tbi-20220626

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: June 26, 2022

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

Commission File Number: 001-14543

____________________________________

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

______________________________________

Washington

91-1287341

(State of incorporation)

(I.R.S. employer identification no.)

1015 A Street, Tacoma, Washington 98402

(Address of principal executive offices) (Zip Code)

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

______________________________________

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


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

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of July 19, 2022, there were 32,686,375 shares of the registrant’s common stock outstanding.

TrueBlue, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated financial statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive Income	4
	Consolidated Statements of Cash Flows	5
	Notes to consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	16
Item 3.	Quantitative and qualitative disclosures about market risk	26
Item 4.	Controls and procedures	26

PART II. OTHER INFORMATION
Item 1.	Legal proceedings	27
Item 1A.	Risk factors	27
Item 2.	Unregistered sales of equity securities and use of proceeds	35
Item 3.	Defaults upon senior securities	35
Item 4.	Mine safety disclosures	35
Item 5.	Other information	35
Item 6.	Index to exhibits	36

	Signatures	37

Page - 2

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.			CONSOLIDATED FINANCIAL STATEMENTS

TRUEBLUE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands, except par value data)	June 26, 2022		December 26, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	32,432	$	49,896
Accounts receivable, net of allowance of $3,987 and $6,687	338,800		353,882
Prepaid expenses and other current assets	22,224		31,614
Income tax receivable	12,878		9,681
Total current assets	406,334		445,073
Property and equipment, net	90,091		88,090
Restricted cash and investments	205,769		221,026
Deferred income taxes, net	27,262		29,330
Goodwill	93,995		94,538
Intangible assets, net	18,998		22,211
Operating lease right-of-use assets, net	52,923		55,197
Workers’ compensation claims receivable, net	78,645		61,386
Other assets, net	16,993		16,375
Total assets	$	991,010	$	1,033,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	66,396	$	77,172
Accrued wages and benefits	85,543		100,173

Current portion of workers’ compensation claims reserve	56,024		61,596

Current operating lease liabilities	12,240		12,097
Other current liabilities	12,618		7,508
Total current liabilities	232,821		258,546
Workers’ compensation claims reserve, less current portion	211,574		194,598


Long-term deferred compensation liabilities	25,237		28,806
Long-term operating lease liabilities	52,543		54,927

Other long-term liabilities	2,882		3,282
Total liabilities	525,057		540,159

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; 32,684 and 34,861 shares issued and outstanding	1		1
Accumulated other comprehensive loss	(17,344)		(15,747)
Retained earnings	483,296		508,813
Total shareholders’ equity	465,953		493,067
Total liabilities and shareholders’ equity	$	991,010	$	1,033,226

See accompanying notes to consolidated financial statements

Page - 3

Table of Contents

TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(unaudited)


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Revenue from services	$	569,253	$	515,955	$	1,120,768	$	974,661
Cost of services	410,722		379,487		822,392		727,619
Gross profit	158,531		136,468		298,376		247,042
Selling, general and administrative expense	122,034		110,508		242,602		207,909
Depreciation and amortization	7,245		7,017		14,532		13,979

Income from operations	29,252		18,943		41,242		25,154


Interest expense and other income, net	(110)		724		395		1,299
Income before tax expense	29,142		19,667		41,637		26,453
Income tax expense	5,129		3,783		7,105		3,671
Net income	$	24,013	$	15,884	$	34,532	$	22,782

Net income per common share:
Basic	$	0.73	$	0.46	$	1.04	$	0.66
Diluted	$	0.72	$	0.45	$	1.02	$	0.65

Weighted average shares outstanding:
Basic	32,707		34,818		33,318		34,746
Diluted	33,149		35,352		33,832		35,205

Other comprehensive income:
Foreign currency translation adjustment	$	(1,724)	$	(6)	$	(1,597)	$	490
Comprehensive income	$	22,289	$	15,878	$	32,935	$	23,272

See accompanying notes to consolidated financial statements

Page - 4

Table of Contents

TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Twenty-six weeks ended
(in thousands)	June 26, 2022		June 27, 2021
Cash flows from operating activities:
Net income	$	34,532	$	22,782
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,532		13,979

