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TrueBlue Inc (TBI 2.58%)
Q3Â 2019 Earnings Call
Oct 28, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for calling, and welcome to the TrueBlue Third Quarter 2019 Earnings Call. I would now turn the call over to the call to Derrek Gafford, Executive Vice President and Chief Financial Officer. Please go ahead.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Good afternoon, everyone, and thank you for joining today's call. I'm here with our Chief Executive Officer, Patrick Beharelle. Before we begin, I want to remind everyone that today's call and slide presentation contain several forward-looking statements, all of which are subject to risks and uncertainties, and we assume no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and in our SEC filings, could cause actual results to differ materially from those in our forward-looking statements. We use non-GAAP measures when presenting our financial results.
We encourage you to review the non-GAAP reconciliations in today's earnings release or at trueblue.com under the Investor Relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on comparisons to the same period in the prior year, unless otherwise stated. Lastly, we will be providing a copy of our prepared remarks on our website at the conclusion of today's call, and a full transcript and audio replay will also be available soon after the call. With that, I'll turn the call over to Patrick.
A. Patrick Beharelle -- Chief Executive Officer and Director
Thank you, Derrek, and welcome, everyone, to today's call. We appreciate you joining us. Strong execution drove better-than-expected top line and bottom line results this quarter. While revenue growth has yet to return, we were pleased to see monthly revenue trends were consistent during the quarter, and we delivered another quarter of earnings growth. TrueBlue has been driving digital disruption within the staffing industry with our JobStack and Affinix offerings, and we continue to experience favorable employee and customer adoption. We remain squarely focused on client expansion and retention, disciplined cost management and investing in our digital strategies to differentiate our service offerings. We also announced today that our Board of Directors approved an additional $100 million of share repurchase.
Our Board remains highly supportive of our focus on opportunistically repurchasing shares and returning capital to shareholders. Now I'd like to update you on the financial results and strategic initiatives within each of our segments, starting with our largest segment, PeopleReady. PeopleReady is the leading provider of on-demand labor and skill trades in the North American industrial staffing market and represents 62% of trailing 12-month total company revenue and 59% of segment profit. PeopleReady's revenue was down 4% during the quarter due to lower business activity across our client base. Growth at PeopleReady was favorably impacted in Q3 by project work in one of our clients, creating a 2% year-over-year growth benefit. Excluding the project work I just mentioned, underlying monthly revenue trends at PeopleReady were consistent throughout the quarter. Consistent with our focus on managing costs across the business, we have taken a hard look at PeopleReady's cost structure. Since our last earnings call, we've taken cost actions that are expected to result in approximately $10 million of net annualized savings. It's important to note that these reductions were focused on mid-level management and support positions and did not impact branch staff or sales resources. Eric will provide additional information, including the expected impact to Q4 in conjunction with our outlook.
As always, our objective is to balance smart cost management with strategic investments to build our client base and drive growth. One example we touched on last quarter is PeopleReady's new client experience team. This is a team of seasoned operational and sales leaders who are dedicated to enhancing client satisfaction by proactively reaching out in the critical early days and helping clients move up the curve in terms of JobStack usage. While the program is still in its infancy, the feedback from our branch-based colleagues and our customers has been overwhelmingly positive. The team is also helping us proactively drive more activity through our strategic cross-selling program, which continued to drive revenue growth year-over-year for TrueBlue. We have several customers where overall we've uncovered millions of dollars in additional revenue. Our digital transformation via our JobStack mobile app remains one of the most important strategic initiatives within PeopleReady. Our JobStack mobile app is transforming the way we do business. Over the past several quarters, we've seen disproportionately high revenue growth from clients that are heavy users of JobStack. We've been working hard to build the critical mass we need within the app, and we're very pleased with the progress we've made on that front. We've deployed more than 1 million shifts via JobStack during the quarter, representing a digital fill rate in excess of 40%, up from approximately 30% as recently as the fourth quarter of 2018. Associate adoption is now 87%, and we have approximately 19,000 clients using the app, up from 13,000 in December. We also recently announced a new strategic relationship with Uber Works. Uber Works is separate and distinct from JobStack, and this new venture represents another step forward in our digital strategy for temporary staffing. Uber Works is a platform that connects workers with businesses that need to fill available shifts. Now while Uber Works has a great platform, one area they don't have experience is paying and managing W-2 employees. So Uber Works turned to TrueBlue for help them, and we've created a new business venture called PeopleWorks to serve as an employer and payroll service provider for workers booking jobs on the Uber Works app. It's early days for the PeopleWorks venture, and we don't know yet if there will be a longer-term material impact. But it's clear that Uber Works' choice to work with TrueBlue is a testament to the strength of our payroll offering, world-class service and decades of expertise in on-demand staffing.
