TrueBlue, Inc. (TBI) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2013 TrueBlue Earnings Conference Call. My name is Whitney, 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 Q3 2013 results, which were announced after market closed 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 Q3 earnings results on our website as well under Investors/Presentations. Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note 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, and good afternoon. Today, we reported 2013 third quarter revenue grew 19% to $451 million, which produced $0.48 per share of pro forma net income, which excludes the nonrecurring transaction costs associated with our most recent acquisition work. Where both revenue and net income per share were in our range of previously discussed expectations, revenue for the quarter was at the lower end of our expectations, while the pro forma net income per share was at the higher end. The combination of slightly lower-than-expected revenue and slightly higher-than-expected net income was driven by the ongoing story of gross margin improvement, which continued into Q3. This comes with the discipline of appropriately pricing new business and improving the lowest performing accounts through price increases or ending their relationship, if necessary. This has been an important and successful strategy for us during 2013. We understand the importance of maintaining strong gross margins that reflect the specialization we bring to the marketplace. As we've reported throughout 2013, our results include acquisition of MDT Personnel, which closed at the beginning of February. The integration has continued to go very well. All sales and service operations integration was completed by the end of Q1. And the support center integration was completed in Q2. The combined business is performing very well. And we are encouraged that our approach to integrating the organizations in the manner we did created great synergy. And our combined customers are receiving better service from our combined organization. On September 30, the first day of our fourth quarter, we announced that we completed the acquisition of The Work Connection, TWC, a light industrial staffing provider with 37 branches located predominantly in the Midwest. TWC's operations are currently being merged with those of Spartan Staffing to expand our light industrial service line. TWC is a great fit because they share our commitment to service. And they serve many of the same industries with minimal overlap in our offices. This provides us with additional geographic reach, which we continue to seek. We are excited about the addition of TWC's talented employees, leadership and expertise to our organization. As we've previously stated, we expect long-term growth for blue collar jobs here in North America. And this positions us very well for continued growth through a combination of acquisitions and organic growth from existing service lines. Our strong balance sheet puts us in a position to acquire other quality companies. And we will continue to look for opportunities that will expand our geographic reach and enhance our ability to serve our customers' needs. We're pleased with the organic growth we are experiencing and our teams across all areas of our service, both geographically and by industry. They are executing very well as we've seen these growth rates remain consistent throughout 2013. Seeing revenue growth at these rates and improvement in gross margins is the result of great execution by our teams. As shown in our revenue growth guidance for Q4, we are optimistic with the opportunity to continue the trends we experienced in Q3. Although it is somewhat difficult to see in our EBITDA results here in 2013 so far, it is important to know that we have approximately $7 million of costs in 2013 related to acquiring and integrating MDT and TWC. Excluding these costs, our 2013 adjusted EBITDA margin would be approximately 5.2%. In addition, excluding the loss of the Boeing work here in 2013, our adjusted EBITDA margins would have expanded during the year by 50 basis points. As we move into 2014, we expect to see this expansion in our EBITDA margins to hold. This comes as a great result of the leverage gained from our core business growing strongly, along with the synergy impact of the significant acquisitions here in 2013. Our Q4 estimates that we had given you today show this momentum that we've gained. And we estimate that will carry into 2014. Before I turn the call over to our CFO, Derrek Gafford, for further analysis, I want to make some comments regarding our growth opportunities. 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 the opportunity? And thirdly, 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. We are even more encouraged by the opportunities to grow our revenue organically. We're seeing our strategies for organic growth in 2 areas working very well. First, our sales and service strategy has expanded over these 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 our customers are asking for. 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 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 drive further efficiencies in our business by eliminating our dependency on our high number of branch locations and enabling us to fill more orders through access to more workers using technology and innovative approaches. This is assisting us in centralizing common operations to a higher degree and communicating with our workforce through better use of innovative approaches such as mobile solutions. As we rely on more technology and innovative approaches to engage with our workforce, we are reducing our dependency on our high number of neighborhood branch locations. This will further reduce operating costs as a percentage of revenue, while giving us further access to more workers with a faster and more consistent fill rate for our customers. I strongly believe by sticking with our sales and service strategy of being specialized for our customers, along with our focus on internal productivity, we will continue to provide outstanding returns