Q2 2022 TrueBlue Inc Earnings Call

Total trailing 12 months revenue and 57% of total segment profit.

People are ready as a leading provider of on demand labor.

And skilled trades in the North American industrial staffing market.

We service our clients via a national footprint of physical branch locations supported by our job stack mobile App.

Like others, we did experience a slowdown in demand as overall commercial staffing hours declined across the industry throughout the quarter.

But revenue continued to grow 6% compared to Q2 a year ago.

Our highest margin segment people scout represents 14% of total trailing 12 months revenue.

And 34% of total segment profit.

People Scout as a global leader in filling permanent positions through our recruitment process outsourcing services.

People Scout delivered a quarter of impressive growth with revenue up 39% compared to Q2 a year ago.

Volumes at existing clients and project work at new clients drove performance as open positions are at historical levels.

Turning to our third segment people management.

Represents 29% of total trailing 12 months revenue and 9% of total segment profit people management provides onsite industrial staffing and commercial driver services in North America.

The essence of a typical people management engagement is the plane and outsourced workforce.

That involves multiyear multimillion dollar onsite or.

Or driver relationships.

People management delivered another quarter of growth with revenue up 6% compared to Q2 a year ago.

Demand for commercial trucking services was strong.

And same site sales on our onsite business was up year over year.

I'd like to shift the discussion to our strategies.

But before we go there.

To talk about our most important priority.

While the future state of the economy is on everyone's mind, it's important not to lose sight of the fact businesses are struggling to find people.

And we know precisely how to help them.

There are $11 million job openings in the United States.

Most of which are lower paid blue collar jobs, where we specialize.

Yes demand for temporary labor has slowed recently.

Businesses are taking a pause and filling some of these roles it's understandable.

We are in uncertain times and businesses are consuming all sorts of news, causing them to hesitate.

While it is unclear where the economy is headed.

It's not hard to see that the supply of labor.

Particularly for Blue collar positions is going to remain tight for some time.

With a multitude of services our brands know how to find the right talent in tight labor markets.

We have decades of experience.

Strong market presence across North America, and talented people and technology solutions.

Our number one focus is using these assets and talent to get the job done and done well for our clients.

Now, let's talk about our strategies, starting with people ready at.

People are ready a key strategy is to use digitalization to supplement.

Our nationwide footprint to gain market share.

And improve the efficiency of our structure.

The U S temporary date labor market is highly fragmented.

The bulk of the market made up of smaller companies.

In the industrial staffing segment, where people already competes.

The smaller more regional companies are typically not able to spend the type of investment required to deploy something like our job stack mobile app.

So this along with our local presence.

Is what makes us a leading provider within the on demand industrial staffing market.

The face of our digital strategy is job stack.

The application provides a unique user experience for our associates and clients.

Allowing both groups to connect at anytime.

Since deploying the application nearly five years ago.

Associate adoption is growing to over 90%.

Turning to our clients' total users of the application are over 30000.

A 13% increase versus a year ago.

And the percentage of placements filled through the job stack app.

Has grown to approximately 60%.

Turning to people scout.

Our strategy Leverages, our strong brand reputation to capture opportunities in a growing industry.

Companies today are confronted with historically high job openings.

Our ability to hire large volumes of workers has allowed us to meet the demand for existing clients and has positioned us to capture new clients for long and short term engagements.

As we move forward, we will continue to expand our product offerings to meet the growing needs of our clients and.

And helping them source onboard and effectively manage their employees.

Turning to people management.

Our strategy is centered around operational execution and geographic expansion within the onsite offering our business development activities are targeting local in underserved markets.

And expansion into the western part of the United States.

Meanwhile, we are focused on increasing market share in the eastern part of the country.

With the commercial trucking business.

Finally, we are investing in customer and associate care programs to improve the service levels.

Collectively everything we do will be centered around capitalizing on demand.

Leading with a sales first mentality in the areas we serve.

Bind with our digital capabilities.

This will enable us to meet the demands of our clients.

And associates in a frictionless manner.

These are big objectives that I believe we have the capability to meet.

I'll now pass the call over to Derek who will share greater details around our financial results.

Thank you Steve.

Total revenue for Q2, 2022 was $569 million representing growth of 10%.

