UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 20172023
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-14543
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TrueBlue, Inc.
(Exact name of registrant as specified in its charter)
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| Washington | | 91-1287341 | |
| Washington | 91-1287341 |
| (State of incorporation) | | (I.R.S. Employer Identification No.employer identification no.) |
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1015 A Street, Tacoma, Washington | | 98402 |
(Address of principal executive offices) | | (Zip Code) |
1015 A Street, Tacoma, Washington 98402
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (253) 383-9101
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Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stockstock, no par value | TBI | The New York Stock Exchange |
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
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| Large accelerated filer | x☐ | Accelerated filer | ¨☒ | Non-accelerated filer | ¨☐ | | (Do not check if a smaller reporting company)
| Smaller reporting company | ¨☐ | Emerging growth company | ¨☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
As of July 2, 2017,June 25, 2023, the aggregate market value (based on the NYSE quoted closing price) of the common stock held by non-affiliates of the registrant was approximately $1.1$0.5 billion.
As of February 1, 2018,14, 2024, there were 41,089,32931,387,635 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders scheduled to be held May 9, 2018,15, 2024, which will be filed no later than 120 days after the end of the fiscal year to which this report relates.
TrueBlue, Inc.
Table of Contents
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PART I |
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| PART II |
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PART IIIItem 9C. | | |
| PART III |
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| PART IV |
| Item 15. | | |
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PART I
COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, 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 whichthat may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Risk Factors” (Part I, Item 1A of this Form 10-K), “Cybersecurity Risk Management and Strategy” (Part 1C of this Form 10-K), “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form 10-K), and “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form 10-K), and “Management’s Discussion and Analysis” (Part II, Item 7 of this Form 10-K). WeExcept as required by law, 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.
OUR COMPANY
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help customers create growth,our clients improve efficiencyproductivity and increase reliability.grow their businesses. We connected approximately 740,000 people with work during fiscal 2017,began operations in 1989 and served approximately 108,000 customers in a wide variety of industries through our staffing, on-site workforce management and recruitment process outsourcing services. We are headquartered in Tacoma, Washington.
We began operations in 1989, specializing in on-demand, general labor staffing services with the objective of providing customers with talent and flexible workforce solutions to enhance the performance of their businesses. We expanded our on-demand, general labor staffing services through organic geographic expansion throughout the United States, Canada and Puerto Rico. Commencing in 2004, we began expanding through acquisitions to provide a full range of blue-collar staffing solutions, and to help our customers be more productive with a reliable contingent labor workforce and rapidly respond to changing business needs. Additionally, in 2014, we further expanded through acquisition to provide a full range of workforce solutions, which added on-premise contingent blue-collar staffing (we expanded this service offering with the acquisition of SIMOS in 2015), complementary outsourced service offerings in permanent employment recruitment process outsourcing (which was further strengthened by an additional acquisition in 2016), and a management service provider business, which provides customers with outsourced management of their contingent labor vendors.
BUSINESS OVERVIEW
We report our businessIn 2023, we connected approximately 464,000 people with work and served approximately 67,000 clients. Our operations are managed as three distinct reportable segments described belowbusiness segments: PeopleReady, PeopleScout and in Note 16: Segment Information, to our Consolidated Financial Statements found in Part II, Item 8 of this Annual Report on Form 10-K.
PeopleReady
PeopleReady provides access to reliable workersconnected approximately 195,000 people with work in the United States, Canada and Puerto Rico through a wide range of staffing solutions for blue-collar, contingent on-demand general and skilled labor. PeopleReady connects people to work infiscal 2023 within a broad range of industries that includeincluded construction, transportation, manufacturing, retail, hospitality and logistics, warehousingrenewable energy. We connected individuals looking for general temporary, temp-to-hire and distribution, waste and recycling, hospitality, general labor, and others.skilled trade positions with our vast network of clients.
In fiscal 2023, PeopleReady helpedprovided approximately 107,000 customers in fiscal 2017 to be more productive by providing easy66,000 clients with dependable access to dependable, blue-collarqualified associates for their on-demand, contingent labor. Throughgeneral 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 PeopleReadyclients.
