Good day, everyone, and welcome to TrueBlue's conference call. Today's call is being recorded. Joining us today is TrueBlue's CEO, Steve Cooper; and CFO, Derrek Gafford. They will discuss TrueBlue's 2012 second quarter earnings results, which were announced today. At this time, I would like to turn the call over to Ms. Stacey Burke for the reading of the Safe Harbor. Please go ahead, Ms. Burke.

Thank you. Here with me today is TrueBlue's CEO and President, Steve Cooper; and CFO, Derrek Gafford. They will be discussing TrueBlue's 2012 Q2 earnings results, which were announced after market closed today. Please note that slides providing additional background on our Q2 results were included in our 8-K filing today, and that the slides, press release and accompanying financial schedules are now available on our website at www.trueblueinc.com. Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note that on this conference call, management will reiterate forward-looking statements contained in today's press release and may make or refer to additional forward-looking statements relating to the company's financial results and the operations in the future. A reconciliation of any non-GAAP measures discussed today can be found in the Investors section on our website. Although we believe that the expectations reflected in these statements are reasonable, actual results may be materially different. Additional information concerning factors which could cause results to differ materially is contained in the press release and in the company's filings with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K. I'll now hand this call over to Steve Cooper.

Thank you, Stacey, and welcome, everyone. Today, we reported 2012 second quarter revenue grew 11% to $354 million, which produced $0.26 per share of net income, which is in line with the earlier guidance that we shared. Our operating margin of 4.9% for the quarter expanded by 60 basis points compared to the prior year's second quarter. Our operating margin of 3% through 26 weeks of operations this year has expanded by 50 basis points. We've expanded our operating margins by growing the revenue 12% year-to-date while holding gross margins constant and continuing to run an efficient cost structure, which provided the leverage on the operating statement as reported. Expanding our operating margins remains a high priority for our team. As we continue to grow revenue, we are focused on being diligent in appropriately pricing our business to get the highest-possible gross margin at the highest-possible revenue growth, and this requires us balancing opportunities for growth with our focus to increase our profitability. As we've expanded our opportunities with the large -- with larger accounts over the past few years, our total mix of gross margins has lowered. To offset the lower mix of gross margins, we have been and remained diligent in lowering our cost structure. We have successfully lowered selling and administrative costs as a percentage of revenue during the same time period our gross margin mix has changed. As a result, we've expanded our operating margins. We remain focused and committed to driving operating leverage in our future results. Revenue continues to show consistent growth, as gross margins remained stable here in 2012. In Q2, we grew revenue across most industry groups and geographic regions. Residential construction remains a challenge. However, we are continuing to see commercial projects and energy-related construction projects show strong growth. We remain focused on our approach to building expertise in several markets, along with driving local market selling and delivery of services. This is a multi-pronged approach and building national customer relationships, along with our strong capability of serving local customers, is the driving force behind our strong results. The one industry that I just mentioned that has continued to show extraordinary revenue results is energy. Similar to the prior 3 quarters, this sector positively impacted our overall growth in Q2. We feel comfortable with our ability to sustain the level of revenue from this sector. While the growth rates will moderate, the revenue from these accounts seems stable. As we have grown multiple industry sectors, we have become less reliant on one particular account or even one industry to provide our growth. Even as our largest account over the past year has declined, as planned and reported, we have other large accounts and industry groups replacing that work. Our strategy to be more diverse in relation to our overall industry approach is helping us produce more consistent and sustainable results. After Derrek reviews further operational and financial details, I will offer some additional remarks. Derrek?

Thanks, Steve. I'll start off today by covering our high-level second quarter results, then we'll take a deeper dive on the key financial trends for Q2 and hear some balance sheet and cash flow highlights. We'll finish off with a discussion of our expectations for the third quarter. Any reference to our performance is based on a comparison to the same period a year ago, unless stated otherwise. Solid execution across the business produced strong results this quarter. Revenue grew at 11%, as expected, marking the ninth consecutive quarter of double-digit revenue growth. Diluted net income per share growth was about 30% and near the high end of our expectation. Now to review some of the key financial trends in this quarter's results. Gross margin for the quarter was 26.4%, as expected, and was lower than Q2 gross margin a year ago of 26.7%, which included 50 basis points of non-recurring benefit from the resolution of a payroll tax matter. Excluding the payroll tax benefit from Q2 last year, gross margin in Q2 this year would've increased 20 basis points. This improvement is the result of successfully increasing billing rates in January and disciplined pricing of new business throughout this year. Now let's discuss sales, general and administrative expense. This quarter's revenue growth spread across our largely fixed cost structure continue to drive strong operating leverage. SG&A as a percentage of revenue of 20.2% was better than expected due to less SG&A spend. In comparison with Q2 last year, our operating leverage produced a 90-basis-point decrease in SG&A. On a dollar basis, SG&A increased about $4 million compared to Q2 last year, mostly due to the variable SG&A associated with the nearly $35 million increase in revenue. This quarter's revenue and gross margin performance, in combination with the company's operating…