for our shareholders. As we've stated, we remain optimistic about the staffing industry. There are strong economic drivers out there, along with continued regulation that make our industry an attractive solution for businesses that are growing and need help with the blue collar workforce solutions. I'll now turn the call over to 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. Then we'll drop into a deeper discussion of our business trends, including our expectations for the future. In my commentary today, any reference to our performance is based on our comparison to the same period a year ago, unless stated otherwise. Diluted net income per share came in as expected at $0.47. Excluding nonrecurring transaction costs mostly related to our acquisition of The Work Connection at the beginning of Q4 this year, pro forma diluted net income per share was $0.48. We're pleased with the continued progress in our acquisition strategy. The Work Connection acquisition adds $90 million of go-forward annual revenue to our business. This expands our life industrial business by providing contiguous geographic growth to our Spartan Staffing business line. We expect integration activities to be substantially complete during the fourth quarter this year. Additional information on this acquisition is available at our website or in the original 8-K filing. Now let's take a deeper look at this quarter's results, starting with revenue. Revenue of $451 million was under our midpoint expectation of $455 million due to later-than-expected start dates on a few energy projects. Bill forward demand in our energy business is healthy and consisted with demand we've experienced earlier this year. Total revenue for the quarter grew at 19%, with organic growth in the mid-single digits. Now let's cover gross margin. Gross margin for the quarter of 27.4% was 20 basis points above the high end of our expectation driven by active management of our bill rates. We see our gross margin progress, along with our organic revenue growth as further evidence that our specialized services are valued by our customers. Gross margin for the quarter was 30 basis points less than Q3 last year. The acquisition of MDT in Q1 this year carried a lower gross margin, creating an estimated decrease in the blended company average of 100 basis points. The decrease from MDT was largely offset by the effective management of bill rates mentioned earlier, as well as positive revenue mix from less Boeing revenue, which carries a lower gross margin. Now let's discuss sales, general and administrative expense. SG&A as a percentage of revenue was 20.1% and at the top end of our expectation due to the lower-than-expected revenue and additional acquisition transaction costs mentioned earlier. Compared to Q3 last year, SG&A was up $13 million, which breaks down into the following categories: an estimated $10 million from ongoing branch and field management expense that came with the MDT acquisition and $3 million of costs in the rest of the business. Let's switch gears and look at SG&A from a leverage perspective now. This quarter's SG&A as a percentage of revenue was 40 basis points below Q3 last year. Let me point out 2 items that are negatively impacting our comparisons. One is the drop in Boeing revenue, which is service from the largely fixed cost structure of our PlaneTechs' centralized delivery model. Second is the acquisition transaction costs mentioned earlier. Excluding the impact of these items, pro forma SG&A as a percentage of revenue would have declined by 80 basis points compared to Q3 last year. Depreciation and amortization and our effective income tax rate were both in line with expectations. Now let's turn to our thoughts for Q4 of 2013. We expect revenue of $430 million to $440 million, representing growth of about 26%, which includes a full quarter of revenue for The Work Connection acquisition. Excluding The Work Connection acquisition, we expect revenue growth of about 20%, which is in line with our Q3 growth this year. We expect strong growth in our profitability for Q4 this year. Diluted earnings per share is expected to be $0.30 to $0.35 or about $25 million of EBITDA. This represents EBITDA growth of about 65% or well over 100 basis points of EBITDA margin expansion. Here are a few details included in our profitability expectations for the fourth quarter of this year. Gross margin should be 26.3% to 26.7%. The Work Connection acquisition, which carries a lower gross margin than our consolidated gross margin, creates a decrease in the blended company average of about 60 basis points. SG&A as a percentage of revenue is expected to be 20.2% to 21.2%. Depreciation and amortization should be about $5 million or about $300,000 higher than Q3 this year due to the intangible asset amortization associated with The Work Connection acquisition. And our effective income tax rate for the quarter is expected to be about 35%. While we're not providing guidance for 2014, let me point out 2 items. First, we will anniversary the MDT acquisition in February next year, which will impact some year-over-year trends. And second, the Worker Opportunity Tax Credit has not been renewed for 2014. This program has been renewed repeatedly in the past, but usually on a delayed retroactive basis. In the event it is not renewed prior to reporting our first quarter results in 2014, this benefit will be excluded from our income tax provision. This would raise our normalized 35% income tax rate to approximately 40%. We're excited about our continued organic and acquisition growth. Our team has continued to deliver mid-single-digit organic growth throughout the year while delivering solid gross margin performance. These trends, along with our strong operating leverage, bode well for continued expansion in our EBITDA margin. We've also completed 3 acquisitions this year. Our competencies in evaluating, completing and integrating acquisitions enable us to achieve investment returns far above our cost of capital, resulting in higher returns for our shareholders. All right. That's it for prepared remarks. Operator, you can open the call for questions.