This was driven by strong overall demand as all three segments reported revenue growth this quarter.

People scale continue to see significant volume increases from existing clients, resulting in double digit revenue growth while people already in people management revenue grew at mid single digits.

Revenue growth across all three segments favorable bill pay spreads at people ready and a higher mix of people scale business grow strong bottom line results.

We posted net income growth of 51% and adjusted EBITDA growth of 53%.

Our net income and adjusted EBITDA margins grew 110, and 190 basis points respectively.

Driven by revenue growth and gross margin expansion.

Adjusted EBITDA margin expanded more than net income margin due to government subsidies received last year, which were excluded from adjusted EBITDA.

Gross margin for Q2, 2022, or 27, 8% was up 140 basis points. Our staffing segments contributed 100 basis points of margin expansion driven by 60 basis points from positive spreads between bill and pay rate inflation.

And 40 basis points from customer mix.

The remaining 40 basis points came from people scout our highest margin business as it now constitutes a higher mix of total revenue and it also benefited from operating leverage.

SG&A expense increased 10%, which was in line with revenue growth for the quarter and was the same as Q2 last year on a percentage of revenue basis.

On an adjusted basis, SG&A was up 8% or 50 basis points better than Q2 last year.

Which was more favorable than our GAAP trend, primarily due to government subsidies received in Q2 last year, which were excluded from our adjusted results.

Our effective income tax rate was 18%, which was close to our expectation and nearly the same as the rate in Q2 last year.

Turning to our segments people ready revenue increased 6% while segment profit increased 10% and segment profit margin was up 20 basis points.

Bill rates grew 10, 3%, which outpaced pay rate growth of eight 6% boosting segment profit margin.

Inter quarter revenue trends were mixed.

We got off to a strong start with April revenue up 11%.

So we exited the quarter with 3% growth in June as clients reassessed their labor needs given the current economic climate.

Revenue growth was flat during the last two weeks of the quarter and that trend remained steady in July .

The declining demand occurred across most geographies and industries with the most notable drops occurring in services and hospitality.

Improving job order fill rates helped offset the decline in demand improving by five points from April to June <unk>.

People management revenue increased 6% while segment profit increased 31%.

Segment profit margin was up 50 basis points.

Our onsite businesses provided two points of revenue growth and strong demand in our commercial driving business contributed the other four points of growth.

Monthly revenue trends were steady in the mid single digits throughout the quarter.

The segment profit margin expansion was primarily driven by favorable changes to client mix.

As our higher margin cost per unit and commercial driving businesses contributed higher volumes.

People Scout revenue increased 39% with segment profit up 90% in.

Segment profit margin was up over 600 basis points.

Demand for our services is high as clients look to fill their job openings.

Operating leverage from higher sales volume contributed to the improvement in year over year segment profit margin.

Yeah.

Now, let's turn to the balance sheet and cash flows.

Our balance sheet is in great shape.

We finished the quarter with $32 million in cash and no outstanding debt.

The business is producing strong cash flows with year to date cash flow from operations totaling $53 million.

And we returned $61 million of capital through share repurchases this year, leaving $89 million authorized.

Now I'd like to take a moment to provide additional color on a couple of forward looking items.

We are not providing customary revenue guidance, but we did want to call out that recent trends that people already implies sequential growth from Q2 to Q3 of 3% to 5% for total true blue, which is lower than our historical sequential average of 9%.

Also as a reminder, in Q4 2021 in Q1 2022, we disclosed people already benefited from seasonal surges and retail project work.

Which are not in our run rates and not expected to reoccur. The absence of this revenue will create a three point year over year headwind for total <unk> growth in Q4.

For additional details on our outlook for the third quarter and full year 2022, Please see our earnings presentation filed today.

This concludes our prepared remarks, operator, please open the call now for questions.

At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.

Your first question comes from the line of Jeff Silber with BMO capital markets. Your line is open.

Yes.

Thanks, so much.

Steve Welcome back to these call good to hear you again.

Let me ask you a couple of questions is it just early on I know you've been around the industry a long time <unk> been through a few of the recessionary care type of virus et cetera.

What lessons did you learn from going through this with the company beforehand.

Is there anything that you might do differently. This time, if we are really heading into a downturn.

