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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: September 26, 2021
or
☐ 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 October 15, 2021, there were 35,480,624 shares of the registrant’s common stock outstanding.
TrueBlue, Inc.
Table of Contents
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| Page |
PART I. FINANCIAL INFORMATION |
Item 1. | | |
| | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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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 |
TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| | | | | | | | |
(in thousands, except par value data) | September 26, 2021 | December 27, 2020 |
ASSETS | | |
Current assets: | | |
Cash and cash equivalents | $ | 49,173 | | $ | 62,507 | |
Accounts receivable, net of allowance of $3,964 and $2,921 | 330,705 | | 278,343 | |
Prepaid expenses and other current assets | 27,158 | | 26,137 | |
Income tax receivable | 10,473 | | 11,898 | |
Total current assets | 417,509 | | 378,885 | |
Property and equipment, net | 86,414 | | 71,734 | |
Restricted cash and investments | 223,832 | | 240,534 | |
Deferred income taxes, net | 29,554 | | 30,019 | |
Goodwill | 94,615 | | 94,873 | |
Intangible assets, net | 23,769 | | 28,929 | |
Operating lease right-of-use assets, net | 58,453 | | 65,940 | |
Workers’ compensation claims receivable, net | 59,240 | | 52,934 | |
Other assets, net | 16,406 | | 16,729 | |
Total assets | $ | 1,009,792 | | $ | 980,577 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
Current liabilities: | | |
Accounts payable and other accrued expenses | $ | 62,706 | | $ | 58,447 | |
Accrued wages and benefits | 89,870 | | 122,657 | |
| | |
Current portion of workers’ compensation claims reserve | 60,936 | | 66,007 | |
| | |
Current operating lease liabilities | 12,650 | | 13,938 | |
Other current liabilities | 12,622 | | 7,918 | |
Total current liabilities | 238,784 | | 268,967 | |
Workers’ compensation claims reserve, less current portion | 197,633 | | 189,486 | |
| | |
| | |
Long-term deferred compensation liabilities | 27,915 | | 26,361 | |
Long-term operating lease liabilities | 56,875 | | 54,797 | |
| | |
Other long-term liabilities | 2,909 | | 3,776 | |
Total liabilities | 524,116 | | 543,387 | |
| | |
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; 35,455 and 35,493 shares issued and outstanding | 1 | | 1 | |
Accumulated other comprehensive loss | (15,634) | | (14,828) | |
Retained earnings | 501,309 | | 452,017 | |
Total shareholders’ equity | 485,676 | | 437,190 | |
Total liabilities and shareholders’ equity | $ | 1,009,792 | | $ | 980,577 | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
| | | | | | | | | | | | | | | | | |
| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except per share data) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
Revenue from services | $ | 577,031 | | $ | 474,530 | | | $ | 1,551,692 | | $ | 1,327,726 | |
Cost of services | 430,529 | | 364,066 | | | 1,158,148 | | 1,007,878 | |
Gross profit | 146,502 | | 110,464 | | | 393,544 | | 319,848 | |
Selling, general and administrative expense | 118,748 | | 90,100 | | | 326,657 | | 304,681 | |
Depreciation and amortization | 6,426 | | 7,652 | | | 20,405 | | 24,002 | |
Goodwill and intangible asset impairment charge | — | | — | | | — | | 175,189 | |
Income (loss) from operations | 21,328 | | 12,712 | | | 46,482 | | (184,024) | |
| | | | | |
| | | | | |
Interest expense and other income, net | 581 | | (174) | | | 1,880 | | (323) | |
Income (loss) before tax expense (benefit) | 21,909 | | 12,538 | | | 48,362 | | (184,347) | |
Income tax expense (benefit) | 3,267 | | 3,743 | | | 6,938 | | (34,480) | |
Net income (loss) | $ | 18,642 | | $ | 8,795 | | | $ | 41,424 | | $ | (149,867) | |
| | | | | |
Net income (loss) per common share: | | | | | |
Basic | $ | 0.53 | | $ | 0.25 | | | $ | 1.19 | | $ | (4.20) | |
Diluted | $ | 0.53 | | $ | 0.25 | | | $ | 1.17 | | $ | (4.20) | |
| | | | | |
Weighted average shares outstanding: | | | | | |
Basic | 34,873 | | 34,597 | | | 34,788 | | 35,643 | |
Diluted | 35,475 | | 34,904 | | | 35,255 | | 35,643 | |
| | | | | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustment | $ | (1,296) | | $ | 386 | | | $ | (806) | | $ | (4,141) | |
Comprehensive income (loss) | $ | 17,346 | | $ | 9,181 | | | $ | 40,618 | | $ | (154,008) | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | | |
| Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 |
Cash flows from operating activities: | | |
Net income (loss) | $ | 41,424 | | $ | (149,867) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
Depreciation and amortization | 20,405 | | 24,002 | |
Goodwill and intangible asset impairment charge | — | | 175,189 | |
Provision for credit losses | 2,881 | | 6,582 | |
Stock-based compensation | 10,149 | | 6,762 | |
Deferred income taxes | 445 | | (25,955) | |
Non-cash lease expense | 11,173 | | 11,115 | |
Other operating activities | (1,484) | | 1,944 | |
Changes in operating assets and liabilities: | | |
Accounts receivable | (53,626) | | 55,408 | |
Income tax receivable | 963 | | (4,928) | |
Operating lease right-of-use asset | 7,150 | | — | |
Other assets | (7,003) | | (2,646) | |
Accounts payable and other accrued expenses | 3,212 | | (12,723) | |
Other accrued wages and benefits | 24,278 | | (7,395) | |
Deferred employer payroll taxes | (57,066) | | 36,312 | |
Workers’ compensation claims reserve | 3,075 | | (824) | |
Operating lease liabilities | (10,017) | | (11,410) | |
Other liabilities | 4,598 | | (2,798) | |
Net cash provided by operating activities | 557 | | 98,768 | |
Cash flows from investing activities: | | |
Capital expenditures | (28,772) | | (16,244) | |
| | |
| | |
| | |
Purchases of restricted available-for-sale investments | (29) | | (2,310) | |