[Operator Instructions] Your first question comes from the line of John Healy with Northcoast Research.

Steve and Derrek, I was wondering if we could talk a little bit more about the recent acquisition that you made? I was trying to understand maybe a little bit maybe how this property came into the portfolio, as well as how you see this fitting in from a -- I guess, from a strategy standpoint, as well as from a personnel standpoint? I mean, you're looking to retain most of the talent. I know you keep a lot of the branches. But just trying to see kind of what made you so excited about this asset?

Yes. Thanks, John. The Work Connection, their headquarters is in Minneapolis-Saint Paul area. And the -- about half of their business is in the State of Minnesota. And then the other half is spread out to states close to that. The footprint happened to be in areas where we have not expanded our Spartan business. And our Spartan business is the service line that really serves customers on a longer-term need basis, inside jobs, warehouse jobs, manufacturing jobs and -- whereas our more traditional Labor Ready business serves outside jobs for the most part, not 100%, but shorter-term, harder-to-fill. And so that's the contrast in the 2. And as we've expanded out our Spartan business, we've been somewhat cautious to open offices. We've been retooling some of our more traditional Labor Ready offices to do some of that work. And this was such a great fit because it was just a good comp to the Spartan business. And it fits well with the Labor Ready business where there is overlap. We made the choice, blend this with Spartan, which results in not closing offices, not laying off employees, and we believe the best path forward to serve the customers and the workers the best. So the opportunities ahead appear to be very strong. We're only 3 weeks into this and sales growth is gaining momentum through the acquisition, which is one of the things that we like to see early on. It looks a lot different than the MDT acquisition we did earlier in the year, where that one was a direct fit with our Labor Ready service line where we're located in most all markets. And there was a lot of dual resources at that time. We kept those employees. And we've consolidated offices. And so there's a lot more closing costs and a lot more integration costs associated with the MDT transaction, $6 million on bringing in $200 million of revenue versus this time around, about $1 million of integration cost on, just under $100 million of new revenues. So a little bit of a compare and contrast for you, John, on the differences in those 2 acquisitions. It came to us through just a network that we have built of family-owned businesses, private equity-owned businesses and various brokers that are out there. And that's how most of these deals come to us, is through the network of relationships we've built and their understanding of our desire to pull these together. So this one happened to be a family-owned business. And it was at a stage of growth where we brought on the younger family member. And the older family member was able to retire. And the younger family member is going to be a great leader for us and is charging forward. So this was just a win, win, win all the way around.

Great. No, that sounds definitely like that's the case. I wanted to ask you, you mentioned you were pleased with the organic growth that you're seeing in the business. And I know it's hard probably to give us a precise organic growth figure, with the -- how you've integrated the MDT acquisition. But I was wondering if you could just talk about, if you look at that business and you look at your own business, put bill rates aside, but how -- what sort of growth have you seen year-over-year in overall placements in terms of temps on assignment? I was wondering if you could give us a little bit of color there?

I'll take that one, John. I'll just speak to it in revenue. I mean, if we're going to speak in placements, it's going to be pretty close to revenue growth with exception of some bill rate inflation in there. And if you take our revenue growth this quarter of 19%, about 15 points of that is acquisition-related growth. The other 4 points is organic, approximately. Now keep in mind here that we've got some headwind. We're still working through with Boeing largely around most of that down. But if you take that out and say, "How's the rest of the core business going, the business you have coming into the year," that's been running 5 to 7 points of growth approximately, and now maybe a little bit to the higher end of that range right now. To the degree we're off between the categories, there could -- we could be off a couple of points here, but it's been performing really well. And I'd say most of that performance is, when you take a look at it, it's quite widespread. It's not one particular industry, not one concentration in -- geographically, even areas where we have no overlap with any acquisition presence. The growth there, which is very clean, is growing quite nice. And so I think this really comes back to the organic growth really being a solid 5% to 7% growth story excluding Boeing through most of the year, and it being quite widespread across geographies and industries that we serve.