Turning to our next segment. PeopleManagement provides on-site workforce solutions in the North American industrial staffing market that offers compelling value and are a perfect fit for larger clients with longer-duration strategic needs for contingent workers. This business represents 27% of trailing 12-month total company revenue and 10% of segment profit. Revenue was down 12%. Roughly half of this decline is due to previously disclosed headwinds, namely the loss of Amazon's Canadian business and volume and price reductions at another retail client. The remainder is due to less same customer demand due to lower activity levels within their own businesses. We are pleased with the strength of our year-to-date new business wins, which are up 20% over the same period last year. Turning to our last segment. PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings and represents 11% of trailing 12-month total company revenue and 30% of segment profit. Revenue was down 9% overall primarily due to previously disclosed headwinds, namely 1 client that we lost after being acquired and less volume and lower margins at another large account that was repriced to reflect a multiyear arrangement. In spite of this recent headwinds, we like the strength of our service offerings and are getting good traction. During Q3, PeopleScout was recognized as an enterprise RPO leader in HRO Today's 2019 Baker's Dozen Customer Satisfaction Ratings. PeopleScout was also ranked as a healthcare RPO leader on this year's survey.
Additionally, PeopleScout was identified by NelsonHall as a leader in every category in their 2019 evaluation of the RPO marketplace. Our strategy for PeopleScout is unchanged and is aimed to capitalizing on our leadership position in the North American RPO market to expand our global capabilities and differentiate our service offerings through technology. Affinix is our proprietary next-generation HR tool that is improving our ability to compete in the marketplace. For example, in several recent winning sales pursuits, RPO buyers shared with us that Affinix was a clear differentiator and a key reason for PeopleScout being selected. Moreover, clients fully implemented on Affinix are experiencing improved time to fill, candidate flow and candidate satisfaction. Summarizing our performance, we're executing on our 3 primary initiatives of putting our segments on a path toward sustainable growth, managing our costs to enhance profitability and leveraging excess free cash flow to return capital to shareholders. These areas of focus, along with our strategic use of technology which is something that our clients are embracing regardless of the ebbs and flows of their own businesses, will help us capture the many opportunities ahead in the changing world of work. I'll now pass the call over to Derrek who will share greater detail around our financial results.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Thank you, Patrick. Total revenue was $637 million and was at the high end of our $613 million to $638 million outlook. The better performance was driven by $11 million of benefit from project work with 1 client that was not anticipated in our Q3 outlook. Total revenue was down 6%, which was larger than the decline in Q2 of 4% due to the anniversary of the TMP acquisition in Q2. Organic revenue was down 6%, which was consistent with the decline in Q2 of this year. Excluding the project previously mentioned, monthly revenue trends were consistent during the quarter. Turning to the bottom line, net income per diluted share of $0.68 exceeded the high end of our $0.50 to $0.60 outlook, and adjusted net income per diluted share of $0.76 also exceeded the high end of our $0.61 to $0.71 outlook. EPS was up 11%, and adjusted EPS was down 4% on top of strong EPS and adjusted EPS growth in Q3 last year, of 20% and 32%, respectively.
The better-than-expected EPS and adjusted EPS results were primarily due to the revenue beat and a variety of cost management actions. In addition, the effective income tax rate for the quarter of 10% was below our 14% expected rate due to additional work opportunity tax credits. Gross margin of 26.6% was down 50 basis points primarily due to higher workers' compensation expense and the previously disclosed headwinds at PeopleScout. Workers' compensation expense as a percentage of revenue this quarter was consistent with Q2 this year but higher than Q3 last year. SG&A expense was down $14 million, $3 million of which is due to lower adjusted EBITDA exclusions, and the remainder due to a variety of cost management actions. SG&A was down 10%, and SG&A as a percentage of revenue was down 80 basis points. Excluding adjusted EBITDA exclusions, SG&A was down 8% or 30 basis points. We've also taken a number of actions to reduce operating cost in the future. This will produce $2 million of benefit in Q4, offset by a charge of $2 million, which will be excluded from adjusted net income and adjusted EBITDA. These actions are also expected to provide $11 million of benefit in $2020, $3 million of which we plan to reinvest into customer acquisition and retention activities, resulting in $8 million of net benefit in 2020. Throughout 2019, we consistently discussed some revenue and segment profit headwinds within our PeopleScout business associated with the repricing of an account and the loss of a client that had been acquired by a strategic buyer. Similarly, in our PeopleManagement business, we discussed the transition of a customer from our CMOS business to our Staff Management business and the diminishing impact of the lost Amazon account. This quarter, these items suppressed total company revenue by $15 million and adjusted EBITDA by $6 million.
Adjusted EBITDA of $39.3 million was down 10% due to lower revenue, and related margin was down 20 basis points as a result of lower gross margin. During the quarter, we repurchased $22 million of common stock, bringing our year-to-date repurchases to $31 million, which represents about 90% of year-to-date free cash flow. This activity took the amount remaining under our 2017 authorization down to $27 million, and we're pleased to announce today that our Board of Directors authorized an additional $100 million of share buyback. This authorization reflects our confidence in the long-term outlook for our business and our desire to continue to return capital to shareholders. Turning to our segments. PeopleReady revenue was down 4%, which was better than expected but a step down from the 2% decline in Q2.