Provision for credit losses	2,572		2,094
Stock-based compensation	4,487		6,916
Deferred income taxes	2,117		652
Non-cash lease expense	6,518		7,853
Other operating activities	6,752		(1,473)
Changes in operating assets and liabilities:
Accounts receivable	12,524		(16,486)
Income tax receivable	(3,549)		1,103
Operating lease right-of-use asset	—		6,135
Other assets	(8,486)		(2,495)
Accounts payable and other accrued expenses	(10,629)		(6,952)
Accrued wages and benefits	(14,638)		11,208
Deferred employer payroll taxes	—		2,810
Workers’ compensation claims reserve	11,404		(598)
Operating lease liabilities	(6,441)		(6,729)
Other liabilities	1,407		6,563
Net cash provided by operating activities	53,102		47,362
Cash flows from investing activities:
Capital expenditures	(13,992)		(19,868)




Purchases of restricted available-for-sale investments	—		(14)
Sales of restricted available-for-sale investments	—		452
Purchases of restricted held-to-maturity investments	(4,950)		—
Maturities of restricted held-to-maturity investments	17,826		15,143

Net cash used in investing activities	(1,116)		(4,287)
Cash flows from financing activities:
Purchases and retirement of common stock	(60,939)		—
Net proceeds from employee stock purchase plans	536		538
Common stock repurchases for taxes upon vesting of restricted stock	(4,132)		(2,686)



Other	(147)		(188)
Net cash used in financing activities	(64,682)		(2,336)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(494)		319
Net change in cash, cash equivalents and restricted cash	(13,190)		41,058
Cash, cash equivalents and restricted cash, beginning of period	103,185		118,612
Cash, cash equivalents and restricted cash, end of period	$	89,995	$	159,670
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest	$	452	$	880
Income taxes	8,413		1,943
Operating lease liabilities	7,925		8,335
Non-cash transactions:
Property and equipment purchased but not yet paid	3,385		1,968
Right-of-use assets obtained in exchange for new operating lease liabilities	4,852		3,162

See accompanying notes to consolidated financial statements

Page - 5

Table of Contents


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.

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 26, 2021. The results of operations for the twenty-six weeks ended June 26, 2022 are not necessarily indicative of the results expected for the full fiscal year nor for any other fiscal period.

Goodwill and indefinite-lived intangible assets

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, or 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 general economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, client engagement, changes in the carrying amount of net assets, sale or disposition of a significant portion of a reporting unit, or a sustained decrease in share price. We monitor the existence of potential impairment indicators throughout the fiscal year.

Goodwill

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 with remaining goodwill are PeopleReady, PeopleManagement Centerline, PeopleScout RPO and PeopleScout MSP.

When evaluating goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance. If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary.

The quantitative impairment test, if necessary, 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. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

We performed our annual goodwill impairment test as of the first day of our fiscal second quarter of 2022. Based on our assessment of qualitative factors, we concluded it was more likely than not that the fair value of each reporting unit exceeded its carrying value, and the goodwill associated with each reporting unit was not impaired. As such, it was not necessary to perform a quantitative impairment analysis. Accordingly, no impairment loss was recognized for the twenty-six weeks ended June 26, 2022.

Indefinite-lived intangible assets

We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We evaluate our indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, or whenever

Page - 6

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include significant change in general economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, client engagement, or sale or disposition of a significant portion of the business. We monitor the existence of potential impairment indicators throughout the fiscal year.

When evaluating indefinite-lived intangible assets for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of the indefinite-lived intangible is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the indefinite-lived intangible is greater than its carrying amount, the quantitative impairment test is unnecessary.

The quantitative impairment test, if necessary, utilizes 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.

We performed our annual impairment test for 2022 as of the first day of our fiscal second quarter. Based on our assessment of qualitative factors, we concluded it was more likely than not that the fair value of our indefinite-lived intangible assets exceeded their carrying value and were not impaired. As such, it was not necessary to perform a quantitative impairment analysis. Accordingly, no impairment loss was recognized for the twenty-six weeks ended June 26, 2022.