No, good to hear. And then just a final question for me is I was wondering, Derrek, if you could give us a split in terms of where you guys are at right now in your construction business between residential and nonresidential activity? And maybe how did that kind of compare to maybe where you were 4, 5 years ago?

Sure. So this is on the TPM basis. It doesn't have all of MDT in here, but it's fairly close. We're around the high teens. And from a nonresidential perspective as far as our mix of business, I'll call it 17% to 19% of our business is in where we've considered nonresidential. And 5 to 6 points of our business on a TPM basis mix is in -- is residential. So that puts you in the low 20s, call it almost 25% mix of business in construction. If we were to go back, I don't know if we really want to go back 4 or 5 years ago. Yes, I mean that might -- If we did, it would be in the teens. If we went back prior to the recession, and I'm speaking on an overall construction basis instead of being in the high teens, it would have been probably in the 35%, maybe pushing 40% right after we've acquired CLP.

40% probably combined?

Of our overall revenue came from construction.

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

Just, Steve, did I hear you right? You said you expect that 50 basis points of underlying EBITDA margin improvement to go through 2014. Is that correct?

Yes. Thank you, Paul. The -- looking at our 2013 year-to-date numbers, it looks like we've gone backwards in our EBITDA percentage. And so the first adjustment that we've called out is the acquisition costs, the integration costs of these 2 large acquisitions we did, the largest cost being MDT in the first quarter and second quarter. And now here in the fourth quarter, you'll see $1 million of costs related to The Work Connection. So that $7 million gets us even, back even compared to 2012, 5.2 to 5.2. And if you make the adjustment for what did Boeing do, because we know that, that was served as somewhat of an on-site. Now we're under a lot of costs that went away when that work went away. That's 50 basis points. And so this year would have turned out to be 5.7 or so of -- and then fully adjusted, including the acquisitions and including the Boeing impact. So as we move into 2014, our commitment here is you have to hold that. And let's go from there. And you know we have a longer-term commitment to improve it beyond that. But at least it puts a stake in the ground to say this is the movement we made in '13 in our real business. And we believe that we can leverage up from here now.

Great. If I could just ask some small ones. Just on The Work Connection, Derrek, was there any customer concentration to speak of?

No, there really isn't, Paul. It's a pretty distributed pattern of customers, a nice mix, very much like our Spartan business as far as mix of customer and concentration, which doesn't have any sizable callouts.

Great. And the 17% to 19% exposure to non-res, does that include your sort of green energy business construction?

No, that excludes it, Paul. So I was just trying to keep that apples-to-apples with where we were in the past. If we were to throw in industrial/energy, that's another 7, 8 points of our overall revenue mix in that area.

Great. And you said some of that was delayed. When were those projects supposed to start? And I think earlier this year, there was talk about a big solo project starting in the Southwest. There may be some potential to land some Alberta oil sands project. Just where -- are those the projects that we're talking about?

Now these were different projects. Most of this occurred in July, these -- to slip in the dates. And you can see that in kind of our -- some of our month-over-month trends if you take a look at our quarter. With these types of projects, this happens quite often. You got permits. You got financing. There's a lot of different factors. Here, we had a small handful of projects that all have to go one way. They're usually kind of split. And some will go a little faster. And some will be a little slower. I think the important callout here, though, is that it's not indicative of any slowdown that we're seeing here. That business net pipeline state is nice and healthy. And that's reflected in our guidance for the fourth quarter.

And it looks like, I know it's difficult to do, but it looks like, at least based on my calculation is there is sort of no underlying acceleration, the organic growth rate in the fourth quarter based on factoring in The Work Connection and MDT. Is that sort of how you're guiding? Is that the right way? Am I thinking about it the right way? Or do you think there's some underlying organic acceleration?

Well, there's maybe about a point here. It's -- I'm kind of skating out on ice, trying to slice it that thin. But we guided or we brought revenue in at 19% this quarter, first quarter. And if you strip out of our guidance, The Work Connection, our revenue growth guidance for the fourth quarter with the same composition of business that we had in the third quarter is 20%. So it's actually ticking up about a point.

Okay, that's helpful. And then just, can you talk about that -- what were the revs from Boeing in the third quarter? And Steve, you spoke quite strongly about possibly about mobile last quarter. I think that's based on the pilot rollout. Is all of that, what you said last quarter, still hold true? And you still that -- it sounds like you're still that positive on mobile. Just want to check with you.