Thank you, Derrek. As we shared with you today, our story is one of consistent growth through a more diverse customer and industry mix. Our story is also one of leverage, consistent growth within an efficient cost structure. This results in strong operating margins, as you heard today. In addition, we continue to pursue new value-creating investment opportunities that will enable us to broaden the services we offer our customers, as well as increase our efficiency in putting people to work. As we build new capabilities and drive further efficiencies for our customers, we believe we will also provide high returns for shareholders. There are 3 areas of strategic focus that we believe will continue to drive shareholder returns: first, our sales and service strategy; second, our technology strategy; and third, our people strategy. Let me first speak to our sales and service strategy. New capabilities and expanded market opportunities that we have built and invested in over the past few years has enabled us to serve more industries and broaden the partnerships we have created with several national customers. And we remain confident in our industry market strategy to drive growth with both national and the thousands of local customers that fit into one of these vertical market specialties. There are several components of our sales and service strategy that are fueling our success: first, we have industry-specific research and development for each major customer segment; second, we have an industry-leading sales and marketing strategy; and third, we have a dedicated sales team for each market. The stronger relationships with each of the vertical markets we serve is proven to expand our credibility in those segments on both the national and the local level. And finally, we have a proven method of tying the success of serving national accounts…

[Operator Instructions] And your first question comes from the line of Sara Gubins with Merrill Lynch.

First question, could you just break out Boeing revenue for us in the quarter?

Yes, Boeing was a little over $20 million.

Okay. And do you -- does that -- do you feel like a reasonable run rate for the back half of the year? Do you think it'll continue to move downwards?

Yes, that's a step-down about $5 million from where the revenue was in the previous quarter. It might step down a little bit from there as we start to complete a few of those projects at Boeing.

Okay. I'm sorry, just to confirm, you said that Boeing was about $20 million in the second quarter?

It was $23 million.

$23 million in the second quarter, okay. And could you remind us how much of your revenue is coming from energy?

Yes. It's -- total company revenue?

Total company energy.

Yes, total company revenue coming from -- you mentioned that, that was kind of the driver for the step-down growth rate in the 3Q guidance. So I'm just wondering what portion of your revenue comes from energy projects.

Yes, so depending on how you want to look at it, I would say that we had -- for energy, we had about $25 million with this quarter, total revenue.

Okay. And then just a last question. I know that you don't give specifics about bill rates. But could you talk about the trends that you're seeing in bill rates and pricing? And I'm wondering, based on your comments, are you turning away business because there's more pricing pressure on it?

Yes, it's not the -- yes, there's still pricing pressure out there, Sarah, no doubt. And so there are opportunities that we don't step up to or we have to draw some lines because based on how hard it's going to be to service a given account. So there are pressures out there on bill rates. We've been running in the 1% to 2% bill rate inflation. So there's a little bit of an opportunity to increase bill rates here and there in our core business. But overall, most of the calling out in my comments were about lower margin, not our base margin work.

Your next question is from the line of Jeff Silber with BMO Capital Markets.

Derrek, in your discussion, you talked about the incremental EBITDA margin being about 17% when we remove the impact of a payroll tax benefit. Is that kind of incremental EBITDA-sustainable?

Yes, the business is certainly capable of producing that, Paul. That's...

Jeff.

Or Jeff, sorry. That's been a fundamental part of the business model. And I view -- I certainly expect it to continue to do so. Our guidance reflects that for Q3.

Okay. And in terms of the guidance, you mentioned that the annual growth rate was going to slow a little bit, specifically because of the tough comps in the energy business. Was that just a third quarter 2011 phenomena? Or should we expect that kind of trend to continue in the fourth quarter?

I think most of that, for this year, is in the third quarter as far as it impacted the blended growth rate. We haven't got into fourth quarter, but in 2 anniversaries, tough comps, but not expecting that to be in decline this year in our energy practice.