Hey, Thanks, Jeff and good to visit with you again.

Yes. These these economic cycles, all look a little bit different for us in particular.

Been here over 20 years, 22 years and seen a few of them in.

This pandemic was the worst in the.

The way our teams adjusted and stayed focused on what our clients needed was pretty impressive.

If I have to look at the commonality between over that 22 plus year cycle.

That's the main thing you've got to be able to keep the team focused on the clients needs at a time when we're trying to stabilize our own business.

We just have to put the client first we put the customer first in every one of those situations.

It works out well for us.

And then we can turn those costs that are client facing and customer facing need. So that's first and foremost is keep those objectives right they're square in front of them as Jeff each time.

Obviously, the big recession before the pandemic in a way it was.

<unk> and credit related and we were highly focused on construction.

Since that period of time, we've spent a lot of effort energy on diversifying our organization ensuring that we weren't didn't have all the eggs in one basket like we did back in a way where.

We felt a good two thirds of the company was focused on on construction in Big States.

With California.

Texas and Florida in particular, we remain big in those states today that are were a little more balanced in.

In the industries that we serve and so we don't feel it as deeply as we felt it back then that's the number number two thing is.

So first they focused on the customer.

Ensuring that we are diverse and who we serve is most important as we head into a period of time that we've called out as our clients might be hitting the pause button slightly in assessing their own situation.

We're not panicking at all we see the demand is strong and it's going to remain strong the labor markets are tight and our customers are trying to grow and stabilize their own business is still from the effects of the pandemic.

So it's most important that we understand the current one that we're in even though you've asked a great question about reflecting back.

It's super important to know they are all different and this one looks different again.

And as we've spent time as a management team in the last 45 days.

Really talking about.

How were there for our customer on the on the other side of this.

Not sure how long the pause button will be hit we don't believe it's that long.

Meaning years upon years. This is a smaller pause for a quarter or two or three and we want to ensure that we remained strong for our client both in recruiting full time positions and being available daily to find associates to fill their more temporary needs.

So a little bit of.

Differences, there, Jeff, but great question.

What that reflection looks like.

Okay that was helpful and you alluded to this in your remarks, I believe you can get a little bit more color on.

On the labor supply, obviously demand has been slowing down I think everybody realize that if the labor supply getting any looser and if so how is that impacting.

Wage rates.

Okay.

Okay.

Well definitely the last six months, we've seen additions back to the Labor force.

Maybe not as fast as wed all like mean in us and our customers.

But.

There is supply coming back into the marketplace and that's been improving month by month really going back to last fall, we've seen improvements there, but really continuing up through this summer.

It's not as great as the demand, though which.

I call. It a good thing because it comes right back to the heart of our business and why we exist and what we do well is in tough labor markets is when we shine best for our customer.

So as far as our own personal.

The flow of applicants.

It's slightly improving steel.

Okay, that's great to hear I'll jump back in the queue. Thanks, so much.

Your next question comes from the line of Kartik Mehta with Northcoast Research. Your line is open.

Hey, good afternoon, maybe.

Maybe a little bit of an unfair question, so I apologize but.

Any thoughts on maybe the trends youre seeing in people ready for July .

Almost to the end of the month and I'm wondering if the trends you saw in June continued or if there was any change.

Hi, Thanks for the question. This is Eric I'll take that one.

We finished June at 3% growth for people ready the last two weeks of June were flat and then that trend has held steady.

At flat as we've moved through the month of July .

And.

You mentioned services as being an area, where youre seeing some slowing are there what categories and services would you call out that maybe aren't seeing that growth that you were seeing previously.

Well, we've talked about a couple of different industries, just as a point of focus.

That have seen some softening.

It has been really across all industry groups. So I'll just give you a little bit of perspective, I know that you are asking really about services and dropping down their level, but.

If we compare Q1 to Q2 on a year over year basis, Yeah. We saw some in services, we saw that slowdown.

Same with retail while retail slowed by the way, it's still grew by 16% at people ready.

Also called out hospitality is slowing.

That's an exceptional growth rates that we were up over 100% in Q1 and dropped down to the mid <unk>.

I could go through each one of the industries, but.

But I think the main point here is this is the step downs that we've seen are fairly widespread from a geographic and.