Recently adopted accounting standards

There were no new accounting standards adopted during the twenty-six weeks ended June 26, 2022 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:


	June 26, 2022
(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	$	32,432	$	32,432	$	—	$	—
Restricted cash and cash equivalents	57,563		57,563		—		—
Cash, cash equivalents and restricted cash (1)	89,995		89,995		—		—

Municipal debt securities	52,266		—		52,266		—
Corporate debt securities	64,928		—		64,928		—
Agency mortgage-backed securities	85		—		85		—
U.S. government and agency securities	986		—		986		—
Restricted investments classified as held-to-maturity (2)	$	118,265	$	—	$	118,265	$	—

Page - 7

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	December 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	$	49,896	$	49,896	$	—	$	—
Restricted cash and cash equivalents	53,289		53,289		—		—
Cash, cash equivalents and restricted cash (1)	103,185		103,185		—		—

Municipal debt securities	58,505		—		58,505		—
Corporate debt securities	78,357		—		78,357		—
Agency mortgage-backed securities	152		—		152		—
U.S. government and agency securities	1,070		—		1,070		—
Restricted investments classified as held-to-maturity (2)	$	138,084	$	—	$	138,084	$	—

(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.

NOTE 3: RESTRICTED CASH AND INVESTMENTS

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


(in thousands)	June 26, 2022		December 26, 2021
Cash collateral held by insurance carriers	$	29,179	$	28,957
Cash and cash equivalents held in Trust	27,745		21,590
Investments held in Trust	121,447		135,419

Company-owned life insurance policies	26,759		32,318
Other restricted cash and cash equivalents	639		2,742
Total restricted cash and investments	$	205,769	$	221,026

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 26, 2022 and December 26, 2021, were as follows:


	June 26, 2022
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Municipal debt securities	$	52,362	$	141	$	(237)	$	52,266
Corporate debt securities	67,999		12		(3,083)		64,928
Agency mortgage-backed securities	86		—		(1)		85
U.S. government and agency securities	1,000		—		(14)		986
Total held-to-maturity investments	$	121,447	$	153	$	(3,335)	$	118,265

Page - 8

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


	December 26, 2021
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Municipal debt securities	$	56,346	$	2,159	$	—	$	58,505
Corporate debt securities	77,925		995		(563)		78,357
Agency mortgage-backed securities	148		4		—		152
U.S. government and agency securities	1,000		70		—		1,070
Total held-to-maturity investments	$	135,419	$	3,228	$	(563)	$	138,084

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


	June 26, 2022
(in thousands)	Amortized cost		Fair value
Due in one year or less	$	22,399	$	22,381
Due after one year through five years	99,048		95,884

Total held-to-maturity investments	$	121,447	$	118,265

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 company-owned life insurance policies to support our deferred compensation liability. During the year ended December 26, 2021, we also held mutual funds and money market funds. As of December 26, 2021, all of the mutual funds and money market funds were converted into company-owned life insurance policies. Unrealized gains and losses related to investments still held at June 26, 2022 and June 27, 2021, which are included in selling, general and administrative expense on our Consolidated Statements of Operations and Comprehensive Income, were as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Unrealized gains (losses)	$	(3,549)	$	1,549	$	(5,560)	$	2,426

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:


	Twenty-six weeks ended
(in thousands)	June 26, 2022		June 27, 2021
Beginning balance	$	6,687	$	2,921

Current period provision	2,572		2,094
Write-offs	(5,258)		(1,176)
Foreign currency translation	(14)		4
Ending balance	$	3,987	$	3,843

Page - 9

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Prepaid expenses and other current assets


(in thousands)	June 26, 2022		December 26, 2021
Prepaid software agreements	$	8,147	$	10,078
Other prepaid expenses	7,311		8,858
Other current assets	6,766		12,678
Prepaid expenses and other current assets	$	22,224	$	31,614

Other current liabilities


(in thousands)	June 26, 2022		December 26, 2021
Contract liabilities	$	7,041	$	626
Other current liabilities	5,577		6,882
Other current liabilities	$	12,618	$	7,508

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. Effective July 1, 2022, we have increased our deductible limit to $5.0 million on a “per occurrence” basis.

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% at June 26, 2022 and December 26, 2021. Payments made against self-insured claims are made over a weighted average period of approximately 5.5 years as of June 26, 2022.

