Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-14543

____________________________________

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

______________________________________



	Washington		91-1287341
	(State of incorporation)		(I.R.S. employer identification no.)

1015 A Street, Tacoma, Washington 98402

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (253) 383-9101

______________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, no par value	TBI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 15, 2019, there were 40,070,067 shares of the registrant’s common stock outstanding.

TrueBlue, Inc.

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated financial statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Notes to consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	19
Item 3.	Quantitative and qualitative disclosures about market risk	31
Item 4.	Controls and procedures	31

PART II. OTHER INFORMATION
Item 1.	Legal proceedings	33
Item 1A.	Risk factors	33
Item 2.	Unregistered sales of equity securities and use of proceeds	38
Item 3.	Defaults upon senior securities	38
Item 4.	Mine safety disclosures	38
Item 5.	Other information	39
Item 6.	Index to exhibits	39

	Signatures	40

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PART I. FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

TRUEBLUE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)



(in thousands, except par value data)	June 30, 2019			December 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	23,124		$	46,988
Accounts receivable, net of allowance for doubtful accounts of $4,392 and $5,026	335,488			355,373
Prepaid expenses, deposits and other current assets	22,664			22,141
Income tax receivable	11,066			5,325
Total current assets	392,342			429,827
Property and equipment, net	58,647			57,671
Restricted cash and investments	222,556			235,443
Deferred income taxes, net	2,106			4,388
Goodwill	237,126			237,287
Intangible assets, net	81,358			91,408
Operating lease right-of-use assets	37,978			—
Workers’ compensation claims receivable, net	46,372			44,915
Other assets, net	16,402			13,905
Total assets	$	1,094,887		$	1,114,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	45,229		$	62,045
Accrued wages and benefits	72,431			77,098
Current portion of workers’ compensation claims reserve	72,336			76,421
Operating lease current liabilities	14,453			—
Other current liabilities	8,269			9,962
Total current liabilities	212,718			225,526
Workers’ compensation claims reserve, less current portion	187,001			190,025
Long-term debt	24,700			80,000
Long-term deferred compensation liabilities	25,069			21,747
Operating lease long-term liabilities	25,995			—
Other long-term liabilities	4,397			6,107
Total liabilities	479,880			523,405

Commitments and contingencies (Note 6)

Shareholders’ equity:
Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding	—			—
Common stock, no par value, 100,000 shares authorized; 40,058 and 40,054 shares issued and outstanding	1			1
Accumulated other comprehensive loss	(14,016		)	(14,649		)
Retained earnings	629,022			606,087
Total shareholders’ equity	615,007			591,439
Total liabilities and shareholders’ equity	$	1,094,887		$	1,114,844

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except per share data)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
Revenue from services	$	588,594		$	614,301		$	1,140,946		$	1,168,689
Cost of services	430,277			448,717			834,253			859,837
Gross profit	158,317			165,584			306,693			308,852
Selling, general and administrative expense	127,599			134,207			257,260			259,970
Depreciation and amortization	9,827			10,101			19,779			20,191
Income from operations	20,891			21,276			29,654			28,691
Interest expense	(660		)	(1,355		)	(1,382		)	(2,245		)
Interest and other income	1,487			387			2,762			3,481
Interest and other income (expense), net	827			(968		)	1,380			1,236
Income before tax expense	21,718			20,308			31,034			29,927
Income tax expense	2,312			2,576			3,352			3,440
Net income	$	19,406		$	17,732		$	27,682		$	26,487

Net income per common share:
Basic	$	0.50		$	0.44		$	0.71		$	0.66
Diluted	$	0.49		$	0.44		$	0.70		$	0.65

Weighted average shares outstanding:
Basic	39,163			40,227			39,264			40,335
Diluted	39,554			40,469			39,619			40,576

Other comprehensive income:
Foreign currency translation adjustment	$	(693	)	$	(1,921	)	$	633		$	(3,305	)
Comprehensive income	$	18,713		$	15,811		$	28,315		$	23,182

