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 , 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 inthe United States ("U.S."),Canada andPuerto 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.
People Management
PeopleManagement, our second largest segment by revenue, provides recruitment and on-site management of a facility's contingent industrial workforce throughout theU.S. ,Canada andPuerto Rico . In comparison withPeopleReady , 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
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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 endedJune 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 endedJune 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 endedJune 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 endedJune 26, 2022 compared to$15.9 million for the same period in the prior year. As ofJune 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
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RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data:
Thirteen weeks ended Twenty-six weeks ended
(in thousands, except percentages Jun 26, Jun 27, Jun 26, Jun 27,
and per share data) 2022 % of revenue 2021 % of revenue 2022 % of revenue 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 122,034 21.4 110,508 21.4 242,602 21.6 207,909 21.3
administrative expense
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 (110) 724 395 1,299 income, net 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 Jun 26, Segment % of Jun 27, Segment % of Jun 26, Growth Segment % of Jun 27, Segment % of percentages) 2022 Growth % total 2021 total 2022 % total 2021 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 endedJune 26, 2022 , and grew 15.0% to$1,120.8 million for the twenty-six weeks endedJune 26, 2022 , compared to the same periods in the prior year, respectively. The growth was driven by continued demand for our services.
PeopleReady revenue grew 6.2% to$317.9 million for the thirteen weeks endedJune 26, 2022 , and grew 11.4% to$623.6 million for the twenty-six weeks endedJune 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 endedJune 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
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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 endedJune 26, 2022 , and grew 54.6% to$171.4 million for the twenty-six weeks endedJune 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.
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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 % 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 endedJune 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 endedJune 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 endedJune 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
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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 inthe United States of America ("U.S. GAAP"), and may not be comparable to similarly titled measures of other companies.
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.
People Management 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 % 2.1 %
People Management segment profit grew
PeopleScout 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 $ 89,372 $ 64,283 $ 171,378 $ 110,843
Segment profit 20,593 10,857 31,565 14,894
Percentage of revenue 23.0 % 16.9 % 18.4 % 13.4 %
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PeopleScout segment profit grew $9.7 million and $16.7 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 improved as a result of operating leverage as volumes increased due to
historically high employee turnover rates at existing clients.
FUTURE OUTLOOK
The following highlights represent our operating outlook for the fiscal third quarter and full year of 2022. These expectations are subject to revision as our business changes with the overall economy.
operating outlook
•We are not providing customary revenue guidance for the fiscal third quarter of 2022. Our historical third quarter sequential revenue growth has been approximately 9% over the prior five years, excluding the fiscal third quarter of 2020. However, revenue trends atPeopleReady exitingJune 2022 imply total company sequential revenue growth of between 3% and 5%. •We anticipate gross margin expansion of between 120 and 160 basis points for the fiscal third quarter of 2022 compared to the same period in the prior year. For fiscal 2022, we anticipate gross margin expansion of between 40 and 100 basis points, compared to the prior year. We expect gross margin to expand due to shifts in revenue mix toward our PeopleScout segment, as well as higher bill rates compared to pay rates within our staffing businesses. •For the fiscal third quarter of 2022, we anticipate SG&A expense to be between$126 million and$130 million . For fiscal 2022, we anticipate SG&A expense to be between$501 million and$507 million . This includes approximately$3 million for the fiscal third quarter of 2022 and$11 million for fiscal 2022 in costs to implement new cloud-based solutions to replace our technology platform atPeopleReady . We will continue to exercise disciplined cost management while making investments in sales resources and digital strategies to drive profitable revenue growth.
•We expect our effective income tax rate for fiscal 2022 to be between 14% and 18%.
