UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended: June 28, 2020
or
Commission File Number: 001-14543
____________________________________
(Exact name of registrant as specified in its charter)
______________________________________
(State of incorporation) | (I.R.S. employer identification no.) | |||
(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 |
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.
☒ | 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 13, 2020, there were 36,061,289 shares of the registrant’s common stock outstanding.
TrueBlue, Inc.
Table of Contents
Page | ||
PART I. FINANCIAL INFORMATION | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II. OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
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PART I. FINANCIAL INFORMATION
Item 1. | CONSOLIDATED FINANCIAL STATEMENTS |
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TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except par value data) | June 28, 2020 | December 29, 2019 | ||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | $ | ||||
Accounts receivable, net of allowance of $7,656 and $4,288 | ||||||
Prepaid expenses, deposits and other current assets | ||||||
Income tax receivable | ||||||
Total current assets | ||||||
Property and equipment, net | ||||||
Restricted cash and investments | ||||||
Deferred income taxes, net | ||||||
Goodwill | ||||||
Intangible assets, net | ||||||
Operating lease right-of-use assets | ||||||
Workers’ compensation claims receivable, net | ||||||
Other assets, net | ||||||
Total assets | $ | $ | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable and other accrued expenses | $ | $ | ||||
Accrued wages and benefits | ||||||
Current portion of workers’ compensation claims reserve | ||||||
Current portion of long-term debt | ||||||
Current operating lease liabilities | ||||||
Other current liabilities | ||||||
Total current liabilities | ||||||
Workers’ compensation claims reserve, less current portion | ||||||
Long-term debt, less current portion | ||||||
Long-term deferred compensation liabilities | ||||||
Long-term operating lease liabilities | ||||||
Other long-term liabilities | ||||||
Total liabilities | ||||||
Commitments and contingencies (Note 7) | ||||||
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; 36,052 and 38,593 shares issued and outstanding | ||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||
Retained earnings | ||||||
Total shareholders’ equity | ||||||
Total liabilities and shareholders’ equity | $ | $ | ||||
See accompanying notes to consolidated financial statements
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TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
(in thousands, except per share data) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
Revenue from services | $ | $ | $ | $ | |||||||||
Cost of services | |||||||||||||
Gross profit | |||||||||||||
Selling, general and administrative expense | |||||||||||||
Depreciation and amortization | |||||||||||||
Goodwill and intangible asset impairment charge | |||||||||||||
Income (loss) from operations | ( | ) | ( | ) | |||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Interest and other income, net | |||||||||||||
Interest and other income (expense), net | ( | ) | ( | ) | |||||||||
Income (loss) before tax expense (benefit) | ( | ) | ( | ) | |||||||||
Income tax expense (benefit) | ( | ) | ( | ) | |||||||||
Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Net income (loss) per common share: | |||||||||||||
Basic | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Diluted | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Weighted average shares outstanding: | |||||||||||||
Basic | |||||||||||||
Diluted | |||||||||||||
Other comprehensive income (loss): | |||||||||||||
Foreign currency translation adjustment | $ | $ | ( | ) | $ | ( | ) | $ | |||||
Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | |||||
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 28, 2020 | June 30, 2019 | ||||
Cash flows from operating activities: | ||||||
Net income (loss) | $ | ( | ) | $ | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
Depreciation and amortization | ||||||
Goodwill and intangible asset impairment charge | ||||||
Provision for doubtful accounts | ||||||
Stock-based compensation | ||||||
Deferred income taxes | ( | ) | ||||
Non-cash lease expense | ||||||
Other operating activities | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | ||||||
Income tax receivable | ( | ) | ( | ) | ||
Other assets | ( | ) | ||||
Accounts payable and other accrued expenses | ( | ) | ( | ) | ||
Accrued wages and benefits | ( | ) | ||||
Workers’ compensation claims reserve | ( | ) | ( | ) | ||
Operating lease liabilities | ( | ) | ( | ) | ||
Other liabilities | ( | ) | ||||
Net cash provided by operating activities | ||||||
Cash flows from investing activities: | ||||||
Capital expenditures | ( | ) | ( | ) | ||
Purchases of restricted available-for-sale investments | ( | ) | ( | ) | ||
Sales of restricted available-for-sale investments | ||||||
Purchases of restricted held-to-maturity investments | ( | ) | ( | ) | ||
Maturities of restricted held-to-maturity investments | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||
Cash flows from financing activities: | ||||||
Purchases and retirement of common stock | ( | ) | ( | ) | ||
Net proceeds from employee stock purchase plans | ||||||
Common stock repurchases for taxes upon vesting of restricted stock | ( | ) | ( | ) | ||
Net change in Revolving Credit Facility | ( | ) | ||||
Other | ( | ) | ( | ) | ||
Net cash used in financing activities | ( | ) | ( | ) | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ||||
Net change in cash, cash equivalents and restricted cash | ( | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||
Supplemental disclosure of cash flow information: | ||||||
Cash paid (received) during the period for: | ||||||
Interest | $ | $ | ||||
Income taxes | ( | ) | ||||
Operating lease liabilities | ||||||
Non-cash transactions: | ||||||
Property and equipment purchased but not yet paid | ||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||
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.
