TrueBlue, Inc. (TBI) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter TrueBlue Earnings Conference Call. My name is Philip, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Stacey Burke. Please proceed.

Thank you. Here with me today is TrueBlue's CEO and President, Steve Cooper; and CFO, Derrek Gafford. They will be discussing TrueBlue's Q2 2013 results, which were announced before market opened today. Please note that slides providing additional background on our results were included in our 8-K filing today. The company's press release and accompanying financial statements are now available on our website at www.trueblue.com. There's a presentation providing additional information about our Q2 earnings results on our web as well, under Investors/Presentations. Before I hand you over to Steve, I ask you 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 operations in the future. Although we believe 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 our most recent Form 10-K. I'll now hand this call over to TrueBlue's CEO, Steve Cooper.

Thank you, Stacey, and hello, everyone. Today, we reported 2013 second quarter revenue grew 19% to $422 million, which produced $0.31 per share of net income. The revenue for the quarter was at the high end of our earlier expectations, and the net income per share exceeded our earlier high-end expectations by $0.06, primarily due to gross margin improvement, which came by appropriately pricing new business and improving the lowest-performing accounts through price adjustments or ending a relationship, if necessary. This was an important and successful strategy for us during the second quarter. We understand the importance of maintaining strong gross margins that reflect the specialization we bring to the marketplace. Our second quarter results include the acquisition of MDT Personnel. The integration has gone well. All sales and service operations integration was completed by the end of Q1. And now, the support center integration has been completed during the second quarter. Soon after the acquisition closed in February, we quickly integrated our teams in the field and closed 65 offices. Given we integrated so quickly and seamlessly, we cannot break out our results separately between our prior business and the acquired business. What I can say, though, is the combined business is performing well. And as you can see in our results today, revenue came in at the high end of our estimates, which is related to how well our blended teams are performing. As we discussed at the beginning of the quarter, our results also include the impact of our work with Boeing slowing. Net of our revenue declined from Boeing, we experienced overall growth of 25% in Q2. The impact from the expected Boeing revenue decline is substantially behind us now, as it has been 4 full quarters since this significant dropoff in revenue. We are pleased with the growth we're experiencing, and feel our teams across all areas of our service, both geographically and industry, are executing well. Seeing revenue growth at these rates and improvement in gross margins is the result of great execution by our teams. As shown in the revenue growth guidance for Q3, we are optimistic with the opportunity to continue the trends we experienced in Q2. While Derrek will share with you in a minute more details about both our revenue and gross margin improvement and our expectations for these in Q3, he will also share more specifics about our operating costs in 2013 for the first 2 quarters and our expectations for these costs in the back half of 2013. And although it's somewhat difficult to clearly see in our first half results, it is important to know that we do expect to see the leverage in our business return in the back half of 2013. And as we move into 2014, we expect to see expansion in our EBITDA margins, as a result of the leverage gained from our core business growing nicely, along with the synergy impact of the significant acquisition of MDT in early 2013. In Q3, we estimate net income per share will grow approximately 30%. This shows the positive movement forward we expect. I will now turn the call over to CFO, Derrek Gafford, for further analysis. After which, I'll make some comments regarding our growth opportunities. Derrek?