And industry perspective, so I don't want to I don't want to make it that it's about one industry.

That has impacted the demand trends.

Okay. Thank you very much I really appreciate it.

Okay.

Okay.

Your next question comes from the line of Mark Marcon with Baird. Your line is open.

Good afternoon, and great to hear you again, Steve.

Welcome back.

I'm wondering from a strategic perspective.

You are mentioning the pause button being hit how does that end up impacting.

Kind of the strategic plans around.

Some of the pilot programs in terms of centralizing some of the offices in people ready.

The continued shift towards job stack.

Do we think about that part of the business, particularly in the back half of this year and going into next year.

Hey, Mark good talk to you. Thanks for the question.

Yes.

The.

Ongoing daily execution is really our challenge now because we don't want to back down on the number of teams and what we're doing and focused on helping our clients find people.

So finding that balance between what.

One is operations look like in July versus what are we going to do on these.

Programs.

And change programs that we've had under.

Underway, the last year or more actually.

The answer is pretty easy we are committed to these strategic ideas that we've been working on the digital platform of which and our people are ready brand job stack remaining committed to that because of the stickiness that it builds in that relationship with our client matters. So much.

The program of Ken we centralized some of our functions.

That exist in the branch network.

We have been underway for a good 10 years on that program of pulling payroll out of the branch Pauline <unk>.

Various aspects of the branch duties out and so that's been a journey that's been happening for quite some time of which we are not going to stop that journey.

And not only reduces operating costs over time, it improves customer service ratings and how the customer views us because in those those consolidated or wherever we have a chance to to bring light duties into a centralized location. It's good for the business is good for the client. So we're going to continue down that path.

As far as the programs you've heard over the last I don't know.

Three to four quarters, maybe a little bit longer of opening market centers in a replacement of branches.

That's definitely going to slow a bit mark.

Our strength is the branch network.

And behavior locally around those local customers and.

And the supply of labor around these local branches.

And that remains really important to us and even with a pause button like like we've mentioned being hit and you've asked about it's no time to pull back on that strength of that asset.

And it's no time to pull back on the strength of what job stack does to support that asset. So it's really a combination of local presence with that digital platform that bring the strength and I'm really talking about that relationship between the customer and ourselves and the goal of making it sticky.

So anything that that adds.

And our strength to that idea Mark we're going to continue with because in an on demand environment, where things are very difficult for our customers. They are really turning to people already in a time when.

The turnover in key positions is just too high and so they need an associated and there to fill a tough to fill job.

We need to be there and we need to be top of mind when that that customer needs us. So we're going to feel that we're in.

To continue to fuel that while we watch the operating expenses.

Day in day out upon our execution.

Great.

Steve How would you say Chicago and Dallas are performing relative to the rest of the country in terms of people ready.

Like for the last quarter less recent trends.

Well Mark we've got this is Derek here I'll take that one we've got four markets, where we have been doing some level of experimentation and having a more centralized service offering to the clients that we serve.

It is mixed.

And so what we have we have about <unk>.

Half of those that are performing better than half of those that are performing worse than the rest of the population and when I talk about performance. It doesn't mean, the P&L revenue and pricing.

But more importantly, the underlying drivers of what's behind that so if you think about what client satisfaction is.

About the rating of the workers that were sending out there we look at our employee satisfaction scores, we take a look at the turnover of our field based employees. So it's really split between the two.

Yeah.

And so I would call it right now those the collection of those market service centers and their contribution is neutral to the rest of the branch network.

You'd asked about this too earlier in a highlight this a bit.

With things hitting the pause button.

We're not looking at that as a reason to accelerate movement into the market service centers.

We still like that idea, we think that idea has got a lot of legs with it.

It also to do it and do it the way that we think we need to do it we need some more technology in place really around the workflow management and how we manage the customer.

The customers that we have in their experiences, whereas associates because it's different in a virtual setting when we've got people remote versus in the branch.

Our current <unk> systems are somewhat set up for people to be able to talk within a three person branch.

When we got to.

<unk> market that were trying to serve we need to add some workflow management there to keep track of where everybody is so we've got a plan to do that I suspect you won't see us move forward with that and a lot more earnest fashion until we have that technology in place towards.

Middle to end of next year and like Steve said for now.