As discussed earlier, revenue was favorably impacted by a project work at one of our clients, creating $11 million of benefit in comparison with our Q3 outlook. Excluding the project work, underlying monthly revenue trends were consistent throughout the quarter. Segment profit was down 1%. PeopleManagement revenue was down 12%, which was consistent with our expectations. Of the 12% decline, 5 percentage points came from the previously disclosed customer headwinds and the remainder from lower same customer demand. Segment profit was down 45%, which includes $2 million or approximately 27 percentage points of decline from the headwinds previously discussed. PeopleScout revenue was down 9%, which was also consistent with our expectation. Segment profit was down 14%, which was primarily associated with the previously discussed headwinds. Turning to cash flow for the company. Year-to-date cash flow from operations totaled $53 million and capital expenditures were $18 million, netting to free cash flow of $35 million. The overall strength of our balance sheet continues to improve. Total debt of $44 million is down from $80 million at the end of 2018, and our debt-to-capital ratio is 7%. On a trailing 12-month basis, our total debt to adjusted EBITDA multiple stands at 0.4. Turning to our outlook for the fourth quarter of 2019. We expect the revenue range of minus 10% to minus 6%.
The midpoint of the range is 2 percentage points lower than the 6% decline posted in Q3, 1 percentage point of the step-down is due to the roll-off of some of the project work that favorably impacted Q3 results. The remaining step-down is due to softening trends experienced in early October. The step-down occurred across most geographies and industries with notable softening within the construction vertical of our PeopleReady business and in same customer demand trends within our PeopleManagement business. We expect net income per share of $0.18 to $0.28 or $0.35 to $0.45 on an adjusted basis, which assumes a share count of 38.4 million and an effective income tax rate of 14%. The midpoint of our EPS guidance is a decline of about 40% versus growth of 11% in Q3 this year. The drop in the trend is primarily due to a deceleration in the revenue trend I mentioned a few moments ago and, to a lesser extent, lower gross margin and a lower decline in SG&A expense. The lower gross margin is primarily due to the timing of payroll tax benefits, which were recognized throughout 2019 versus an annual true-up in Q4 last year. We're expecting a lower decline in SG&A expense in Q4 versus Q3 due in part to the anticipated charge in Q4 discussed earlier related to the additional cost reduction actions. Lastly, I'd like to remind everyone that the Work Opportunity Tax Credit expires at the end of this year. While this program has been in existence for decades and we expect this program to be renewed due to its appeal to both political parties, the timing can be lumpy. Since this program contributes about 10 to 12 percentage points of benefit to our effective income tax rate, if it is not renewed, we would expect an effective income tax rate of about 26% to 28%. Additional information on our outlook for the fourth quarter and certain annual assumptions can be found in today's earnings release deck. While some economic uncertainty exists, our focus is clear: we're staying committed to our digital strategies.
We believe we are leading the industry in moving to a more digitally oriented business model to differentiate our services and acquire market share. We plan to invest in customer acquisition and retention initiatives and not only acquire more business but to ensure we come out strong when the economic climate improves. We also plan to stay diligent in managing our operating cost. And lastly, we're committed to returning capital to shareholders through stock repurchases. This concludes our prepared remarks. We'll now open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Josh Vogel with Sidoti & Company.
Josh Vogel -- Sidoti & Company. -- Analyst
My first question, Derrek, you mentioned there were some roll-off in Q4 from that large project at PeopleReady that contributed $11 million of additional revenue. What do you -- what is your expectation for the contribution from this project in Q4 that's built into your guidance?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Yes. Josh, we expect it to be about half that rate. So the -- that roll-off is contributing about 1 point of revenue headwind, additional revenue headwind, in Q4 because the roll-off, call it, $5 million to $6 million less in revenue.
Josh Vogel -- Sidoti & Company. -- Analyst
Okay. Great. So I know you continue to invest in digital strategies and for good reason. And now that we're nearing the end of the year, I was curious how you feel on this front entering 2020. How much more are you planning to invest in these offerings, if at all? Or do you feel like capabilities are fully there now, it's just about scaling them up further?
A. Patrick Beharelle -- Chief Executive Officer and Director
Hey, Josh, this is Patrick. A big part of our focus in the fourth quarter and in 2020 is to leverage the phenomenon that we've seen of clients that are heavy users of JobStack. We've seen disproportionate growth for those clients that are using JobStack in a heavy way versus those that are using it in a moderate way or not using it at all. So a big part of our investment in Q4 in 2020 is around sales and marketing campaigns to target our existing client base to use the tool more because, as I mentioned earlier, we've seen disproportionate growth, north of 20% year-over-year growth, in those clients that are using it heavily. We're also making some investments around the acquisition of talent with the tool. So we're going to be rolling out some new features in the first quarter that we think are going to help drive more candidate flow.
So we're looking at this from 2 ways, both from a supply perspective and from a demand perspective. So those would be areas of focus. Just to put in perspective some numbers for you, as we think about 2020, we finished the year -- we'll finish the year somewhere around 45% or so of our fills coming in a digital way. We think we can get that number closer to 55% by the end of 2020. We'll finish the year around 21,000 clients on the tool. We think we'll get closer to 30,000 by the end of 2020. Shifts, we'll do around 4 million or so this year. We think we can get that number north of 5 million. So these are some goals that we set for ourselves in terms of 2020 and continuing progress on our digital strategy.