We also considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of COVID-19. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
We expect to fund operations over the next 12 months with cash from operations and funds borrowed on our revolving credit facility. On June 24, 2020, we entered into an amendment to our revolving credit facility agreement, which modified the terms of our financial covenants. We believe that we will meet the financial covenants under our amended revolving credit facility agreement over the next 12 months. This amendment resolved the potential covenant compliance issues previously disclosed in our Quarterly report on Form 10-Q for the thirteen weeks ended March 29, 2020. Refer to Note 6: Long-Term Debt for additional details of our revolving credit facility.
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 29, 2019. The results of operations for the thirteen and twenty-six weeks ended June 28, 2020, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Recently adopted accounting standards
Credit losses
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 (“CECL”), 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 previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance was adopted at the beginning of the first quarter of 2020. We were required to apply the new standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
• | PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable and lower rates of non-payment. |
• | PeopleManagement On-site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms. |
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• | PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-site, with similar payment terms. |
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk and current economic data. The allowance for credit loss is reviewed quarterly and represents our best estimate of the amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Due to the dynamic current economic environment, it is difficult to estimate the impact caused by COVID–19 on our clients. However, we believe the allowance for credit loss for accounts receivable as of June 28, 2020, is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
The activity related to the allowance for credit losses for accounts receivable during the twenty-six weeks ended June 28, 2020 was as follows:
(in thousands) | |||
Beginning balance | $ | ||
Cumulative-effect adjustment (1) | |||
Current period provision | |||
Write-offs | ( | ) | |
Foreign currency translation | ( | ) | |
Ending balance | $ | ||
(1) | As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $ |
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer credit rating. We report the entire change in present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our held-to-maturity debt securities as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of June 28, 2020.
Workers’ compensation claims reserves
We establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of June 28, 2020.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not have a significant impact on the company’s gross profit or SG&A expense.
Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.
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Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
NOTE 2: FAIR VALUE MEASUREMENT
Assets measured at fair value on a recurring basis
Our assets measured at fair value on a recurring basis consisted of the following:
June 28, 2020 | ||||||||||||
(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 | $ | $ | $ | $ | ||||||||
Restricted cash and cash equivalents | ||||||||||||
Cash, cash equivalents and restricted cash (1) | $ | $ | $ | $ | ||||||||
Municipal debt securities | $ | $ | $ | $ | ||||||||
Corporate debt securities | ||||||||||||
Agency mortgage-backed securities | ||||||||||||
U.S. government and agency securities | ||||||||||||
Restricted investments classified as held-to-maturity | $ | $ | $ | $ | ||||||||
Deferred compensation investments (2) | $ | $ | $ | $ | ||||||||
December 29, 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 | $ | $ | $ | $ | ||||||||
Restricted cash and cash equivalents | ||||||||||||
Cash, cash equivalents and restricted cash (1) | $ | $ | $ | $ | ||||||||
Municipal debt securities | $ | $ | $ | $ | ||||||||
Corporate debt securities | ||||||||||||
Agency mortgage-backed securities | ||||||||||||
U.S. government and agency securities | ||||||||||||
Restricted investments classified as held-to-maturity | $ | $ | $ | $ | ||||||||
Deferred compensation investments (2) | $ | $ | $ | $ | ||||||||
(1) | Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less. |
(2) | Deferred compensation investments consist of mutual funds and money market funds. |
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 28, 2020 or June 30, 2019.
