pressure we would expect in this type of economic environment with bill rates up 5.8% and pay rates up 6.1%. This dynamic is normal for our industry, as customers look to cut costs and staffing companies compete in the lower demand environment. We continue to demonstrate strong pricing discipline and we expect this to improve as the business environment returns to growth demand rebounds. PeopleScout revenue decreased 33% and segment profit margin was down 230 basis points.
The decline in demand was driven by lower client volumes, as businesses continue to face economic cost pressures, leading to current hiring trends. Businesses are seeing less churn in their employee base and many remain uncertain around their workforce needs, making them more selective in the roles they choose to fill. For some, hiring volumes have declined to a level where they’re relying more heavily on internal resources to fill jobs. All these factors are playing into the reduced market demand. The margin contraction was driven by lower operating leverage as revenue declined. PeopleManagement revenue decreased 7%, while segment profit margin was up 220 basis points. The decline in demand was primarily within onsite services driven by lower retail client volumes consistent with the macro conditions evident in that vertical.
Meanwhile, we’re encouraged to see our commercial driving services returned to growth in the quarter, Peoplemanagement segment profit margin expanded due to disciplined cost management actions to better align our cost structure with client demand. Now let’s turn to the balance sheet. We finished the quarter with no debt $36 million in cash and $140 million of borrowing availability. We repurchased $10 million of common stock during the quarter leaving $45 million remaining under our authorization. Our balance sheet is in excellent shape providing a strong liquidity position and great flexibility to support future growth opportunities. Turning to our outlook for the second quarter of 2024, we expect a revenue decline of 16% to 10%. This includes a one point drag on total company revenue growth due to the sale of our on-demand business in Canada.
While there are signs of improvement in certain end markets such as transportation and manufacturing, we have yet to see an indication as to when the overall demand trends will turn. Our outlook reflects a continuation of current market trends in the second quarter against a less challenging prior year comparison. We expect a $10 million COVID-19 government subsidy benefit in the second quarter from the resolution of a payroll tax matter with $3 million flowing through cost of sales and $7 million in SG&A. Keep in mind with the seasonality of our business, we typically see our highest volumes in the second half of the year. While we expect improved revenue and operating leverage in the second quarter, our lean cost structure will drive additional margin improvement as we move through the year.
It’s also important to note that our effective tax rate is highly sensitive in periods of low profitability for tax credits can drive significant movement. We expect a statutory income tax rate before job tax credits of 24% to 28% for the year with job tax credits of $4 million to $8 million. 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’m going to turn it back over to Taryn for some closing remarks.
Taryn Owen: 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 return to profitable growth. We understand the current market dynamics and the needs of our customers. And we are taking decisive actions to preserve and enhance our strengths, ensuring we are well positioned to capitalize on growth opportunities as conditions improve. We are confident that combining our strategic priorities with our many strengths and assets will enable us to advance our mission to connect people and work, while delivering long-term value. This concludes our prepared remarks. Operator, please open the call now for questions.
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