TrueBlue Inc
For the period ended Jun 30, 2024. Filed Aug 5, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 5, 2024
TBI$12.15-1.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-06.
0000768899-24-000085
Item 2. Management’s discussion and analysis of financial condition and results of operationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-05.
0000768899-24-000102
Item 2. Management’s discussion and analysis of financial condition and results of operationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 101 previous paragraphs and 121 current paragraphs.
57 unchanged; 36 reworded; 24 added; 6 removed; 2 previous and 4 current paragraphs rearranged.
Tables are not compared: 13 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
Total company revenue declined 16.7% to $396.2 million for the thirteen weeks ended June 30, 2024, compared to the same period in the prior year. The decline was primarily driven by continued uncertainty around interest rates, inflation and other factors which impacted demand trends across all three segments.
Current report
We recorded goodwill and intangible asset impairment charges of $59.7 million during the thirteen weeks ended June 30, 2024, primarily related to our PeopleReady reporting unit. We also recorded a full valuation allowance on our deferred tax assets driven by actual U.S. pre-tax losses beginning in 2023, combined with the significant non-cash goodwill impairment charges, which increased our income tax expense by approximately $55 million.
Current report
Total company SG&A expense decreased by $24.3 million, or 20.0% for the thirteen weeks ended June 30, 2024, and decreased by $40.0 million, or 16.4% for the twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year. We have continued to execute operational cost management actions in response to the decline in demand for our services, and simplification of our organizational structure in line with our strategic plan. In addition, the thirteen and twenty-six weeks ended June 30, 2024 included a benefit, net of related fees, of $6.8 million for recognition of certain COVID-19 government subsidies.
Current report
Goodwill and intangible asset impairment charge
Current report
A summary of the goodwill and intangible asset impairment charge for the twenty-six weeks ended June 30, 2024, by reportable segment, is as follows:
Current report
We performed an interim impairment test as of the last day of fiscal May 2024 following the determination by management that a triggering event had occurred. As a result of this impairment test, we concluded that the carrying amount of our PeopleReady reporting unit exceeded its fair value and we recorded a non-cash goodwill impairment charge of $59.1 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended June 30, 2024. As a result of this impairment charge, the goodwill carrying value of $59.1 million for PeopleReady was fully impaired. The goodwill impairment was primarily driven by recent performance of the PeopleReady reporting unit and the temporary industrial staffing industry since our annual impairment testing date, as well as a delay in the projected timing of recovery. No further impairment loss was recognized during the thirteen weeks ended June 30, 2024. See Note 6: Goodwill and Intangible Assets, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details.
Current report
We performed an impairment test during our fiscal second quarter of 2024. As a result of this impairment test, we concluded that a trade name/trademark related to our PeopleManagement segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $0.6 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended June 30, 2024. The charge was primarily driven by recent revenue performance of the related business given a decline in demand and overall economic uncertainty. The remaining balance for this trade name/trademark was $2.7 million as of June 30, 2024.
Current report
Income tax expense
Current report
Significant fluctuations in our effective tax rate are primarily due to changes in the valuation allowance against our U.S. federal and state deferred tax assets, as well as tax benefits from hiring credits and non-deductible goodwill impairment charges.
Current report
Based on our deferred tax asset realizability assessment performed as of June 30, 2024, we recorded a full valuation allowance against our U.S. federal and state deferred tax assets. This resulted in an increase in our income tax expense of approximately $55 million for the twenty-six weeks ended June 30, 2024. Our conclusion was driven by actual U.S. pre-tax losses beginning in 2023, combined with the significant non-cash goodwill impairment charge of $59.1 million recorded during the twenty-six weeks ended June 30, 2024.
Current report
•We expect our effective income tax rate for fiscal 2024 to be between (35)% and (40)% due to the valuation allowance recorded during the fiscal second quarter of 2024 and minimal income tax expense or benefit expected for the second half of the year.
Current report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Current report
Impairment test
Current report
Based on the results of our interim impairment test, we concluded that the carrying amount of goodwill for the PeopleReady reporting unit exceeded the estimated fair value and we recorded a non-cash impairment charge of $59.1 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended June 30, 2024. As a result of this impairment charge, the total goodwill carrying value of $59.1 million for PeopleReady was fully impaired. The goodwill impairment was primarily driven by recent performance of the PeopleReady reporting unit and the temporary industrial staffing industry since our annual impairment testing date, as well as a delay in the projected timing of recovery.