Josh Vogel -- Sidoti & Company. -- Analyst
That's helpful. Just looking at some of the -- well, you had a repricing of an account at PeopleScout. And I was just curious, are there any other notable or sizable clients whether within PeopleScout or maybe PeopleManagement where you're currently engaging or exploring similar type of repricing arrangements?
A. Patrick Beharelle -- Chief Executive Officer and Director
Well, anytime a client comes up for renewal, there's conversations around repricing. I wouldn't say there's any outside the normal course of business, Josh. So I wouldn't expect us to be making any announcements about significant price concessions or price increases. It'll be more normal course of business.
Josh Vogel -- Sidoti & Company. -- Analyst
Okay. Great. And if I could just sneak in one more. Nice to see the cost reduction efforts that will result in, I guess, about $8 million in net annualized cost savings next year. Is that something that you think will be spread out evenly over the course of the year? Or will it be more back-end heavy?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Josh, it's Derrek here. Yes, that will be relatively consistent through 2020.
John Healy -- Northcoast Research -- Analyst
Okay, great. Thank you for taking my questions.
Operator
And your next question comes from the line of Kevin McVeigh with Credit Suisse. Please go ahead.
Kevin McVeigh -- Credit Suisse -- Analyst
Derrek, just one point of clarification. Was the $11 million that's under the one-time revenue, was that contemplated in the guidance at the time you issued it? Or was it -- did that kind of come in after the guidance had gotten issued?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
That came in after the guidance was issued, Kevin. We're -- our job is just to run the business we can based on any set of circumstances that are coming along economically. And when we set the guidance, that's what we know of at that point in time. Now we've been doing, of course, some analysis and had some ideas about some things that we wanted to do, but really that work picked up after the guidance was issued.
Kevin McVeigh -- Credit Suisse -- Analyst
Got it. And is there any way to frame -- is it the type of thing where the incremental margin on that will be high? Or was it kind of consistent with what the corporate average is overall?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, give that to me one more time on kind of the cost cuts, I'm not following you on the margin, Kevin, we got the dollars.
Kevin McVeigh -- Credit Suisse -- Analyst
I guess on the revenue side of it, would the margins associated with that $11 million of revenue consistent with the corporate average in a quarter? Or was it kind of maybe a little bit higher given -- just trying to get a sense of what the margin profile of that revenue stream was.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, you should think about it this way, those cost savings, it didn't come from variable cost reductions associated with revenue declines or anything like that. That $11 million that we're talking about for 2020 -- by the way, we're going to be reinvesting $3 million of that so we would deliver an $8 million of net -- are just cost reductions that we've made broadly across the business. Now maybe you're referring to the margin on the extra project work.
Kevin McVeigh -- Credit Suisse -- Analyst
Yes, that's right, Derrek.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Okay. Now that's -- well, it's a little bit above the average but right at the PeopleReady blended average incremental, standard incremental for PeopleReady, mid-teens.
Kevin McVeigh -- Credit Suisse -- Analyst
Got it. And then you said this, and I apologize, it was muddled on the call, my line. The 150 basis points of margin erosion in the next quarter, was that a function of the revenue? Or was that workers' comp? Or is there a workers' comp dynamic that maybe I just -- I didn't hear that, if you could just refresh me on that.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Sure. Well, we are expecting the gross margin -- gross margin in Q3 this year versus Q3 last year was down 50 basis points partly because of workers' compensation and then partly because of the mix on some of these client headwinds that we've talked about. As we go to Q4, we're expecting the year-over-year gross margin to be down about 80 basis points or, call that, 30 basis points of more incremental decline. And that's largely tied with payroll taxes. We had some payroll tax benefit that we trued up at the end of 2018, and we have some more in 2019. We've been realizing that benefit every quarter. So that's mostly timing on the gross margin. Then you got the extra 2 points of revenue decline and the deleveraging that comes along with that. And then on the SG&A side, we still have a nice SG&A decline built in, but it's not quite as large as what we had in Q3, somewhat because of the extra charge we're taking on these cost savings that's in our guidance of $2 million.