Thanks, Steve. I'll start off today with a high-level discussion of the quarter, including a summary of key factors driving our results. I'll also provide an update on the progress of our acquisition and integration activities, and then jump into a deeper discussion of our business trends and related expectations for the future. In my commentary, any reference to our performance is based on a comparison of the same period a year ago, unless stated otherwise. Diluted net income per share of $0.31 was $0.06 above our mid-point expectation. $0.02 of the outperformance was from lower income taxes, with the remaining $0.04 from solid operational performance, particularly our gross margin results. To better understand our performance this quarter in comparison with Q2 last year, I'll provide commentary on an EBITDA basis. Q2 2013 EBITDA was $22.5 million, which includes 2 unique items: first, we incurred $2 million of integration costs related to the MDT acquisition; second, we have $3 million left in EBITDA due to the expected decline in Boeing revenue. Excluding these 2 items, EBITDA grew by $5 million. Great progress was made this quarter in our acquisition strategy. As planned, we completed the integration of MDT Personnel in 5 months, which included the consolidation of 65 former MDT branches, switching all operations to our systems and transitioning all support services. More importantly, we are very pleased with our success in retaining both field employees and customers. Our progress here keeps us on track in realizing the expected value of the deal. We also made a new acquisition in June, Crowley Transportation Services, a Northeast truck driver business doing about $10 million to $15 million of annual revenue. Now let's review some of the key financial trends in this quarter's results, starting with revenue. Revenue of $422 million grew by 19% for the quarter, which includes the impact of the MDT acquisition. Due to consolidation of MDT branches with our existing branches and the related customer overlap, we cannot accurately segregate organic and acquisition revenue. But what I can tell you is the combined business is performing very well, with improvement in our combined revenue trends. Revenue grew at 17% during March 2013, which was our first full month of combined operations, and our Q2 revenue growth stepped up to 19%. Now let's cover gross margin. Gross margin for the quarter of 26.5% was 50 basis points above the high end of our expectation, driven mostly by disciplined management of our operations. Gross margin was about the same as Q2 last year, but there are offsetting trends I want to point out. MDT carried a lower gross margin, creating an estimated decrease in the blended company average of 100 basis points. The decrease from MDT is offset by the positive impact of revenue mix and our management of the business. The decline in Boeing revenue, which carries a lower gross margin than the blended company average, creates a positive revenue mix impact to our gross margin. From an operational perspective, our team continues to do an outstanding job of ensuring new customer relationships are built at appropriate rates and that existing relationships meet our economic expectations. Now let's discuss sales, general and administrative expense. SG&A as a percentage of revenue was 21.2% and in line with our expectations for the quarter. Compared to Q2 last year, SG&A was up by $18 million, which breaks down into the following categories: An estimated $10 million for ongoing branch and field management expense that came with the MDT acquisition; $2 million of nonrecurring integration costs; and the remaining increase relates to variable costs tied to our organic growth. Let's switch gears and look at SG&A from a leverage perspective. SG&A as a percentage of revenue was 21.2% or 100 basis points above Q2 last year. The increase is mostly from 2 items: the first of which is the nonrecurring integration expense; second is the drop in Boeing revenue, combined with the fixed cost of the PlaneTechs centralized delivery model. Excluding these items, SG&A as a percentage of revenue would have decreased by 40 basis points compared to Q2 last year. Depreciation and amortization of $5.2 million was in line with our expectations. Our effective income tax rate of 29% was lower than our 35% expectation due to additional Worker Opportunity Tax Credits. Now let's turn to our expectations for Q3 of 2013. We expect revenue of $450 million to $460 million, representing growth of about 20%. Gross margin should be about 26.8% to 27.2%. Excluding the impact of the MDT acquisition, our expectation equates to 30 to 40 basis points of pro forma gross margin expansion. With the MDT integration cost behind us, as well as most of the Boeing revenue headwinds, we expect the strong operating leverage of our business to show. For Q3, SG&A as a percentage of revenue is expected to be 19% to 20%. Based on the midpoint of this range, this represents a decrease of 100 basis points compared to Q3 last year. For depreciation and amortization, we expect $4.5 million to $5 million, and our effective income tax rate is expected to be about 35%. We're excited about the future for a few reasons: First is the strong operating leverage of our business. With MDT integration cost behind us and most of the Boeing headwinds, we expect expansion in our operating margins. Second, our organic growth strategies are working well. Our specialized approach to blue-collar market provides us with differentiation. We're using our technology in new ways to create value for both customers and workers. Third, we have developed strong business competencies in acquiring and integrating acquisitions and believe there are more opportunities ahead for us in this area. All right, I'll turn it back over to Steve.

All right. Thanks, Derrek, for the analysis on the second quarter and our third quarter outlook. As you've heard here today in our estimates, the current economic climate allows us to continue to pursue further acquisitions, while we also aggressively pursue organic growth through the execution of our sales strategies. Our main criteria for selecting acquisition opportunities continues to be: first, ensuring it fits our strategy; second, can we get the expected ROI on that opportunity; and third, can we integrate the target into our organization to ensure all our objectives are met, especially expanding opportunities to better serve our customers. There seems to be adequate opportunities available for us to continue to seek growth through acquiring strong companies that will expand our vision to be the leading provider of blue-collar staffing. We are even more encouraged by the opportunities to grow revenue organically. We're encouraged by the new housing starts we have seen in 2013 and the level of building permits, in general, we have seen. We remain well-equipped and ready to serve contractors, as construction continues to improve and show growth. We are seeing our strategies in 2 areas work well: First, our sales and service strategy has expanded over the past few years to bring more focus to our customers' industry specialization. We remain focused on growing our expertise in several industry markets, as this is exactly what customers are asking for today. Our sales and service approach uses a blend of centralized teams focused on national accounts, along with our competency of selling and serving in local markets. Our strategy to be more diverse, in relation to our overall industry approach, has helped us produce more consistent and more sustainable results. Second, we have made great progress in implementing technology that is focused on recruitment, communication and assignment of our workforce to our customers. In the past, most of our workers have been recruited through our neighborhood branch locations. We have been investing in 2 key areas that we remain committed to and believe will further drive efficiencies in our business by eliminating our dependency on a high number of branch locations and enable us to fill more orders through access to more workers using technology. This technology is assisting us in centralizing common operations to a higher degree and communicating with our workforce through mobile solutions. As we rely more on technology to communicate with our workforce, we can reduce our dependency on the high number of neighborhood branch locations. This will reduce operating costs while giving us access to more workers with a faster and more consistent fill rate for our customers. Our technology not only advertises job openings, it allows workers to respond when they are ready to work. On a recent occasion, we received an order for 42 workers at 4:00 p.m. in the afternoon for the next morning. We literally had all 42 positions filled and communicated within 5 minutes. We have also built in the ability to pay these workers shortly after their work shift ends by using a pay card. These combined process improvements have substantially reduced our dependency on our high branch count. I strongly believe by sticking to our sales and service strategy of being specialized for our customer, along with our focus of driving our internal productivity, we will continue to provide outstanding returns for our shareholders. We remain optimistic about the staffing industry. There are strong economic drivers, along with continued government regulation that make our industry an attractive solution for businesses that are growing and need help with their blue-collar workforce solutions. We have more room to grow, and we will continue to pursue both organic growth and further acquisitions. We will now open up the call for you for any questions that you may have.