Current report
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 charge 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.
Current report
Impairment test
Current report
We performed an indefinite-lived intangible asset impairment test during our fiscal second quarter of 2024. As a result of this impairment test, we concluded that a trade name/trademark related to the PeopleManagement segment exceeded its estimated fair value and we recorded a non-cash impairment charge of $0.6 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended June 30, 2024. The charge was primarily driven by recent revenue performance of the related business given a decline in demand and overall economic uncertainty. The remaining balance for this trade name/trademark was $2.7 million as of June 30, 2024. The fair value of the trade name/trademark related to the PeopleScout segment was substantially in excess of its carrying amount of $2.1 million as of June 30, 2024, and therefore did not result in an impairment.
Current report
Additionally, following performance of the impairment test, we did not identify any events or conditions that make it more likely than not that a further impairment may have occurred during the thirteen weeks ended June 30, 2024.
Current report
MANAGEMENT’S DISCUSSION AND ANALYSIS
Current report
Income taxes and related valuation allowances
Current report
We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. We recognize deferred tax assets to the extent we believe it is more likely than not the asset will be realized. We consider available positive and negative evidence when making such determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted, and results of recent operations. When appropriate, we record a valuation allowance against deferred tax assets to reduce deferred tax assets to the amount that is more likely than not to be realized.
Current report
Interim Periods
Current report
We recognize deferred tax assets to the extent we believe it is more likely than not the asset will be realized. Quarterly, management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets, including future reversals of existing taxable temporary differences, projected taxable income, tax-planning strategies, carryback potential if permitted, and the results of recent operations. A significant piece of objective negative evidence is the existence of a three-year cumulative loss. Such objective negative evidence limits the ability of management to consider other subjective evidence, such as projected taxable income. When appropriate, we record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
Current report
Based on our interim deferred tax asset realizability analysis, we determined that a full valuation allowance was appropriate against our U.S. federal and state deferred tax assets as of June 30, 2024. See Note 11: Income Taxes, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for further details.
Removed paragraphs (6)
Previous report
Total company SG&A expense decreased by $15.7 million or 12.8% for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. We have continued to execute cost reduction measures that began during fiscal 2023 to scale down our operating cost structure to better align with client demand, demonstrating our commitment to operating the company with discipline and focus in the areas we can control. We are confident in our ability to manage through this market cycle with a focus on enhancing our profitability and ensuring we are well positioned as conditions improve.
Previous report
Income tax expense (benefit)
Previous report
Significant fluctuations in our effective tax rate are primarily due to the Work Opportunity Tax Credit (“WOTC”). Other differences between the statutory federal income tax rate and our effective tax rate result from certain other non-deductible and non-taxable items, the tax impact of stock-based compensation, and state and foreign income taxes.
Previous report
•We expect our statutory income tax rate for fiscal 2024 to be between 24% and 28%. For fiscal 2024, we also expect an income tax benefit related to our hiring tax credits of between $4 million and $8 million.
Previous report
Goodwill
Previous report
Based on the results of our interim impairment test, the estimated fair value of our PeopleReady reporting unit was in excess of its carrying value by approximately 4%. A discount rate of 13.5% was used in calculating the fair value of the PeopleReady reporting unit. In the event the discount rate increases by approximately 1 percentage point, the forecasted revenue growth rate declines by approximately 1 percentage point, or gross profit as a percentage of revenue declines by less than 1 percentage point, the carrying value of the reporting unit would exceed its fair value. Further economic uncertainty impacting the contingent staffing industry and demand for our services, could give rise to an impairment. Future events and changing market conditions may impact management's assumptions used to estimate the reporting units’ fair value. While the assumptions used for our interim impairment test reflect our current expectations and maximize the use of observable inputs, a lack of recovery or further deterioration in market conditions from current levels, a sustained trend of weaker than anticipated financial performance, a lack of recovery or further decline in our stock price from current levels, or an increase in the market-based weighted average cost of capital, among other factors, could significantly impact the results of our impairment analysis. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit's fair value, not to exceed the total amount of goodwill of $59.1 million. We will continue to closely monitor the operational performance of this reporting unit.