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 26, 2022		December 26, 2021
Undiscounted workers’ compensation reserve	$	284,051	$	273,000
Less discount on workers’ compensation reserve	16,453		16,806
Workers’ compensation reserve, net of discount	267,598		256,194
Less current portion	56,024		61,596
Long-term portion	$	211,574	$	194,598

Payments made against self-insured claims were $21.5 million and $22.4 million for the twenty-six weeks ended June 26, 2022 and June 27, 2021, 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 twenty-six weeks ended June 26, 2022 and fifty-two weeks ended December 26, 2021 were 2.1% and 1.8%, 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 $80.0 million and $62.7 million, as of June 26, 2022 and December 26, 2021, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $78.6 million and $61.4 million as of June 26, 2022 and December 26, 2021, respectively.

Page - 10

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 $9.8 million and $9.3 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income for the thirteen weeks ended June 26, 2022 and June 27, 2021, respectively, and $21.1 million and $19.4 million for the twenty-six weeks ended June 26, 2022 and June 27, 2021, respectively.

NOTE 6: LONG-TERM DEBT

We have a revolving 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., which provides for a revolving line of credit of up to $300.0 million, and is currently set to mature on March 16, 2025 (“Revolving Credit Facility”). We have an option to increase the amount to $450.0 million, subject to lender approval. 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 26, 2022, $7.3 million was utilized by outstanding standby letters of credit, leaving $292.7 million unused under the Revolving Credit Facility. At December 26, 2021, $6.2 million was utilized by outstanding standby letters of credit.

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 U.S. Dollar 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% 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 is determined by the consolidated leverage ratio, as defined in the Revolving Credit Facility.

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 second amendment to our 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 second amendment to our credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants.

The following financial covenants, as defined in the second amendment to our credit agreement, were in effect as of June 26, 2022:

•Consolidated leverage ratio less than 3.00, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the amended credit agreement. As of June 26, 2022, our consolidated leverage ratio was 0.06.

•Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense. As of June 26, 2022, our consolidated fixed charge ratio was 104.04.

As of June 26, 2022, we were in compliance with all effective covenants related to the Revolving Credit Facility.

Page - 11

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 26, 2022		December 26, 2021
Cash collateral held by workers’ compensation insurance carriers	$	23,332	$	23,056
Cash and cash equivalents held in Trust	27,745		21,590
Investments held in Trust	121,447		135,419
Letters of credit (1)	6,160		6,160
Surety bonds (2)	21,898		21,969
Total collateral commitments	$	200,582	$	208,194

(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.

Page - 12

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021

Common stock shares
Beginning balance	33,608		35,474		34,861		35,493
Purchases and retirement of common stock	(907)		—		(2,234)		—
Net issuance under equity plans, including tax benefits	(17)		6		57		(17)
Stock-based compensation	—		30		—		34
Ending balance	32,684		35,510		32,684		35,510

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

Retained earnings
Beginning balance	483,170		459,958		508,813		452,017
Net income	24,013		15,884		34,532		22,782
Purchases and retirement of common stock (1)	(24,613)		—		(60,939)		—
Net issuance under equity plans, including tax benefits	51		152		(3,597)		(2,148)
Stock-based compensation	675		3,573		4,487		6,916

Ending balance	483,296		479,567		483,296		479,567

Accumulated other comprehensive loss
Beginning balance, net of tax	(15,620)		(14,332)		(15,747)		(14,828)
Foreign currency translation adjustment	(1,724)		(6)		(1,597)		490
Ending balance, net of tax	(17,344)		(14,338)		(17,344)		(14,338)

Total shareholders’ equity ending balance	$	465,953	$	465,230	$	465,953	$	465,230

(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.

NOTE 9: 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 twenty-six weeks ended June 26, 2022 was 17.1%. 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”), as well as stock-based compensation. 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 and certain non-deductible and non-taxable items.

Page - 13

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 10: NET INCOME PER SHARE

Diluted common shares were calculated as follows:


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands, except per share data)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Net income	$	24,013	$	15,884	$	34,532	$	22,782

Weighted average number of common shares used in basic net income per common share	32,707		34,818		33,318		34,746
Dilutive effect of non-vested stock-based awards	442		534		514		459
Weighted average number of common shares used in diluted net income per common share	33,149		35,352		33,832		35,205

Net income per common share:
Basic	$	0.73	$	0.46	$	1.04	$	0.66
Diluted	$	0.72	$	0.45	$	1.02	$	0.65

Anti-dilutive shares	322		26		457		54

NOTE 11: 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, warehousing and distribution facilities; and

•PeopleManagement Centerline: 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 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.