Liquidity outlook •Capital expenditures and spending for software as a service assets for the fiscal third quarter of 2022 are expected to be approximately$14 million , and between$40 million and$44 million for fiscal 2022. We remain committed to technological innovation to transform our business for a digital future. We continue to make investments in online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting them with our clients. We expect these investments will increase the competitive differentiation of our services over the long term, improve the efficiency of our service delivery, and reducePeopleReady's dependence on local branches to find associates and connect them with work. Examples includePeopleReady's JobStack mobile app and PeopleScout's Affinix talent acquisition technology. Page - 22
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LIQUIDITY AND CAPITAL RESOURCES
We believe we have a strong financial position and sufficient sources of funding to meet our short and long term obligations. As ofJune 26, 2022 we had$32.4 million in cash and cash equivalents, up to$300 million provided under our revolving credit agreement, of which$7.3 million was utilized by outstanding standby letters of credit leaving,$292.7 million available under our Revolving Credit Facility. We have an option to increase the total line of credit amount from$300 million to$450 million , subject to bank approval. Cash generated through our core operations is 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. We remain committed to technological innovation to transform our business for a digital future. As part of executing this strategy, we continue to make investments in online and mobile apps to improve access to associates and candidates, as well as to improve the speed and ease of connecting our clients and associates for our staffing business, and candidates for our RPO business. We expect these investments will increase the competitive differentiation of our services over the long term, improve the efficiency of our service delivery model, and reducePeopleReady's dependence on local branches to find associates and connect them with work. In addition, we continue to transition our back-office technology from on-premise software platforms to cloud-based software solutions, to increase automation and the efficiency of running our business. Outside of ongoing cash needed to support core operations, our insurance carriers and certain state workers' compensation programs require us to collateralize a portion of our workers' compensation obligation, for which they become responsible should we become insolvent. On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers' compensation obligation. Such amounts can increase or decrease independent of our assessments and reserves. We continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics. We generally anticipate that our collateral commitments will continue to grow as we grow our business. We pay our premiums and deposit our collateral in installments. The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit, and surety bonds. Restricted cash and investments supporting our self-insured workers' compensation obligation are held in a trust at the Bank of New York Mellon ("Trust"), and are used to pay workers' compensation claims as they are filed. See Note 5:Workers' Compensation Insurance and Reserves, and Note 3: Restricted Cash and Investments, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for details on our workers' compensation program as well as the restricted cash and investments held in Trust. We have established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers' compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments includeU.S. Treasury securities,U.S. agency debentures,U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized statistical rating organizations, the minimum ratings at time of purchase are: S&P Moody's Fitch Short-term rating A-1/SP-1 P-1/MIG-1 F-1 Long-term rating A A2 A Total collateral commitments decreased$7.6 million during the twenty-six week period endedJune 26, 2022 primarily due to lower collateral requirements from our insurance carriers and the use of collateral to satisfy workers' compensation claims. See Note 7: 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 through the safety of our associates with our 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. We expect diminishing favorable adjustments to our workers' compensation liabilities as the opportunity for significant reduction to the frequency and severity of accident rates diminishes. Page - 23
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Restricted cash and investments also includes collateral to support our
non-qualified deferred compensation plan in the form of company-owned life
insurance policies. Our non-qualified deferred compensation plan is managed by a
third-party service provider, and the investments backing the company-owned life
insurance policies align with the amount and timing of payments based on
employee elections.
A summary of our cash flows for each period are as follows:
Twenty-six weeks ended
(in thousands) Jun 26, 2022 Jun 27, 2021
Net cash provided by operating activities $ 53,102 $ 47,362
Net cash used in investing activities (1,116) (4,287)
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)
Cash flows from operating activities
Cash provided by operating activities consists of net income adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.
Demand for our contingent staffing services is generally higher during the fiscal fourth quarter due to the holiday season surge. This generally results in a deleveraging of accounts receivable and accounts payable after year-end. Also, 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. Net cash provided by accounts receivable collections through deleveraging was partially offset by a slight increase in our days sales outstanding during the twenty-six weeks endedJune 26, 2022 , primarily due to our sales mix trending towards clients and segments with longer payment terms. Net cash used for payments on accounts payable and accrued expenses was partially offset by more favorable payment terms negotiated with our vendors as part of our focus on capital management. Additionally, net cash used for payments for accrued wages and benefits was primarily due to the timing and amount of annual bonus payments to employees, which are paid in the fiscal first quarter.
Cash flows from investing activities
Investing cash flows consist of capital expenditures and purchases, sales and maturities of restricted investments, which are managed in line with our workers’ compensation collateral funding requirements and timing of claim payments.
Capital expenditures for the twenty-six weeks endedJune 26, 2022 were lower than the twenty-six weeks endedJune 27, 2021 due to build-out costs of$6.4 million incurred related to ourChicago support center, which was completed during fiscal 2021.
Cash flows from financing activities
Financing cash flows consist primarily of repurchases of common stock as part of our publicly announced share repurchase program, amounts to satisfy employee tax withholding obligations upon the vesting of restricted stock, the net change in our Revolving Credit Facility, and proceeds from the sale of common stock through our employee stock purchase plans. Net cash used in financing activities during the twenty-six weeks endedJune 26, 2022 was primarily due to the repurchase of$60.9 million of our common stock in the open market. As ofJune 26, 2022 ,$89.1 million remains available for repurchase under existing authorizations.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations; Summary of Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended
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
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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.
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 arePeopleReady , 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. Determining the fair value of a reporting unit when performing a quantitative impairment test involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. We estimate the fair value of each reporting unit using a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply a market approach, which comparesTrueBlue, Inc. to comparable publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We confirm the reasonableness of the valuation conclusions by comparing the indicated values of all the reporting units to the overall company value indicated by the stock price and outstanding shares as of the valuation date, or market capitalization. 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 endedJune 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 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.
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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 .
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q.
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