Reworded paragraphs (36)
Previous wording
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 turn to hybrid or fully outsourced recruiting models during periods of rapid re-hiring and high employee turnover. Our business strategy is focused on growth in each of our business segments by investing in innovative technology and initiatives that drive organic growth and improve the client and candidate experience. We have implemented these core strategies for each of our business segments: PeopleReady, PeopleScout and PeopleManagement.
Current wording
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 turn to hybrid or fully outsourced recruiting models during periods of rapid re-hiring and high employee turnover. Our business strategy is focused on growth in each of our business segments by accelerating our digital transformation, expanding in attractive end markets and simplifying our organizational structure, which will enable us to capture market share, deliver more sustainable growth, and enhance our long-term profitability.
Previous wording
PeopleReady provides clients with dependable access to qualified associates for their on-demand, contingent general and skilled labor needs to supplement their permanent workforce. Our services range from providing one associate to hundreds, and are generally short-term in nature as they are filling the contingent staffing needs of our clients. 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.”) and Puerto Rico. Augmenting our branch network and consolidated service centers is our industry-leading mobile app, JobStack®, which connects people with work 24 hours a day, seven days a week. JobStack creates a digital exchange between our associates and clients, competitively differentiates us, and allows our branch resources to expand their sales, recruiting and service delivery efforts. Our primary focus at PeopleReady is the advancement of our digital transformation, expansion in high-growth and under-penetrated end markets, and evaluation and simplification of our operating structure to accelerate growth and gain market share.
Current wording
PeopleReady provides clients with dependable access to qualified associates for their on-demand, contingent general and skilled labor needs to supplement their permanent workforce. Our services range from providing one associate to hundreds, and are generally short-term in nature as they are filling the contingent staffing needs of our clients. 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.”) and Puerto Rico. Augmenting our branch network and consolidated service centers is our industry-leading mobile app, JobStack®, which connects people with work 24 hours a day, seven days a week. JobStack creates a digital exchange between our associates and clients, competitively differentiates us, and allows our branch resources to expand their sales, recruiting and service delivery efforts. Our primary focus at PeopleReady is the continued roll-out of our new, proprietary version of the JobStack app, and expansion in attractive end markets including renewable energy.
Previous wording
PeopleScout offers recruitment process outsourcing (“RPO”), managed service provider (“MSP”) solutions and talent advisory services to a wide variety of industries, primarily in the U.S., Canada, the United Kingdom and Australia. Our RPO solutions are generally multi-year in duration, highly scalable and provide clients the support they need as their hiring volumes fluctuate. Our services are designed to lower client recruiting costs while improving the candidate experience by creating strategies that facilitate our clients’ talent acquisition, development and retention goals. We tailor our services based on individual client needs by offering multiple solutions, including full-cycle RPO, project RPO, recruiter on demand, and talent advisory. Our proprietary technology platform (Affinix®) uses machine learning to rapidly source a qualified talent pool within minutes, and further engages candidates through a seamless digital experience. Our MSP business manages our clients’ contingent labor programs, including vendor selection, performance management, compliance monitoring and risk management. Our primary focus at PeopleScout is leveraging our strong brand reputation, continuing to invest in our sales team, and using Affinix to continue to gain market share in high-growth sectors.
Current wording
PeopleScout offers recruitment process outsourcing (“RPO”), managed service provider (“MSP”) solutions and talent advisory services to a wide variety of industries, primarily in the U.S., Canada, the United Kingdom and Australia. Our RPO solutions are generally multi-year in duration, highly scalable and provide clients the support they need as their hiring volumes fluctuate. Our services are designed to lower client recruiting costs while improving the candidate experience by creating strategies that facilitate our clients’ talent acquisition, development and retention goals. We tailor our services based on individual client needs by offering multiple solutions, including full-cycle RPO, project RPO, recruiter on demand, and talent advisory. Our proprietary technology platform (Affinix®) uses machine learning to rapidly source a qualified talent pool within minutes, and further engages candidates through a seamless digital experience. Our MSP business manages our clients’ contingent labor programs, including vendor selection, performance management, compliance monitoring and risk management. Our primary focus at PeopleScout is leveraging our strong brand reputation, flexible solutions, international footprint, and using Affinix technology to continue to gain market share in high-growth sectors.
