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Labor Ready Analyst Day

 

[GRAPHIC]

 

LABOR READY WE PUT PEOPLE TO WORK

 



 

Safe Harbor Statement

 

Cautionary Note about Forward–Looking Statements

 

Certain statements made by us in this presentation that are not historical facts or that relate to future plans, events or performances are forward–looking statements within the meaning of the federal securities laws. Our actual results may differ materially from those expressed in any forward–looking statements made by us. Forward-looking statements involve a number of risks and uncertainties including, but not limited to, the risks described in the Company’s most recent 10–K and 10–Q filings. All forward-looking statements are qualified by those risk factors.

 

1



 

Introduction to Directors

 

Bob Sullivan

Chairman

 

Keith Grinstein

 

Gates McKibbin

 

Joe Sambataro

 

Bill Steele

 

2



 

Management Team

 

Joe Sambataro

CEO

 

Steve Cooper

President & CFO

 

Bob Breen

VP, Strategic Planning

 

Chris Burger

Regional VP, Operations

 

Jim Defebaugh

VP & General Counsel

 

Derrek Gafford

VP, Finance

 

Yolanda Hubbard

VP, National Sales & Marketing

 

Wayne Larkin

Regional VP, Operations

 

Gary North

Regional VP, Operations

 

Billie Otto

VP, Chief Information Officer

 

Noel Wheeler

President & CEO, CLP Resources

 

3



 

“We Put People to Work.”

 

More than 600,000 people employed annually

 

[LOGO]

797
BRANCHES

 

The largest supplier of on–demand manual labor with branch locations in the U.S., Canada and the U.K.

 

 

 

[LOGO]

53
BRANCHES

 

One of the largest companies focusing exclusively on skilled trades staffing.

 

 

 

[LOGO]

21
BRANCHES

 

Southeastern supplier of on–demand manual labor with locations in Florida and other Southeastern states.

 

 

 

[LOGO]

18
BRANCHES

 

Supplier of light industrial labor to small– and mid–size businesses with locations in Florida and other Southeastern states.

 

4



 

Investment Highlights

 

                  Market leader in fragmented industry

 

                  Large and growing market

 

                  Favorable demographic trends

 

                  Diverse customer base

 

                  Scalable and flexible model

 

                  Significant capacity for operating margin expansion

 

                  Strong management and controls

 

Labor Ready is realizing significant operating leverage as it benefits from a growing economy and the maturation of its existing branch network.

 

5



 

Consolidated Revenues

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

6



 

Average Sales per Branch

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

7



 

Consolidated Net Income %

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

8



 

Diluted Earnings per Share

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

9



 

Return On Assets

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

10



 

Return On Equity

 

[CHART]

 


(E) - Based on management guidance issued on Nov. 16, 2005

 

11



 

Growth Industry

 

                  U.S. staffing market: $131 billion industry (a)

 

                  U.S. industrial staffing: $22 billion (a)

 

                  Estimated U.S. on–demand labor market: $6–$7 billion (b)

 

On Demand Labor
Market Breakdown

 

[CHART]

 


(a)  Staffing Industry Analysts, 2006 Projection

(b)  Company research estimates

 

12



 

Diversified Customer Base

 

                  More than 300,000 customers

                  Largest customer represents less than 2% of sales

                  Average yearly sales per customer of $3,900

                  More than 400 industry classifications

 

Sales by Industry in 2005

 

Construction & Landscaping

 

39

%

Manufacturing

 

18

%

Hospitality, Services & Other

 

18

%

Transportation

 

10

%

Wholesale

 

10

%

Retail

 

6

%

 

[CHART]

 

13



 

Branch Office Model

 

                  Matching customer and worker needs

 

Branch Office

 

Work Site

 

Branch Office

                  Recruit workers

 

                  Work performed

 

                  Workers exchange time card for pay

                  Screen and test

 

                  Customer signs time card

 

 

                  Assign work

 

 

 

 

                  Provide safety equipment and training

 

 

 

 

 

14



 

Strong Value Proposition

 

                  Attracting customers with:

                  Outsource the recruiting, screening and hiring of workers

                  Eliminate hiring and layoff costs

                  Access to workers on short notice

                  Management of labor costs

                  National scale and multiple locations

                  100% Satisfaction Guarantee

 

                  Attracting workers with:

                  Flexibility

                  Work Today – Paid Today

                  Access to full–time employment opportunities

 

15



 

Branch Expansion

 

                  Quickly developed branch footprint

 

                  Acquired 25 branches in 2004; and 50 in 2005

 

                  Opening approximately 45 new locations in 2006 (5% of base)

 

Number of Branch Offices

 

[CHART]

 

16



 

Temporary Employee Penetration

 

                  Temporary employees make up a small but growing share of total employment in the U.S.