Page - 14

Table of Contents


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Revenue from services:
Contingent staffing
PeopleReady	$	317,943	$	299,316	$	623,633	$	559,708
PeopleManagement	161,938		152,356		325,757		304,110
Human resource outsourcing
PeopleScout	89,372		64,283		171,378		110,843
Total company	$	569,253	$	515,955	$	1,120,768	$	974,661

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


	Thirteen weeks ended				Twenty-six weeks ended
(in thousands)	June 26, 2022		June 27, 2021		June 26, 2022		June 27, 2021
Segment profit:
PeopleReady	$	20,325	$	18,437	$	36,544	$	30,297
PeopleManagement	4,228		3,221		7,207		6,337
PeopleScout	20,593		10,857		31,565		14,894
Total segment profit	45,146		32,515		75,316		51,528
Corporate unallocated expense	(6,531)		(7,307)		(13,829)		(12,926)
Third-party processing fees for hiring tax credits	(162)		(30)		(324)		(165)
Amortization of software as a service assets	(699)		(646)		(1,446)		(1,319)



PeopleReady technology implementation costs	(1,748)		—		(4,298)		—
COVID-19 government subsidies, net	—		2,296		—		4,039
Other benefits (costs)	491		(868)		355		(2,024)
Depreciation and amortization	(7,245)		(7,017)		(14,532)		(13,979)
Income from operations	29,252		18,943		41,242		25,154
Interest expense and other income, net	(110)		724		395		1,299
Income before tax expense	$	29,142	$	19,667	$	41,637	$	26,453

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

Page - 15

Table of Contents


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.

BUSINESS 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. Client demand for contingent workforce solutions and outsourced recruiting services is cyclical and dependent on the overall strength of the economy and labor market, as well as trends in workforce flexibility. During periods of rising economic uncertainty, clients reduce their contingent labor in response to lower volumes and reduced appetite for expanding production or inventory, which reduces the demand for our services. That environment also reduces demand for permanent placement recruiting, whether outsourced or in-house. However, as the economy emerges from periods of uncertainty, contingent labor providers are uniquely positioned to respond quickly to increasing demand for labor and rapidly fill new or temporary positions, replace absent employees, and convert fixed labor costs to variable costs. Similarly, companies often reduce or eliminate their in-house recruiting teams during economic downturns, and turn to hybrid or fully outsourced recruiting models during periods of rapid re-hiring and high employee turnover. In order to competitively differentiate our services in these highly fragmented industries, we are committed to executing our digital strategies, combined with a focus on improving operational efficiencies in order to gain market share. We have implemented these core strategies for each of our business segments: PeopleReady, PeopleManagement and PeopleScout.

PeopleReady

PeopleReady, our largest segment by revenue, provides clients with 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 through our network of branches across all 50 states in the United States (“U.S.”), Canada and Puerto Rico, and increasingly through our industry-leading mobile app, JobStackTM. JobStack 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.

PeopleManagement

PeopleManagement, our second largest segment by revenue, 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 as an integral part of the production and logistics process. We offer scalable solutions to meet the volume requirements of labor-intensive manufacturing, warehousing and distribution facilities, by providing large-scale sourcing, screening, recruiting and management of the contingent workforce. PeopleManagement also provides dedicated and contingent commercial truck drivers to the transportation and distribution industries through our Centerline Drivers (“Centerline”) brand. Centerline matches drivers to each client’s specific needs, allowing them to improve productivity, control costs, ensure compliance and deliver improved service. Our primary focus at PeopleManagement continues to be growing our client base by targeting local and underserved markets, as well as investing in customer and associate care programs to improve retention.

Page - 16

Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

PeopleScout

PeopleScout, our smallest segment by revenue, offers recruitment process outsourcing (“RPO”) and managed service provider (“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. Our programs deliver improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and improved regulatory compliance. 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. PeopleScout also includes our MSP business, which manages our clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. Our primary focus at PeopleScout is to leverage our strong brand reputation, continued investments in our sales team, and use of our proprietary technology platform (Affinix) to capture opportunities in an industry that is expanding rapidly post-pandemic.