Kevin McVeigh -- Credit Suisse -- Analyst
Helpful. And then just it sounds like there was kind of a little bit of step-down in terms of a couple -- 100 to 200 basis points. Where are you seeing that? And I guess just within the context of there's been so much debate on the macro, is it -- Derrek, does that -- or Patrick, does that feel more like kind of a traditional pause or something that's -- kind of the initial stages is something maybe a little bit more that you monitor?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, I'll talk about this last step-down that we saw and that we incorporated in the guidance toward the end of my answer, Kevin. But just to kind of reframe the answer, kind of addressing your bigger picture question, this has been an interesting year because we've seen really 3 step-downs this year. We saw one at the end of March, in the first week of April. We saw one during the first couple of weeks of July and also in the first couple of weeks of October. And what's been interesting about it is it's been both at our PeopleReady business and in our PeopleManagement business and really shows up in our same customer trends in our PeopleManagement business. So we don't think that -- while we've always got room for improvement here, we don't think that there's anything that we're doing different in the business model, so we really do think this is macro-driven. When it comes to around to how we run the business and look at that, we're just going to continue to make the right adjustments as we see those step-downs. Our take with customers is that everybody remembers the last recession, and it snuck up on everybody. And everybody's watching these economic signals very closely and trying to make real timely adjustments to their workforces, and we believe that's what we're experiencing in our trends as we look at the business. In regard to your specific question about the most recent step-down, it was both at PeopleReady and at PeopleManagement. Again, at PeopleManagement, the same customer demand trends, no lost clients. On the PeopleReady side, it was fairly broad-based across a variety of geographies and customer types and sizes. If you had to pick one though that sit out the most, it would be in the construction area for PeopleReady. So I hope that gives some color to our thoughts.
Kevin McVeigh -- Credit Suisse -- Analyst
Yes. It's super helpful, Derrek. And then just if I could, and I'll get back in, in the interest of time. On the construction side, was that kind of the residential or the commercial? And then just is any of it maybe an impact from GM and/or Boeing that maybe comes back? Or do you think this is -- again, it's kind of the initial stage of maybe something that's head count-related? Or is it -- because obviously, there's a lot of uncertainty out there. Is it tonality, I guess, of the conversations? Is it more something you think that's a little longer in duration or something that, again, it's -- after you got Boeing, you had General Motors. You obviously had the tariff crosscurrents. And is it any state specific or just pretty broad?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
It's pretty broad. In answer to construction, it was both in residential and in nonresidential. But nonresidential has the biggest impact to us of our -- it makes up 2/3 of our construction business. In thinking about how long is this and how does this carry itself on, it's a really hard question to answer, Kevin. I don't know really the answer to that one. There are a lot of things going on out there from trade policies to manufacturing data and a variety of other things. So we're just continuing to -- keep our eyes really closely on it and stay really and very in touch with our customers, serve them well and make adjustments as best we can to both preserve the profitability level of the company but, at the same time, fund investments to -- for 2020 when it comes to customer and candidate acquisition or retention.
Operator
And your next question comes from the line of John Healy with Northcoast Research.
John Healy -- Northcoast Research -- Analyst
I wanted to ask you guys to dive in a little bit more about the Uber relationship. I apologize, but did you guys call that a joint venture? Is that a partnership? Is that a business relationship, just agreement? So just trying to understand the structure of how you're working with them. And then additionally, if the payrolling opportunity that you're working with them on, if that's exclusive, that it has an update on a ceiling to it or an upward range of how fast that can roll off as well.
A. Patrick Beharelle -- Chief Executive Officer and Director
Thanks, John, this is Patrick. In terms of our relationship with Uber, think of it as a business relationship where Uber is a client of ours. And in terms of the impact to TrueBlue, we expect the near-term impact to be relatively small. As you might imagine, the degree of impact on TrueBlue, it's directly related to the pace of scaling and the degree of success that Uber Works ultimately has in the marketplace. We started in Chicago. We'll be expanding to other cities soon. Our vision for the partnership is really straightforward. We believe the light industrial staffing market, along with some adjoining staffing verticals, are ripe for digital transformation. As you know, we have been investing heavily in our capabilities and are seeing firsthand in the early stages of that transformation. So we're pretty confident in the digital capabilities that we've rolled out in our business via JobStack in that it is a best-in-class solution and, ultimately, we think will drive above-market growth.
One important point to note about this relationship with Uber is that when you study other industries that have been disrupted, oftentimes, the pie has gotten bigger. A good example is Uber and the cab dispatch business, end user behavior change then created a bigger pie. And we think that there's elements of that phenomena here as well. And so what's in it for TrueBlue with the partnership? First, if Uber Works proves to be successful, this will be lucrative for TrueBlue, and we'll profit from the partnership's success. There's the obvious revenue and EBITDA lift that would come from the services that we're providing. Secondly, by partnering with a nimble and innovative company like Uber, we think there's some practical learnings that will accrue to both companies. We've already seen some of that happen already. And then thirdly, we view Uber Works as an anchor client. And should we decide we want to launch employer of record services to other companies with similar needs, we have that additional optionality in terms of a referenceable anchor client to jump-start that effort. Related to your question on is this an exclusive relationship, we're one of 2. We're the much larger partner among the 2. And so it's not completely exclusive, but it's limited to 2 firms that are providing support, with us being the larger of the 2.
John Healy -- Northcoast Research -- Analyst
Okay. And along those same lines, and I don't want to get too much into the world of science fiction, but if you thought about kind of Uber and Lyft and kind of the ride-hailing or the digital category in itself, is there any interest or is there any talk about potentially working to become the employer of record for those potential drivers that are on those platforms? I know in some states, there are some legislative battles that might be starting up. I was just curious as you studied that kind of -- if you guys have studied that part of the market and if that is something that potentially can be on the horizon for the company.