Revenue for Boeing for the third quarter of this year was about $6 million. And I'll let Steve take the...

Yes. The mobile solutions app is completely out. Our -- it's in the hands of our workers in our branches. And they're fully communicating job opportunities. They're dispatching through it. And the nice part is the leverage that creates one of our recruiters can sit down and communicate with hundreds of workers through this application. So yes, it's pretty powerful. The stories are rocking and rolling about the number, not only the number of quick placements that we can get, but the reach is what is amazing, Paul, how far one office can reach to place workers. So we're busily working on, well, how do we recruit out there without offices, then? We know that we can service, we can dispatch, we can pay, we can communicate with. And we're being cautious. We don't want to take resources like a branch location out before we know for sure that we can serve customers and workers. But that's what we're researching out, and that's what we're working on, is how can we have a farther reach for the current customers we serve and possibly not do it from as many branches? That's one slight angle. The other is, as we're talking about a 5-plus percent organic growth, that's a lot of new workers every day, every month that we're putting out. And how can we extend the reach and not open more offices with this kind of growth? And so there's 2 angles. One is make sure we're running the current operation efficient. And let's be ready to place all kinds of workers with those stronger reach. So the goals are working. It's being grasped. It is a new process, a new technology. So it has its hits and misses, but we sure have some early adopters out there that are setting a pretty good standard for us.

Just I promise the last one. Derrek, is there anything in the guidance for mobile in the fourth quarter?

I'm sorry, Paul, could you repeat that?

Is there anything in the fourth quarter revenue guidance for mobile?

Yes, yes. Our guidance is all in with everything that we've got rolled out technology-wise and business-wise right now.

Can you size it? Is it 1 or 2 points of the growth or...

It's a hard question, Paul, because there's so many tools that we give our employees on a daily basis. There's also various kinds of recruiting, training, sales training and service training. We've given this mobile app. There's a handful of other things that we're doing. And to call out and say while the above will grow to 7% right now, and we know that 2 points of that is due to this one component. It's too hard to slice it to say why because we don't -- we just don't track it that way. What is the reason that we were able to place those workers? It's just a handful of initiatives that we've worked on. And if we can maintain 5-plus, 7 -- I like 7%, but 5-plus percent organic growth, we're going the right direction.

[Operator Instructions] Your next question comes from the line of Sara Gubins of Bank of America Merrill Lynch.

Could you give us the branch count, including the newly acquired Work Connection branches?

Sara, I sure can. So at the end of the third quarter, we had 589 branches. And The Work Connection acquisition added another 37 to that.

Okay. And then were there any further MDT clients that you exited during the third quarter?

Nothing to call out. I would say, as we got into the -- through the second quarter on a large part of our integration, anything that was a big kind of callouts or a big focus area, we had worked through. And that part of the business is just part of our ongoing business and managing the business.

Okay. Any sense of the rough magnitude to the delayed starts than the energy projects?

Let me go back to one other thing here, Sara. I just was informed by -- I quoted the wrong branch count. I quoted 589, which is our Labor Ready branch count. So let me give you the correct all-in branch count number, which is 725 branches at the end of the third quarter plus the 37 then that we added with The Work Connection acquisition.

Okay. The magnitude of some of the delayed starts of the energy projects that you mentioned in the quarter, any sense of it?

Yes. Really, but products are under our -- at the midpoint of our guidance, could maybe, call it, $4 million.

Just go back on track, Sara. So it was just a delay. And it happened in July. So it's not that there's a delay here at the end of the quarter that we're trying to figure out. It was something that happened earlier in the quarter.

Got it, okay. And then, last, do you have any sense of the slacks that's in your construction customer base? I'm wondering if they're pretty well staffed for current demand and that you need to see a pickup in new home starts to really see growth in that end market on the residential side?

Yes, we need to see construction activity pick up. There's no doubt about that. But in addition to that, we are seeing all types of customers, not just construction turn to us for a higher degree and a higher percentage of their employees. That's a trend in this, whether it be to further regulation or it has to do with their uncertainty about their own business. Those 2 drivers, uncertainty about what holds for them, will it maintain and regulation are key significant underlining drivers for our industry and for us specifically. Do we know exactly? Do we have a system that tracks open orders or a lag for customer by customer? And we don't. In our on-demand business, we're taking a lot of project orders. That's a lot of last-minute phone calls that we receive. And so we don't have a backlog. We really know and are tapped into the demand of our customers. Although we stay close to them, and we have customer relationship management systems that track that pipeline, there are just not strong enough formula there for us to project off of. That's the beauty of on-demand business. And it's the challenge of an on-demand business is that. But we do know that those 2 key drivers in our industry are key. And we do -- it's more than just stories. We see that happening day in and day out, that their uncertainty and their regulation they face are turning them towards our industry and us specifically.