 

[CHART]

 


* Source:  Bureau of Labor Statistics

 

17



 

Construction Employment Growth

 

Construction Employment Growth

(Year over year growth in total permanent employees)

 

39% of Sales

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

18



 

Manufacturing Employment Growth

 

Manufacturing Employment Growth

(Year over year growth in total permanent employees)

 

18% of Sales

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

19



 

Transportation Employment Growth

 

Transportation Employment Growth

(Year over year growth in total permanent employees)

 

9% of Sales

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

20



 

Wholesale Employment Growth

 

Wholesale Trade Employment Growth

(Year over year growth in total permanent employees)

 

9% of Sales

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

21



 

Retail Employment Growth

 

Retail Employment Growth

(Year over year growth in total permanent employees)

 

6% of Sales

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

22



 

Help Supply Employment Growth

 

Help Supply Employment Growth

(Year over year growth in total employees)

 

[CHART]

 

Source: Bureau of Labor Statistics. Measured on a trailing 12 month basis. Not seasonally adjusted.

 

23



 

Favorable Demographic Trends

 

Temporary Employment

expected to be the fifth fastest growing industry over the next decade with nearly 1.8 million new jobs by 2012*

 

Unskilled Jobs

expected to make up 70% of the top 20 fastest growing occupations*

 

Construction

expected to be the only U.S. goods–producing industry with employment growth during the next decade*

 

TEMPORARY EMPLOYMENT
A GROWTH INDUSTRY

 

[CHART]

 


* Source:  Bureau of Labor Statistics, 2012 Projections

 

24



 

Business Strategies
and
Financial Update

 



 

Key Business Strategies

 

Grow same branch revenues and profits

 

 

Expand into new markets

 

 

Diversify services and brands

 

25



 

Grow Same Branch Revenues & Profits

 

                  Sales

                  Branches currently at 50% of optimal capacity

                  Comprehensive sales training launched in 2005

                  CRM System deployed in 2005

                  New sales force incentive plan slated for 2006

 

                  Customer Service

                  Improved tenure rates of branch teams

                  Expanded customer call center operations

                  Expanded services for multi–branch customers

 

                  Leadership Development

                  Experienced Sr. Management Team driving strategy

                  Tenure rates of operations leadership team at all-time high

 

 

26



 

Regional Results

 

Excludes acquired locations from Spartan Staffing and CLP Resources

 

[GRAPHIC]

 

 

27



 

Branch Profit Potential

 

 

 

SENSITIVITY ANALYSIS BASED ON

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,400,000

 

$

1,600,000

 

$

1,800,000

 

 

 

 

 

 

 

 

 

Gross Profit

 

420,000

 

480,000

 

540,000

 

Gross Profit Margin

 

30.0

%

30.0

%

30.0

%

 

 

 

 

 

 

 

 

Branch Expenses

 

216,000

 

230,000

 

244,000

 

As a % of Revenue

 

15.4

%

14.4

%

13.6

%

 

 

 

 

 

 

 

 

Operating Income

 

$

204,000

 

$

250,000

 

$

296,000

 

Operating Income Margin

 

14.6

%

15.6

%

16.4

%

 

 

28



 

Targeted Incremental Profit %

 

 

 

Percentage of

 

 

 

Incremental

 

 

 

Same Branch

 

 

 

Sales

 

Revenue

 

100

%

Gross Profit

 

30

%

Variable Operating Costs(A)

 

14

%

Income before Taxes

 

16

%

Net Income after Taxes

 

10

%

 

2005(E) Net Income After Taxes Is Expected to be 5.0% as a percentage of revenues.

 


(A) - Includes management’s estimate of variable branch, region, and corporate costs as a percentage of incremental revenue.

 

(E) - Based on management guidance issued on Nov. 16, 2005

 

 

29



 

Branch Maturity Drives Revenue

 

Branch Revenue and Maturity (2002 – 2004 Avg.)