Can it keep those in place, but really focus on getting these jobs filled for customers versus moving those market service centers forward in the next quarter or two.

Got it and then with regards to <unk>.

People ready you mentioned.

The fourth quarter in retail.

Some retail clients can you just elaborate on that exactly like how much the impact is and.

And why some of those retail clients wouldn't be.

Renewing or doing the same programs.

Sure well if you take a look back to the fourth quarter when it came to retail.

I'm just going to put this to you to give you some perspective on this.

In the fourth quarter, our retail business grew by almost 100% and in the first quarter of 2022 by 75%.

So the retail market is still strong for US is that we grew at 17% this quarter.

Back in the fourth quarter and the first quarter there were some clients in retail that we are.

I hate to use this word maybe I should give will come a little bit better but somewhat desperate.

They will run some really bad spots and they used a surge of labor that just doesn't fit with their business model on an ongoing basis are they still using our service yes. As they are they're just great clients for us we've got nice relationships with those folks those were just peak periods and we called out.

Those peak periods will surge periods to periods of it were really kind of more special projects.

That constitutes probably about four or five points of headwind as we go into the fourth quarter now because our current run rate is dropping by that amount and creating that much of a headwind. It's more about the prior year comparison that we're facing as we go into fourth quarter I just want to make sure everybody was aware of that.

I appreciate that Derek in that 4% to 5% of headwind is that for true blue overall or for just for people ready, yes. That's overall.

Overall, okay great.

And then on.

On people Scott, obviously, you are doing phenomenally well great quarter this quarter.

Can you talk a little bit about like the new business trends.

And new engagements.

Trends as it relates to.

The end of the quarter relative to the beginning and middle of the quarter and what Youre seeing in July like how should we think about.

People scout because theres, obviously still lots of excess demand out there, but just wondering to what extent the pause ends up filtering over to people scout.

Well, we haven't seen any pause really with the people scale business from a new business perspective. It is down slightly year to date this year versus where we were last year, but we got off to a really strong start last year its not by much if we take a look at what our three or even five year averages.

As far as new business wins, we talked about new business wins, we're talking about.

A deal that we've landed and then we count the annual amount of revenue that will come from that engagement once we've had it.

For a full year.

But even compare back to those averages were still up this year at people Scout, it's looking really nice.

Our customers Theyre, just having so much churn and these employed and they're in there.

The customer basis, so we're still getting a lot of business. There we haven't seen any of that really back itself off in <unk>.

I don't know if we'll see any of that really in the immediate future. So many jobs that are open right now.

And the jobs that were replacing by the way. These are jobs that most of them require you to be there in person.

So it's not just a tight labor market, it's a tight labor market for our customers compared to a population of labor that's available many of which want to have a virtual work experience.

And work from home, which reached the supply of labor, even tighter for our clients.

So that's what's driving a lot of the wind in the sales force or people scale right now it looks really strong.

No no signs right now that any of that is on its way down.

That's great to hear thank you.

As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.

Your next question comes from the line of Marc Riddick with Sidoti Your line is open.

Hi, good afternoon.

Hey, Mark.

So I wanted to touch on some of my questions have already been answered, but I did want to touch a little bit on maybe what youre seeing on a couple of slots one I wanted to get a sense of maybe how you're viewing.

The competitive landscape and maybe the sort of where you stand in.

<unk> now maybe versus six months ago, or so because it seems as though you've certainly.

<unk> gained traction maybe certainly seems low relative to some peers and I was wondering if you can sort of talk a little bit about maybe.

Maybe some of the things that are sort of.

Clicking with clients maybe more.

Got to your expectation or.

Or at least more so than maybe some of them. Some of your peers in market and then as a follow up around maybe some Jupiter acquisition gains.

Hey, Thanks, Marc or Steve.

As Ive obviously.

Obviously been studying this February the last 45 days.

Since coming back understanding where the demand is in the market who is out there competing against us in and how we might be doing.

In that marketplace. Let me just talk about two different areas for IFF will first talk about what Derek just finished which is full time hiring.

And the demand that exists out there for all these open positions.

Probably over 11 million open positions in the United States alone in the.

With the bulk of those in the categories we recruit in.

So demand has never been stronger.