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

As you contemplate acquisitions going forward, do you have any different priorities as far as footprint versus maybe occupational mix? And are there differences in, let's say, the going prices in the marketplace?

Yes, that's a great question. And so our historical mix of what we've worked on the last 5 to 7 years, in the beginning, it was more of a mix of occupational mix. So new capabilities, we'll call it, that we wanted to buy a recruiting engine to do drivers, wanted to do more skilled trades, wanted to do aviation mechanics. And that was the high focus of what we were working on. Most recently, it's been geographic expansion. So we have, now, have some key platforms that serve customers well. We have proven it out. It could be profitable. And now we want to expand into new geographies. So we have 2 methods to do that, hire our own sales recruiters and put them in those markets or buy a customer list from an existing business that's been up and established. We have found it's better return to buy. If you can't buy for the right price, we'll go ahead and build and we'll throw some recruiters and build from the ground up. So what's that population look like of expanding the current skill sets we have into new geographies is what we're looking at. And so it has to do with the geographic expansion is probably the lead there, Randy. And however, with that, there are a few situations where we're still looking to expand our ability to recruit various types of workers. We will call it occupations that we currently don't put to work, whether that be in a given skill or a given industry that they use a certain type of blue collar or even hourly-type worker. Both are on our radar. Both are definitely on our radar. It's more of a 50 fixed -- 50-50 mix right now though than it was early on.

If you were to characterize customer's behavior on your -- versus your markups when you're negotiating price, would you say they're behaving -- where in the spectrum of tough times versus good times would you say they're behaving?

Yes. Well, we're definitely in an environment where we can expand revenue and gross margins in the same environment. So that would be an indicator, the result of an environment that is -- allows us to at least have the conversation. And it's also given us the opportunity to say, "Well, if the gross margin is too low, I think we could put those workers in a higher-margin situation." And the supply and demand of given skill sets, whether that be drivers or that be electricians or go down the skill set. If there's short supply, it's time to get the best price for what we have. And so that's the environment that we're in, Randy, is that at least we're having a conversation. And we're moving the needle. Some of it is releasing clients. And some of it is getting a slight increase. But it's not a free-for-all. There's a lot of respect that goes on between us and our customers to say, "Let's make sure we both win in this situation. We'll go find you the high-quality people at the speed that you need them and provide the proper service. We'll respect your business. You respect ours." So I think it's moderate is where I'd put it right now. That's -- we'll take that. We'll take that moderate environment right now.

Your next question comes from the line of Josh Vogel with Sidoti & Company. Josh Vogel - Sidoti & Company, LLC: You had comments earlier about you're seeing a reduced dependency on your branches. So not including the 37 from TWC, I was just curious if you had a strategy or a timeline in place to eliminate any existing branches? And can you also comment in any specific geographies where you're maybe seeing better traction with mobile?

Yes. The second one on it, are there certain geographies that have better traction? The answer is no. There are certain people that have better traction with it. And I'll put them in the early adopter category. Some of it were they just feel more comfortable with technology. They were more ready for technology. And so that is encouraging for us that it's really a training issue. Some are willing to self-train and jump in early. Others are going to need more encouragement. And so we still have a nice -- a better runway ahead of us to keep getting results out of that. Help me again with that first part of that question. Josh Vogel - Sidoti & Company, LLC: Sure. You were just talking about with the move towards more technology that you're seeing a reduced dependency on branches. So I was curious if we should start to see your total branch count come down?

Yes, sorry about that. Yes, this quarter alone, we closed 14 branches. And the reason behind those 14 is somewhat else -- those customers and workers could be served from a different location. So one thing we're doing is we're ensuring that we don't miss any service opportunities, that the customers can still be served in the time that they expect. Workers still have access to uses. There's still certain needs that are physical, whether we need to do some evaluations or some training or some situational communication. So it's an ongoing -- of testing those boundaries, Josh, in how we move this forward. So long-term, that dependency reduction comes in 2 forms. One, can we keep growing our organic revenue and our on-demand work, which is that quick fill, connect, grow without opening new locations to find workers? That will be one success metric. And the other is can we continue to consolidate our locations in a manner where we do not lose any revenue or any opportunity to serve our group of workers? And both of those are important to us. Josh Vogel - Sidoti & Company, LLC: All right, okay. And could you remind me of the seasonality in the late industrial work, notably with regard to a TWC?