 

[CHART]

 

AVERAGE BRANCH AGE = 6.8 YEARS

 

Excludes acquired locations from Spartan Staffing and CLP Resources.

 

 

30



 

Operating Leverage Drives Profits

 

Earnings Per Share Sensitivity Analysis (a)

 

[CHART]

 


(a) Earnings per share sensitivity analysis based on consistent gross profit margins, management’s estimates of fixed and variable expenses, regional and back office overhead and related assumptions, at varying levels of per office revenues.

 

(E) - - Based on management guidance issued on Nov. 16, 2005

 

 

31



 

Expand into New Markets

 

                  Holding New Branch Openings to 5% of Base

                  Limits dilution to current earnings

                  Modest number of new branch openings keeps field management focused on growing our existing branches

                  Avoids over–investment in the event of economic downturn

                  Consistent approach to levels of investment for new operations

 

 

32



 

                  Resource Allocation:

How We Decide Where to Expand

                  Market potential and return on investment

                  Human capital availability and readiness

                  Speed to breakeven

                  Track record of successful new branch expansion

 

 

33



 

Brand Distinctions

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

 

 

 

 

ON DEMAND

 

LIGHT INDUSTRIAL

 

SKILLED TRADES

Short Assignments

 

Longer Assignments

 

Longer Assignments

All Industries

 

Manufacturing & Warehousing

 

Construction

$6–$7 per Hour Wage Rate Daily Pay

 

$7–$8 per Hour Wage Rate Weekly Pay

 

$12–$18 per Hour Wage Rate Weekly Pay

90% of Marketing

 

Marketing Efforts Split 50/50

 

Marketing Efforts Split 50/50

Focused on Customers

 

Between Customers and Workers

 

Between Customers and Workers

Small-Medium Customers

 

Small–Medium Customers

 

Small–Medium Customers

 

 

34



 

New Branch Economics

 

 

 

[LOGO]

 

[LOGO]

 

[LOGO]

 

 

 

 

 

 

 

 

 

Capital Expenditure Costs

 

$

35,000

 

$

50,000

 

$

70,000

 

 

 

 

 

 

 

 

 

Revenue Expectations

 

[CHART]

 

[CHART]

 

[CHART]

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margins

 

30-32

%

22-24

%

28-30

%

 

 

 

 

 

 

 

 

Initial Expense Structure

 

$

12,000 per Mo.

 

$

15,000 per Mo.

 

$

25,000 per Mo.

 

 

 

 

 

 

 

 

 

Targeted Breakeven Period

 

12 Months

 

15 Months

 

19 Months

 

 

 

 

 

 

 

 

 

Mature Branch Profitability (a)

 

12

%

12

%

12

%

 

 

 

 

 

 

 

 

Targeted After-tax Return on Investment

 

35

%

35

%

35

%

 

 

 

 

 

 

 

 

 


(a)Targeted branch-level profitability as a percentage of revenues in the fourth year of operation. Excludes regional and corporate costs, depreciation, amortization, interest and taxes.

 

 

35



 

2006 Labor Ready Expansion Plans

 

                  20–25 New Labor Ready Locations

 

                  Disbursed throughout North America

 

                  No New Locations Planned for UK in 2006

 

[GRAPHIC]

 

 

36



 

2006 Spartan Expansion Plans

 

                  10 New locations in 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        [LOGO]

 

                  Areas of Expansion Focus:

                  Adjacent Markets

 

[GRAPHIC]

 

 

37



 

2006 CLP Expansion Plans

 

                  12 New Locations in 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    [LOGO]

 

                  Areas of Expansion Focus:

                  Texas and Florida

 

[GRAPHIC]

 

 

38



 

Diversify Services & Brands

 

                  Rationale

                  Common customer base

                  Leverage recruiting resources

                  Channel synergies

                  Opportunity to create a growth platform

                  Opportunity to leverage management and systems

 

                  Constraints

                  Fit and culture

                  Financial capital / investment return

                  Human capital

                  Speed of integration

 

 

39



 

Significant Growth Opportunities

 

                  Available Through Diversification

 

Executing a strategy to build the dominant national provider in the fragmented temporary light industrial and skilled trades staffing industries, serving small- and mid-sized companies.