Previous wording
PeopleManagement, through our On-Site business, provides and manages contingent associates at clients’ facilities throughout the U.S., Canada and Puerto Rico. Our client engagements are generally multi-location and multi-year, and include scalable recruiting, screening, hiring and management of the contingent workforce. We deploy dedicated management and service teams that work side-by-side with a client’s full-time workforce. Our teams are an integral part of the production and logistics process, and specialize in labor-intensive manufacturing, warehousing and distribution. Our proprietary hiring and workforce management software (Stafftrack®) enables us to recruit and connect the best candidates with on-site assignments. PeopleManagement also provides dedicated and contingent commercial 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 creating efficiencies through consolidating our operating structure.
Current wording
PeopleManagement, through our On-Site business, provides and manages contingent associates at clients’ facilities throughout the U.S., Canada and Puerto Rico. Our client engagements are generally multi-location and multi-year, and include scalable recruiting, screening, hiring and management of the contingent workforce. We deploy dedicated management and service teams that work side-by-side with a client’s full-time workforce. Our teams are an integral part of the production and logistics process, and specialize in labor-intensive manufacturing, warehousing and distribution. Our proprietary hiring and workforce management software (Stafftrack®) enables us to recruit and connect the best candidates with on-site assignments. PeopleManagement also provides dedicated and contingent commercial 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 is growing our client base across the transportation, manufacturing, professional services and retail sectors, while creating efficiencies in our operating model.
Previous wording
Fiscal first quarter of 2024 summary
Current wording
Fiscal second quarter of 2024 summary
Previous wording
Total company gross profit as a percentage of revenue for the thirteen weeks ended March 31, 2024 decreased by 180 basis points to 24.7%, compared to 26.5% for the same period in the prior year. This decrease was primarily driven by changes in revenue mix towards our lower margin staffing businesses.
Current wording
Total company gross profit as a percentage of revenue for the thirteen weeks ended June 30, 2024 decreased to 26.4%, compared to 27.4% for the same period in the prior year. This decrease was primarily driven by changes in revenue mix towards our lower margin staffing businesses.
Previous wording
Total company selling, general and administrative (“SG&A”) expense decreased 12.8% to $106.9 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. SG&A expense decreased as a result of continued operational cost management actions we began in 2023 in response to the decline in demand for our services, as well as executing certain elements of our strategic plan around simplifying our organizational structure.
Current wording
Total company selling, general and administrative (“SG&A”) expense decreased 20.0% to $97.0 million for the thirteen weeks ended June 30, 2024, compared to the same period in the prior year. SG&A expense decreased as a result of continued operational cost management actions in response to the decline in demand for our services, and simplification of our organizational structure in line with our strategic plan. In addition, the current period included a benefit, net of related fees, of $6.8 million for recognition of certain COVID-19 government subsidies.
Previous wording
The items above resulted in net loss of $1.7 million for the thirteen weeks ended March 31, 2024, compared to net loss of $4.3 million for the same period in the prior year.
Current wording
The items above resulted in net loss of $104.7 million for the thirteen weeks ended June 30, 2024, compared to net loss of $7.3 million for the same period in the prior year.
Previous wording
As of March 31, 2024, we had cash and cash equivalents of $36.2 million, no debt, and $140.3 million available under the most restrictive covenant of our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $176.5 million.
Current wording
As of June 30, 2024, we had cash and cash equivalents of $26.4 million, no debt, and $132.5 million available under the most restrictive covenant of our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $158.9 million.
Previous wording
Total company revenue declined 13.4% to $402.9 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. The decline was primarily driven by continued economic uncertainty impacting demand trends across all three segments. Our contingent staffing clients continue to focus on employee retention and cost reduction, and as a result they are being selective in the positions they fill using outsourced labor providers. Our PeopleScout clients continue to face uncertain future workforce needs and have reduced volumes in an attempt to manage costs.
Current wording
Total company revenue declined 16.7% to $396.2 million for the thirteen weeks ended June 30, 2024, and declined 15.1% to $799.1 million for the twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year. The decline was primarily driven by continued uncertainty around interest rates, inflation and other factors which impacted demand trends across all three segments. Our contingent staffing clients continue to focus on managing their costs as they adjust to lower demand for consumer goods and services, and as a result they are reducing their need for outsourced labor providers. Similarly, our RPO clients continue to face uncertain future workforce needs and have reduced volumes in an attempt to manage costs.