Fiscal second quarter of 2022 highlights

Our strong performance continued, as total company revenue grew 10.3% to $569.3 million for the thirteen weeks ended June 26, 2022, compared to the same period in the prior year, driven by continued demand for our services. PeopleReady revenue grew 6.2% due to higher bill rates and improvement in labor supply, partially offset by slowing demand. PeopleManagement revenue grew 6.3%, fueled by existing client growth, as well as strong demand for commercial trucking services. PeopleScout revenue grew 39.0% due to historically high employee turnover rates at existing clients, and project work for new clients who are utilizing our services to fulfill short-term hiring needs.

Total company gross profit as a percentage of revenue for the thirteen weeks ended June 26, 2022 increased by 140 basis points to 27.8%, compared to 26.4% for the same period in the prior year. This increase was primarily driven by higher bill rates compared to pay rates, and sales mix trending toward higher margin clients and segments.

Total company selling, general and administrative (“SG&A”) expense increased 10.4% to $122.0 million, for the thirteen weeks ended June 26, 2022, compared to the same period in the prior year. The overall increase in SG&A expense was primarily to support revenue growth of 10.3%.

Revenue growth, along with an improvement in gross profit as a percentage of revenue, resulted in net income improving 51.2% to $24.0 million for the thirteen weeks ended June 26, 2022 compared to $15.9 million for the same period in the prior year.

As of June 26, 2022, we were in a strong financial position with cash and cash equivalents of $32.4 million, no outstanding debt, and $292.7 million available under our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $325.2 million.

Page - 17

Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Total company results

The following table presents selected financial data:


	Thirteen weeks ended								Twenty-six weeks ended
(in thousands, except percentages and per share data)	Jun 26, 2022		% of revenue		Jun 27, 2021		% of revenue			Jun 26, 2022		% of revenue		Jun 27, 2021		% of revenue
Revenue from services	$	569,253			$	515,955				$	1,120,768			$	974,661

Gross profit	$	158,531	27.8	%	$	136,468	26.4	%		$	298,376	26.6	%	$	247,042	25.3	%
Selling, general and administrative expense	122,034		21.4		110,508		21.4			242,602		21.6		207,909		21.3
Depreciation and amortization	7,245		1.3		7,017		1.4			14,532		1.3		13,979		1.4

Income from operations	29,252		5.1	%	18,943		3.7	%		41,242		3.7	%	25,154		2.6	%
Interest expense and other income, net	(110)				724					395				1,299
Income before tax expense	29,142				19,667					41,637				26,453
Income tax expense	5,129				3,783					7,105				3,671
Net income	$	24,013	4.2	%	$	15,884	3.1	%		$	34,532	3.1	%	$	22,782	2.3	%

Net income per diluted share	$	0.72			$	0.45				$	1.02			$	0.65

Revenue from services


	Thirteen weeks ended										Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022		Growth %		Segment % of total		Jun 27, 2021		Segment % of total		Jun 26, 2022		Growth %		Segment % of total		Jun 27, 2021		Segment % of total
Revenue from services:
PeopleReady	$	317,943	6.2	%	55.9	%	$	299,316	58.0	%	$	623,633	11.4	%	55.6	%	$	559,708	57.4	%
PeopleManagement	161,938		6.3	%	28.4		152,356		29.5		325,757		7.1	%	29.1		304,110		31.2
PeopleScout	89,372		39.0	%	15.7		64,283		12.5		171,378		54.6	%	15.3		110,843		11.4
Total company	$	569,253	10.3	%	100.0	%	$	515,955	100.0	%	$	1,120,768	15.0	%	100.0	%	$	974,661	100.0	%

Total company revenue grew 10.3% to $569.3 million for the thirteen weeks ended June 26, 2022, and grew 15.0% to $1,120.8 million for the twenty-six weeks ended June 26, 2022, compared to the same periods in the prior year, respectively. The growth was driven by continued demand for our services.

PeopleReady

PeopleReady revenue grew 6.2% to $317.9 million for the thirteen weeks ended June 26, 2022, and grew 11.4% to $623.6 million for the twenty-six weeks ended June 26, 2022, compared to the same periods in the prior year. PeopleReady’s revenue growth was driven by higher bill rates across most geographies and industries. While worker supply trends continued to improve, we experienced a slowing of client demand during the thirteen weeks ended June 26, 2022. Revenue in April grew 10.8%, compared to the same period in the prior year, and was widespread across most geographies. However, growth tapered to 2.7% in June, compared to the same period in the prior year, as clients reassessed their labor needs on new projects across most geographies and industries, most notably within the services and hospitality industries, given the current economic climate.