As far as how it would move from like the third quarter to the fourth quarter or just the year and overall? Josh Vogel - Sidoti & Company, LLC: Yes, just -- yes, year overall or -- and specifically third to fourth quarter?

Yes. I'd say that that business is going to move what would like our -- well, traditionally like our Spartan Staffing business would. Or you'd find another light industrial actually from the third quarter to the fourth quarter. It actually picks up a bit coming in the holidays and then falls off. So from a revenue perspective, it's relatively close to the third quarter, whereas the rest of our business kind of slopes down as we move out of some construction business. But from third to fourth quarter, that revenue holds up fairly well.

Your next question comes from the line of Mark Marcon with Robert W. Baird. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: With regards to the mobility rollout, can you talk about any sort of impact that you're seeing with regards to some of the workers that you placed out on assignment in terms of their willingness to work through you more often after that's deployed? Or how is that going?

Yes. So from the worker perspective, yes, we're seeing several stories. And the metric growing of the average hours that a worker works for us is increasing. And just recently, I was reviewing a story with a branch manager where one worker was tied to one branch. And that's all they could do. And now they have made themselves available to 3 different branches. And it's a larger market, but that worker is willing to take the transportation that takes to ensure that they're working every day, not just when the one branch can keep them busy. So from that worker's perspective, he's thrilled on making more money now with this technology in play. And I'm able to grab a job a lot more regularly. So that's pretty powerful in itself. Again, it's back to that story of extending the reach for both the worker and in ensuring the timeliness to the customer site doesn't go down. Then we've told stories here on this investor call in the past of customers that are shocked at how fast workers are showing up now. And it's really a more prepared workforce also because we're expanding how many different types of workers and actually the populations and demographics of workers that we can reach into. When you're dependent on one branch for your workforce, you're dependent on those that live within a couple of miles of that branch. And now we're finding that that dependency, that I live within 2 or 3 miles of the branch even matters. Yes, they need to come and get signed up and be evaluated and visit the location periodically, yet the distance to the branch doesn't matter. What matters most is the distance to the work. And so as we can judge and say, "Well, how close are you to the customer site? How fast can you get to the customer site? How well-prepared are you to be engaged with that customer?" Those questions matter more than how close you live to the branch these days. So that's pretty exciting. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And any negatives with regards to maybe some people not being prepared to do the work and you're not able to eyeball in beforehand?

Well, all of those concerns exist. And so we're finding new, innovative ways to ensure we're staying engaged with the workforce. And we know how the customer feels about them. We've increased our, actually our -- the speed of communication with customers through this, that they can actually tell us how the worker did and the worker completed their work. And they're ready to be paid. And the worker can communicate with us faster that they're actually safe. They have a safe experience that day with the customer. And we flew all of that communication before the pay is done. And we find that, often, that can be done within 20, 30 minutes of the job ending on either that shift or if they've chosen to be paid at the end of the week. Collectively, they get their pay pretty fast on Friday evening. So all of those are -- there's enough positives outweighing that. Well, how do you do that evaluation? And I was counting on seeing the eyeballs of that worker. And all of that's just a little bit outdated way of evaluation. And we have -- we've got -- we dipped into new methods and ways to manage this workforce without needing to physically inspect them before they go to the customer site. Yes, those that have been in our business a long time, this is quite a change. And we're asking our employees to step up and make that change with us, that if they can actually work through this and become comfortable that there's a good experience. It only takes a little bit and they find out how excited their workers are or engaged their customer is through this process. And wow, then you have a champion for life in this employee of ours that they're willing to try it again and again. And then the story spreads. So we're going to work through this. Are we batting a thousand right now? The answer is no. But the technology's in play. It's expanding. We're communicating. We're training. And we're driving metrics that matter to us down through the business. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And Steve, can you talk a little bit about like what percentage of the Labor Ready branches would you say are -- have adopted and are making really good progress where you'd say, "Gee, by next year, this will be totally in place versus what percentage would probably need more training?" And what would you do exactly to increase the training?