Sales of restricted available-for-sale investments | 793 | | 3,212 | |
Purchases of restricted held-to-maturity investments | — | | (32,495) | |
Maturities of restricted held-to-maturity investments | 18,346 | | 24,358 | |
| | |
Net cash used in investing activities | (9,662) | | (23,479) | |
Cash flows from financing activities: | | |
Purchases and retirement of common stock | — | | (52,346) | |
Net proceeds from employee stock purchase plans | 754 | | 734 | |
Common stock repurchases for taxes upon vesting of restricted stock | (3,035) | | (2,331) | |
Net change in revolving credit facility | — | | (35,600) | |
| | |
| | |
Other | (270) | | (1,436) | |
Net cash used in financing activities | (2,551) | | (90,979) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (613) | | (466) | |
Net change in cash, cash equivalents and restricted cash | (12,269) | | (16,156) | |
Cash, cash equivalents and restricted cash, beginning of period | 118,612 | | 92,371 | |
Cash, cash equivalents and restricted cash, end of period | $ | 106,343 | | $ | 76,215 | |
Supplemental disclosure of cash flow information: | | |
Cash paid (received) during the period for: | | |
Interest | $ | 1,174 | | $ | 2,672 | |
Income taxes | 5,522 | | (3,414) | |
Operating lease liabilities | 12,402 | | 13,147 | |
Non-cash transactions: | | |
Property and equipment purchased but not yet paid | 2,394 | | 1,614 | |
Right-of-use assets obtained in exchange for new operating lease liabilities | 10,739 | | 8,672 | |
See accompanying notes to consolidated financial statements
| | |
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.
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The severity, magnitude and duration, as well as the economic consequences of the coronavirus (“COVID-19”) pandemic, are uncertain and difficult to predict. Therefore, our accounting estimates and assumptions could change materially in future periods.
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 27, 2020. The results of operations for the thirty-nine weeks ended September 26, 2021 are not necessarily indicative of the results expected for the full fiscal year nor for any other fiscal period.
Reclassifications
Certain previously reported immaterial prior year amounts have been reclassified within current liabilities on our Consolidated Balance Sheets to conform to current year presentation. Additionally, we have separately presented deferred employer payroll taxes from prior period reported amounts within operating activities on our Consolidated Statements of Cash Flows.
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, PeopleManagement On-Site, PeopleManagement Centerline, PeopleScout RPO, 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. We estimate the fair value of each reporting unit using 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. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 2021 annual impairment test performed as of March 29, 2021, all of our reporting units’ fair values were substantially in excess of their respective carrying values. Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 29, 2021 to September 26, 2021.
Government incentives
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which among other things, provided employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak. Additionally, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. Deferred employer payroll taxes of $59.9 million were paid in full on September 15, 2021.
Recently adopted accounting standards
There were no new accounting standards adopted during the thirty-nine weeks ended September 26, 2021 that had an impact on our financial statements.
Recently issued accounting standards not yet adopted
There are no accounting standards 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:
| | | | | | | | | | | | | | |
| September 26, 2021 |
(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 | $ | 49,173 | | $ | 49,173 | | $ | — | | $ | — | |
Restricted cash and cash equivalents | 57,170 | | 57,170 | | — | | — | |
Cash, cash equivalents and restricted cash (1) | $ | 106,343 | | $ | 106,343 | | $ | — | | $ | — | |
| | | | |
Municipal debt securities | $ | 61,255 | | $ | — | | $ | 61,255 | | $ | — | |
Corporate debt securities | 73,622 | | — | | 73,622 | | — | |
Agency mortgage-backed securities | 200 | | — | | 200 | | — | |
U.S. government and agency securities | 1,089 | | — | | 1,089 | | — | |
Restricted investments classified as held-to-maturity (2) | $ | 136,166 | | $ | — | | $ | 136,166 | | $ | — | |
| | | | |
Deferred compensation investments (3) | $ | 6,254 | | $ | 6,254 | | $ | — | | $ | — | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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| December 27, 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 | $ | 62,507 | | $ | 62,507 | | $ | — | | $ | — | |
Restricted cash and cash equivalents | 56,105 | | 56,105 | | — | | — | |
Cash, cash equivalents and restricted cash (1) | $ | 118,612 | | $ | 118,612 | | $ | — | | $ | — | |
| | | | |
Municipal debt securities | $ | 70,723 | | $ | — | | $ | 70,723 | | $ | — | |
Corporate debt securities | 85,937 | | — | | 85,937 | | — | |
Agency mortgage-backed securities | 512 | | — | | 512 | | — | |
U.S. government and agency securities | 1,124 | | — | | 1,124 | | — | |
Restricted investments classified as held-to-maturity (2) | $ | 158,296 | | $ | — | | $ | 158,296 | | $ | — | |
| | | | |
Deferred compensation investments (3) | $ | 5,915 | | $ | 5,915 | | $ | — | | $ | — | |
(1)Cash, cash equivalents and restricted cash include money market funds and deposits.
(2)Refer to Note 3: Restricted Cash and Investments for additional details on our held-to-maturity debt securities.
(3)Deferred compensation investments consist of mutual funds and money market funds. Refer to Note 3: Restricted Cash and Investments for additional details on these investments.