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



	Twenty-six weeks ended
(in thousands)	June 30, 2019			July 1, 2018
Cash flows from operating activities:
Net income	$	27,682		$	26,487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,779			20,191
Provision for doubtful accounts	3,761			5,571
Stock-based compensation	5,260			5,983
Deferred income taxes	2,393			1,373
Non-cash lease expense	6,934			—
Other operating activities	(2,072		)	102
Changes in operating assets and liabilities:
Accounts receivable	16,162			888
Income tax receivable	(6,347		)	(3,641		)
Other assets	(4,472		)	(3,522		)
Accounts payable and other accrued expenses	(16,542		)	3,468
Accrued wages and benefits	(4,667		)	(1,528		)
Workers’ compensation claims reserve	(7,109		)	(9,235		)
Operating lease liabilities	(6,957		)	—
Other liabilities	3,174			3,304
Net cash provided by operating activities	36,979			49,441
Cash flows from investing activities:
Capital expenditures	(11,064		)	(6,468		)
Acquisition of business	—			(22,742		)
Divestiture of business	—			8,800
Purchases of restricted investments	(11,315		)	(10,730		)
Maturities of restricted investments	19,685			13,044
Net cash used in investing activities	(2,694		)	(18,096		)
Cash flows from financing activities:
Purchases and retirement of common stock	(9,077		)	(19,065		)
Net proceeds from employee stock purchase plans	700			757
Common stock repurchases for taxes upon vesting of restricted stock	(1,631		)	(2,403		)
Net change in revolving credit facility	(55,300		)	21,300
Payments on debt	—			(22,856		)
Other	(119		)	—
Net cash used in financing activities	(65,427		)	(22,267		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	560			(919		)
Net change in cash, cash equivalents and restricted cash	(30,582		)	8,159
Cash, cash equivalents and restricted cash, beginning of period	102,450			73,831
Cash, cash equivalents and restricted cash, end of period	$	71,868		$	81,990
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,199		$	1,892
Income taxes	7,277			5,696
Operating lease liabilities	8,798			—
Non-cash transactions:
Property and equipment purchased but not yet paid	1,227			726
Divestiture non-cash consideration	—			1,657
Right-of-use assets obtained in exchange for new operating lease liabilities	7,711			—

See accompanying notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement preparation

The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The results of operations for the thirteen and twenty-six weeks ended June 30, 2019, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

Reclassifications

Certain immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows to conform to current year presentation.

Leases

We conduct our branch office operations from leased locations. We also lease office spaces for our centralized support functions, vehicles and equipment. Many leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expense in selling, general and administrative (“SG&A”) expense on our Consolidated Statements of Operations and Comprehensive Income. The terms of our lease agreements generally range from three to five years, some containing options to renew or cancel. We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing.

Operating leases are included in operating lease right-of-use assets and operating lease current and long-term liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term, and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.

Financing leases are included in property and equipment, net, other current liabilities, and other long-term liabilities on our Consolidated Balance Sheets. Lease expense for financing leases is recognized as depreciation of the right-of-use asset and interest expense.

Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component.

For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, client engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year. We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, Centerline, Staff Management, SIMOS, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

Based on our 2019 annual impairment test, the estimated fair value of our SIMOS reporting unit was in excess of its carrying value of $35 million by approximately 10%. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites. The loss of a key client, or a significant number of key sites, could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. We will continue to closely monitor the operational performance of this reporting unit. All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the twenty-six weeks ended June 30, 2019.

Recently adopted accounting standards

Intangibles-goodwill and other-internal-use software

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Previously, we expensed the cost of internal development labor as incurred.

The new guidance now requires these costs be capitalized with the related amortization recorded in SG&A expense. In addition, capitalized development costs are required to be recorded as a prepaid asset rather than a fixed asset, and license fees incurred during the development period are expensed as incurred.

The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We elected to early adopt this new standard prospectively as of the first day of our fiscal first quarter in 2019. There was no impact on our consolidated financial statements upon adoption.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases

In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information.

We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; 3) initial direct costs for any existing leases. We have also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each as a single lease component, for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

Adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $39 million and $41 million, respectively, as of the first day of our fiscal first quarter of 2019. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Our accounting for finance leases remained substantially unchanged. The standard did not materially impact our Consolidated Statements of Operations and Comprehensive Income or our Consolidated Statements of Cash Flows.