A. Patrick Beharelle -- Chief Executive Officer and Director
Well, I'll just say this. I wouldn't rule it out. We've certainly taken a look at it. We want to be prepared should that eventuality come, but I don't think we're ready to make any pronouncements on that yet. Certainly, there could be a pretty significant business opportunity there down the road.
John Healy -- Northcoast Research -- Analyst
Understood. And then just final question for me, as you guys look at the calendar for the fourth quarter, is there anything worth noting in terms of the days or the way the holidays fall and just how you think about weather and the pluses and minuses, how those things add up for the fourth quarter?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, the one thing that I'll mention is that there'll be a slight benefit this time around with slight less benefit because Christmas falls on a Monday versus a Sunday last year. So there could be a slight negative impact -- or excuse me, I got my dates wrong. It falls on a Wednesday versus a Tuesday. So it is a little bit more during the middle of the week versus the earlier part of weeks. There could be a slight amount of that headwind from that but nothing worth -- significant worth calling out, John.
John Healy -- Northcoast Research -- Analyst
Thank you guys.
Operator
And your next question comes from the line of Henry Chien with BMO. Please go ahead
Sou Chien -- BMO Capital Markets -- Analyst
I wanted to ask about the planned cost cuts and investments, just wonder if you could talk a little bit more about sort of where you're finding the efficiencies and planning to invest in?
A. Patrick Beharelle -- Chief Executive Officer and Director
Hey, guys, good afternoon.Thanks, Henry. Yes, the cost cuts that we made were in the PeopleReady organization. And specifically, I'll start by saying where we did not cut. We did not make any cuts in our branch organization. In fact, we're adding some resources in that area. So folks that are working with workers and working with clients on a day-to-day basis, there were no cuts in those areas. We've made a number of cuts more at the senior levels in terms of the leadership team and one and 2 layers down from that organization. So we're flattening the organization, bringing the leadership team closer to the field organization. We also received some concessions from some of the vendors that support us as well. So it wasn't all in the area of head count reduction, it was a pretty broad-based look where we could make some cuts that wouldn't necessarily impact our clients or our workers.
So those were the areas of focus, Henry, in terms of the areas that we cut. In terms of investments, one of the challenges that we've had over the last couple of years has been around our client count. We've done a pretty good job from a pricing perspective of keeping up with wage increases and pricing that in. We've done a pretty good job of retaining our clients. But one of the things we haven't done as good a job in is going out and acquiring new clients and then hanging on to them in the early days. Those that have been with us for a long time, we've done a good job with. But the early days is where we've had some challenges. And so what we've done is we've made a multimillion dollar investment in a team that's focused on onboarding our clients and making sure that they get off to a really good start. And then once they're onboarded, we've also made some pretty significant investments in the area of expanding wallet share within those clients and making sure that they get signed up on JobStack and are using it in a heavy way. And so we rolled that team out in the third quarter. And early days, it's been really successful. In fact, we're probably going to be expanding the size of that team based on the early results that we've had. And so we've carved out about $3 million of the cost savings that we had, and we're looking to reinvest in our sales and marketing capabilities aimed both at new clients as well as within our existing installed base. And so those are the areas of focus.
Sou Chien -- BMO Capital Markets -- Analyst
Got it. Okay. Great. That's helpful. And just on PeopleManagement, just looking at the business, I mean it appears to be facing some pretty significant headwinds, both on pricing and volumes. Just kind of curious like what -- where are you seeing the new business? And why is it, I guess, sort of worth continuing to sort of expand that business unit?
A. Patrick Beharelle -- Chief Executive Officer and Director
Well, we're actually pretty bullish on PeopleManagement right now. We've had a number of wins in that business. In fact, our wins are up more than 20% on a year-over-year basis. And it's -- these are multiyear contracts with very large companies. And so we're feeling pretty bullish on that business after, you rightly point out, a couple of years of pretty unimpressive revenue growth and margin profile. So we feel like the pricing we've put in place is solid on these new deals, and these are large companies that are signing up the multiyear engagements. And so as we look into 2020 and beyond, we see that business returning to growth.
Sou Chien -- BMO Capital Markets -- Analyst
Okay, make sense? Cool. Thank you.
Operator
And our final question comes from the line of Mark Marcon with Baird. Please go ahead.
Mark Marcon -- Baird -- Analyst
Just wondering with regards to the workers' comp, what's the underlying reason why the workers' comp went up?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Mark, it's Derrek here. The -- our run rate this year has been quite consistent. As a matter of fact, workers' compensation as a percentage of revenue during the third quarter was the same as it was in the second quarter. It's just that in the third quarter of last year, we have -- the benefit from reductions to prior period reserves was larger than normal and took that down to its -- our lowest point that we've -- I believe we've ever had, and ones we've done on the EBITDA exclusion, certainly the lowest point during the 2018 fiscal year.