[Operator Instructions] Your first question comes from the line of Jeff Silber from BMO Capital Markets.

If I remember correctly, last quarter, you had adjusted your adjusted EBITDA guidance for the year upwards. I was wondering if you could revisit that. Are we expecting any change or are you still comfortable with what you gave us last quarter?

Yes, Jeff, we haven't reiterated that annual guidance. We felt we need to do that in the beginning of the year, so you could clearly see through the first 2 quarters. But with the strong quarter, second quarter behind us now and our third quarter guidance, we believe that it's easier for the Street to build estimates off the third quarter now, and we haven't reiterated that annual guidance.

All right. That's fair enough. I appreciate that. Just going back to the results in the quarter that just ended, I know it's difficult to break out acquisitions, but you seem to be able to do so from a gross margin and SG&A perspective. Can we get a rough estimate what organic growth was in revenues? I think last quarter, you said it was roughly 5% to 6%. I'm just wondering if that accelerated during the second quarter?

Well, I think it's pretty close the same. It might be more on the 7% to 8% range.

Okay. That's actually very helpful, Derrek. I appreciate it. And then just my final question, you had mentioned in your prepared remarks, Steve, about some of the low-performing accounts that you're going through and making price adjustments or you're ending the relationships. Is that exercise done or is that something that we should expect to continue going forward?

Yes, that's an ongoing process, and especially when we bring on approximately $200 million of new revenue from MDT. There was an immediate culling of where are we on those accounts to where we want to go. We did make the decision. We weren't going to pass through price -- a general price increase to all those customers. However, we did get to work on looking at some of the lower-end accounts and making a decision, do we want to serve them, and setting a timeline with those customers of how long we would serve them under those conditions and under those terms of service. So some of it was right there, the acquired accounts. However, in our ongoing business, you're always under those opportunities to improve, and we stay focused on that. We want to ensure that as we bring the specialization to the marketplace, that we continue to be rewarded on our margins for that.

Your next question comes from the line of John Healy from Northcoast Research.

I wanted to ask Steve about the gross margins a bit more. The performance you had was very impressive. And when I think about the specialization and where you guys are taking the business, I was interested in your thoughts by vertical or brand. Where you think the most opportunity lies for optimizing what you're bringing to the customer in improving those gross margins? And with that as well, the guidance you gave on the gross margins, if I tried to assume that the -- there's no more positive benefit from the Boeing roll-off on the gross margin, I was kind of struggling to get to what would cause you to be kind of below at least the midpoint of that gross margin range, given the performance you had on the second quarter, assuming that performance continues in the back half of the year.

Well, the first half of that question, John, is that the verticals that are important to us, the -- where we see an opportunity to hold ourselves out. Obviously, we, over the last 2 years, we've been investing heavily in drivers. We've been investing heavily in those skilled trades that can serve the energy business, which has continued to be very strong for us, by the way. It's not really the huge driver of growth, but it's a huge, consistent stabilized workforce that we have out on those energy projects. We see the opportunity to stay focused and take advantage of the construction markets of which we've historically been a leader in. And as those markets return, we want to be right on top of that. Historically, that brought the largest gross margins available. And so being rewarded for that specialization is really important. Where some of the other diversification has come, as we look at the services business and where hospitality is, in banquets and serving food service and serving hotels and serving those in that service business, has been a growing engine. And we believe that there's an opportunity to bring a qualified compliant workforce to that industry. And so we're heavily focused there. There are others, but we're staying focused in these jobs that companies have a hard time filling. And if they have a hard time filling them, then that's a specialization we want to be in, because we know that we can recruit, we can find, we can rally, we can scream, do some training, baseline training in this and bring a workforce to the client that they value versus just chasing generalized staffing. So that's our main focus. The second half of that question, I'm going to have Derrek take that and answer a bit more for you, John.

Yes, John, I'd answer the question from a couple of perspectives on gross margin. One is, I think there's quite a bit of color on the different things driving our gross margin and our results this quarter. I think that can give some additional color to the third quarter and the trend that I've talked about. But I mean, simply put, MDT, like we have talked about, is impacting our margins by about 100 basis points on a blended average basis. So if you -- based on the midpoint of the gross margin range I gave today, call it 27%, I think that's about the midpoint. Throw 100 basis points of MDT impact on that, pro forma gross margin would be in our guidance, say, 28%, that's going to -- would be a lead to expansion of, say, 30, 40 basis points compared to Q3 last year. That was the commentary in my script.