We have a network of approximately 600 branches across all 50 states in the United States (“U.S.”), Canada and Puerto Rico. Augmenting our branch network and consolidated service line, wecenters 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.
PeopleScout, a global leader in recruitment process outsourcing (“RPO”) services, connected approximately 352,000224,000 people with work in fiscal 2017. We have2023, 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. To do so, we tailor our services to individual client needs by offering multiple solutions, including the following:
•Full-cycle RPO solution: Provides oversight of the entire talent acquisition strategy, including sourcing, screening, hiring and onboarding of candidates.
•Project RPO solution: Brings a full-scale RPO model to solve a specific client challenge for a defined scope of work and time.
•Recruiter on demand solution: Provides access to a network of 623 branches across all 50 states, Canadahighly-skilled talent acquisition experts, giving clients the option to choose the type of support they need with less cost and Puerto Rico.complexity than ramping up their internal teams.
PeopleManagement
PeopleManagement provides contingent labor•Talent advisory solution: Provides employer branding, recruitment marketing, talent insights, diversity, equity and outsourced industrial workforce solutions. In comparison with PeopleReady, services are larger in scale, longer in duration, and provided on-premise at the customer’s facility.
We use the following distinct brands to market our PeopleManagement contingent workforce solutions:
Staff Management | SMX specializes in exclusive outsourced recruitment and on-premise management of a facility’s contingent industrial workforce. On-premise staffing is large-scale sourcing, screening, recruiting and management of the contingent workforce at a customer’s facility in order to achieve faster hiring, lower total cost of workforce, increased safety and compliance, improved retention, greater volume flexibility, and enhanced strategic decision-making through robust reporting and analytics;
SIMOS Insourcing Solutions (“SIMOS”) specializes in exclusive outsourced recruitment and on-premise management of the entire warehouse operations or parts of warehouse operations in order to reduce costs and improve performance. SIMOS systematically analyzes and improves business processes in a customer’s facilities and manages the contingent workforce with incentives to drive performance improvements in cost, quality and on-time delivery. Internet sales have fundamentally changed the nature of retail supply chain. The retail market as a whole has moved significantly from conventional retail stores to growing demand for e-commerce, selling directly to its customers. These changes have driven extreme peak seasonal volumes, small number of pieces per order, intense pressure for fast delivery, and an increase of consumer product returns. We provide scalable solutions to meet the pick and pack and shipping requirements in labor intensive e-commerce warehouses. Our unique productivity model incorporates fixed price-per-unit solutions to drive client value. Additionally, our continuous analysis and improvement of processes and incentive pay drives workforce efficiency, reduces costs, lowers risk of injury and damage, and improves productivity and service levels;
Centerline Drivers (“Centerline”) specializes in providing dedicated and temporary truck drivers to the transportation and distribution industries. Centerline delivers compliant drivers specifically matched to each customer’s needs, allowing them to improve productivity, control costs and deliver improved service; and
PlaneTechs specializes in providing temporary skilled mechanics and technicians to aircraft maintenance, repair, overhaul and manufacturing companies in the commercial, governmentinclusion consulting, candidate assessment services and business aviation sectors.
talent acquisition strategy consulting.PeopleManagement helped approximately 1,000 customers in 2017Our proprietary technology platform, Affinix®, uses machine learning to be more productive by providing easy accessrapidly source a qualified talent pool within minutes, and further engages candidates through a seamless digital experience. Affinix provides real-time insights to dependable blue-collar contingent workforce solutions. Through our PeopleManagement service line, we connected approximately 91,000 people with work in fiscal 2017. We have over 251 locations at customers’ facilities.
PeopleScout
PeopleScout provides permanent employee recruitment process outsourcing (“RPO”) forclients, helping our customers. Our RPO solution serves all major industries and job types. Our RPO solution delivers improved talent quality, faster hiring, increased scalability, reduced turnover, lower cost of recruitment, greater flexibility, and increased compliance. We leverage our proprietary candidate applicant tracking system, along with dedicated service delivery teams to work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees. Our solution is highly scalableefficiently and flexible, allowing for outsourcing of all or a subset of skill categories across a series ofeffectively manage the entire recruitment processes and onboarding steps. Customerprocess. Client contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire. Volume,hire and/or talent consulting fees. Pricing is impacted by factors such as geography, volume, job type, degree of recruiting difficulty, and numberthe scope of recruiting process steps from sourcing to onboarding factor into pricing.outsourced recruitment and employer branding services included.