NOTE 3: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
| | | | | | | | |
(in thousands) | September 26, 2021 | December 27, 2020 |
Cash collateral held by insurance carriers | $ | 28,682 | | $ | 26,025 | |
Cash and cash equivalents held in Trust | 27,370 | | 29,410 | |
Investments held in Trust | 132,127 | | 152,247 | |
Deferred compensation investments | 6,254 | | 5,915 | |
Company-owned life insurance policies | 28,281 | | 26,267 | |
Other restricted cash and cash equivalents | 1,118 | | 670 | |
Total restricted cash and investments | $ | 223,832 | | $ | 240,534 | |
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 September 26, 2021 and December 27, 2020, were as follows:
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| September 26, 2021 |
(in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
Municipal debt securities | $ | 58,719 | | $ | 2,536 | | $ | — | | $ | 61,255 | |
Corporate debt securities | 72,218 | | 1,585 | | (181) | | 73,622 | |
Agency mortgage-backed securities | 193 | | 7 | | — | | 200 | |
U.S. government and agency securities | 997 | | 92 | | — | | 1,089 | |
Total held-to-maturity investments | $ | 132,127 | | $ | 4,220 | | $ | (181) | | $ | 136,166 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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| December 27, 2020 |
(in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
Municipal debt securities | $ | 67,287 | | $ | 3,436 | | $ | — | | $ | 70,723 | |
Corporate debt securities | 83,467 | | 2,511 | | (41) | | 85,937 | |
Agency mortgage-backed securities | 493 | | 19 | | — | | 512 | |
U.S. government and agency securities | 1,000 | | 124 | | — | | 1,124 | |
Total held-to-maturity investments | $ | 152,247 | | $ | 6,090 | | $ | (41) | | $ | 158,296 | |
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
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| September 26, 2021 |
(in thousands) | Amortized cost | Fair value |
Due in one year or less | $ | 24,342 | | $ | 24,572 | |
Due after one year through five years | 103,803 | | 107,368 | |
Due after five years through ten years | 3,982 | | 4,226 | |
Total held-to-maturity investments | $ | 132,127 | | $ | 136,166 | |
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.
Deferred compensation investments and company-owned life insurance policies
We hold mutual funds, money market funds and company-owned life insurance policies to support our deferred compensation liability. Unrealized gains and losses related to these investments still held at September 26, 2021 and September 27, 2020, included in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
Unrealized gains (losses) | $ | 391 | | $ | 1,452 | | | $ | 2,817 | | $ | (258) | |
NOTE 4: SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts receivable allowance for credit losses
The activity related to the accounts receivable allowance for credit losses was as follows:
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| Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 |
Beginning balance | $ | 2,921 | | $ | 4,288 | |
Cumulative-effect adjustment (1) | — | | 524 | |
Current period provision | 2,881 | | 6,582 | |
Write-offs | (1,827) | | (5,925) | |
Foreign currency translation | (11) | | (22) | |
Ending balance | $ | 3,964 | | $ | 5,447 | |
(1)As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our accounts receivable allowance for credit losses of $0.5 million as of the beginning of the first quarter of 2020.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Prepaid expenses and other current assets
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(in thousands) | September 26, 2021 | December 27, 2020 |
Prepaid software agreements | $ | 8,107 | | $ | 8,643 | |
Other prepaid expenses | 9,825 | | 8,631 | |
Other current assets | 9,226 | | 8,863 | |
Prepaid expenses and other current assets | $ | 27,158 | | $ | 26,137 | |
Other current liabilities
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(in thousands) | September 26, 2021 | December 27, 2020 |
Deferred revenue | $ | 6,483 | | $ | 1,167 | |
Other current liabilities | 6,139 | | 6,751 | |
Other current liabilities | $ | 12,622 | | $ | 7,918 | |
NOTE 5: WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our associates 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 1.6% and 1.8% at September 26, 2021 and December 27, 2020, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 5.5 years as of September 26, 2021.
The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:
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(in thousands) | September 26, 2021 | December 27, 2020 |
Undiscounted workers’ compensation reserve | $ | 275,398 | | $ | 273,502 | |
Less discount on workers’ compensation reserve | 16,829 | | 18,009 | |
Workers’ compensation reserve, net of discount | 258,569 | | 255,493 | |
Less current portion | 60,936 | | 66,007 | |
Long-term portion | $ | 197,633 | | $ | 189,486 | |
Payments made against self-insured claims were $32.0 million and $40.6 million for the thirty-nine weeks ended September 26, 2021 and September 27, 2020, 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. The rates used to discount excess claims incurred during the thirty-nine weeks ended September 26, 2021 and fifty-two weeks ended December 27, 2020 were 1.6% and 1.3%, 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 $60.6 million and $54.0 million, as of September 26, 2021 and December 27, 2020, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $59.2 million and $52.9 million as of September 26, 2021 and December 27, 2020, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 $13.3 million and $14.4 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended September 26, 2021 and September 27, 2020, respectively, and $32.7 million and $38.0 million for the thirty-nine weeks ended September 26, 2021 and September 27, 2020, 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) | September 26, 2021 | December 27, 2020 |
Cash collateral held by workers’ compensation insurance carriers | $ | 22,786 | | $ | 22,253 | |
Cash and cash equivalents held in Trust | 27,370 | | 29,410 | |
Investments held in Trust | 132,127 | | 152,247 | |
Letters of credit (1) | 6,160 | | 6,095 | |
Surety bonds (2) | 21,969 | | 20,616 | |
Total collateral commitments | $ | 210,412 | | $ | 230,621 | |