Okay. And then I just wanted to ask, I don't know if I missed it, but did you guys give some color on just how the construction business performed in the quarter? And maybe any commentary you have in terms of confidence that -- how fast and how strong that business is coming back online for you.

Yes. I think we've seen it in a stable state, John, the construction business. Building permits, housing starts all kind of took off at the end of last year and into the first part of this year. And we've seen some stabilization in that the last 3 to 4 months. I think our own business shows that also. There are some trading as remodel growing or new starts growing and stuff like that. But in a material state, looking forward, we're bullish about it still. I think that there's various drivers that caused this thing to show head fakes here and there, but it didn't fall off. It's moving forward. It's just not our strongest grower right now, but I think long term, it is.

Okay. And then I just wanted to ask just on the acquisition side. It sounds like you made another deal in the quarter. I mean, how -- do you have a goal or what you aspire to do maybe in terms of acquisitions over the next 12 to 18 months? Is there any goal in terms of amount of revenue you want to add or how many deals you want to close? Is there anything you could talk to there?

A lot of that has to do with -- sometimes, a small deal takes as much time as a large deal. So it's not always revenue-based. Strategic fit is first. What's available, we're always open, and we're in the market. We've got a significant number of contacts that we screen. We probably screen 20 deals this past quarter. There's a good flow of activity. And so we're looking for strategic fit first. And the way we would look at that is very -- is specialization is most important. How are they serving their customers, and how does that fit in where we are? Because we want to make sure it fits into the blue-collar family of work and fits into the TrueBlue company. So that's first and foremost. Geographical expansion of a current service would be second. To say, okay, we don't offer all of our services in every market, however, there's a great company over here that does what we do. And we have interest in that, but there's always so much of that we can chase. We'd rather do deals like MDT, not those aren't available. We're right on top of each other, we could synergize the business quickly and we're going to show great returns over the next 4 quarters or beyond because of that. It creates a little bit of mess in the first couple of quarters you're doing it because of the high cost of integration, but those deals would be great if we could find a like company. But that's not really what we're chasing. I think it still comes back to, first and foremost, specialization matters most and then a geographic expansion. The challenge with geographic expansion is they're expensive ongoing because you don't -- we can't synergize them. However, we want to be in across all the markets in the United States so we can serve our customers better. So that's part of our strategy, but we have to govern that one so we don't overload the organization with new costs as we're growing. So I think it's a balance, John. I can't give you an exact formula. We have to balance it with our own internal resources of how many we can sort through, how we can integrate it quickly, like Derrek talked about, that great strength that we have built internally, but we only have so much of that resource, those people, that opportunity available. So we're pretty picky on it right now, to tell you the truth, given the number of opportunities that are there. We're taking just a couple at a time, and whittling away.

Your next question comes from the line of Randy Reece from Avondale Partners.

I was wondering if we could talk a little more about how you make the decision to go for price with a particular deal. Do you have a short-term goal of trying to take out a business that is low -- had a very low contribution margin after your costs? Or do you have some sort of broader goal of trying to just to defend your pricing in your market?

So I assume you're talking about our gross margin increase and the way we culled out some accounts?

Yes.

Yes. So, well, I haven't pictured those...

Obviously, it's going to be pretty hard to walk away from earning, even if it's at a particularly low margin.

No, that's not hard. Our resources are valuable. The recruiting that we do is valuable, the screening that we do is valuable, the difference we can make to a business is valuable. And so to call it a commodity, and say it's equally valuable to everybody lowers that value, and we don't look at it that way. We want to do specialized things for customers that value what we do. And so, as I mentioned in my earlier comments, the -- some of that culling was down on accounts that we purchased. And so that helped. Then we set an expectation at the beginning of the quarter, what the blended gross margins would look like. And so some of that was culling on some of those accounts that we bought. And we know that we only have so much resource in each community to both do the recruiting and placement of workers. And so it's not as hard as you would think. When you're in a community, when you're in a marketplace, and the economic situation is pretty good and their people are looking for workers, there's pretty good demand out there. You have to stay true to what you're good at and make a good valuable decision that fits you and your customer. Obviously, you can't just raise prices for everybody and you can't push that economic value across the board. But on low-end accounts, it's not as hard to cull, as you might imagine.

Speaking of MDT, what more do you know now about MDT's business since you've had it in the fold?

I don't think there's been much surprise. I think we knew what we were getting into. And as Derrek talked about, the integration plan went well and very quickly, we pulled these teams together. I don't think there's been a lot of surprises. That one was actually easier for us to anticipate because we ran that exact business model, and we've been competitors for years in the same marketplaces. So not a lot of surprises on that. It's just good, hard work. I mean, every manager in our business pulled this together and made these relationships work. Because an acquisition can create a sense of loss for employees, loss of who they were and what they thought they were working on. And bringing them into the TrueBlue family, it took a lot -- it takes a lot of talent by a lot of people, making those employees feel welcome. And so we can then, in turn, help customers, and the workforce feel good here. So I think we're on track. It's been a great, great acquisition, and there is always things to learn. So I hate to answer it that way, but I think our eyes were pretty wide open on this one as we stepped into it.