PeopleScout also includes our managed service provider (“MSP”) business, which manages our customers’clients’ contingent labor programs including vendor selection, performance management, compliance monitoring and risk management. As the customer’sclient’s exclusive MSP, we have dedicated service delivery teams, which work as an integrated partner with our customerclients to increase the productivity of their contingent labor.workforce program.
In fiscal 2017, PeopleScout
PeopleManagement connected approximately 297,000 individuals45,000 people with work in fiscal 2023.
Our On-Site business provides and manages contingent associates at clients’ facilities through our Staff Management | SMX (“Staff Management”) and SIMOS Insourcing Solutions (“SIMOS”) branded services 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. We offer hourly and productivity-based (cost-per-unit) pricing options for approximately 200 customers.industrial staffing solutions. The productivity-based pricing leverages a strategically engineered on-site solution to incentivize performance improvements in cost, quality and on-time delivery using a fixed price-per-unit approach. Both hourly and productivity-based pricing are impacted by factors such as geography, volume, job type and degree of recruiting difficulty.
PeopleManagement also provides dedicated and contingent commercial 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. Centerline offers three solutions for clients:
•Flexible Drivers solution: On-demand service helping clients find drivers where and when they need them.
•Driver Management Services solution: Fully outsourced recruitment, management and supervision of drivers for a client.
•Mobile Drivers solution: Short-term relocation of qualified, experienced drivers for special projects or to high-need markets or remote locations where drivers are unavailable.
INDUSTRY AND MARKET DYNAMICS
The staffing industry, which includes our PeopleReady and PeopleManagement services, suppliesbusinesses, plays a key role in many employers’ talent strategies. Staffing companies supply contingent workforce solutions to minimizeensure the best return on talent investment, optimize talent for business circumstances, and reduce the cost and effort of hiring and managing permanent employees. This allows for a rapid response to changes in business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs. Staffing companies act as intermediaries in matchingto match available temporary workers toassociates with employer work assignments. The workWork assignments vary widely in duration, skill level of skill, and required experience.
The human resource outsourcing industry, which includes our PeopleScout business, involves transitioning various functions handled by internal human resources and labor procurement departments to outside service providers on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, increased candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers. The human resource outsourcing industry includes our RPO and MSP services, which allow clients to more effectively find and engage high-quality talent, leverage talent acquisition technology and scale their talent acquisition function to keep pace with changing business needs.
Our workforce solutions address the following key industry and market trends contributing to anticipated growth:
•Workforce flexibility and scalability: The staffing industry continues to experience dynamic shifts between the permanent and flexible workforce based on competitive and economic pressures to reduce costs, seasonal demands, and in response to rapidly changing market conditions. Providers in the human resource outsourcing industry can add significant scalability to a company’s recruiting and hiring efforts, including accommodating seasonal, project or peak hiring needs without sacrificing quality. These providers also help clients increase efficiency and drive lower overhead costs by standardizing processes, reducing time to fill, and onboarding the best fit talent into a client’s organization.
•Workforce productivity: Companies are under increasing competitive pressures to improve productivity through workforce solutions that improve performance and enable clients to focus on their core business.
•Leveraging technology to access talent: Automation, artificial intelligence and machine learning are transforming talent recruitment and service delivery. The fragmented talent technology ecosystem is becoming more crowded, with significant investments flowing in and new technology coming online. Associates are demanding more flexibility in how, when and where they work, as well as access to contingent work opportunities through mobile technology. Available associates are in high demand and have more power to find the employment situation they desire. As competition for qualified candidates increases, clients and their outsourced service providers are leveraging innovative talent technology to improve the recruiting process and efficiently hire more qualified candidates. Additionally, talent technology continues to elevate the employer brand, build talent communities, create a world-class candidate experience, and facilitate effective recruitment marketing and candidate communication strategies.