 

TEAMING UP WITH LABOR READY

 

 

 

Diversification of
service offerings

 

Expansion into
New Markets
where Labor
Ready already
has a presence

 

Cross-selling
Opportunities
with Labor
Ready’s existing
Customers

 

Recruiting
Potential in
Labor Ready’s
800+ Branch
Network and
Screening
600,000 available
workers

Attractive
Industry

 

 

 

 

 

 

 

 

 

 

Attractive Industry Dynamics

 

 

 

 

 

 

40



 

Targeted Diversification

 

[GRAPHIC]

 

 

41



 

Spartan Group Acquisition

 

                  Acquired April 1, 2004

                  2003 Revenues of $50 Million

                  2003 Cash Flow* of $2.3 Million

                  $9.8 Million Purchase Price

                  Accretive: Projected 2005 Cash Flow* of $3.9 Million

 

[LOGO]

 

Revenues

 

[CHART]

 

Cash Flow*

 

[CHART]

 


*Defined as net income before interest, taxes, depreciation and amortization measured over the trailing 12 months ended September 2005. Includes acquired branches only.

 

 

42



 

CLP Resources Acquisition

 

                  Acquired May 27, 2005

                  2004 Revenues of $114 Million

                  2004 Cash Flow* of $7.5 Million

                  $46 Million Purchase Price

                  Accretive: Projected 2005

Cash Flow* of $6.5 Million

 

[LOGO]

 

CLP Resources Sales Growth

 

[CHART]

 


*Defined as net income before interest, taxes, depreciation and amortization.

 

 

43



 

Speed of Integration

 

Integration Phases

 

1.               Culture

 

2.               Policies and Systems

 

3.               Cross Selling and Employee Referrals

 

 

44



 

Financial Highlights

 

                  Improving revenue and profitability

 

                  Strong gross margins

 

                  Controlled operating costs

 

                  Significant operating leverage

 

                  Strong balance sheet

 

45



 

Long-Term Growth

 

Annual Revenue and Operating Income (in $M)

 

[CHART]

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

46



 

Monthly Sales Growth Trends

 

[CHART]

 

47



 

Consistent Gross Margin

 

                  Gross Margin as a Percentage of Revenue

 

[CHART]

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

48



 

Selling, General & Admin. Costs

 

                  Trailing four quarters as a percentage of revenue

 

[CHART]

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

49



 

Net Income

 

                  Trailing four quarters as a percentage of revenue

 

[CHART]

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

50



 

2005(E) Net Income Growth

 

[CHART]

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

51



 

Strong Balance Sheet

 

 

 

Q3 2005

 

Q4 2004

 

Cash and investments

 

$

130M

 

$

141M

 

Current ratio

 

3.0

 

3.2

 

Restricted cash

 

$

147M

 

$

129M

 

Workers’ compensation reserve

 

$

168M

 

$

136M

 

Long term debt

 

$

2M

 

$

73M

 

Shareholders’ equity

 

$

330M

 

$

202M

 

 

52



 

Financial Outlook

 

 

 

2003

 

2004

 

2005(E)

 

2006 Forecast(E)

 

Revenues

 

$

891

 

$

1044

 

$1,225 - 1,230

 

$1,370 - $1,390

 

Organic Growth

 

3

%

12

%

9 - 10

%

7 - 9

%

Acquisition Growth

 

0

%

5

%

8

%

4

%

Total Revenue Growth

 

3

%

17

%

17 - 18

%

11 - 13

%

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

18

 

$

39

 

$59 - $60

 

$71 - $74

 

Net Income Growth

 

51

%

107

%

54 - 57

%

18 - 23

%

 

 

 

 

 

 

 

 

 

 

“Share-based Payments”

 

 

 

 

 

$0.02

 

$0.06

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share

 

$

0.41

 

$

0.75

 

$1.13–$1.15

 

$1.30–$1.35

 

 

 

Amounts in millions of U.S. dollars, except per share amounts.

 


 

(E) - Based on management guidance issued on Nov. 16, 2005

 

53



 

Investment Highlights

 

                  Market leader in fragmented industry

                  Large and growing market

                  Favorable demographic trends

                  Diverse customer base

                  Scalable and flexible model

                  Significant capacity for operating margin expansion

                  Strong management and controls

 

Labor Ready is realizing significant operating leverage as it benefits from
a growing economy and the maturation of its existing branch network.

 

54