Previous wording
PeopleReady revenue declined 11.9% to $222.7 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. PeopleReady revenue declined as a result of continued economic uncertainty, leading our clients to reduce their dependence on variable labor to supplement their core workforce in order to manage their costs. Our clients continue to focus on employee retention, and as a result they are being selective in the positions they fill using outsourced labor providers. Declines in demand were seen across most industries and geographies, with the largest in the retail, hospitality and service industries, but were partially offset by increased demand in the renewable energy industry.
Current wording
PeopleReady revenue declined 18.9% to $223.4 million for the thirteen weeks ended June 30, 2024, and declined 15.5% to $446.1 million for the twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year. PeopleReady revenue declined as a result of continued economic uncertainty, leading our clients to reduce their dependence on contingent labor to supplement their core workforce in order to manage their costs. Declines in demand were seen across most industries and geographies, but were partially offset by increased demand in the renewable energy industry.
Previous wording
PeopleScout revenue declined 33.3% to $46.3 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. PeopleScout revenue declined as clients are experiencing less employee turnover and remain uncertain about future workforce needs. This has resulted in clients reducing hiring volumes, sourcing candidates with internal resources, and initiating hiring freezes to control costs.
Current wording
PeopleScout revenue declined 31.2% to $41.1 million for the thirteen weeks ended June 30, 2024, and declined 32.3% to $87.4 million for the twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year. PeopleScout revenue declined as clients are experiencing less employee turnover, and economic conditions are leading to uncertainty about future workforce needs. This has resulted in clients reducing hiring volumes, sourcing candidates with internal resources, and initiating hiring freezes to control costs.
Previous wording
PeopleManagement revenue declined 6.5% to $133.9 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. PeopleManagement revenue declined as clients in our on-site business continued to respond to economic uncertainty by reducing dependence on variable labor, primarily within the retail industry.
Current wording
PeopleManagement revenue declined 6.3% to $131.8 million for the thirteen weeks ended June 30, 2024, and declined 6.4% to $265.6 million for the twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year. PeopleManagement revenue declined as clients in our on-site business continued to respond to economic uncertainty by reducing dependence on variable labor, primarily within the retail industry, partially offset by growth within our commercial driving business.
Previous wording
Gross profit as a percentage of revenue declined 180 basis points to 24.7% for the thirteen weeks ended March 31, 2024, compared to 26.5% for the same period in the prior year. Changes in revenue mix resulted in a contraction of 150 basis points, driven in part by revenue growth from renewable energy clients within PeopleReady, which have lower margins than average PeopleReady clients, as well as the decline in revenue in our highest margin business, PeopleScout. Our staffing businesses contributed an additional 20 basis points of contraction from higher workers’ compensation costs, and an additional 10 basis points as a result of pricing pressure in a low demand environment.
Current wording
Gross profit as a percentage of revenue declined 100 basis points to 26.4% for the thirteen weeks ended June 30, 2024, compared to 27.4% for the same period in the prior year. Changes in revenue mix resulted in a contraction of 120 basis points, driven in part by revenue growth from renewable energy clients within PeopleReady, which have lower margins than average PeopleReady clients due to pass-through travel costs, as well as the decline in revenue in our highest margin business, PeopleScout. Our staffing businesses contributed an additional 50 basis points of contraction as a result of pricing pressure typical of a low demand environment, partially offset by expansion of 70 basis points from recognition of certain COVID-19 government subsidies.
Previous wording
Depreciation and amortization increased for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year, due to assets being placed into service at the end of 2023, primarily related to PeopleReady technology.
Current wording
Depreciation and amortization increased for the thirteen weeks and twenty-six weeks ended June 30, 2024, compared to the same periods in the prior year, due to assets being placed into service at the end of 2023, primarily related to PeopleReady technology.
Previous wording
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 or 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 or 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.
Current wording
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 or loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, valuation allowances recorded on deferred tax assets, 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 or 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.
Previous wording
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 tax 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.
Current wording
The federal Work Opportunity Tax Credit (“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 tax 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.
Previous wording
We evaluate performance based on segment revenue and segment profit (loss). Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other costs and benefits not considered to be ongoing. See Note 12: 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 (loss) before tax expense (benefit).
Current wording
We evaluate performance based on segment revenue and segment profit (loss). Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other costs and benefits not considered to be ongoing. See Note 13: 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 (loss) before tax expense.
Previous wording
PeopleReady segment profit declined $5.9 million for the thirteen weeks ended March 31, 2024, and also declined as a percentage of revenue, compared to the same period in the prior year. These declines were primarily due to the decline in revenue and the relatively high level of fixed versus variable costs within SG&A expense which creates higher operating leverage, as well as changes in revenue mix towards our lower margin renewable energy business.