Yes. I would just roughly say about 1/3 of our employees jumped on this real fast. And the early adopters are out there having quite a bit of a success with it. There's 1/3 in the middle of it, have played with it. They haven't used it exactly the most productive, but they're trainable. And we're working through it. And we're moving them forward. And there's about 1/3 that are lagging and -- or maybe not as curious as they need to be about this new process and where we're going with this. So within the first 3 months of this, I'm really excited about it. I think that that's not bad. I don't have an exact metric of how many hours that we've -- or how many dispatches, but it's something that we could pay attention to and start sharing with you if it's driving the results a different way. Yes, we will have more success in 2014. This first adoption and these first closures that we've gone through, and most importantly same-store sales, organic growth growing in excess of 5%, those are the indicators that matter most. Can we deliver more revenue with a lower cost base and hold gross margins? Those would be the most important indicators on a results basis. And we have a little bit deeper dive that we follow each transaction on. But that's how we know we're going to make progress long-term. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And can you talk a little bit about what was the incremental spend to roll it out and how we should think about that fading?

Well, the capital cost of it is behind us. And so you see that our capital expenditures were about $10 million so far to-date. And some of that was spent in 2012. The acquisition of Job Rooster was a big part of this. That was the largest part of the spend and then probably an approximate, over the last 18 months, an approximate $5 million to $7 million of additional spend. So the capital costs are behind us. And is there an increase in ongoing transactional cost? No, it's less than what a physical dispatch would take or a physical -- so the cost per sale should be dropping as a result of this transaction. And we should be able to expand our reach with less branches. Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division: Great. And can you talk a little bit about the -- kind of the cross-selling initiative? You're talking about co-branding or more of an emphasis on the TrueBlue brand and then being able to market to various verticals. Can you talk a little bit about how that's going?

Yes. So over the last 18 months, we've also been working on should we be selling and servicing as TrueBlue? And as we went out and visited with our largest customers, and then a random sample of smaller customers of, "Would you be willing to buy this cadre of services from one salesperson or one service person?" And the answer comes screaming back. It's not that we would just be willing. That would make it easier. And so we have enough evidence on the table, but that's what we need to do. This is actually a larger behavioral change than implementing the technology and the process change we've been talking about the last few minutes, blending our businesses now and removing the rules around the brand become a little bit more of a challenge for us because systems are on this and cultures that were on this. And you start running into pricing and wage payments and those very stiff brand walls that have been up around how we both price to the customer and how we set pay rates for workers. All of those cultural things and real business processes start clashing. So what we've done is we stepped back a bit. And we've taken a couple of markets. And we've blended the service teams and said, "Help us work through this so we know how to do that better." And that's actually going quite well. We've been at that for about a year. And at the end of the year, we -- if you went to that one market, you would see everybody wearing TrueBlue logos, carrying TrueBlue cards. You go to the office, it says TrueBlue on the outside and the inside. And we're learning more each day about what business rules didn't we iron out enough before we put you into that environment. But we're making progress. And that's exciting. In addition to that, we've taken our national sales team that sells to, call it, about 25% of our business, these large accounts. And we've changed them all to TrueBlue. And so they're approaching our customer from a TrueBlue standpoint as the salesperson. They're very open with our customers of saying, "These workers will be recruited and placed through our various brands still while we're working through that service engine." But to have 25% of our revenue being approached by 1 salesperson is pretty exciting. In addition to that, as I talked in my earlier comments, we sell both nationally and at the local level. We do as a part of this MDT transaction. They had a group of about 50 sellers, most of them in the Southeast. And we call them TrueBlue. And they sell for Labor Ready, for Spartan and for CLP. That comes with its challenges, yet we are learning. We're going to work through it. We're going to push through it. And we are excited that these general sellers of TrueBlue services are learning and growing. And now matching that up with the real service engine, the real recruiting engine, is really on our plate. So we have some significant movement happening. It's not 100% of our business, but it's at least 25% of our business right now is moving in that direction. And it's quite a cultural opportunity for us to move through that, Mark, and -- but we're making progress. And it makes sense when we succeed at that level. So we know we're doing the right thing.

That concludes our Q&A portion. I would now like to turn the call back over to Mr. Steve Cooper.

Thank you. We appreciate your interest in our questions here today and being with us on this call. Everybody, have a great day.

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