Okay, great. That's helpful. You mentioned the WOTC tax credit. Do you have any indications if and when that might change?

Jeff, we really don't. With everything going on, that back in Washington, this has just not been a topic that has garnered a lot of conversation.

Okay, great. And just one quick numbers question. What should we be modeling for stock-based comp for the year?

I think if you're just going to look at our run rate, where we are now, we're running -- on stock comp, we're running a little bit ahead of last year, maybe about $800,000. I wouldn't expect that to continue to the back half of the year; maybe $300,000 or $400,000 ahead of where we were during the back half of last year.

Your next question is from the line of Mark Marcon from R.W. Baird.

Sorry, but I missed the first 4 minutes of the call due to just being on hold for excessively long period of time. So I apologize in advance if I'm asking something that you already spoke about. But in June, was the step down -- and I know that the year-over-year comp was a little bit tougher -- but was that all energy, or was that more broad-based in terms of a little bit of the slowing?

Yes, that was all energy-related, Mark. The general business across our branch operations has been running very steady throughout the quarter.

Okay. And can you just repeat what you ended up saying with regards to -- and I apologize, but what exactly did you say in terms of how much energy slowed?

Well, let's keep in mind here, Mark, it's not that it slowed. It's just that, that project started heavily in June of 2011. So you get on the year-over-year growth rate, and the growth rate is moderate. It's not that the revenue run rate has moderated.

Got it. And what's the Q2 contribution from energy in 2011?

That was -- it made up about half of the total company revenue growth in Q2.

Yes, it is -- we disclosed it earlier, right before you might have got on, Mark, it was $25 million.

In Q2 of last year?

Oh, I'm sorry.

Energy growth for Q2 of this year added about 5 or 6 points of total revenue growth for us. That represented in total revenue in Q2 this year about $25 million of revenue. And compared to Q2 last year, total energy revenue was about $10 million, so about $15 million of growth.

Got it. And how much was it in Q3 of '11?

It was about $25 million.

Okay. So basically, that element you just expect to flatten out.

That's right, starting to flatten. It's just because of the comps, not the run rate.

Got it. And do you see -- there's still discussion about the energy tax credits. Do you foresee that dropping off, or do you think that will hold steady even into next year?

Yes, we're getting good reports that the project pipeline looks pretty strong right now. So a year ago, we were -- we had less certainty about them, I feel like we have today. So I think that the word on the street and the projects are starting up. It looks good for the next 18 months.

Great. And then Steve, just to go to your strategic comments, with regards to the technology initiative and being able to procure workers more efficiently, how far along are you in that rollout in term -- and when would you expect it to be fully operational?

So we definitely have the ability right now to communicate and opt people in and get them signed up. Our large goal there and our big bang that's coming there is the ability to dispatch, especially in the day-pay model, where we can simply plot assignments on quick-fill assignments. And so there's -- that's a little bit more tricky to be able to have it tied to our operating system. And so this fall, we're trying that dispatch process to our operating system. So currently, we have the ability. We know the technology is working, and we're really excited about the ability to communicate and drive job opportunities out to people. But the real bang for the efficiency buck, that comes from being able to place them through texting, and we're really excited about that. So that's just around the corner. I imagine in Q1 of 2013, we're going to know what this means for us more and how far of reach we can have with our workforce in getting them dispatched out and assigned to jobs and let us know how dependent we really are in that recruiting model right around the neighborhood branch, or can we expand that. We have big hopes for that, but, yes, we're within 6 months and having some great results.

It sounds like you'll be able to increase fill rates and basically respond to far more orders.

Yes, definitely. The testing and the results we're getting back so far as the response time is fast. The open order goes down, the customer service goes up, the margin goes up, so -- and it only takes 2 or 3 workers per branch to drive a lot of revenue in this company. So that's one avenue. The other is, it's just an easier way to administrate our business and run the business. It's through a messaging system like that rather than come wait in line for the next job. We've got -- we can have thousands of people on the queue and be able to send them out to whoever is closest to the job or has the best skill set, the best match for the job. So we're going to open up our recruiting pool like we've never seen before.

Yes. And it also sounds like it would end up helping the associates' job satisfaction.

Oh, yes. The testing results in that category are huge because they don't need to come to the office to look for a job assignment, nor do they need to come back at night to be paid. We really freshened up the entire approach and the model, where we can communicate them -- with them if they're not in the office, so we can actually pay them without coming to the office. So we've really freshened up the entire approach.