We believe the revenue growth has been supported by the use of our JobStack mobile app that digitally connects associates with work. During the second quarter of 2022, PeopleReady dispatched approximately 847,000 shifts via JobStack, compared to 788,000 for the same period in the prior year, and our digital fill rate increased to 63% at the higher volume of revenue, compared to 58% for the same period in the prior year.

Page - 18

Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

PeopleManagement

PeopleManagement revenue grew 6.3% to $161.9 million for the thirteen weeks ended June 26, 2022, and grew 7.1% to $325.8 million for the twenty-six weeks ended June 26, 2022, compared to the same periods in the prior year. PeopleManagement’s revenue growth was driven by existing client growth, despite the global supply chain challenges, as well as strong demand for commercial trucking services.

PeopleScout

PeopleScout revenue grew 39.0% to $89.4 million for the thirteen weeks ended June 26, 2022, and grew 54.6% to $171.4 million for the twenty-six weeks ended June 26, 2022, compared to the same periods in the prior year. Revenue growth has been stimulated by historically high employee turnover rates, creating increased demand at existing clients and project work for new clients who are utilizing our services to fulfill short-term hiring needs.

Gross profit


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022			Jun 27, 2021
Gross profit	$	158,531		$	136,468		$	298,376		$	247,042
Percentage of revenue	27.8		%	26.4		%	26.6		%	25.3		%

Gross profit as a percentage of revenue grew 140 basis points to 27.8% for the thirteen weeks ended June 26, 2022, compared to 26.4% for the same period in the prior year. Our staffing businesses contributed 100 basis points of expansion of which 60 basis points was attributable to higher bill rates, which have increased ahead of pay rates. The remaining 40 basis points was primarily attributable to favorable customer mix. Our PeopleScout business, which is our highest margin business, is becoming a larger portion of overall sales mix, and contributed 40 basis points of expansion.

Gross profit as a percentage of revenue grew 130 basis points to 26.6% for the twenty-six weeks ended June 26, 2022, compared to 25.3% for the same period in the prior year. Our staffing businesses contributed 100 basis points of expansion, of which 50 basis points was attributable to higher bill rates, which have increased ahead of pay rates. An additional 40 basis points was primarily from favorable customer mix, and the remaining 10 basis points was due to favorable segment revenue mix. Our PeopleScout business, which is our highest margin business, is becoming a larger portion of overall sales mix, which contributed 30 basis points of expansion.

SG&A expense


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022			Jun 27, 2021
Selling, general and administrative expense	$	122,034		$	110,508		$	242,602		$	207,909
Percentage of revenue	21.4		%	21.4		%	21.6		%	21.3		%

Total company SG&A expense increased by $11.5 million or 10.4% for the thirteen weeks ended June 26, 2022, compared to the same period in the prior year, consistent with revenue growth of 10.3% over the same period. Included in SG&A expense in the current year are $1.7 million in expenses related to investments we are making to replace our PeopleReady technology platform to better support our digital strategy and new service delivery models, which began during the fiscal fourth quarter of 2021, offset by the reversal of $3.3 million of accrued compensation related to the resignation of our former Chief Executive Officer. Included in SG&A expense in the prior year was a benefit of $2.3 million for government employment subsidies related to the coronavirus pandemic (“COVID-19”) relief.

Total company SG&A expense increased by $34.7 million or 16.7% for the twenty-six weeks ended June 26, 2022, compared to the same period in the prior year, primarily to support revenue growth of 15.0% over the same period. As a percentage of revenue, SG&A expense increased 30 basis points for the twenty-six weeks ended June 26, 2022, compared to the same period in the prior year, the majority of which was related to $4.3 million of costs incurred to replace our PeopleReady technology platform to better support our digital strategy and new service delivery models, which began during the fiscal fourth quarter of 2021, offset by the reversal of $3.3 million of accrued compensation related to the resignation of our former Chief Executive Officer. Included in SG&A expense in the prior year was a benefit of $3.9 million for government employment subsidies related to COVID-19 relief.