(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 and are immaterial. We also believe that the aggregate range of reasonably possible losses for the Company's exposure in excess of the amount accrued is expected to be immaterial to the Company. It remains possible that despite our current belief, material differences in actual outcomes or changes in management's evaluation or predictions could arise that could have a material effect on the Company's financial condition, results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 7: SHAREHOLDERS’ EQUITY
Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
| | | | | |
Common stock shares | | | | | |
Beginning balance | 35,510 | | 36,052 | | | 35,493 | | 38,593 | |
Purchases and retirement of common stock | — | | (627) | | | — | | (3,557) | |
Net issuance under equity plans, including tax benefits | (55) | | 48 | | | (72) | | 387 | |
Stock-based compensation | — | | (23) | | | 34 | | 27 | |
Ending balance | 35,455 | | 35,450 | | | 35,455 | | 35,450 | |
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Common stock amount | | | | | |
Beginning balance | $ | 1 | | $ | 1 | | | $ | 1 | | $ | 1 | |
Current period activity | — | | — | | | — | | — | |
Ending balance | 1 | | 1 | | | 1 | | 1 | |
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Retained earnings | | | | | |
Beginning balance | 479,567 | | 430,525 | | | 452,017 | | 639,210 | |
Net income (loss) | 18,642 | | 8,795 | | | 41,424 | | (149,867) | |
Purchases and retirement of common stock (1) | — | | — | | | — | | (52,346) | |
Net issuance under equity plans, including tax benefits | (133) | | (177) | | | (2,281) | | (1,597) | |
Stock-based compensation | 3,233 | | 2,417 | | | 10,149 | | 6,762 | |
Change in accounting standard cumulative-effect adjustment (2) | — | | — | | | — | | (602) | |
Ending balance | 501,309 | | 441,560 | | | 501,309 | | 441,560 | |
| | | | | |
Accumulated other comprehensive loss | | | | | |
Beginning balance, net of tax | (14,338) | | (17,765) | | | (14,828) | | (13,238) | |
Foreign currency translation adjustment | (1,296) | | 386 | | | (806) | | (4,141) | |
Ending balance, net of tax | (15,634) | | (17,379) | | | (15,634) | | (17,379) | |
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Total shareholders’ equity ending balance | $ | 485,676 | | $ | 424,182 | | | $ | 485,676 | | $ | 424,182 | |
(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 credit losses, we recognized a cumulative-effect adjustment to retained earnings of $0.6 million in the first quarter of 2020.
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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 full year pre-tax 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 income tax rate for the thirty-nine weeks ended September 26, 2021 was 14.3%. The difference between the statutory federal income tax rate of 21% and our effective tax rate was primarily due to hiring credits, including the Work Opportunity Tax Credit (“WOTC”), offset by state income taxes. 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 and non-taxable items and tax effects of stock-based compensation.
NOTE 9: NET INCOME (LOSS) PER SHARE
Diluted common shares were calculated as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except per share data) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
Net income (loss) | $ | 18,642 | | $ | 8,795 | | | $ | 41,424 | | $ | (149,867) | |
| | | | | |
Weighted average number of common shares used in basic net income (loss) per common share | 34,873 | | 34,597 | | | 34,788 | | 35,643 | |
Dilutive effect of non-vested stock-based awards | 602 | | 307 | | | 467 | | — | |
Weighted average number of common shares used in diluted net income (loss) per common share | 35,475 | | 34,904 | | | 35,255 | | 35,643 | |
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Net income (loss) per common share: | | | | | |
Basic | $ | 0.53 | | $ | 0.25 | | | $ | 1.19 | | $ | (4.20) | |
Diluted | $ | 0.53 | | $ | 0.25 | | | $ | 1.17 | | $ | (4.20) | |
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Anti-dilutive shares | 24 | | 595 | | | 47 | | 1,006 | |
NOTE 10: SEGMENT INFORMATION
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, and general labor.
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:
•PeopleManagement On-Site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and
•PeopleManagement Centerline: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 RPO: Outsourced recruitment of permanent employees on behalf of clients and employer branding services; and
•PeopleScout MSP: Management of multiple third-party staffing vendors on behalf of clients.
The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
Revenue from services: | | | | | |
Contingent staffing | | | | | |
PeopleReady | $ | 349,056 | | $ | 293,546 | | | $ | 908,764 | | $ | 801,991 | |
PeopleManagement | 157,789 | | 147,241 | | | 461,899 | | 407,516 | |
Human resource outsourcing | | | | | |
PeopleScout | 70,186 | | 33,743 | | | 181,029 | | 118,219 | |
Total company | $ | 577,031 | | $ | 474,530 | | | $ | 1,551,692 | | $ | 1,327,726 | |
The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands) | September 26, 2021 | September 27, 2020 | | September 26, 2021 | September 27, 2020 |
Segment profit: | | | | | |
PeopleReady | $ | 24,690 | | $ | 18,714 | | | $ | 54,987 | | $ | 27,002 | |
PeopleManagement | 2,360 | | 4,574 | | | 8,697 | | 6,063 | |
PeopleScout | 9,778 | | 349 | | | 24,672 | | 75 | |
Total segment profit | 36,828 | | 23,637 | | | 88,356 | | 33,140 | |
Corporate unallocated | (7,667) | | (5,968) | | | (20,593) | | (16,106) | |
Third-party processing fees for hiring tax credits | (419) | | (174) | | | (584) | | (309) | |
Amortization of software as a service assets | (670) | | (575) | | | (1,989) | | (1,692) | |
| | | | | |
Goodwill and intangible asset impairment charge | — | | — | | | — | | (175,189) | |
| | | | | |
Workforce reduction costs | (110) | | (270) | | | (194) | | (12,589) | |
COVID-19 government subsidies, net | 92 | | 4,071 | | | 4,131 | | 7,175 | |
Other benefits (costs) | (300) | | (357) | | | (2,240) | | 5,548 | |
Depreciation and amortization | (6,426) | | (7,652) | | | (20,405) | | (24,002) | |
Income (loss) from operations | 21,328 | | 12,712 | | | 46,482 | | (184,024) | |
Interest expense and other income, net | 581 | | (174) | | | 1,880 | | (323) | |
Income (loss) before tax expense (benefit) | $ | 21,909 | | $ | 12,538 | | | $ | 48,362 | | $ | (184,347) | |
Asset information by reportable segment is not presented as 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, 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 of Financial Condition and Results of Operations” (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.
OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help our clients improve productivity and grow their businesses. Our operations are managed as three business segments: PeopleReady, PeopleManagement and PeopleScout. 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. 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 on our operating segments and reportable segments.
The COVID-19 pandemic
Beginning in early 2020, the coronavirus (“COVID-19”) pandemic has led to a series of significant economic disruptions globally. Throughout the pandemic, our business has remained open and we have continued to provide key services to essential businesses and other businesses as COVID-19 restrictions have lifted. Currently in our two largest markets, the United States of America (“U.S.”) and Canada, vaccinations continue to be a top priority and are being supported by governmental programs. As of October 18, 2021, approximately 57% of the U.S. and 73% of the Canadian populations have been fully vaccinated. While the vaccination programs have helped to reopen these markets, we continue to monitor the pandemic’s evolution closely. Despite an uneven recovery in certain markets and industries, we are seeing growth in new client wins and higher existing client volumes, particularly in those markets and industries hit hardest by COVID-19. In addition, our continued focus on efficiently managing costs while investing in digital strategies and sales resources has allowed us to accelerate our strategic priorities and emerge stronger as the economy recovers.
For additional discussion on the uncertainties and business risks associated with COVID-19, refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Third quarter of 2021 highlights
Revenue from services
Total company revenue grew 21.6% to $577.0 million for the thirteen weeks ended September 26, 2021, compared to the same period in the prior year. The increase was due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of the COVID-19 pandemic. This increase is primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
•PeopleReady, our largest segment by revenue, experienced revenue growth of 18.9% to $349.1 million for the thirteen weeks ended September 26, 2021, compared to the same period in the prior year. PeopleReady provides a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady has seen a continued recovery across most geographies and industries, especially those in industries that were hit the hardest by COVID-19, such as construction, transportation, manufacturing, retail and hospitality. The growth in demand was partially offset by a shortage in the supply of workers in certain markets that we believe has been temporarily impacted by government responses to COVID-19, which have included stimulus checks, elevated federal unemployment benefits, accelerated payments of the child tax credit, and other direct payments to individuals. Even as workers have exited federal and state unemployment programs late in the third quarter of 2021, we believe workers have been slow to return to the workforce for many reasons including health or childcare concerns, and instead are relying on personal savings or other means to supplement their income until they choose to return to work. As compared to our other segments, PeopleReady experienced the most pressure on the available supply of workers, primarily due to a lower average wage, the temporary nature of the positions, and the shorter notice period we receive to fill open positions.
•PeopleManagement, our second largest segment by revenue, experienced revenue growth of 7.2% to $157.8 million for the thirteen weeks ended September 26, 2021, compared to the same period in the prior year. PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site and driver relationships. PeopleManagement continued to see revenue growth during the fiscal third quarter of 2021 compared to the same period in the prior year due to significant new client wins. Estimated annualized revenue from new client wins during the thirty-nine weeks ended September 26, 2021 was $86 million, as compared to the average of the prior three years of approximately $60 million. However, the pace of revenue recovery slowed due to worker supply and supply chain related production slow-downs in key industries, such as automotive, manufacturing and retail.
•PeopleScout, our smallest segment by revenue, experienced revenue growth of 108.0% to $70.2 million for the thirteen weeks ended September 26, 2021, compared to the same period in the prior year. PeopleScout offers RPO and MSP solutions. PeopleScout has seen a strong recovery in volume from existing clients, especially those in industries that were hit hardest by COVID-19, such as travel and leisure, as well as new client wins. New client wins contributed $5.4 million of revenue for the thirteen weeks ended September 26, 2021 within a variety of industries including retail, health care and transportation. Estimated annualized revenue from new client wins during the thirty-nine weeks ended September 26, 2021 was $38 million, as compared to the average of the prior three years of approximately $9 million.
Gross profit
Total company gross profit as a percentage of revenue for the thirteen weeks ended September 26, 2021 increased by 210 basis points to 25.4%, compared to 23.3% for the same period in the prior year. Our staffing businesses contributed 110 basis points of improvement, primarily attributable to a benefit of 70 basis points due to lower workers’ compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development, and the remaining 40 basis points due to increased sales mix from our PeopleReady segment, which has a higher gross margin profile than PeopleManagement, our other staffing segment. Our PeopleScout business contributed the remaining 100 basis points of expansion from improved recruiter utilization on increasing volumes.
Selling, general and administrative (“SG&A”) expense
Total company SG&A expense increased by $28.6 million to $118.7 million, or 20.6% of revenue for the thirteen weeks ended September 26, 2021, compared to $90.1 million, or 19.0% of revenue for the same period in the prior year, an increase of 160 basis points. The prior period included a $4.0 million reduction to SG&A due to government employment subsidies which did not recur in the current period, driving an increase of 80 basis points. The remaining 80 basis point increase was due to the temporary cost saving actions from 2020 which were discontinued as revenue trends improved. We have continued to balance cost discipline with preserving our operational strengths, which has positioned us well for growth as economic conditions continue to improve.
Income from operations
Total company income from operations was $21.3 million, or 3.7% of revenue for the thirteen weeks ended September 26, 2021, compared to $12.7 million, or 2.7% of revenue for the same period in the prior year. The increase in income from operations was due to improving revenue trends led by recovering industry performance, including those disproportionately impacted by COVID-19, a series of new client wins, and expanding gross margin, which collectively increased income from operations margin by 100 basis points.