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted. Although the impact upon adoption will depend on the financial instruments held at that time, we do not anticipate a significant impact on our consolidated financial statements based on the instruments currently held and our historical trend of bad debt expense relating to trade accounts receivable. We plan to adopt this guidance on the effective date and are currently evaluating the impact on our accounting policies, processes, systems, and internal controls.

No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a significant impact on our consolidated financial statements and related disclosures.

NOTE 2: ACQUISITION

Effective June 12, 2018, the company acquired all of the outstanding equity interests of TMP Holdings LTD (“TMP”), through its subsidiary PeopleScout, Inc. for a cash purchase price of $22.7 million, net of cash acquired of $7.0 million. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in the United Kingdom, which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.

We incurred acquisition and integration-related costs of $0.5 million, which are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income for the thirteen and twenty-six weeks ended July 1, 2018 and cash flows from operating activities on the Consolidated Statements of Cash Flows for the twenty-six weeks ended July 1, 2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reflects the allocation of the purchase price, net of cash acquired, to the fair value of the assets acquired and liabilities assumed:



(in thousands)	Purchase price allocation
Cash purchase price, net of cash acquired	$	22,742

Accounts receivable	9,770
Prepaid expenses, deposits and other current assets	337
Property and equipment	435
Customer relationships	6,286
Trade names/trademarks	1,738
Total assets acquired	18,566

Accounts payable and other accrued expenses	9,139
Accrued wages and benefits	1,642
Income tax payable	205
Deferred income tax liability	1,444
Total liabilities assumed	12,430

Net identifiable assets acquired	6,136
Goodwill (1)	16,606
Total consideration allocated	$	22,742

(1) Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new clients and future cash flows after the acquisition of TMP, and is non-deductible for income tax purposes.

Intangible assets include identifiable intangible assets for customer relationships and trade names/trademarks. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach.

The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:



(in thousands, except for estimated useful lives, in years)	Estimated fair value		Estimated useful life in years
Customer relationships	$	6,286	3, 7
Trade names/trademarks	1,738		14
Total acquired identifiable intangible assets	$	8,024

The results of TMP’s operations and cash flows reported for 2018 on our Consolidated Statements of Operations and Comprehensive Income and Consolidated Statements of Cash Flows relate to the period from June 12, 2018 to July 1, 2018. Revenue from TMP included in our Consolidated Statements of Operations and Comprehensive Income was $2.9 million from the acquisition date to July 1, 2018, and $12.6 million and $26.9 million for the thirteen and twenty-six weeks ended June 30, 2019. The acquisition of TMP was not material to our consolidated results of operations and as such, pro forma financial information was not required.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3: FAIR VALUE MEASUREMENT

Our assets measured at fair value on a recurring basis consisted of the following:



	June 30, 2019
(in thousands)	Total fair value		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Cash and cash equivalents	$	23,124	$	23,124	$	—	$	—
Restricted cash and cash equivalents	48,744		48,744		—		—
Cash, cash equivalents and restricted cash (1)	$	71,868	$	71,868	$	—	$	—

Municipal debt securities	$	76,084	$	—	$	76,084	$	—
Corporate debt securities	69,081		—		69,081		—
Agency mortgage-backed securities	1,944		—		1,944		—
U.S. government and agency securities	1,045		—		1,045		—
Restricted investments classified as held-to-maturity	$	148,154	$	—	$	148,154	$	—

Deferred compensation mutual funds	$	28,416	$	28,416	$	—	$	—



	December 30, 2018
(in thousands)	Total fair value		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Cash and cash equivalents	$	46,988	$	46,988	$	—	$	—
Restricted cash and cash equivalents	55,462		55,462		—		—
Cash, cash equivalents and restricted cash (1)	$	102,450	$	102,450	$	—	$	—

Municipal debt securities	$	76,690	$	—	$	76,690	$	—
Corporate debt securities	75,432		—		75,432		—
Agency mortgage-backed securities	2,531		—		2,531		—
U.S. government and agency securities	988		—		988		—
Restricted investments classified as held-to-maturity	$	155,641	$	—	$	155,641	$	—

Deferred compensation mutual funds	$	23,363	$	23,363	$	—	$	—


(1)	Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.