Mark Marcon -- Baird -- Analyst
Got it. Okay. Great. And then with regards to PeopleReady, just in terms of the trends that you're seeing in the business, could you describe, outside of the construction areas, what you're seeing? Is there any light at the end of the tunnel? And also could you talk a little bit about what you're seeing in terms of -- with minimum wage increases having gone through, how is that impacting demand? And just how hard is it to fill some of the positions?
Got it. Okay. Great. And then with regards to PeopleReady, just in terms of the trends that you're seeing in the business, could you describe, outside of the construction areas, what you're seeing? Is there any light at the end of the tunnel? And also could you talk a little bit about what you're seeing in terms of -- with minimum wage increases having gone through, how is that impacting demand? And just how hard is it to fill some of the positions?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Sure. So if we're talking about PeopleReady from a trend perspective, certainly, manufacturing's been a bit very heavy headwind. So to put it in perspective, in Q1 of 2019, we were down about 2% manufacturing. During the third quarter, we were down about 15%. In my earlier comments, there's a little bit of additional pressure coming from construction in the early parts of the fourth quarter. But overall, construction, for the most part, held up pretty well in the first 2 quarters. We're also seeing pressure in the transportation industry. That business is down low double digits, call it, minus 12%, minus 13%. And then our -- we've got some other businesses, if you take out some of the retail noise that we've had in the business, particularly this last project that we just did in Q3, retail in the PeopleReady business has actually been holding up quite well. I mean we were mid-single digits as far as growth there. So there's some resiliency for us in that business. When it comes to minimum wage increases, the last set of minimum wage increases this year was in California.
Those have been the toughest because those have been sizable increases that have been happening year after year. So those are tough costs for a business to take on year after year. We typically see a little bit of pressure on that in the early parts when it first comes through, and then that moderates three or four months afterwards, and we recover on the volume. And I would say that that's the way this has been running its course. As far as minimum wages increases for next year, we're still in the process of assessing that. But I wouldn't be surprised if it was relatively close to the minimum wage increases that we had this year, which was roughly $10 million of minimum wage increase that we pushed through. Filling open requisitions with people, it's still quite tough. We're in an environment here where businesses are really looking at their workforces, and where they oftentimes go first is the contingent space. That's only 2% of total unemployment, and that's why you're seeing, of course, more of that headwind in the staffing businesses than you are of the overall appointment numbers. So if you take that with fill of an economic workforce, that's pretty much fully put to work, it is a challenging environment to fill those positions given what's going on.
Mark Marcon -- Baird -- Analyst
I mean when you think about kind of the overall macro environment, it has been soft and softening throughout the year. Obviously, as you start looking toward next year, what are the factors that you would say would make you feel more optimistic or less optimistic about the trajectory and potentially hitting an inflection? Because it sounds like you're doing well on JobStack, it sounds like you got some contracts lined up on the PeopleReady side, so how are you thinking about that and also just deploying the capital on the buyback?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, what we're focused is how can we best operate under these conditions. And we're in a place where we've got an opportunity is to increase the percentage of candidates that make it through our hiring process. So a big focus of ours in 2020, while we have JobStack in place and it's the matching engine for -- that brings people who are not candidates but actual employees and matches them with jobs, so that's really about utilizing the workforce, we are investing a lot of time and resources in changing the experience that our candidates have and how they come to the system to become an employee and become onboarded. And we think we've got some opportunities to make that much more seamless and make a sizable improvement in the conversion ratio of those candidates. So in 2020, we'll also be expanding our JobStack application for that to also be the process in which employees come to work for us, which we think will cut down the time significantly that it takes and make it much more seamless for the candidate and improve our conversion ratios of applicants. When it comes to
Mark Marcon -- Baird -- Analyst
How will you expand that, Derrek?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Pardon?
Mark Marcon -- Baird -- Analyst
How will you expand that, Derrek? You said you're going to expand JobStack next year and.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Yes. And so instead of going through our legacy applicant tracking system, now candidates will be applying really through the JobStack application, so it will become more candidate-facing application, and they will move through the process with some of the things that we've learned about a digital business model that make that a much more easy and seamless experience. And then they'll also, once they come to work for us, of course, get dispatched that way. So those are plans that we have for 2020. When it comes to capital allocation, the -- we don't think it's the right time to be seriously looking at acquisitions given the uncertainty that exists out there. If the horizon were to clear and there's less uncertainty, we'd change our minds on that a bit. On the other side of the coin, hopefully, it doesn't go this way, but if we were to get into more of a traditional recession and feel like we're more at a bottom and there are some deals that came along with some very opportunistic prices, we would consider that if we could see that some uncertainty would be clearing in the near future. But outside of fact, we're going to -- our #1 place of putting our time and our resources is in this digital business model, staying really true to that. We're going to continue investing in that whether times are good or whether times are bad. And then with excess capital that we have, we plan to put that into share repurchase. We think doing some consistently makes sense but also repurchasing opportunistically makes sense. So with less acquisitions as part of the strategy, there's more capital to put back to stock repurchase, and we authorized -- or announced today that the Board authorized an additional $100 million. So I think that speaks somewhat to our intentions.
Josh Vogel -- Sidoti & Company. -- Analyst
It does. I was thinking more about the timing of that being deployed, particularly in light of the strong balance sheet and.