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
Net income
Net income was $18.6 million, or $0.53 per diluted share for the thirteen weeks ended September 26, 2021, compared to $8.8 million, or $0.25 per diluted share for the same period in the prior year. Net income for the thirteen weeks ended September 26, 2021 includes income tax expense of $3.3 million resulting in an effective tax rate of 14.9%, compared to an expense of $3.7 million and an effective tax rate of 29.9% for the same period in the prior year. The higher effective tax rate in the prior year was due to lower benefits from hiring credits, primarily the federal Work Opportunity Tax Credit (“WOTC”), and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The difference between our statutory tax rate of 21% and our effective income tax rate results primarily from hiring credits, including WOTC, and the CARES Act. WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. 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 where the federal tax rate was 35%.
Additional highlights
As of September 26, 2021, we were in a strong financial position with cash and cash equivalents of $49.2 million, no outstanding debt and $293.8 million available under our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $343.0 million.
RESULTS OF OPERATIONS
We report our business as three reportable segments described below and in Note 10: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q.
•PeopleReady provides access to qualified associates through a wide range of staffing solutions for on-demand contingent general and skilled labor. PeopleReady connects people with work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality and general labor. As of December 27, 2020, we had a network of 629 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our industry-leading mobile app, JobStackTM, which connects people with work 24 hours a day, seven days a week. This creates a virtual exchange between our associates and clients, and allows our branch resources to expand their recruiting, sales and service delivery efforts. JobStack is competitively differentiating our services, expanding our reach into new demographics, and improving our service delivery and work order fill rates, as we embrace a digital future.
•PeopleManagement provides recruitment and on-site management of a facility’s contingent industrial workforce throughout the U.S., Canada and Puerto Rico. In comparison with PeopleReady, services are larger in scale and longer in duration, and dedicated service teams are located at the client’s facility. We provide scalable solutions to meet the volume requirements of labor-intensive manufacturing, warehouse and distribution facilities. Our dedicated service teams work closely with on-site management as an integral part of the production and logistics process, managing all or a subset of the contingent labor for a facility or operational function. Our on-site staffing solutions provide large-scale sourcing, screening, recruiting and management of the contingent workforce at a client’s facility in order to achieve faster hiring, lower total workforce cost, increase safety and compliance, improve retention, create greater volume flexibility, and enhance strategic decision-making through robust reporting and analytics. Our On-Site operating segment includes our Staff Management | SMX and SIMOS Insourcing Solutions branded service offerings, which provide hourly and productivity-based (cost per unit) pricing options for industrial staffing solutions. Client contracts are generally multi-year in duration. The productivity-based pricing leverages a strategically engineered on-site solution to incentivize performance improvements in cost, quality and on-time delivery using a fixed price-per-unit approach. Both hourly and productivity-based pricing are impacted by factors such as geography, volume, job type, and degree of recruiting difficulty.
PeopleManagement also provides dedicated and contingent commercial truck drivers to the transportation and distribution industries through our Centerline Drivers (“Centerline”) brand. Centerline delivers drivers specifically matched to each client’s needs, allowing them to improve productivity, control costs, ensure compliance, and deliver improved service.
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
•PeopleScout offers RPO and MSP solutions to a wide variety of industries and geographies, primarily in the U.S., Canada, the United Kingdom and Australia. PeopleScout provides RPO services that manage talent solutions spanning the global economy and talent advisory capabilities supporting total workforce needs. We are recognized as an industry leader for RPO services. Our solution is highly scalable and flexible, which allows for outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps. Our solution delivers improved talent quality and candidate experience, 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 proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. 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. Client contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire and talent consulting fees. Pricing is impacted by factors such as geography, volume, job type, degree of recruiting difficulty, and the scope of outsourced recruitment and employer branding services included.
PeopleScout also includes our MSP business, which manages our clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. As the client’s exclusive MSP, we have dedicated service delivery teams which work as an integrated partner with our clients to increase the productivity of their contingent workforce program.
Total company results
The following table presents selected financial data:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages and per share data) | Sep 26, 2021 | % of revenue | Sep 27, 2020 | | % of revenue | | Sep 26, 2021 | % of revenue | Sep 27, 2020 | | % of revenue |
Revenue from services | $ | 577,031 | | | $ | 474,530 | | | | | $ | 1,551,692 | | | $ | 1,327,726 | | | |
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Gross profit | $ | 146,502 | | 25.4 | % | $ | 110,464 | | | 23.3 | % | | $ | 393,544 | | 25.4 | % | $ | 319,848 | | | 24.1 | % |
Selling, general and administrative expense | 118,748 | | 20.6 | | 90,100 | | | 19.0 | | | 326,657 | | 21.1 | | 304,681 | | | 22.9 | |
Depreciation and amortization | 6,426 | | 1.1 | | 7,652 | | | 1.6 | | | 20,405 | | 1.3 | | 24,002 | | | 1.8 | |
Goodwill and intangible asset impairment charge | — | | — | | — | | | — | | | — | | — | | 175,189 | | | 13.3 | |
Income (loss) from operations | 21,328 | | 3.7 | % | 12,712 | | | 2.7 | % | | 46,482 | | 3.0 | % | (184,024) | | | (13.9) | % |
Interest expense and other income, net | 581 | | | (174) | | | | | 1,880 | | | (323) | | | |
Income (loss) before tax expense (benefit) | 21,909 | | | 12,538 | | | | | 48,362 | | | (184,347) | | | |
Income tax expense (benefit) | 3,267 | | | 3,743 | | | | | 6,938 | | | (34,480) | | | |
Net income (loss) | $ | 18,642 | | 3.2 | % | $ | 8,795 | | | 1.9 | % | | $ | 41,424 | | 2.7 | % | $ | (149,867) | | | (11.3) | % |
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Net income (loss) per diluted share | $ | 0.53 | | | $ | 0.25 | | | | | $ | 1.17 | | | $ | (4.20) | | | |
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
Revenue from services
Revenue from services by reportable segment was as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | Growth % | Segment % of total | Sep 27, 2020 | Segment % of total | | Sep 26, 2021 | Growth % | Segment % of total | Sep 27, 2020 | Segment % of total |
Revenue from services: | | | | | | | | | | |
PeopleReady | $ | 349,056 | | 18.9 | % | 60.5 | % | $ | 293,546 | | 61.9 | % | | $ | 908,764 | | 13.3 | % | 58.5 | % | $ | 801,991 | | 60.4 | % |
PeopleManagement | 157,789 | | 7.2 | % | 27.3 | | 147,241 | | 31.0 | | | 461,899 | | 13.3 | % | 29.8 | | 407,516 | | 30.7 | |
PeopleScout | 70,186 | | 108.0 | % | 12.2 | | 33,743 | | 7.1 | | | 181,029 | | 53.1 | % | 11.7 | | 118,219 | | 8.9 | |
Total company | $ | 577,031 | | 21.6 | % | 100.0 | % | $ | 474,530 | | 100.0 | % | | $ | 1,551,692 | | 16.9 | % | 100.0 | % | $ | 1,327,726 | | 100.0 | % |
Our PeopleReady and PeopleManagement segments supply contingent workforce solutions to minimize the cost and effort of hiring and managing permanent employees. This allows for a rapid response to uncertain business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs.