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Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a nonrecurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter (March 29, 2020) due to market conditions. As a result of that test, we recognized an impairment charge of $175.2 million comprised as follows:
March 29, 2020 | |||||||||||||||
(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) | Total impairment loss | ||||||||||
Goodwill | $ | $ | $ | $ | $ | ( | ) | ||||||||
Client relationships | ( | ) | |||||||||||||
Total | $ | $ | $ | $ | $ | ( | ) | ||||||||
In the first quarter of 2020, goodwill and client relationship intangible assets with a total carrying value of $221.6 million were written down to their fair value, resulting in a goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
NOTE 3: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
(in thousands) | June 28, 2020 | December 29, 2019 | ||||
Cash collateral held by insurance carriers | $ | $ | ||||
Cash and cash equivalents held in Trust | ||||||
Investments held in Trust | ||||||
Deferred compensation investments | ||||||
Company owned life insurance policies | ||||||
Other restricted cash and cash equivalents | ||||||
Total restricted cash and investments | $ | $ | ||||
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 28, 2020 and December 29, 2019, were as follows:
June 28, 2020 | ||||||||||||
(in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||
Municipal debt securities | $ | $ | $ | $ | ||||||||
Corporate debt securities | ( | ) | ||||||||||
Agency mortgage-backed securities | ||||||||||||
U.S. government and agency securities | ||||||||||||
Total held-to-maturity investments | $ | $ | $ | ( | ) | $ | ||||||
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December 29, 2019 | ||||||||||||
(in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||
Municipal debt securities | $ | $ | $ | $ | ||||||||
Corporate debt securities | ( | ) | ||||||||||
Agency mortgage-backed securities | ( | ) | ||||||||||
U.S. government and agency securities | ||||||||||||
Total held-to-maturity investments | $ | $ | $ | ( | ) | $ | ||||||
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
June 28, 2020 | ||||||
(in thousands) | Amortized cost | Fair value | ||||
Due in one year or less | $ | $ | ||||
Due after one year through five years | ||||||
Due after five years through ten years | ||||||
Total held-to-maturity investments | $ | $ | ||||
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 and money market funds to support our deferred compensation liability. Unrealized gains related to equity investments still held at June 28, 2020 and June 30, 2019, totaled $3.1 million and $0.8 million for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Unrealized gains and losses related to equity investments still held at June 28, 2020 and June 30, 2019, totaled a $1.7 million loss and a $3.2 million gain for the twenty-six weeks then ended, respectively.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by reportable segments:
(in thousands) | PeopleReady | PeopleManagement | PeopleScout | Total company | |||||||||
Balance at | December 29, 2019 | ||||||||||||
Goodwill before impairment | $ | $ | $ | $ | |||||||||
Accumulated impairment loss | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Goodwill, net | |||||||||||||
Impairment loss | ( | ) | ( | ) | ( | ) | |||||||
Foreign currency translation | ( | ) | ( | ) | |||||||||
Balance at | June 28, 2020 | ||||||||||||
Goodwill before impairment | |||||||||||||
Accumulated impairment loss | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Goodwill, net | $ | $ | $ | $ | |||||||||
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
June 28, 2020 | December 29, 2019 | ||||||||||||||||||
(in thousands) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||
Finite-lived intangible assets (1): | |||||||||||||||||||
Client relationships (2) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||
Trade names/trademarks | ( | ) | ( | ) | |||||||||||||||
Technologies | ( | ) | ( | ) | |||||||||||||||
Total finite-lived intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||
(1) | Excludes assets that are fully amortized. |
(2) | Balance at June 28, 2020 is net of impairment loss of $ |
Amortization expense of our finite-lived intangible assets was $2.1 million and $5.0 million for the thirteen weeks ended June 28, 2020 and June 30, 2019, respectively, and $6.1 million and $10.0 million for the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively.
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of June 28, 2020 and December 29, 2019.
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Impairments
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, operating performance indicators, competition, client engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Interim impairment test
During the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter.