There were no material transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy during the twenty-six weeks ended June 30, 2019 nor July 1, 2018.

NOTE 4: RESTRICTED CASH AND INVESTMENTS

The following is a summary of the carrying value of our restricted cash and investments:



(in thousands)	June 30, 2019		December 30, 2018
Cash collateral held by insurance carriers	$	23,877	$	24,182
Cash and cash equivalents held in Trust	24,721		28,021
Investments held in Trust	145,396		156,618
Deferred compensation mutual funds	28,416		23,363
Other restricted cash and cash equivalents	146		3,259
Total restricted cash and investments	$	222,556	$	235,443

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Held-to-maturity

Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).

The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of June 30, 2019 and December 30, 2018, were as follows:



	June 30, 2019
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Municipal debt securities	$	74,206	$	1,883	$	(5	)	$	76,084
Corporate debt securities	68,262		883		(64		)	69,081
Agency mortgage-backed securities	1,929		21		(6		)	1,944
U.S. government and agency securities	999		46		—			1,045
Total held-to-maturity investments	$	145,396	$	2,833	$	(75	)	$	148,154



	December 30, 2018
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Municipal debt securities	$	76,750	$	456	$	(516	)	$	76,690
Corporate debt securities	76,310		30		(908		)	75,432
Agency mortgage-backed securities	2,559		5		(33		)	2,531
U.S. government and agency securities	999		—		(11		)	988
Total held-to-maturity investments	$	156,618	$	491	$	(1,468	)	$	155,641

The estimated fair value and gross unrealized losses of all investments classified as held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2019 and December 30, 2018, were as follows:



	June 30, 2019
	Less than 12 months				12 months or more					Total
(in thousands)	Estimated fair value		Unrealized losses		Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Municipal debt securities	$	—	$	—	$	5,992	$	(5	)	$	5,992	$	(5	)
Corporate debt securities	—		—		23,378		(64		)	23,378		(64		)
Agency mortgage-backed securities	—		—		676		(6		)	676		(6		)
Total held-to-maturity investments	$	—	$	—	$	30,046	$	(75	)	$	30,046	$	(75	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 30, 2018
	Less than 12 months					12 months or more					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Municipal debt securities	$	12,803	$	(74	)	$	22,638	$	(442	)	$	35,441	$	(516	)
Corporate debt securities	22,567		(277		)	44,463		(631		)	67,030		(908		)
Agency mortgage-backed securities	385		—			1,375		(33		)	1,760		(33		)
U.S. government and agency securities	988		(11		)	—		—			988		(11		)
Total held-to-maturity investments	$	36,743	$	(362	)	$	68,476	$	(1,106	)	$	105,219	$	(1,468	)

The total number of held-to-maturity securities in an unrealized loss position as of June 30, 2019 and December 30, 2018 were 28 and 93, respectively. The unrealized losses were the result of interest rate increases. Since the decline in estimated fair value is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost or until maturity, we do not consider these investments other than temporarily impaired.

The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:



	June 30, 2019
(in thousands)	Amortized cost		Fair value
Due in one year or less	$	10,453	$	10,442
Due after one year through five years	88,986		90,201
Due after five years through ten years	45,957		47,511
Total held-to-maturity investments	$	145,396	$	148,154

Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.

Equity investments

We hold mutual funds to support our deferred compensation liability. Unrealized gains related to equity investments still held at June 30, 2019 and July 1, 2018, were $0.8 million, and $0.1 million, for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income. Unrealized gains and losses related to equity investments still held at June 30, 2019 and July 1, 2018, were a $3.2 million gain, and a $0.1 million loss, for the twenty-six weeks then ended, respectively.

NOTE 5: WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our temporary and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.

Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 2.1% and 2.0% at June 30, 2019 and December 30, 2018, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 4.5 years as of June 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:



(in thousands)	June 30, 2019		December 30, 2018
Undiscounted workers’ compensation reserve	$	277,449	$	284,625
Less discount on workers’ compensation reserve	18,112		18,179
Workers’ compensation reserve, net of discount	259,337		266,446
Less current portion	72,336		76,421
Long-term portion	$	187,001	$	190,025

Payments made against self-insured claims were $32.6 million and $36.1 million for the twenty-six weeks ended June 30, 2019 and July 1, 2018, respectively.

Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At June 30, 2019 and December 30, 2018, the weighted average rate was 2.9%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 16 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims was $47.3 million and $48.2 million as of June 30, 2019 and December 30, 2018, respectively.

Workers’ compensation expense of $16.3 million and $17.8 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income for the thirteen weeks ended June 30, 2019 and July 1, 2018, respectively. Workers’ compensation expense of $28.2 million and $34.4 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income for the twenty-six weeks ended June 30, 2019 and July 1, 2018, respectively.

NOTE 6: COMMITMENTS AND CONTINGENCIES

Workers’ compensation commitments

We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:



(in thousands)	June 30, 2019		December 30, 2018
Cash collateral held by workers’ compensation insurance carriers	$	22,311	$	22,264
Cash and cash equivalents held in Trust	24,721		28,021
Investments held in Trust	145,396		156,618
Letters of credit (1)	6,677		6,691
Surety bonds (2)	21,881		21,881
Total collateral commitments	$	220,986	$	235,475


(1)	We have agreements with certain financial institutions to issue letters of credit as collateral.

(2)

Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.

Legal contingencies and developments

We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating leases

We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 14 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options are at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances.

Operating lease costs were comprised of the following:



	Thirteen weeks ended		Twenty-six weeks ended
(in thousands)	June 30, 2019
Operating lease costs	$	4,363	$	8,635
Short-term lease costs	1,773		3,663
Other lease costs (1)	1,602		3,088
Total lease costs	$	7,738	$	15,386


(1)	Other lease costs include immaterial variable lease costs and sublease income.

Other information related to our operating leases was as follows:



	Thirteen weeks ended
	June 30, 2019
Weighted average remaining lease term in years	3.5
Weighted average discount rate	4.9%

Future non-cancelable minimum lease payments under our operating lease commitments as of June 30, 2019, are as follows for each of the next five years and thereafter:



(in thousands)
Remainder of 2019	$	8,565
2020	15,008
2021	10,863
2022	6,064
2023	3,822
2024	1,302
Thereafter	1,442
Total undiscounted future non-cancelable minimum lease payments (1)	47,066
Less: Imputed interest (2)	6,618
Present value of lease liabilities	$	40,448


(1)	Operating lease payments exclude approximately $3.9 million of legally binding minimum lease payments for leases signed but not yet commenced.


(2)	Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future non-cancelable minimum lease payments under our operating lease commitments as of December 30, 2018 were as follows for each of the next five years and thereafter:



(in thousands)
2019	$	8,337
2020	7,192
2021	4,990
2022	2,442
2023	1,324
Thereafter	699
Total future non-cancelable minimum lease payments	$	24,984

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: SHAREHOLDERS’ EQUITY

Changes in shareholders’ equity

Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018

Common stock shares
Beginning balance	40,152			41,334			40,054			41,098
Purchases and retirement of common stock	(156		)	(758		)	(390		)	(758		)
Issuances under equity plans, including tax benefits	58			11			366			229
Stock-based compensation	4			8			28			26
Ending balance	40,058			40,595			40,058			40,595

Common stock amount
Beginning balance	$	1		$	1		$	1		$	1
Current period activity	—			—			—			—
Ending balance	1			1			1			1

Retained earnings
Beginning balance	611,609			573,648			606,087			561,650
Net income	19,406			17,732			27,682			26,487
Purchases and retirement of common stock (1)	(3,774		)	(19,066		)	(9,077		)	(19,066		)
Issuances under equity plans, including tax benefits	127			46			(930		)	(1,645		)
Stock-based compensation	1,654			2,574			5,260			5,983
Change in accounting standard cumulative-effect adjustment (2)	—			—			—			1,525
Ending balance	629,022			574,934			629,022			574,934

Accumulated other comprehensive loss
Beginning balance, net of tax	(13,323		)	(9,713		)	(14,649		)	(6,804		)
Foreign currency translation adjustment	(693		)	(1,921		)	633			(3,305		)
Change in accounting standard cumulative-effect adjustment (2)	—			—			—			(1,525		)
Ending balance, net of tax	(14,016		)	(11,634		)	(14,016		)	(11,634		)

Total shareholders’ equity ending balance	$	615,007		$	563,301		$	615,007		$	563,301

(1)

Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on our Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.