[Operator Instructions] And your next question is from the line of Ato Garrett with Deutsche Bank.

Could you remind us of your exposure to construction and then -- or to residential construction? And could you talk about the year-over-year growth rate in the second quarter versus the first quarter?

In residential?

Yes.

Yes, so residential construction for us now, I'm giving you kind of what our mix here is on a trailing 12-month basis. But probably the best to look at it that way is it's about 5%. And you wanted to know...

Year-over-year growth?

Total revenue is residential construction. And you want to know the second quarter growth rate?

And the year-over-year growth in the second quarter versus the first? Yes.

Yes. So for residential, it was pretty flattish.

In 2Q?

Yes.

Okay, then. And how about in the first quarter?

Which was an improvement for us, as we've been running these declines for quite a while. First quarter was -- that was in the teens or so as far as the decline.

Okay. And then for -- do you guys have a workers' comp reversal this quarter? And if so, what was it?

We didn't give it to you here. So it was about 110 basis points.

[Operator Instructions] And your next question is from the line of Randle Reece with Avondale Partners.

I was wondering if we could talk about trends in the Spartan business and kind of what your longer-term strategy is with that segment.

Yes, just for those that maybe are not really aware by brands since we don't have disclosures by brand, that's really mostly our manufacturing and our light industrial business, heavy in the Midwest. And it serves heavily the auto business. And so a year ago, we were struggling in that category, and we talked a bit about the declines due to the Japanese auto market that has stabilized. It's bounced back. We're actually seeing growth again in that business, and mid-single-digits growth from that business unit. So things are stabilizing. Our longer-term strategy in that category, really, across the board is that serving distribution manufacturing accounts is important to us, and we have a pretty neat little formula there over Spartan that's serving accounts in a more professional way on a longer-term basis. So some of our more legacy accounts and the work that we've done is high-turnover business and high, hard-to-fill jobs. And the Spartan's really taken on more of a screening and longer-term fill and longer-term management, more on-site premise work. And that business is growing for us. We're picking up accounts. We're growing our presence in that category. I'm not saying we have it perfected, but we're sure glad that we have a method of going about it. We're seeing -- although certain accounts to deal with their uncertainty in this economy are still a little bit timid in hiring employees, and they turn to the short-term fill model or more seasonal approach, there are clients that want us to do the screening and recruiting and hiring and placing for them, and so there's a great need for this -- what has been referred to as our Spartan model. Longer term, we're going to blend all of this, that our teams are coming together. They're working closer together. And the gaps between one brand and the other aren't that wide. And we've gradually been getting these teams closer and tighter and under common leadership and common systems. And really, this is about what the customer needs. And if the customer has an application that we call it to provide on-site services or to provide more of a general labor quick-fill model. But really, providing it as TrueBlue is kind of where our strategy is going.

Do you think that there has been any kind of pause in labor demand, any kind of shift in timing or anything more permanent than just a pause?

Well, that's a pretty big question, and I wish I had the answer to that. I know that with -- the temporary help, temporary labor has definitely been tied to the overall economy and full-time labor for quite some time. And if -- the questions around is there are secular shift that's going on, that companies are really leaning more on temporary help. What I -- what we do feel and what we do sense is since the last recession, and it's been a real spotty growth period, although we've been in growth for a lot of quarters, the companies remain timid in gearing up and making long-term investments in their own businesses. And turning to temporary help gives them the ability to work through that. It really makes us relevant to their business model. So I know that that's real and that they rely on us and that they need us, and -- but whether there's a continuing shift, I can't fill that out yet to know that whether, long term, they'll be turning more to temporary help or whether we'll get a shift maybe in 2013, where more longer-term hiring will be taking place. I like a strong economy. I'd love to see more jobs, more full-time jobs and growth. That does us all well, and there's room for clients to use us to recruit up their staff for full time and then use us for seasonal and short-term needs. So there's a real good balance for both temporary help as full-time employment grows either way. That I know we're relevant in both sides of the cycle either way, but I don't have much more for you other than that.

Okay. Do you have an updated office count for the quarter?

You said the office count?

Yes.

That's 700.

7-0-0?

7-0-0.

You have a follow-up from the line of Mark Marcon with R.W. Baird.

I was wondering if you had any updated thoughts with regards to capital deployment. Cash just keeps building. How should we think about that? Obviously, you bought a little bit of stock.