What does your branch account look like now between Labor Ready and MDT?

I didn't hear the last part of your question, Randy, but I'll give you the total branch count for the -- in the second quarter. It's 737 branches.

That includes the acquired branches?

Yes.

All right. Finally, I wanted to talk a little bit about how -- what kind of strategy you have to bring along workers and clients at the same time as you're trying to build this business that you can serve by mobile? And the idea of getting unshackled from a small perimeter of their local office is really exciting, but it seems like you have to have maybe a different kind of customer to appeal to a different kind of worker.

That's a very interesting question. We haven't seen much change on the client base so far. These are pretty good jobs that we're placing folks with. They're pretty clean, they're pretty in and out, and there's a pretty talented workforce. Will that change over time? I'm not sure. But we haven't seen a lot of change over on the client because of the mobilization of the workforce. On the workforce side, I made the comment in my prepared remarks that we have pretty much nailed the front end of the equation where we're communicating with the workforce. We're asking them if they want the position. The computer system is helping us screen who might be most qualified, who might live closest to the opportunity, how long have they worked with us, and that's bringing forth the suggestions for the best match. We're sending a leverage number, maybe 5 per opening, 5 text messages go to people per opening, finding a really good response rate. And then, one of our customer service reps has to screen that to say, "Okay, did we get to the best match and approve it?" And that's about where the -- that's the front end, and they don't need to come to the branch. So we're pretty happy about that side of the equation. The back half, having them paid on a pay card within 20 minutes of the work ending, and finding an opportunity to pay them on a pay card, that there's no cost out of their pocket and honoring that. That relationship has been amazing. So where we are in this is right the question you've asked is, well, without branch locations, of which, we haven't done a massive closing yet, we're still exploring. Well, how do you find workers outside of that network? And we know that we know how to handle the transaction, but how do we do the recruiting, and how do we do that initial contact? And so, I think that's what you're going to hear more from us over the next few quarters, is exploring those new methods of engaging the workforce, recruiting the workforce, and screening and qualifying that workforce without the branch location. And so, you're right, your question is just spot on to where we are in our exploration and our journey.

When I first started to get to know you guys, I mean, Chairman [ph] Joe back in the '90s, I spent some time at 5:00 in the morning waiting for work at some of your offices just to get a feel for what that's like. And there has to be a much larger universe of people who you can address, if you don't -- if they don't have to do that. It's not the easiest thing to do in the world, I'd tell you that.

Yes, I think you're right. And there's 2 demographics, especially, that we're looking for and it has to do with age demographics. The younger workforce and then the older workforce, that both have not -- the younger workforce, I don't want to go through that process in your branch. And the older workforce just -- maybe they've retired, maybe they're in a different spot, maybe they want to work 2 or 3 shifts a week, maybe they'll work in a banquet or some other service opportunity. It's not all ditch-digging and it's not all hard manual labor, but there's a lot of work to be done. And so working with those 2 groups of populations on our mind and how to find them and bring them into the fold is important for us, and because what you've called out, it's spot on. We have to meet them where they are, and that's our goal.

Your next question comes from Kevin McVeigh from Macquarie.

This is actually Derek Sbrogna in for Kevin. Just going back real quickly to the acquisition. You talked a lot about looking for specialization, a specialization that kind of fits what you're looking for. Can you maybe talk about any specific specializations where you're seeing opportunities? Or is it really across the board?

Well, no, it's not across the board. We have to be pretty spot on to what we're looking for. Obviously, we did a small deal this past quarter in drivers. There's a big need for drivers. We are expanding our own internal business as fast as we can, opening up new markets. However, that small deal, although small, brought 200 drivers onto our records that we can now interact with. We've retained those customers, but more importantly, we've retained those drivers. And getting drivers onto our records is really important, finding those drivers, bringing them on. And that's a specialty that the businesses are having a hard time filling. And that's -- it's probably the best example I could give you. The ones that we've talked about in the past of electricians, pipe fitters, these folks that are working out on energy sites putting up solar panels, working with that workforce is a specialty that is important to us. And you might be saying, "Well, you do those already." And the point is, that's right, because we pick those that have the best payoff where we could spend our resources. There was a question a little earlier, "Well, what about what new? What new?" And that might be what you're asking, Derek, is what's new, what else, what might we be looking for. And so, we have to look for those areas that are growing. And as I mentioned earlier, the services business is one that's growing, whether it be working in kitchens or working in banquets or working in hotels or working in the service business in venues. I believe that business needs our services. And there are some people that have specialized in it. So we are -- we first, we try to grow organically in those businesses and do a pretty good job to prove out that there is demand and that we can hold up our margins and hold up our specialty. And so, that's kind of how we go about it. But I would say the services industry is one that we want to be in. And one reason is, just as I'd answered the last question, that industry appeals to the younger worker and the older worker. And there are larger populations that we are not putting to work on those 2 demographics, and the services business is an area we can put both those groups to work in.