As we mentioned a little bit the supply is not getting tighter it's getting slightly looser so in that demand environment.

We are operating pretty well, but people scout.

Derrek just mentioned the surge that our clients fill even with stable demand and supply getting slightly better theres been this huge surge and a lot of that is employees trying to figure out where they want to end up and what type of company they might want to end up in.

Okay.

I think when you come back to our core business and not earlier referred to the marketplace or our clients.

We're doing great out there and the people scout environment.

Being a leader in.

<unk> recruitment process outsourcing here in the United States.

With a pretty good start on a global basis of being in the United Kingdom and being in Australia.

But in the United in the United States North America.

We win more often than we lose we went a lot.

And I think we are the preferred provider here in the U S.

Sure.

When you look at that situation on a competitive front, where we need to be stronger is the ability to work on global deals.

If theres a north America loan deal, we compete really well and like I said, when a lot more than the nod.

But on global builds we don't and so that's the competitive front, we're looking to fill in and decide and figure out and come up with strategies to to be better on a global basis.

If I shift over to our our commercial staffing business.

Both the on demand in the longer term <unk>.

Commercial staffing here, it's all North America based so thats our marketplace.

Again demand is strong there was a little bit of a pause button at the end of Q2 and into Q3, a year that we've discussed but we believe it's just very very slight and its not shrinking. Its just all this amazing growth that's been happening in this space has slowed slightly in dollars and as we look at the compared.

Ziv front in that category, it's very fragmented.

And Theres a lot of commercial staffing players out there. So we have to be careful we've talked about who the competition is who we're referring to.

I believe if we focus to strengthen our marketplace on the on demand through the branch network we win.

Because we're fast we have local talent placed on local needs even if it is.

<unk>, a national provider, a national customer, we still need to place it locally and we need to show up locally and we need to have local speed and with our branch network, we win in that category.

You throw in the goodness of job stack that we've been working on for 10 years.

And it's had a lot of momentum in the last three years with over 90% of our workers on that platform and almost 60% of our revenue going through that platform on a digital basis, we're doing pretty well, especially for a company that's.

Founded in bricks and mortar not easy to shift and move to a digital world when Youre real strength is your local presence, but we've made great progress.

I think fundamentally we're competing as well as anybody in that space now.

Now we need to clean up our digital presence because theres, new on commerce that look better than us in that space, but overall, they don't look better when you add in the strength of our local.

Network and our local branch so we've got clean up to do in both spaces expand globally in <unk>.

<unk>.

Make the experience more sticky, which we believe is digital for probably 60% to 75% of our customers that other 25% to 35% is going to be blocking and tackling daily in the local market and that's where we win and that 25% to 35% that become.

The hidden gems in our company.

Having our sales force out there.

Color contact sport everyday contacting and selling.

Even if it's two workers for two days those are the clients to grow into big gyms, and so making sure. We're strong in that category is going to keep us very competitive.

In these.

And our commercial staffing business.

Great and then I guess.

Little quick follow up I, just wanted to I guess as much of a comment as a question I suppose but it certainly can't be argued with as far as.

<unk>.

Using some of your cash to repurchase shares when you're looking at an attractive valuation.

To take advantage of and certainly on the willingness.

This an ability to do that so wondering if you sort of maybe just update thoughts as to what we may see there going forward and certainly.

It's a pretty pretty good.

Return proposition there as well.

Yes. Thanks for that question, Mark, Yes, Youre, absolutely right fundamentally nothing has changed in our strategy that I'll allocating the capital back to shareholders. We want to we don't want to sit on the capital we wanted to turn it back.

We think thats, the most efficient way to do it for everybody.

And do it somewhat consistently.

With some emphasis when we've got opportunity.

And we've kind of shown our cards there during the last recession, I'm not making a prediction about recessions, but we are priced out of a pretty attractive level. So that's something that we continue to talk about on how we could do that and we want to make sure of is that we.

Our opportunistic at certain times, because we want to make sure over the complete economic cycle that we can return that.

That capital back at the average share price or better over that cycle, so being opportunistic does weigh into this as well.

Makes sense. Thank you very much.

There are no further questions. This does conclude today's conference call. Thank you very much for joining you may now disconnect.

Okay.

[music].

Yeah.