Our PeopleScout segment transitions our clients’ internal human resources and labor procurement functions to PeopleScout on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, increased candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers like PeopleScout. PeopleScout can more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs.
As a result of the factors above, client demand for contingent workforce solutions and outsourced recruiting services are dependent on the overall strength of the economy and labor market, and trends in workforce flexibility.
Total company revenue grew 21.6% to $577.0 million for the thirteen weeks ended September 26, 2021, and grew 16.9% to $1,551.7 million for the thirty-nine weeks ended September 26, 2021, compared to the same periods in the prior year, respectively. The increase was due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of the COVID-19 pandemic. This increase was primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.
PeopleReady
PeopleReady revenue grew to $349.1 million for the thirteen weeks ended September 26, 2021, an 18.9% increase compared to the same period in the prior year, and grew to $908.8 million for the thirty-nine weeks ended September 26, 2021, a 13.3% increase compared to the same period in the prior year. PeopleReady has seen improved revenue trends across most geographies and industries, especially those in industries that were hit the hardest by COVID-19, such as construction, transportation, manufacturing, retail and hospitality. The growth in demand was partially offset by a shortage in the supply of workers in certain markets that we believe has been temporarily impacted by government responses to COVID-19, which have included stimulus checks, elevated federal unemployment benefits, accelerated payments of the child tax credit, and other direct payments to individuals. Even as workers have exited federal and state unemployment programs late in the third quarter of 2021, we believe workers have been slow to return to the workforce for many reasons including health or childcare concerns, and instead are relying on personal savings or other means to supplement their income until they choose to return to work. As compared to our other segments, PeopleReady experienced the most pressure on the available supply of workers, primarily due to a lower average wage, the temporary nature of the positions, and the shorter notice period we receive to fill open positions.
We believe the revenue growth has been supported by the use of our industry-leading JobStack mobile app that digitally connects workers with jobs. During the third quarter of 2021, PeopleReady dispatched approximately 940,000 shifts via JobStack and achieved a digital fill rate of 58%, an improvement of seven percentage points compared to the same period in the prior year.
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
PeopleManagement
PeopleManagement revenue grew to $157.8 million for the thirteen weeks ended September 26, 2021, a 7.2% increase compared to the same period in the prior year, and grew to $461.9 million for the thirty-nine weeks ended September 26, 2021, a 13.3% increase compared to the same period in the prior year. PeopleManagement continued to see revenue growth due to significant new client wins. Estimated annualized revenue from new client wins during the thirty-nine weeks ended September 26, 2021 was $86 million, as compared to the average of the prior three years of approximately $60 million. However, the pace of revenue recovery slowed due to worker supply and supply chain related production slow-downs in key industries, such as automotive, manufacturing and retail.
PeopleScout
PeopleScout revenue grew to $70.2 million for the thirteen weeks ended September 26, 2021, a 108.0% increase compared to the same period in the prior year, and grew to $181.0 million for the thirty-nine weeks ended September 26, 2021, a 53.1% increase compared to the same period in the prior year. PeopleScout has seen a strong recovery in volume from existing clients, especially those in industries that were hit the hardest by COVID-19, such as travel and leisure, as well as new client wins. New client wins contributed $5.4 million of revenue for the thirteen weeks ended September 26, 2021 within a variety of industries including retail, health care and transportation. Estimated annualized revenue from new client wins during the thirty-nine weeks ended September 26, 2021 was $38 million, as compared to the average of the prior three years of approximately $9 million.
Gross profit
Gross profit was as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | Sep 27, 2020 | | Sep 26, 2021 | Sep 27, 2020 |
Gross profit | $ | 146,502 | | $ | 110,464 | | | $ | 393,544 | | $ | 319,848 | |
Percentage of revenue | 25.4 | % | 23.3 | % | | 25.4 | % | 24.1 | % |
Gross profit as a percentage of revenue grew 210 basis points to 25.4% for the thirteen weeks ended September 26, 2021, compared to 23.3% for the same period in the prior year. Our staffing businesses contributed 110 basis points of improvement, primarily attributable to a benefit of 70 basis points due to lower workers’ compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development, and the remaining 40 basis points due to increased sales mix from our PeopleReady segment, which has a higher gross margin profile than PeopleManagement, our other staffing segment. Our PeopleScout business contributed the remaining 100 basis points of expansion from improved recruiter utilization on increasing volumes.