Got it. And that actually serves as a good segue to my next question. I think in the last couple of quarters, you talked about alternative energy and kind of some of the progress you're seeing there. I was wondering if you could see -- just kind of talk about if you're still seeing good growth there. And also, I think maybe historically, you've kind of given us the organic growth rate for that segment. If you have that, that would be very helpful as well.

Yes. As I mentioned a little bit ago, probably a quarter ago or so, we hit the year-over-year point where that annualized to a pretty significant number for our business that we were serving that alternative energy. It has grown from there, but it's just at normal growth rates at this point in time. So we feel really good where we are serving that. And what we have proven is that when one project ends, that customer is taking us to the next project. So we feel, confidence-wise, a lot better this year than we did a year ago because we hadn't proven out that, "Okay, we served you on these 3 projects, will you take us to your next 3 or your next 5?" And so we have proven that model out, that we are moving with that customer across new projects. On a year-over-year growth, I think it's really close to our organic number that Derrek shared just a little bit ago. It's within material range of that, so.

Your next question comes from the line of Sara Gubins from Bank of America.

I'm sorry if I missed any of these comments, but you mentioned that construction didn't fall off, but it wasn't the strongest grower in the quarter. Can you talk about what the fastest-growing segment was? And any additional comments about trends by type of work?

Yes, Sara, I'll add to Steve's comments here. Giving that exact growth rate is something that's really challenging for us because of the MDT acquisition, but I can give some directional color. And so, construction is still our best, I would say, overall performing segment. Steve's comments were just to the -- the context around that is the same kind of demand levels we were seeing in Q1. So still strong, but not any real change in the trends. I would say if I were to call off something on the other side. I would say manufacturing has still been a little soft, a little spotty. And the other industries that we serve, I would say, all fall kind of in the middle range of pretty steady growth.

Okay, great. And then in looking at the slides, it looks like revenue growth decelerated very slightly during the quarter, when you look at it, excluding Boeing. Is there anything that's worth highlighting here?

I don't think so. I mean, April grew at 20%; June was in at 18%, where we're guiding to 20% revenue growth. I wouldn't read too much into it.

Okay. And in looking at some of the growth there that you gave, it looks like Boeing was about $8 million in the second quarter, is that right? And should we expect it to continue to come down in the third and fourth quarter?

Yes, it's about right, Sara. I'd say, yes, it's probably Q3's looked at maybe $5 million or $6 million of revenue from Boeing.

Great. And then last question. Has the delay in health care reform, I mean, the employer mandate slowed the pace of client conversation? There's been discussions about that potentially being a driver for small businesses that want to stay below the 50-employee mark. And I'm wondering if that has changed the nature of your conversations at all in the last couple of weeks?

Yes. Thank you, Sara. No, that really hasn't driven a change in our current trend. For one, we weren't playing the game of helping somebody that had 55 employees get down to 49. That was something that we were not -- we are not going to do. We're going to honor what the intent of this law is about. We will help clients learn how to comply with it. And temporary work, contingent work is a good method to use to comply with the law. Those conversations have continued. Our sales force is still curious. They're asking us questions, and we're teaching them on what to talk to clients about. This law, the reprieve hasn't really pulled off. It's only the penalties that are going to be applied. They've asked us to move forward and offer benefits. And so, we're moving forward and our continued search and understanding of the law of how we can implement that. We think it's important that we live up to this law. We honor it. We help our clients understand it and where it goes. I believe it will be a significant driver in the back half of 2013. Companies are still looking for ways that they know they need to comply with this law. Although the penalty doesn't apply, the law still does. And so the search goes on of how to get ready to implement this law that will most likely go forward with some more guidance coming out this fall. The nice part is we've got a great head start on this. We have a great understanding of how to comply as a staffing company, how we're going to track the data, report the data, be on top of it. We had finished that work. We feel very comfortable as a company where we stand. And that gives us the confidence to step forward and help companies, our clients, understand how they can comply and do it in an honorable way. And so, maybe those other questions you know about, how do I get down below 50, maybe those are happening somewhere. But most of our questions are just, in general, how would a balanced workforce of contingent labor work with my full-time labor? And what are my opportunities, what are some strategies I can apply, and how can I ensure that I'm living up to both the letter and spirit of what was asked for here in this law. So I think there's more to come, but we're still positive about the impact it will have here in the back of '13, especially as we work through '14.

[Operator Instructions] And your next question comes from the line of Mark Marcon from Robert W. Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: I was wondering if you could split out a little bit the percentages of revenue that you're getting from the various lines at this point, just so we get a better feel for -- with the acquisitions, how much is Centerline, how much is Spartan, et cetera?

As far as mix of business, Mark? Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Right.

Let me see here what we got. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: If you don't have that, we could just follow up offline just to...