Current wording
PeopleReady segment profit declined $7.8 million and $13.7 million for the thirteen and twenty-six weeks ended June 30, 2024, and also declined as a percentage of revenue, compared to the same periods in the prior year, respectively. These declines were primarily due to the decline in revenue and the relatively high level of fixed versus variable costs within SG&A expense which resulted in lower operating leverage.
Previous wording
PeopleScout segment profit declined $4.0 million for the thirteen weeks ended March 31, 2024, and also declined as a percentage of revenue, compared to the same period in the prior year. These declines were a result of the decline in revenue, the effects of which were softened by our workforce reductions to manage our operating cost structure.
Current wording
PeopleScout segment profit declined $5.4 million and $9.4 million for the thirteen and twenty-six weeks ended June 30, 2024, and also declined as a percentage of revenue, compared to the same periods in the prior year, respectively. These declines were a result of the decline in revenue, the effects of which were softened by our cost management actions.
Previous wording
PeopleManagement segment profit grew $3.0 million for the thirteen weeks ended March 31, 2024, and also grew as a percentage of revenue, compared to the same period in the prior year. This growth was primarily due to disciplined cost management actions to better align our cost structure with client demand.
Current wording
PeopleManagement segment profit grew $1.1 million and $4.1 million for the thirteen and twenty-six weeks ended June 30, 2024, and also grew as a percentage of revenue, compared to the same periods in the prior year, respectively. This growth was primarily due to disciplined cost management actions to better align our cost structure with client demand.
Previous wording
As part of our strategic plan to simplify our organizational structure, create efficiencies and bring our teams closer to our clients and associates, we continue to consolidate duplicative administrative, recruiting and support costs that serve our broader commercial staffing businesses, further leverage existing systems, and refocus our team on sales efforts to deliver future growth. Commercial staffing includes contingent on-demand, skilled and on-site industrial staffing, as well as commercial driving services.
Current wording
The following highlights represent our operating outlook. These expectations are subject to revision as our business changes with the overall economy. As part of our strategic plan to simplify our organizational structure, create efficiencies and bring our teams closer to our clients and associates, we continue to consolidate administrative, recruiting and support costs that serve our broader commercial staffing businesses, further leverage existing systems, and refocus our team on sales efforts to deliver future growth. Commercial staffing includes contingent on-demand, skilled and on-site industrial staffing, as well as commercial driving services.
Previous wording
•We expect total revenue for the fiscal second quarter of 2024 to decline between 16% and 10% as compared to the same period in the prior year, primarily due to our clients’ continued response to economic uncertainty.
Current wording
•We expect total revenue for the fiscal third quarter of 2024 to decline between 20% and 14% as compared to the same period in the prior year, which assumes current market conditions continue.
Previous wording
•We anticipate declines in gross profit as a percentage of revenue to be between 140 and 100 basis points for the fiscal second quarter of 2024, compared to the same period in the prior year, due to changes to business mix, partially offset by recognition of certain COVID-19 government subsidy benefits.
Current wording
•We anticipate gross profit as a percentage of revenue to decline between 60 and 20 basis points for the fiscal third quarter of 2024, compared to the same period in the prior year, due to changes to business mix.
Previous wording
•For the fiscal second quarter of 2024, we anticipate SG&A expense to be between $97 million and $101 million, representing a decline compared to the same period in the prior year due to continued cost management as well as recognition of certain COVID-19 government subsidy benefits.
Current wording
•For the fiscal third quarter of 2024, we anticipate SG&A expense to be between $99 million and $103 million, representing a decline compared to the same period in the prior year due to ongoing cost management efforts.
Previous wording
•We expect basic weighted average shares outstanding to be approximately 31 million for the fiscal second quarter of 2024. This expectation does not include the impact of potential share repurchases.
Current wording
•We expect basic weighted average shares outstanding to be approximately 30 million for the fiscal third quarter of 2024. This expectation does not include the impact of potential share repurchases.
Previous wording
We believe we have a strong financial position and sufficient sources of funding to meet our short- and long-term obligations. As of March 31, 2024, we had $36.2 million in cash and cash equivalents and no debt outstanding. Under the Revolving Credit Facility, $6.2 million was utilized by outstanding standby letters of credit, leaving $248.8 million unused, which is constrained by our most restrictive covenant making $140.3 million available for additional borrowing. We have an option to increase the total line of credit amount under the Revolving Credit Facility from $255.0 million to $405.0 million, subject to lender approval.