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. We experienced a significant drop in client demand associated with government and societal actions to address COVID-19.We have experienced and expect to continue to experience significant decreases to our revenues and corresponding operating results due to weakness in pricing and demand for our services during this severe economic downturn. While demand is expected to recover in the future, the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections decline to a contained level.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed 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. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 11.5 % to 12.0 %. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. As a result of this impairment test, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. The total goodwill carrying value of $45.9 million for PeopleManagement On-site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it is more likely than not that the fair value of any of our reporting units is less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $22.7 million and $9.7 million, respectively, as of June 28, 2020. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units as it relates to goodwill impairment.
Finite-lived intangible assets
We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change
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in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
Interim impairment test
With the decrease in demand for our services due to the economic impact caused by the response to COVID-19, we lowered our future expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0 %.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-site were $5.8 million and $8.1 million, respectively, as of June 28, 2020.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
Interim impairment test
We performed an interim impairment test of our indefinite-lived intangible assets as of the last day of our first fiscal quarter for 2020 and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it is more likely than not that the fair value of any of our indefinite-lived trade names is less than the carrying value. We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management and PeopleScout trade names were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020.
NOTE 5: WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our contingent 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 1.9 % and 2.0% at June 28, 2020 and December 29, 2019, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 5 years as of June 28, 2020.
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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 28, 2020 | December 29, 2019 | ||||
Undiscounted workers’ compensation reserve | $ | $ | ||||
Less discount on workers’ compensation reserve | ||||||
Workers’ compensation reserve, net of discount | ||||||
Less current portion | ||||||
Long-term portion | $ | $ | ||||
Payments made against self-insured claims were $28.0 million and $32.6 million for the twenty-six weeks ended June 28, 2020 and June 30, 2019, 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 28, 2020 and December 29, 2019, the weighted average rate was 1.7 % and 2.4 %, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 17 years. The discounted workers’ compensation reserve for excess claims was $47.6 million and $45.3 million, and the corresponding gross receivable for the insurance on excess claims was $46.6 million and $45.3 million as of June 28, 2020 and December 29, 2019, respectively.
Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $9.2 million and $16.3 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended June 28, 2020 and June 30, 2019, respectively, and $23.5 million and $28.2 million or the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively.
NOTE 6: LONG-TERM DEBT
Our borrowings consisted of the following:
(in thousands) | June 28, 2020 | December 29, 2019 | ||||
Current portion of long-term debt | $ | $ | ||||
Long-term debt, less current portion | ||||||
Total debt | $ | $ | ||||
On March 16, 2020, we entered into a first amendment to our credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. dated as of July 13, 2018, which extended the maturity of the revolving credit facility established thereunder (the “Revolving Credit Facility”) to March 16, 2025 and modified certain other terms. On June 24, 2020, we entered into a second amendment to our credit agreement (the “Second Amendment”), which modified terms of our financial covenants as well as certain other provisions of the Revolving Credit Facility.
The amended credit agreement provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount to $450.0 million. Included in the Revolving Credit Facility is a $30.0 million sub-limit for Swingline loans and a $125.0 million sub-limit for letters of credit. At June 28, 2020, $45.0 million was drawn on the Revolving Credit Facility and $6.2 million was utilized by outstanding standby letters of credit, leaving $248.8 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant making $125 million available for additional borrowings. At June 28, 2020, $27.1 million of the draw down was considered current due to a restriction established by the Second Amendment, which requires us to repay borrowings to the extent our cash and cash equivalents exceed $65 million. At December 29, 2019, $37.1 million was drawn on the Revolving Credit Facility, which included a $17.1 million Swingline loan.
Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, based on the London Interbank Offered Rate (“LIBOR”) plus an applicable spread between 1.25 % and 3.50 %. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25 %
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and 1.50 %. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50 %. The applicable spread on LIBOR is 3.50 % through the end of fiscal 2020, and will be determined by the consolidated leverage ratio thereafter, as defined in the amended credit agreement. At June 28, 2020, the applicable spread on LIBOR was 3.50 % and the weighted average index rate was 0.75 %, resulting in a weighted average interest rate of 4.25 %.
Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25 % and 1.50 %, as described above.
A commitment fee between 0.25 % and 0.50 % is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the amended credit agreement. Letters of credit are priced at a margin between 1.00 % and 3.25 %, plus a fronting fee of 0.50 %.
Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The Second Amendment suspended testing of certain covenants through June 27, 2021 (second quarter of 2021).