No, I'll give it to you. I'll give it to you on a couple, I guess, a couple of ways here. It's probably a little misleading to just give on a quarterly basis. So let me give it to you, the TTM, although it wouldn't be dramatically different. Labor Ready is a little over 60%, CLP is about 15%, Spartan, about 10%, Centerline about 5%, PlaneTechs about 5%. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. What are you seeing on the Spartan side, just out of curiosity?

Spartan's had, I would say, a nice steady growth. Overall, manufacturing has been a little spotty, but Spartan has been growing mid-single-digit, pretty consistent with the rest of our business. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then can you talk a little bit about, on the Labor Ready side, with the MDT business that you culled, what percentage of the MDT business would you say did get culled, just from a pricing perspective?

Yes, it's really small. And the most important thing to understand is their business looks like a lot like ours, where approximately 50% of the customer base turns over every year anyway because you're serving projects. And so it's not just that we -- it's not that we retain 90% of that business when we buy something, it's the sales force, their connection to the marketplace and their contacts and leads and pipeline that they have. So 2 things, one is there was some cooling, not highly material, a few really large accounts, but not high in numbers. And then second is you have that turnover and the customer gives us a chance to reprice that business overall, the portfolio overall, without giving your general customer a raise. So it just takes a little focus on both of those 2 things, and you can make some improvement. And so the MDT sales team that's come on, they get it. Well, they're paid by producing more gross profit. So they get it and they hear this. They like the strategy and they like where we stand on that. So it's just hitting a lot of singles. There's no big home runs in there. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then what percentage of the Labor Ready openings are you now filling via the mobile technology? I guess what I'm just trying to figure out what inning are we in, in terms of the rollout?

Yes, we're first inning. We completed the rollout during June, although we had early testing that most of our stories have come from, and those that were part of what we call alpha, that very first group, 33 branches, they quickly went to a point where their sales growth compared to the test group was 3 and 4x. So Derrek quoted some numbers. If let's just say, for example, organic growth was 5% in a general area, we saw some of these test branches in the month of May grow by 20%. By grabbing 2 or 3 afternoon orders and fill in a couple of weekend things, or grabbing things quicker so they can move on and get back to selling. So the bulk of our branches, the other 600, especially in our on-demand division is where the bulk of this is going to come from, really just got turned on in June, the 4 weeks of June, wave after wave after wave. So here early in July, we're seeing use of it, we're hearing great stories. We don't have stats, but we feel very comfortable that this is going to be a good driver for us. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: It sure sounds like it. And how long did it take those test branches to kind of get up to speed and ramp?

Well, it's a bit unfair. You pick your best teams, best branches to test something like this for you, where you see a lot of good talent in those 33 branches and leadership and a lot of focus. And they participated in the development of it. And so the ramp in those branches was really fast. It won't follow in the rest of our branches because those teams weren't here developing and they're not -- they look more like the averages rather than we brought our superstars in the first at bat. So it's going to work well though because the adoption rate ends up being really high. It's just hard for us to benchmark off that first group of 33. I get too excited when they do it, Mark. Those are good branches, good people. And the rest of the organization, we're going to get good results out of it.

Your next question comes from the line of Paul Ginocchio from Deutsche Bank.

Sorry, maybe I missed this earlier, it wasn't clear. But you're not backing away from the $85 million of guidance. You're just -- I just didn't quite understand what you're saying about you no longer reiterating, that's because you think you're going to beat it? Or could you just be clear on that just so there's no confusion, particularly for me? And then you still -- you talked about the restructuring cost now being behind us, but do you still expect the $2 million of charges for the mobile centralization strategy, I think, in the third quarter? And do you still -- is there any change to your $10 million or $5 million EBITDA quarter from that strategy?