(2)

As a result of our adoption of the accounting standard for equity investments issued by the FASB in January 2016, $1.5 million in unrealized gains, net of tax on equity securities previously classified as available-for-sale were reclassified from accumulated other comprehensive loss to retained earnings as of the beginning of fiscal 2018. There were no material reclassifications out of accumulated other comprehensive loss during the thirteen and twenty-six weeks ended June 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8:	INCOME TAXES

Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes we make a cumulative adjustment. Our quarterly tax provision and quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Our effective tax rate for the twenty-six weeks ended June 30, 2019 was 10.8%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit. This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of 21.0% and our effective tax rate result from state and foreign income taxes, certain non-deductible expenses, tax-exempt interest, and tax effects of stock-based compensation.


NOTE 9:	NET INCOME PER SHARE

Diluted common shares were calculated as follows:



	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
Net income	$	19,406	$	17,732	$	27,682	$	26,487

Weighted average number of common shares used in basic net income per common share	39,163		40,227		39,264		40,335
Dilutive effect of non-vested restricted stock	391		242		355		241
Weighted average number of common shares used in diluted net income per common share	39,554		40,469		39,619		40,576

Net income per common share:
Basic	$	0.50	$	0.44	$	0.71	$	0.66
Diluted	$	0.49	$	0.44	$	0.70	$	0.65

Anti-dilutive shares	246		254		336		218

NOTE 10: SEGMENT INFORMATION

Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our operating segments, also referred to as service lines, and reportable segments are described below:

Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.

Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:


•	Staff Management \| SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;


•	SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations; and


•	Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries.

Effective March 12, 2018, we divested the PlaneTechs business within our PeopleManagement reportable segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:


•	PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and


•	PeopleScout MSP: Management of multiple third party staffing vendors on behalf of clients.

Effective June 12, 2018, we acquired TMP through PeopleScout. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.

We evaluate performance based on segment revenue and segment profit. Inter-segment revenue is minimal. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and other adjustments not considered to be ongoing.

The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:



	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
Revenue from services:
Contingent staffing
PeopleReady	$	369,261	$	377,460	$	696,129	$	694,295
PeopleManagement	153,530		178,839		311,574		362,731
Human resource outsourcing
PeopleScout	65,803		58,002		133,243		111,663
Total company	$	588,594	$	614,301	$	1,140,946	$	1,168,689

The following table presents a reconciliation of Segment profit to income before tax expense:



	Thirteen weeks ended						Twenty-six weeks ended
(in thousands)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
Segment profit:
PeopleReady	$	21,795		$	23,198		$	33,265		$	32,723
PeopleManagement	4,128			4,712			6,434			10,361
PeopleScout	11,223			11,320			21,650			23,225
	37,146			39,230			61,349			66,309
Corporate unallocated	(3,634		)	(5,868		)	(10,911		)	(13,532		)
Work Opportunity Tax Credit processing fees	(240		)	(264		)	(480		)	(459		)
Acquisition/integration costs	(673		)	(457		)	(1,250		)	(457		)
Other benefits (costs)	(1,881		)	(1,264		)	725			(2,979		)
Depreciation and amortization	(9,827		)	(10,101		)	(19,779		)	(20,191		)
Income from operations	20,891			21,276			29,654			28,691
Interest and other income (expense), net	827			(968		)	1,380			1,236
Income before tax expense	$	21,718		$	20,308		$	31,034		$	29,927

Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMMENT ON FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “goal,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Risk Factors” (Part II, Item 1A of this Form 10-Q), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q), and “Management’s Discussion and Analysis” (Part I, Item 2 of this Form 10-Q). We undertake no duty to update or revise publicly any of the forward-looking statements after the date of this report or to conform such statements to actual results or to changes in our expectations, whether because of new information, future events, or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our accompanying unaudited consolidated financial statements (“financial statements”) with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the fiscal year ended December 30, 2018, and our financial statements and the accompanying notes to our financial statements.

