TrueBlue, Inc. (NYSE:TBI) Q4 2023 Earnings Call Transcript
TrueBlue, Inc. (NYSE:TBI) Q4 2023 Earnings Call Transcript February 24, 2024
TrueBlue, Inc. 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 Fourth Quarter 2023 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 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 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.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 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.
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. The economic environment that we and many of our customers are operating in continues to be challenging. Uncertainty led to a greater focus on reducing costs, leading many companies to ask for more from their internal teams to be more selective in the temporary and full-time positions they choose to fill. These dynamics resulted in reduced market demand across the staffing industry. Revenue for the quarter was $492 million, down 12% compared to the prior year as economic uncertainty persisted, constraining business spend and impacting hiring trends. We are managing through this market cycle with agility and discipline, meeting our clients’ current needs and ensuring we are favorably positioned to capitalize on opportunities as conditions improve.
Our teams are highly focused on growing sales, providing excellent service and responding to our clients’ immediate and evolving needs. As companies hesitate to make long-term workforce commitments, we are leveraging our short duration and flexible offerings to satisfy current needs and ensure we are ready to support clients as their needs change or expand. Additionally, we continue to seek opportunities in high-growth and attractive end markets with targeted expansion in areas such as renewable energy and skilled trades. While most sectors reflect softened demand, the long-term staffing outlook remains positive. We are well-positioned to fill some of the structural staffing shortages we see as Baby Boomers retire, work from home trends continue and shortages in skilled trades expand.
We understand the current market dynamics and the needs of our customers, and we also understand the urgency to see improvement in our results. We are committed to maintaining a dialogue with you and providing transparency about our efforts and progress. As we enter 2024, we are laser-focused on leveraging our inherent strengths to capture market share and managing our cost structure with discipline to enhance our long-term profitability. One of the core components of this strategy is positioning our contingent staffing business to compete in a digital-forward future. We continue to advance the digital transformation of our business, positioning us to drive efficiencies and expand our reach through a differentiated experience that combines our technology with our expansive market presence and expertise.
We recently achieved a significant milestone with the initial launch of our new, proprietary JobStack app. This new version of the platform allows us to control our roadmap, implement competitive enhancements and quickly address evolving user needs. We are excited to continue the rollout of this technology over the next year as acceleration of our digital transformation remains a key strategic priority to strengthen our market position. Another key strategic priority is our expansion in high-growth, less cyclical and under-penetrated end markets to capitalize on secular growth opportunities. We already have a proven track record of success with renewable energy work and a strong position to capture further growth opportunities in that market.
We also see an opportunity to explore ways to expand our presence in other key end markets such as skilled trades, healthcare and hospitality. Within RPO, we are focusing our efforts towards diversifying into higher skill placements and more specialized product offerings in attractive verticals like healthcare. An important element of this plan is enhanced focus and profitability through a simplified organizational structure. While we will continue to go to market under our current, well-established brands, streamlining our organization will create opportunities to drive efficiencies and bring our teams closer to our clients and associates, enabling greater focus on operational excellence, cross-selling and innovation. We have already made strides in this area with the sale of our on-demand labor business in Canada, which allows increased focus on our US operations where we are an industry leader.
With a more focused structure, we will be better able to reduce costs and leverage our strengths and assets to deliver long-term, profitable growth. While today’s operating environment continues to present challenges, we are energized by the evolution in workforce needs that plays to our strengths and creates compelling long-term opportunities for our business. This optimism is evident in the broad insider buying of company shares on the part of management and the Board during the fourth quarter. We have clear strategic priorities that we are confident will help us capitalize on the growth opportunities ahead, enhance shareholder value and advance our mission to connect people and work. Building on our tremendous strengths and assets, our people, our tools, our experience and our market presence, we are committed to execute with the discipline and focus it will take to return to profitable growth.
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. On a comparable 13-week basis, revenue was down 15% and at the high end of our outlook due to strong performance in renewable energy work. Our fiscal fourth quarter included an extra 14th week versus the 13 weeks in the prior year period, adding incremental revenue of $20 million and driving reported revenue for the quarter of $492 million or a decline of 12%. Renewable energy work more than doubled, delivering its sixth straight quarter of revenue growth. Strength in this vertical helped to offset overall softness in market demand as economic uncertainty continues to weigh on businesses, driving greater focus on cost cutting and restricting hiring trends. While the tight labor market emphasizes the importance of retaining talent, cost pressures are causing businesses to ask more from their teams and be more selective in the positions they fill, leading to lower overall demand in the staffing market.