Yes. Thank you, Paul. I know you're referring back to our earlier comments and filings that we did back in February. And -- no, we just chose not to reiterate annual guidance. It's not something that we've done. We chose to do it at the beginning of the year just so we could work through the confusion of a couple large strategies. It's really hard to track what creates 20% sales growth. It's easier when a big chunk of it is an acquisition. We know the impact to that. However, if organic growth is 6 or 7 or 8, whatever the number is, it's really hard to say or how much of it was mobilization and how much of it was the sales training, and how much of it was focused on this, that or the other thing. And so in the beginning of the year, it was easier for us to say, "Hey, we have these strategies, and we'll put a number on it for you." As the year goes and comes together, we can't break out the acquisitions anymore. I know that we took a shot at here earlier when Jeff asked a question, but really, these numbers are coming out of combined P&L and out of combined people. And same with the mobilization, is that 20% growth in a given market because of the mobilization and you could quickly find it? Or is it because of the combined team? Or is it because they just went -- came out of sales training, or is it because a client just moved to town? And those things get really hard to separate as all I can do is celebrate and say, "Yes, it's growing, and there's many things that we're doing." So when we get to this part of the year, we can tell you where we are through 2 quarters, what's happened, where we stand, and how much of it is behind us. That's one of the reasons we haven't reiterated annual guidance, not in any reason because does the future not reflect what we said earlier. It's just -- we just don't want to get -- to be in the annual guidance business. We'll talk about where the business is. And we believe that Q3 guidance was clear enough that you can build a go forward estimate off of. If Q3 guidance wasn't clear enough, that there was still integration going on, or that something like that was in there, then we might have had extended those trends for you or help you see an annualized basis. So that's the reason we pulled back on that annualized number. Where we'll be? You asked a question about the branch closings and the mobilization. And when we started the year, we put a number on that and said we'll hit a given number, it will be part of this $85 million of EBITDA. Some of it is going to come through growth, some of it is going to come through closings. And as we get to this point in the strategy, well, where we can see the environment today, we have to make decisions and say, the number one thing is we continue to grow. The headcount we have in play, the branch count we have in play, and as I commented a little bit earlier, we haven't come up with a method of rounding up that workforce without those branch locations yet. We've reduced our dependency in the morning and the evening, though we haven't reduced our dependency overall of finding people. And so for right now, with the growth rates we have and to sustain where we are, we've made a choice, so let's don't get out there and rush a closing strategy to try to save a couple of million dollars in SG&A and then trip on ourselves on the wonderful growth that we're experiencing in the margin improvement. So will that come later? I still believe that there will be less branches in the future. I'm not putting a number on it right now. And so everything just kind of comes together, Paul. I think we've put a good third quarter number out there for you to build an estimate off of, and I think you can build an annualized number to figure out where that is.

Okay. So there's no -- there's nothing -- I don't think you called it out. So there's no charges that are inherent in the third quarter number?

Right. There's no estimate for an integration cost or a branch closing cost in that third quarter estimate.

And then second, it sounds like today, you feel better than you did in February.

I mean, I just have to go off the numbers. These are pretty good growth numbers that we're in the middle of the summer and we're hitting. So I don't know about [indiscernible] then versus now, but we just -- we have a good estimate on the table for Q3.

Let me just add one piece of color here. I don't want the -- there to be any lack of clarity on what the annual EBITDA number, with us not giving that, is that a sign for something, because it's not. I mean, when we started this year, we gave an $85 million EBITDA number, and the context behind that was there were so many undercurrents going on in our business. We felt like by not giving it and giving some clarity on that, it was -- that there would be too much confusion on what was going on in our core business. So remember when we started the year, the first half of the year, a lot of headwind with Boeing revenue. And the impact to our profitability in that undercurrent going on, we just done the MDT acquisition. And so there was an after-meeting, everyone took the impact of that and the integration cost of that. And now, as we come to the second half, most of Boeing headwind is behind us, we've had a couple of quarters of trends here with the MDT acquisition in place. And by the way, if we took our year-to-date, while we're not giving the annual guidance, I would say this, that if we had laid it out by quarter with our results for these 2 quarters and what we have in our forecast for Q3, we would be right on track. And so there's just -- the only reason we pulled it back is there's just not really any need for it. So -- but overall, we're still right on track with what we'd originally expected at the beginning of the year.

[Operator Instructions] And your next question comes from the line of Jeff Silber from BMO Capital Markets.

Sorry, just one more quick one. Derrek, since you gave us the trailing 12-month revenues by your different brands, I was wondering if you could do the same thing by your different end markets?

No, I can't -- I really don't have that with me. And it's a little -- it gets a little bit more misleading by those end markets with what's going on with the MDT acquisition. I just don't have it normalized on a 12-month basis.

And your next question comes from the line of Mark Marcon from Robert W. Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Just a follow-up to Paul's question. Is there any part of the business that is not -- and I'm talking about verticals, any part of the business that's not going as well, or that as seemed to take a step back? It sounds like everything is going on plan, and that most of the categories that you're in are seeing good growth, I mean, other than, obviously, Boeing.

Yes, I think you've called that out. I think our aviation business has been our largest concern and is mostly driven by one account. And we've been pretty open on -- and on a material basis, nothing else is falling out of the floor and nothing else is actually jumping out of the sky. We have a really good business going across the organization, across geographies, across service lines. There's always superstars out there that are doing something unique, and we love them. But on the average is, there's just no one economic driver or industry driver that's causing us more pain than the other or more opportunity than the other besides what we've already talked about here. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: There are some other companies that have already reported that seems to be a little bit more optimistic about things getting better. Just from a macro demand perspective, are you sensing that or how would you characterize things?

Well, I don't think we said it was bad when they said it was bad. So maybe they're seeing what we've been seeing. So I think it's pretty consistent from where we started the year and how things are going, and the economic drivers have been apparent, and the regulation drivers have been apparent. And I think those are still there. And I'm glad to see others are seeing it. It's nice when all boats are rising in the tide. So I mean, a good economic climate is good for all of us.

Ladies and gentlemen, this will conclude the question-and-answer portion of today's conference. I would now like to turn the call over to Steve Cooper for closing remarks.

Yes, thank you. And thank you for your questions and your interest in joining us today on the call. We appreciate your support and look forward to updating you here as the quarter proceeds. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.