We report our business as three distinct segments: PeopleReady, PeopleManagement and PeopleScout. See Note 10: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details of our operating segments and reportable segments.

OVERVIEW

Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements due to changing demographics, worker shortages, employee preferences, and employer workforce needs. In response, the staffing industry has accelerated its evolution from commercial staffing into specialized and outsourced staffing solutions. Client demand for staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. This may create volatility based on overall economic conditions.

TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve growth and improve productivity. We connected approximately 730,000 people with work during fiscal 2018, and served approximately 151,000 clients in a wide variety of industries through our PeopleReady segment which offers industrial staffing services, our PeopleManagement segment which offers contingent and productivity-based on-site industrial staffing and distribution services, and our PeopleScout segment which offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) services.

Fiscal second quarter of 2019 highlights

The second quarter marks the five-year anniversary of our acquisition of Staffing Solutions Holdings, Inc. (“Seaton”) and the one-year anniversary of our acquisition of TMP Holdings LTD (“TMP”). The Seaton acquisition transformed the company into a diversified workforce solutions company and provided entry into the higher-growth, higher-margin RPO market as well as enabled further RPO acquisition growth with the acquisitions of Aon Hewitt’s RPO business in 2016 and TMP in 2018. The TMP acquisition bolstered our global RPO growth strategy, providing entry into the United Kingdom and accelerated our ability to compete on multi-continent deals.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Revenue from services

Total company revenue declined 4.2% to $589 million for the thirteen weeks ended June 30, 2019, compared to the same period in the prior year, primarily due to less demand for our services attributable to lower volumes within the businesses of our clients. PeopleReady, our largest segment, experienced a revenue decline of 2.2%. PeopleManagement, our lowest margin segment, experienced a revenue decline of 14.2%. In addition to less demand from existing clients, we continue to experience the impact of the loss of several key clients in the prior year. PeopleScout, our highest margin segment, delivered 13.4% revenue growth benefiting from the acquisition of TMP on June 12, 2018, and contributing a full quarter of revenue in the second quarter of 2019. TMP represented a 17.0% increase in PeopleScout’s revenue compared to the prior year.

Gross profit

Total company gross profit as a percentage of revenue for the thirteen weeks ended June 30, 2019 was 26.9%, compared to 27.0% for the same period in the prior year. The decline was primarily due to client mix and lower margins within the acquired TMP business as a result of the pass-through nature of recruitment media purchases made on behalf of certain clients.

Selling, general and administrative (“SG&A”) expense

Total company SG&A expense decreased by $6 million to $128 million representing 21.7% of revenue for the thirteen weeks ended June 30, 2019, compared to $134 million, or 21.8% of revenue for the same period in the prior year. The decrease in SG&A expense is primarily due to cost control programs, while continuing to invest in our digital growth initiatives. The decrease was partially offset by $2 million of SG&A costs added by the acquisition of TMP.

Income from operations

Total company income from operations remained relatively flat at $21 million, or 3.5% of revenue, for the thirteen weeks ended June 30, 2019, compared to the same period in the prior year. The decrease in gross profit from the decline in revenue was offset by a decrease in SG&A expense due to cost control programs.

Net income

Net income was $19 million, or $0.49 per diluted share for the thirteen weeks ended June 30, 2019, compared to $18 million, or $0.44 per diluted share for the same period in the prior year. The improvement was primarily driven by lower interest expense as we have reduced our total debt to $25 million at the end of the second quarter of 2019 compared to $117 million at the end of the second quarter of 2018.

Additional highlights

We believe we are taking the right steps to expand our operating margin and produce long-term growth for shareholders. We also believe we are in a strong financial position to fund working capital needs for growth opportunities. As of June 30, 2019, we had cash and cash equivalents of $23 million and $268 million available under our revolving credit agreement (“Revolving Credit Facility”) for total liquidity of $291 million.