Current wording
We believe we have a strong financial position and sufficient sources of funding to meet our short- and long-term obligations. As of June 30, 2024, we had $26.4 million in cash and cash equivalents and no debt outstanding. Under the Revolving Credit Facility, $6.2 million was utilized by outstanding standby letters of credit, leaving $248.8 million unused, which is constrained by our most restrictive covenant making $132.5 million available for additional borrowing. We have an option to increase the total line of credit amount under the Revolving Credit Facility from $255.0 million to $405.0 million, subject to lender approval.
Previous wording
Cash generated through our core operations is generally our primary source of liquidity. Our principal ongoing cash needs are to finance working capital, fund capital expenditures, repay outstanding Revolving Credit Facility balances, and execute share repurchases. We manage working capital through timely collection of accounts receivable, which we achieve through focused collection efforts and tightly monitoring trends in days sales outstanding. While client payment terms are generally 90 days or less, we pay our associates weekly, so additional financing through the use of our Revolving Credit Facility is sometimes necessary to support revenue growth. We also manage working capital through efficient cost management and strategically timing payments of accounts payable.
Current wording
Cash generated through our core operations is generally our primary source of liquidity. Our principal ongoing cash needs are to finance working capital, fund capital expenditures, repay outstanding Revolving Credit Facility balances, and execute share repurchases. We manage working capital through timely collection of accounts receivable, which we achieve through focused collection efforts and tightly monitoring trends in days sales outstanding. While client payment terms are generally 90 days or less, we pay our associates weekly, so additional financing through the use of our Revolving Credit Facility is sometimes necessary to support working capital needs in times of revenue growth. We also manage working capital through efficient cost management and strategically timing payments of accounts payable.
Previous wording
Total collateral commitments decreased $7.5 million during the thirteen-week period ended March 31, 2024, primarily due to a decrease in collateral levels required by our insurance carriers, as well as the use of collateral to satisfy workers’ compensation claims. See Note 8: Commitments and Contingencies, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our workers’ compensation commitments. We continue to actively manage workers’ compensation cost by focusing on improving our associates’ safety programs, and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the prior periods. Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. Due to our progress in worker safety improvements and the resulting reduction in the frequency and severity of accident rates, we expect diminishing favorable adjustments to our workers' compensation liabilities going forward.
Current wording
Total collateral commitments decreased $16.0 million during the twenty-six-week period ended June 30, 2024, primarily due to the use of collateral to satisfy workers’ compensation claims. See Note 9: Commitments and Contingencies, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our workers’ compensation commitments. We continue to actively manage workers’ compensation cost by focusing on improving our associate safety programs, and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the prior periods. Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. Due to our progress in worker safety improvements and the resulting reduction in the frequency and severity of accident rates, we expect diminishing favorable adjustments to our workers' compensation liabilities going forward.
Previous wording
Demand for our services is generally lower during the fiscal first quarter, due in part to limitations in outside work during the winter months and slowdowns in manufacturing and logistics after the fiscal fourth quarter holiday season. This results in a deleveraging of accounts receivable and accounts payable compared to the prior year-end. Accrued wages and benefits can fluctuate based on whether the period end requires the accrual of one or two weeks of payroll, the amount and timing of employee bonus payments, and timing of payroll tax payments.
Current wording
As client demand declines, the result is a deleveraging of accounts receivable and accounts payable. Accrued wages and benefits can fluctuate based on whether the period end requires the accrual of one or two weeks of payroll, the amount and timing of bonus payments, and timing of payroll tax payments.
Previous wording
In addition to the seasonal declines, we experienced additional deleveraging of accounts receivable and payable due to the decline in revenue during the thirteen weeks ended March 31, 2024, as compared to the fiscal fourth quarter of 2023. Net cash provided by accounts receivable collections during the thirteen weeks ended March 31, 2024 was partially offset by an increase in days sales outstanding of approximately eight days compared to fiscal fourth quarter of 2023, primarily due to a higher percentage of receivables with longer payment terms. Net cash used for payments on accounts payable and accrued expenses was only partially offset by cash provided by accounts receivable. In addition, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline, as was the case in the current period.