Gross profit as a percentage of revenue grew 130 basis points to 25.4% for the thirty-nine weeks ended September 26, 2021, compared to 24.1% for the same period in the prior year. Our staffing businesses contributed 10 basis points of improvement, primarily attributable to a benefit of 60 basis points due to lower workers compensation expense as a result of a reduction to prior year reserves largely associated with favorable patterns in claim development, offset by 50 basis points of compression from a non-recurring benefit in the prior year related to a reduction in expected costs to comply with the Affordable Care Act. Our PeopleScout business contributed the remaining 120 basis points of expansion, with 30 basis points due to workforce reduction costs incurred in the prior year and 90 basis points from improved recruiter utilization on increasing volumes.
SG&A expense
SG&A expense was as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | Sep 27, 2020 | | Sep 26, 2021 | Sep 27, 2020 |
Selling, general and administrative expense | $ | 118,748 | | $ | 90,100 | | | $ | 326,657 | | $ | 304,681 | |
Percentage of revenue | 20.6 | % | 19.0 | % | | 21.1 | % | 22.9 | % |
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
Total company SG&A expense increased by $28.6 million to $118.7 million, or 20.6% of revenue for the thirteen weeks ended September 26, 2021, compared to $90.1 million, or 19.0% of revenue for the same period in the prior year. As a percentage of revenue, SG&A increased 160 basis points. The prior period included a $4.0 million reduction to SG&A due to government employment subsidies which did not recur in the current period, driving an increase of 80 basis points. We took steps during fiscal 2020 to reduce SG&A expense while preserving our operational strengths, to ensure the business was well-positioned for growth as economic conditions improved. Our focus on efficiently managing costs while ensuring we continue to invest in sales resources and digital strategies has allowed us to accelerate our strategic priorities and emerge stronger as the economy continues to recover. The remaining 80 basis point increase was due to the temporary cost saving actions from 2020 which were discontinued as revenue trends improved.
Total company SG&A expense increased by $22.0 million to $326.7 million, or 21.1% of revenue for the thirty-nine weeks ended September 26, 2021, compared to $304.7 million, or 22.9% of revenue for the same period in the prior year. As a percentage of revenue, SG&A decreased 180 basis points. The prior period included workforce reduction costs of $8.9 million incurred as a result of COVID-19, a decrease of 70 basis points. This was partially offset by a reduction in government employment subsidies received in the current year of $3.4 million as compared to the same period in the prior year, an increase of 30 basis points. The remaining 140 basis point decrease was due to lower operating costs in the first half of 2021 due to steps we took during fiscal 2020 to reduce SG&A expense while preserving our operational strengths, to ensure the business was well-positioned for growth as economic conditions improved. Our focus on efficiently managing costs while ensuring we continue to invest in sales resources and digital strategies has allowed us to accelerate our strategic priorities and emerge stronger as the economy continues to recover.
Depreciation and amortization
Depreciation and amortization was as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | Sep 27, 2020 | | Sep 26, 2021 | Sep 27, 2020 |
Depreciation and amortization | $ | 6,426 | | $ | 7,652 | | | $ | 20,405 | | $ | 24,002 | |
Percentage of revenue | 1.1 | % | 1.6 | % | | 1.3 | % | 1.8 | % |
Depreciation and amortization decreased for the thirteen and thirty-nine weeks ended September 26, 2021 compared to the same period in the prior year, respectively, due to assets becoming fully depreciated and amortized during 2021. Additionally, the impairment to our acquired client relationships intangible assets of $34.7 million in the fiscal first quarter of 2020, resulted in a decline in amortization expense for the thirty-nine weeks ended September 26, 2021.
Goodwill and intangible asset impairment charge
Goodwill and intangible asset impairment charge was as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands) | Sep 26, 2021 | Sep 27, 2020 | | Sep 26, 2021 | Sep 27, 2020 |
Goodwill and intangible asset impairment charge | $ | — | | $ | — | | | $ | — | | $ | 175,189 | |
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As a result of the decrease in demand for our services primarily due to the economic impact caused by COVID-19, we lowered our future expectations, which was the primary trigger of an impairment of our goodwill and acquired client relationships intangible assets recorded in the thirty-nine weeks ended September 27, 2020. As a result of our interim impairment test in the fiscal first quarter of 2020, 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. 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. The impairment to our acquired client relationships intangible assets was $34.7 million. The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $25.0 million and $9.7 million, respectively.
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MANAGEMENT’S DISCUSSION AND ANALYSIS |
Income taxes
The income tax expense and the effective income tax rate were as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | Sep 27, 2020 | | Sep 26, 2021 | Sep 27, 2020 |
Income tax expense (benefit) | $ | 3,267 | | $ | 3,743 | | | $ | 6,938 | | $ | (34,480) | |
Effective income tax rate | 14.9 | % | 29.9 | % | | 14.3 | % | 18.7 | % |
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our full year pre-tax income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes of 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 and loss. 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 or loss is lower.
The items creating a difference between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
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| Thirteen weeks ended | | Thirty-nine weeks ended |
(in thousands, except percentages) | Sep 26, 2021 | % | Sep 27, 2020 | % | | Sep 26, 2021 | % | Sep 27, 2020 | % |
Income (loss) before tax expense (benefit) | $ | 21,909 | | | $ | 12,538 | | | | $ | 48,362 | | | $ | (184,347) | | |
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Federal income tax expense (benefit) at statutory rate | $ | 4,601 | | 21.0% | $ | 2,633 | | 21.0% | | $ | 10,156 | | 21.0% | $ | (38,713) | | 21.0% |
Increase (decrease) resulting from: | | | | | | | | | |
State income taxes, net of federal benefit | 1,176 | | 5.4 | 631 | | 5.0 | | 2,455 | | 5.1 | (9,321) | | 5.1 |
Non-deductible goodwill impairment charge | — | | — | — | | — | | — | | — | 21,849 | | (11.9) |
CARES Act | — | | — | 657 | | 5.2 | | (438) | | (0.9) | (5,041) | | 2.7 |
Hiring tax credits, net | (2,935) | | |