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Well, you're right. The balance sheet is in really good shape, and so we could -- we probably wouldn't want to get over a turn of debt to EBITDA in this type of environment. But given the right circumstances, you could see us flex up on that some to be opportunistic.
Mark Marcon -- Baird -- Analyst
Okay. And then with regards to PeopleReady, can you just talk about the pacing of when you would expect the inflection to occur given the contract signings? And then one other question would be like how should we think about the margin profile that occurred this past quarter on a sequential basis relative to the sequential increase in revenue? Was there any more repricing? Or is there anything else to talk about there?
A. Patrick Beharelle -- Chief Executive Officer and Director
Yes, Mark, this is Patrick. In terms of the contract signing, I was referring to PeopleManagement in those earlier where it was.
Mark Marcon -- Baird -- Analyst
I meant PeopleManagement.
A. Patrick Beharelle -- Chief Executive Officer and Director
Okay. Great. Well, we're not necessarily giving guidance by quarter for 2020 right now. But when you look at the size and magnitude of the signings, I think there's a pretty good chance that in Q1, we'll see a significant step-up from where -- what we've guided to in Q4. So I think it will be fairly early in the year that we'll see a pretty significant step-up from where we've been, again, assuming kind of current business conditions. I've been asked I think on an earlier call about when we thought the inflection point would happen, and I'd said a couple of quarters ago, I thought Q4. And we did see some improvement in Q -- or we've guided to an improvement in Q4 versus Q3. But the deal has taken a little longer to ramp up and implement than we'd originally thought. So I think we'll really see that inflection in Q1 versus what we originally thought, in Q4 of this year.
Mark Marcon -- Baird -- Analyst
Great. And just as it relates to the PeopleManagement margin this past quarter, was part of that due to the efforts to sign some of these larger deals or any sort of setup fees or anything along those lines? Or what led to the sequential decline in the EBITDA margin in PeopleManagement?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Yes. It was mostly timing involved with less than a handful of customer accounts, some of which were positive, some of which were negative. But it's really just a 1-quarter impact. So I think what you'll see, while we don't -- we've given guidance for the fourth quarter already, you'll see when the results come out, assuming we're within our guidance overall with PeopleManagement, you'll see a more normal year-over-year margin profile for PeopleManagement. I consider the third quarter just a few timing issues but nothing that's sustainable as far as we can see.
Mark Marcon -- Baird -- Analyst
And just on the guidance, 2 things. One would be that the project work, which is continuing into Q4, would you expect that to continue into next year as well?
A. Patrick Beharelle -- Chief Executive Officer and Director
Yes, Mark, this is Patrick. With that particular client, we're getting conversations now, as we speak, about doing additional project work next year as well. This is a client that's been with us for multiple years now. And so the nature of the projects is lumpy, but it's a very strong relationship. It's one of our top 10 clients in terms of size right now. So I would expect that we'll continue to see some lumpiness in terms of new projects in 2020.
Mark Marcon -- Baird -- Analyst
Okay. So people shouldn't necessarily assume that, that $5 million to $6 million that you're expecting to experience in Q4 should go away in Q1.
A. Patrick Beharelle -- Chief Executive Officer and Director
No. I would not just draw that conclusion. This is a very large client that has a lot of projects.
Mark Marcon -- Baird -- Analyst
Great. And then the second question would be, with regards to the guidance, you are excluding the cost for the restructuring, correct?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Yes, that's right, Mark. We've -- the actions that we've taken provide $2 million of savings in the fourth quarter but it -- also, we've got $2 million of costs of reserve related to some of the workforce reductions that take that part away. So that $2 million charge that I just mentioned, that will be excluded from adjusted EBITDA and adjusted net income.
Mark Marcon -- Baird -- Analyst
Okay. And then how should we think about the tax rate for next year just broadly speaking, assuming that WOTC goes through?
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
Yes. This 14% that we've been talking about this year should be about the right amount -- the right rate for next year. I mean we're still putting together our estimates for that, but we've stayed within a 14% expected rate throughout this year and has stuck with that for the fourth quarter. I don't see any reason to change that at this point in time. But we'll -- sometimes, there are some new tax things that come up, and we do will wrap up that into that, but it looks pretty good for now.
Operator
And I will now turn the call to Patrick Beharelle for closing remarks.
A. Patrick Beharelle -- Chief Executive Officer and Director
Thank you, and appreciate everyone listening to our third quarter earnings call. We look forward to talking to you again in 2020. Have a great week, everyone.
Operator
[Operator Closing Remarks]
Duration: 53 minutes
Call participants:
Derrek L. Gafford -- Executive Vice President and Chief Financial Officer
A. Patrick Beharelle -- Chief Executive Officer and Director
Josh Vogel -- Sidoti & Company. -- Analyst
John Healy -- Northcoast Research -- Analyst
Kevin McVeigh -- Credit Suisse -- Analyst
Sou Chien -- BMO Capital Markets -- Analyst
Mark Marcon -- Baird -- Analyst