Page - 19

Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

Depreciation and amortization


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022			Jun 27, 2021
Depreciation and amortization	$	7,245		$	7,017		$	14,532		$	13,979
Percentage of revenue	1.3		%	1.4		%	1.3		%	1.4		%

Depreciation and amortization increased for the thirteen weeks and twenty-six weeks ended June 26, 2022 compared to the same periods in the prior year, due to certain assets placed into service during 2021, slightly offset by assets becoming fully amortized during 2021.

Income taxes


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022			Jun 27, 2021
Income tax expense	$	5,129		$	3,783		$	7,105		$	3,671
Effective income tax rate	17.6		%	19.2		%	17.1		%	13.9		%

Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our annual pre-tax and taxable 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 are as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022		%	Jun 27, 2021		%	Jun 26, 2022		%	Jun 27, 2021		%
Income before tax expense	$	29,142		$	19,667		$	41,637		$	26,453

Federal income tax expense at statutory rate	$	6,120	21.0%	$	4,130	21.0%	$	8,744	21.0%	$	5,555	21.0%
Increase (decrease) resulting from:
State income taxes, net of federal benefit	1,097		3.8	991		5.0	1,571		3.8	1,279		4.8

Coronavirus Aid, Relief and Economic Security Act	—		—	(574)		(2.9)	—		—	(438)		(1.7)
Hiring tax credits, net	(2,708)		(9.3)	(669)		(3.4)	(3,850)		(9.2)	(3,406)		(12.9)
Non-deductible and non-taxable items	156		0.5	88		0.4	419		1.0	311		1.2
Stock-based compensation	24		0.1	(25)		(0.1)	(595)		(1.4)	266		1.0
Foreign taxes and other, net	440		1.5	(158)		(0.8)	816		1.9	104		0.5
Income tax expense	$	5,129	17.6%	$	3,783	19.2%	$	7,105	17.1%	$	3,671	13.9%

For the thirteen weeks ended June 26, 2022, we incurred income tax expense of $5.1 million and had an effective tax rate of 17.6%, compared to $3.8 million and 19.2% for the same period in the prior year. For the twenty-six weeks ended June 26, 2022, we incurred income tax expense of $7.1 million and had an effective tax rate of 17.1%, compared to $3.7 million and 13.9% for the same period in the prior year.

The difference between the statutory federal income tax rate of 21% and our effective tax rate of 17.1% for the twenty-six weeks ended June 26, 2022 was primarily due to the benefit of hiring credits, including the Work Opportunity Tax Credit (“WOTC”), as well as stock-based compensation, partially offset by state income taxes and other items. The lower tax rate in the prior year was primarily due to a larger percentage benefit from hiring credits as a result of lower pre-tax income.

Page - 20

Table of Contents


MANAGEMENT’S DISCUSSION AND ANALYSIS

WOTC, our primary hiring tax credit, is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve-month period up to worker maximums by targeted groups. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted groups; 2) the targeted groups are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize an adjustment to prior year hiring credits if credits certified by government offices differ from original estimates. The U.S. Congress has approved the WOTC program through the end of 2025.

Segment performance

We evaluate performance based on segment revenue and segment profit. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other adjustments not considered to be ongoing. 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 reportable segments, as well as a reconciliation of segment profit to income before tax expense.

Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income on the Consolidated Statements of Operations and Comprehensive Income in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and may not be comparable to similarly titled measures of other companies.

PeopleReady segment performance was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022			Jun 27, 2021
Revenue from services	$	317,943		$	299,316		$	623,633		$	559,708
Segment profit	20,325			18,437			36,544			30,297
Percentage of revenue	6.4		%	6.2		%	5.9		%	5.4		%

PeopleReady segment profit grew $1.9 million and $6.2 million for the thirteen and twenty-six weeks ended June 26, 2022, and also improved as a percentage of revenue, compared to the same periods in the prior year, respectively. Segment profit growth was primarily due to higher bill rates, which have increased ahead of pay rates as the labor supply has improved.

PeopleManagement segment performance was as follows:


	Thirteen weeks ended						Twenty-six weeks ended
(in thousands, except percentages)	Jun 26, 2022			Jun 27, 2021			Jun 26, 2022		Jun 27, 2021
Revenue from services	$	161,938		$	152,356		$	325,757	$	304,110
Segment profit	4,228			3,221			7,207		6,337
Percentage of revenue	2.6		%	2.1		%	2.2