The following financial covenants, as defined in the Second Amendment, are in effect:
• | Asset Coverage Ratio of greater than |
• | Liquidity greater than $ |
The following financial covenant, as defined in the Second Amendment, will be in effect starting the first quarter of 2021:
• | EBITDA, as defined in the amended credit agreement, greater than $ |
The following financial covenants, as defined in the Second Amendment, will be in effect starting the third quarter of 2021:
• | Consolidated leverage ratio greater than |
• | Consolidated fixed charge coverage ratio greater than |
As of June 28, 2020, we were in compliance with all effective covenants related to the Revolving Credit Facility.
NOTE 7: 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 28, 2020 | December 29, 2019 | ||||
Cash collateral held by workers’ compensation insurance carriers | $ | $ | ||||
Cash and cash equivalents held in Trust | ||||||
Investments held in Trust | ||||||
Letters of credit (1) | ||||||
Surety bonds (2) | ||||||
Total collateral commitments | $ | $ | ||||
(1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
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(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 |
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 amounts recorded and resolution of those proceedings are immaterial and are not expected to have a material effect on our results of operations or financial condition.
NOTE 8: 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 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
Common stock shares | |||||||||||||
Beginning balance | |||||||||||||
Purchases and retirement of common stock | ( | ) | ( | ) | ( | ) | |||||||
Net issuance under equity plans, including tax benefits | ( | ) | |||||||||||
Stock-based compensation | |||||||||||||
Ending balance | |||||||||||||
Common stock amount | |||||||||||||
Beginning balance | $ | $ | $ | $ | |||||||||
Current period activity | — | — | — | — | |||||||||
Ending balance | |||||||||||||
Retained earnings | |||||||||||||
Beginning balance | |||||||||||||
Net income (loss) | ( | ) | ( | ) | |||||||||
Purchases and retirement of common stock (1) | ( | ) | ( | ) | ( | ) | |||||||
Net issuance under equity plans, including tax benefits | ( | ) | ( | ) | |||||||||
Stock-based compensation | |||||||||||||
Change in accounting standard cumulative-effect adjustment (2) | ( | ) | |||||||||||
Ending balance | |||||||||||||
Accumulated other comprehensive loss | |||||||||||||
Beginning balance, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Foreign currency translation adjustment | ( | ) | ( | ) | |||||||||
Ending balance, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Total shareholders’ equity ending balance | $ | $ | $ | $ | |||||||||
(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. |
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(2) | As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to retained earnings of $ |
Share repurchase plan
On October 16, 2019, our Board of Directors authorized a $100.0 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. As of June 28, 2020, $66.7 million remains available for repurchase of common stock under the existing authorization. The second amendment to our revolving credit facility agreement prohibits us from repurchasing shares until July 1, 2021.
As part of the existing share repurchase plan, on February 28, 2020 we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $40.0 million of our common stock. Under the ASR agreement, we paid $40.0 million to the financial institution and received an initial delivery of 2,150,538 shares in the first quarter of 2020, which represented 80 % of the total shares we expected to receive based on the market price at the time of the initial delivery. This transaction was initiated prior to the medical community’s acknowledgment of the expected severity of the impact COVID-19 would have on the United States.
The final number of shares delivered upon settlement of the agreement is determined by the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount. Under the terms of the ASR agreement, upon settlement, either we receive additional shares from the financial institution or we are required to deliver additional shares or cash to the financial institution. We control the election to either deliver additional shares or cash to the financial institution, if required. As such, the forward stock purchase contract was considered indexed to our own stock and is classified as an equity instrument as of June 28, 2020. The value of the initial shares received was recorded as a reduction to retained earnings, and the number of shares initially received was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share. We settled our ASR agreement on July 2, 2020. Refer to Note 12: Subsequent Event for additional details.
NOTE 9: |
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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns.
Our effective tax rate for the twenty-six weeks ended June 28, 2020 was 19.4 %. The difference between the statutory federal income tax rate of 21 % and our effective income tax rate results primarily from a non-deductible goodwill and intangible asset impairment charge, the CARES Act, and the federal Work Opportunity Tax Credit (“WOTC”). WOTC 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 result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of stock-based compensation.