Right. Well, that's one use. Our #1 use would be to put it to work in operations, and we have a pretty successful track record the last 7 years of buying companies and on-boarding them and getting them to work. The last 18 months or so, we've been on this efficiency play that we wanted to invest in technology and give ourselves a chance to retool, as I was just talking to -- about the last question of the importance of us to continue to focus on our own efficiency and become one to the customer and sell as TrueBlue has been on our minds and part of the testing. So the heavy investment in technology that we've made the last 2 years is really to set the table, so we can do just that, that we can offer the customer all that we do but do it together and do it better, which really, for the investor's point of view, is a more efficient play. So we can keep driving this incremental revenue -- incremental EBITDA margins that Derrek was talking about is an important play. So that's what we've been working on the last 18 months. In that period of time, cash has grown. The stock price has been strong. We haven't been aggressively buying stock the last 12 months because we knew that this period of time would pass, where we're making a large investment in our efficiency play. And that time is ripe. That we would love to get back in the market of buying companies and buying up opportunity to grow, to serve more geographies, more skill sets or just do more over each counter. So we're not announcing anything today. I'm just saying that we still see that as the best use of capital. That's where we got our best returns over the years. So that remains #1. Share repurchase remains right there behind it. If we can't find a great investment alternative, then investing in ourselves, with our own efficiency model, is a good place to turn. And so we'll look for the opportune times to buy our own stock, which Derrek has reported today that we bought some this quarter. That's not an aggressive play for us right now because we'd love to be on the more aggressive front on growing the company and providing opportunities right now. So those are the main 2 things. It's not new, but it freshens the approach a bit. And we haven't been in some of the timeout mode on acquisitions, and maybe we won't be the next 36 months. Maybe we'll be more forward-looking there.

Great. But it sounds like you're going to -- you're basically going to bring it home with regards to getting the technology initiatives completed and fully rolled out first, right?

Yes, absolutely. The investments we've made so far and the strategy of the efficiency play in driving our EBITDA margins, especially keeping those incremental EBITDA margins high, is just high on our list. That's -- and that's why I lead with that strategy story here in my script today and just saying it's working. It worked last quarter, it worked again this quarter, and the forecast that Derrek shared here it's going to work again in the third quarter, and that play is the most important play. Along the way, though, growth is important and still looking for the opportune times to grow our revenue and our reach to customers, so we can serve more people. To put more people to work is also just as important. But yes, we will not put our efficiency play on hold in order to do an acquisition.

Great. And then in terms of the vertical market strategy, you've had some really good success there. In terms of seeing the next really strong evidence of that, would that be more in the fourth quarter, particularly on the retail side? Or are there other areas that could crop up sooner? And I'm talking about relative to what you've already demonstrated thus far.

Right. Well, we have 8- or 10-serious categories of industries that are important to us throughout the history of our organization being invested in and being prepared to take on the waste industry. And the disaster business have remained really important to us as we expanded our Spartan business, being heavy in the manufacturing and distribution industries has been important to us. We've been investing there. And then we moved in and guided to this aviation business and the driving business. And now a greenfield opportunity did come through acquisitions is this energy business. So is there another big one, and what's around the corner? I think we have so much room to grow in those 8 or 10 that we've already identified and that we haven't perfected. It falls back into the efficiency play model of: Let's get the tools, let's get the customer service lined out, and let's grow those and perfect that. So you call out retail. I think we have a huge opportunity in that category. We've succeeded with some big household names that I didn't know that we could and we have. And if we succeeded with 1, why don't we succeed with 10? And that's kind of the play right now. So that retail and distribution industry is really ripe for us and how we serve them through seasonal categories. So Mark, as you've said here, yes, the proof is in the pudding on how we do during the retail distribution season this fall. So it's a good call-out.

Great. And then just a numbers question. With regards to Q3 of last year, were there any tax credits or anything that positively impacted the gross margins in the year ago that we're going to be calling out when we report Q3?

No, the year-over-year comparison, so Q3 of this year versus Q3 of last year, is a clean comparison. There wasn't anything unique in the prior year compare.

And we have no other questions, so I'm going to turn it over to Mr. Steve Cooper for closing remarks.

Great. Thank you. We sure appreciate you, and thank you for joining us today and your questions. Your attention and questions and interest in our company is much appreciated. We look forward to reporting results of Q3 to you as we continue to drive this industry-leading growth and push these strategies forward. So thank you, and have a good afternoon.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us, and you may now disconnect. Everyone, have a great day.