Current wording
Net cash provided by accounts receivable collections through deleveraging during the twenty-six weeks ended June 30, 2024 was partially offset by an increase in days sales outstanding of approximately six days for fiscal second quarter of 2024 compared to fiscal fourth quarter of 2023, primarily due to a higher percentage of receivables with longer payment terms. Net cash used for payments on accounts payable and accrued expenses was primarily related to timing of payments to vendors as well as a decrease in certain accrued expenses that fluctuate with revenue. In addition, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline, as was the case in the current period.
Previous wording
Capital expenditures for the thirteen weeks ended March 31, 2024 included continued investments to upgrade our PeopleReady technology platform. Our capital expenditures were offset by proceeds from the divestiture of Labour Ready Temporary Services, Ltd., net of transaction costs, as well as cash provided by maturities of restricted investments to pay workers’ compensation claims exceeding purchases of new restricted investments.
Current wording
Capital expenditures for the twenty-six weeks ended June 30, 2024 included continued investments to upgrade our PeopleReady technology platform. Our capital expenditures were partially offset by proceeds from the divestiture of Labour Ready Temporary Services, Ltd., net of transaction costs, as well as cash provided by maturities of restricted investments to pay workers’ compensation claims exceeding purchases of new restricted investments.
Previous wording
Net cash used in financing activities during the thirteen weeks ended March 31, 2024 was primarily due to the repurchase of $10.1 million of our common stock in the open market, including excise tax. As of March 31, 2024, $45.1 million remains available for repurchase under existing authorizations.
Current wording
Net cash used in financing activities during the twenty-six weeks ended June 30, 2024 was primarily due to the repurchase of $17.0 million of our common stock in the open market, including excise tax. As of June 30, 2024, $37.8 million remains available for repurchase under existing authorizations.
Previous wording
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.
Current wording
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 reporting units with remaining goodwill as of the first day of our fiscal second quarter were PeopleReady, Centerline, PeopleScout RPO and PeopleScout MSP.
Previous wording
During the fiscal first quarter of 2024 management determined that a triggering event had occurred as a result of continued decline in demand for our services, overall economic uncertainty, and a sustained decrease in our stock price. Therefore, we performed an interim impairment test as of the last day of our fiscal first quarter of 2024. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 13.5% to 14.5%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation.
Current wording
During the fiscal second quarter of 2024, management determined that a triggering event had occurred as a result of additional decline in demand for our services, prolonged economic uncertainty, and a further decrease in our stock price. Therefore, we performed an interim impairment test as of the last day of fiscal May 2024. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 13.5% to 14.5%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation.
Previous wording
All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, no impairment loss was recognized for the thirteen weeks ended March 31, 2024.
Current wording
All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, no impairment loss was recognized for the PeopleScout or PeopleManagement segments for the twenty-six weeks ended June 30, 2024.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
Gross profit as a percentage of revenue declined 150 basis points to 25.5% for the twenty-six weeks ended June 30, 2024, compared to 27.0% for the same period in the prior year. Changes in revenue mix resulted in a contraction of 150 basis points driven by revenue growth from renewable energy clients within PeopleReady, as well as the decline in revenue in our highest margin business, PeopleScout. Our staffing businesses contributed an additional 30 basis points of contraction as a result of pricing pressure typical of a low demand environment, offset by expansion of 30 basis points from recognition of certain COVID-19 government subsidies.
Current report — wording carried from elsewhere
We have indefinite-lived intangible assets for trade names/trademarks related to business within our PeopleManagement and PeopleScout segments. 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 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.
Current report — wording carried from elsewhere
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 asset 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 asset is greater than its carrying amount, the quantitative impairment test is unnecessary.
Current report — wording carried from elsewhere
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for any discrete items 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 or loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, valuation allowances recorded on deferred tax assets, 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 or 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.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Total company revenue declined 13.4% to $402.9 million for the thirteen weeks ended March 31, 2024, compared to the same period in the prior year. The decline was primarily driven by continued economic uncertainty impacting demand trends across all three segments. Our contingent staffing clients continue to focus on employee retention and cost reduction, and as a result they are being selective in the positions they fill using outsourced labor providers. Our direct hire clients continue to face uncertain future workforce needs and have reduced volumes in an attempt to manage costs.
Previous report — wording carried elsewhere
The following highlights represent our operating outlook. These expectations are subject to revision as our business changes with the overall economy.