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NOTE 10: | NET INCOME (LOSS) PER SHARE |
Diluted common shares were calculated as follows:
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
(in thousands, except per share data) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Weighted average number of common shares used in basic net income (loss) per common share | |||||||||||||
Dilutive effect of non-vested restricted stock | |||||||||||||
Weighted average number of common shares used in diluted net income (loss) per common share | |||||||||||||
Net income (loss) per common share: | |||||||||||||
Basic | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Diluted | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Anti-dilutive shares | |||||||||||||
NOTE 11: 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 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, retail, waste and recycling, energy, hospitality, general labor and others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
• | On-site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and |
• | Centerline Drivers: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries. |
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services 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. |
We evaluate performance based on segment revenue and segment profit (loss). Inter-segment revenue is minimal. Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) 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.
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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 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
Revenue from services: | |||||||||||||
Contingent staffing | |||||||||||||
PeopleReady | $ | $ | $ | $ | |||||||||
PeopleManagement | |||||||||||||
Human resource outsourcing | |||||||||||||
PeopleScout | |||||||||||||
Total company | $ | $ | $ | $ | |||||||||
The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
(in thousands) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
Segment profit (loss): | |||||||||||||
PeopleReady | $ | $ | $ | $ | |||||||||
PeopleManagement | |||||||||||||
PeopleScout | ( | ) | ( | ) | |||||||||
Total segment profit (loss) | ( | ) | |||||||||||
Corporate unallocated | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Work Opportunity Tax Credit processing fees | ( | ) | ( | ) | ( | ) | |||||||
Acquisition/integration costs | ( | ) | ( | ) | |||||||||
Goodwill and intangible asset impairment charge | ( | ) | |||||||||||
Other benefits (costs) | ( | ) | ( | ) | ( | ) | |||||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | |||||
Income (loss) from operations | ( | ) | ( | ) | |||||||||
Interest and other income (expense), net | ( | ) | ( | ) | |||||||||
Income (loss) before tax expense (benefit) | $ | ( | ) | $ | $ | ( | ) | $ | |||||
Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
NOTE 12: SUBSEQUENT EVENT
On July 2, 2020, we settled our ASR agreement resulting in the receipt of 626,948 additional shares from the third-party financial institution. The total number of shares delivered under the ASR agreement was 2,777,486 with a volume weighted average price over the term of the ASR agreement of $14.40 .
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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, the impact of and our ongoing response to COVID-19, 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 “Management’s Discussion and Analysis” (Part I, Item 2 of this Form 10-Q),“Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q), and “Risk Factors” (Part II, Item 1A 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 29, 2019, and our financial statements and the accompanying notes to our financial statements.
OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2019, we connected approximately 724,000 people with work and served approximately 139,000 clients. We report our business as three reportable segments: PeopleReady, PeopleManagement and PeopleScout. See Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our operating segments and reportable segments. Our PeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and our PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries.
The global economy and our business have been dramatically affected by COVID-19. There are no reliable estimates of how long the pandemic will last or how many people will be affected by it. For that reason, it is difficult to predict the short- and long-term impacts of the pandemic on our business at this time. Most states, counties and municipalities are monitoring overall COVID-19 testing volume and changes in the percent of positive tests in relation to hospital capacity and supplies to care for COVID-19 patients and other patients needing urgent care, and are reopening their respective economies in phases. The process of reopening has slowed due to increases in testing volumes and percent of positive test results. The preventative measures taken to help curb the spread of COVID-19 continues to have a severe adverse impact on client demand for our services and our business results. Throughout the pandemic, our business has remained open and we continue to provide key services to essential businesses.
Our first priority, with regard to COVID-19, continues to be the safety, health and hygiene of our associates, employees, clients, suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented business environment. We implemented comprehensive measures across our businesses to keep our workers and clients healthy and safe, including adherence to guidance from the Centers for Disease Control and Prevention, World Health Organization, Occupational Safety and Health Administration and other key authorities.
In response to these rapidly changing market conditions, commencing in March 2020, we have taken appropriate actions to reduce our operating expenses by between $90 million and $100 million in fiscal 2020, while preserving the key strengths of our business, to ensure we are prepared when business conditions improve. Additionally, we amended our revolving credit agreement in June 2020 to further enhance our liquidity position and are taking steps to improve positive cash flow.
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