Gross margin was 26.1% for the quarter, down 40 basis points. The decline was driven by unfavorable revenue mix due to the increase in PeopleReady’s renewable energy work, which carries a lower gross margin than the general on-demand business due to more pass-through travel costs, as well as a decline in the revenue mix of our highest margin business, PeopleScout. These factors were partially offset by disciplined pricing in our PeopleReady business, which delivered its eleventh consecutive quarter of positive spread between bill and pay-rate inflation. We were able to reduce SG&A by 8% on a comparable 13-week basis with the extra 14th week contributing $7 million of additional expense, resulting in a reported decline of 3% for the quarter.
We adjusted our cost structure to better align with client demand, and we remain focused on managing costs to enhance our profitability. These actions are balanced with maintaining our operational strengths to ensure we are well positioned for the rebound. We reported a net loss of $3 million for this quarter, versus net income of $7 million last year. Included in our results for the quarter are $3 million of costs associated with our executive leadership transitions and an income tax benefit of $5 million due to the favorable impact of job tax credits. Adjusted net income was $3 million, versus $13 million last year, while adjusted EBITDA declined to $5 million versus $21 million last year. Now, let’s turn to the specifics of our segments.
PeopleReady revenue decreased 9%, while segment profit decreased 65%, and segment profit margin was down 430 basis points. On a comparable 13-week basis, revenue decreased 13% with the extra week adding incremental revenue of $12 million. As we’ve mentioned, our renewable energy work outperformed this quarter, growing 126% and partially offsetting the general decline in market demand. Client volumes declined across most verticals, with the largest being in retail, hospitality and service industries. 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. These factors were partially offset by disciplined pricing, which delivered another quarter of favorable spread between bill and pay-rate inflation, with bill rates up 8%, and pay rates up 7%.
PeopleScout revenue decreased 31%, while segment profit increased 16%, and segment profit margin was up 260 basis points. On a comparable 13-week basis, revenue declined 32%, with the extra week adding incremental revenue of $1 million. The decline in demand was driven by lower client volumes as businesses continue to navigate in an uncertain environment. Clients are being more selective to the roles in which they choose to fill, with some implementing hiring freezes and others adopting elongated hiring processes. As businesses see less churn in their employee base and remain uncertain around their workforce needs, hiring volumes have declined to a level where some are relying more heavily on internal resources to fill jobs. While the decline in revenue resulted in lower operating leverage, PeopleScout’s segment profit margin expanded due to cost actions taken this year as well as the revenue reserve adjustment recorded last year.
PeopleManagement revenue decreased 8%, while segment profit decreased 33%, and segment profit margin was down 70 basis points. On a comparable 13-week basis, revenue decreased 13% with the extra week adding incremental revenue of $8 million. Demand declined in both on-site and commercial driving services, consistent with the macro conditions evident in the verticals we serve, such as retail and transportation. The margin contraction was driven by lower operating leverage as revenue declined. Now, let’s turn to the balance sheet. We finished the quarter with no debt, $62 million in cash and over $80 million of borrowing availability. With the recent renewal of our five-year credit facility effective February 9th, we have increased our borrowing availability to roughly $140 million.
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 first quarter of 2024, we expect a revenue decline of 16% to 10%. While this reflects an improvement to the comparable decline in Q4, it’s primarily driven by a less challenging prior year comparison as current market conditions are expected to continue into the first quarter. We expect gross margin to be down roughly 200 basis points due to the changes in business mix with continued strength expected in renewable energy work as well as prior year workers’ compensation reserve adjustments that are not expected to repeat. While we expect lower operating leverage with the revenue decline in Q1, our lean cost structure will drive improved margins as we move through the year.
It is important to note that Q1 is seasonally our lowest revenue quarter, which creates a more pronounced impact on year-over- year profitability relative to other quarters. Our effective tax rate is highly sensitive in periods of low profitability where 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 $5 million to $9 million. Additional information on our outlook can be found in the earnings presentation shared on our website today. Before we open the call for questions, I want to turn it back over to Taryn for some closing remarks.
Taryn Owen: Thank you, Carl. Before we wrap up, I want to reiterate that while current market conditions are challenging, we are taking decisive actions to preserve and enhance our strengths to deliver long-term value. We are entering 2024 with a strong balance sheet and clear strategic priorities, positioning us well to capitalize on growth opportunities and capture market share as conditions improve. We are confident that these strategic priorities, combined 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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