We continue to return cash to shareholders through our stock buyback program. We repurchased an additional $4 million of common stock during the thirteen weeks ended June 30, 2019. As of June 30, 2019, $49 million remains available for repurchase of common stock under the current authorization.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Total company results

The following table presents selected financial data:



	Thirteen weeks ended										Twenty-six weeks ended
(in thousands, except percentages and per share data)	June 30, 2019			% of revenue		July 1, 2018			% of revenue		June 30, 2019			% of revenue		July 1, 2018			% of revenue
Revenue from services	$	588,594				$	614,301				$	1,140,946				$	1,168,689
Total revenue growth (decline) %	(4.2		)%			0.7		%			(2.4		)%			(0.8		)%

Gross profit	$	158,317		26.9	%	$	165,584		27.0	%	$	306,693		26.9	%	$	308,852		26.4	%
Selling, general and administrative expense	127,599			21.7	%	134,207			21.8	%	257,260			22.5	%	259,970			22.2	%
Depreciation and amortization	9,827			1.7	%	10,101			1.6	%	19,779			1.7	%	20,191			1.7	%
Income from operations	20,891			3.5	%	21,276			3.5	%	29,654			2.6	%	28,691			2.5	%
Interest and other income (expense), net	827					(968		)			1,380					1,236
Income before tax expense	21,718					20,308					31,034					29,927
Income tax expense	2,312					2,576					3,352					3,440
Net income	$	19,406		3.3	%	$	17,732		2.9	%	$	27,682		2.4	%	$	26,487		2.3	%

Net income per diluted share	$	0.49				$	0.44				$	0.70				$	0.65

•

PeopleReady provides access to reliable workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady connects people to work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, retail, hospitality, general labor, and others. As of December 30, 2018, we had a network of 620 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our mobile application, JobStack^TM, which connects workers with jobs, creates a virtual exchange between our workers and clients, and allows our branch resources to expand their recruiting and sales efforts and service delivery. JobStack is helping to competitively differentiate our services, expanding our reach into new demographics, and improving both service delivery and work order fill rates as we lead our business into a digital future.

•

PeopleManagement predominantly provides a wide range of on-premise contingent staffing and workforce management solutions to larger multi-site manufacturing & distribution clients. We use distinct brands to market our PeopleManagement contingent workforce solutions and operate as Staff Management | SMX (“Staff Management”), SIMOS Insourcing Solutions (“SIMOS”), and Centerline Drivers (“Centerline”). Staff Management specializes in recruitment and on-premise management of a facility’s contingent industrial workforce. SIMOS specializes in recruitment and on-premise management of warehouse/distribution operations to meet the growing demand for e-commerce and scalable supply chain solutions. Centerline specializes in dedicated and temporary truck drivers to the transportation and distribution industries.

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PeopleScout provides recruitment process outsourcing (“RPO”) to improve talent quality, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our new proprietary candidate applicant tracking system Affinix^TM, along with dedicated service delivery teams to work as an integrated partner with our clients in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees. The solution is highly scalable and flexible, allowing for outsourcing of all or a subset of skill categories across a series of recruitment processes and onboarding steps. Affinixis PeopleScout’s proprietary talent acquisition technology for sourcing, screening and delivering a permanent workforce, bringing together talent acquisition technology into a single, integrated platform. Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days. We have already seen evidence of higher candidate conversion rates, reduced time to fill positions, and increased client satisfaction as we lead our business into a digital future. Market interest in Affinix remains high. Our PeopleScout segment also includes a managed service provider business, which provides clients with improved quality and spend management of their contingent labor vendors.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

Our year-over-year trends are impacted by our acquisition on June 12, 2018 of TMP, a mid-sized RPO and employer branding services provider operating in the United Kingdom, which is the second largest RPO market in the world. We believe this acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities. The acquired operations expand and complement our PeopleScout services and will be fully integrated into this service line. The integration is substantially complete.

Revenue from services

Revenue from services by reportable segment was as follows:

Thirteen weeks ended

Twenty-six weeks ended

(in thousands, except percentages)

June 30,
2019

Growth (decline) %

Segment % of total

July 1,
2018

Segment % of total

June 30,
2019

Growth (decline) %

Segment % of total

July 1,
2018