BUSINESS STRATEGY
Our business strategy is focused on investing in innovative technology and initiatives that will drive organic growth and improve the client, candidate and associate experience. Our clients have a variety of challenges in running their businesses, each of which are unique to the competitive pressures of their industries. Our business segments are dedicated to workforce solutions tailored to our clients’ needs and the industries in which they operate. We ensure our differentiated solutions keep pace with the changing needs of our clients while driving growth through the following strategies:
•We continue to invest in technology to accelerate revenue growth, reduce the cost of delivering our services, and increase our ability to attract and retain clients, candidates and associates. Our technological innovations improve the access, speed and ease of connecting our clients with high-quality contingent and permanent employee workforce solutions.
◦Augmenting our PeopleReady branch network is our JobStack platform, which connects our associates and clients through a real-time 24 hours a day, seven days a week digital exchange with an easy-to-use mobile app. JobStack enables our branches to expand their recruiting and sales efforts. JobStack is competitively differentiating our services, expanding our reach into new demographics, and improving both service delivery and work order fill rates as we continue to execute our digital strategy. We are in the early stages of launching a new, proprietary version of JobStack that provides a more customized experience for our clients and associates. During fiscal 2023, we made the new JobStack app accessible to a limited number of PeopleReady branches, and will continue the rollout to additional branches in fiscal 2024. Through the new version of JobStack, we will continue to periodically add features and
enhancements to expand functionality to further leverage this technology to transform our business by reducing expenses, accelerating revenue growth and enhancing our client and associate retention.
◦Augmenting our Staff Management and SIMOS dedicated on-site teams is Stafftrack®. Stafftrack is a proprietary hiring and workforce management software that enables us to recruit and connect the best candidates with on-site assignments. Stafftrack has robust, near real-time analytics that drive dynamic supply chain and workforce strategies, which allow clients faster, more precise hiring and help drive operational improvements and efficiencies. The Stafftrack associate mobile app provides associates the ability to search for a job, view schedules, add shifts, receive real-time notifications, and earn perks through our Stafftrack Rewards program, which incentivizes associates for perfect attendance and referrals. We continue to expand functionality within Stafftrack to further enhance our client and associate experience.
◦Our Centerline mobile app provides our drivers with access to information on-the-go including schedules, pay information, job extension requests and access to our Respect the Drive driver engagement program, which tracks milestone accomplishments for hours worked. We continue to expand and build functionality within the mobile app to enhance the overall driver experience.
◦Augmenting our PeopleScout dedicated service delivery teams is our Affinix platform used for sourcing, screening and delivering a permanent workforce to our clients. Affinix creates a consumer-like candidate experience and streamlines the sourcing process. Affinix delivers speed and scalability while leveraging recruitment marketing, machine learning, predictive analytics and other emerging technology to make the end-to-end process seamless for the candidate. We continue to invest in Affinix to further improve our ability to quickly and efficiently source the most attractive talent at the best price.
•We continue to evaluate opportunities to expand our market presence for specialized blue-collar staffing services, expand our geographical and industry reach, provide a broad range of general staffing services, and dispatch our associates by leveraging a combination of technology and local market presence. Continued investment in specialized sales, recruiting and service expertise will create a more seamless experience for our clients to access all our services with more comprehensive solutions to enhance their performance and our growth. Our business segments offer complementary workforce solutions with unique value propositions to meet our clients’ demands for talent.
•Our RPO business continues to leverage our strong brand and innovative technology for high-volume sourcing and dedicated client service teams for connecting people to opportunities. We will continue to focus our sales and marketing efforts to reach new clients as the demand for outsourced recruiting support increases.
•Our fiscal 2024 business strategy is focused on accelerating business growth to capture market share, while enhancing our profitability. Key elements of this strategy include advancement of our digital transformation, expansion in high-growth and under-penetrated end markets, and evaluating and simplifying our operating structure. While we will continue to go to market under our current, well-established brands, streamlining our organization will create opportunities to reduce inefficiencies and bring our teams closer to our clients and associates, enabling greater focus on operational excellence, cross-selling and innovation. With a more focused structure, we will be better able to leverage our strengths and assets to deliver long-term, profitable growth.
COMPETITION
Contingent staffing services
The staffing industry is large and highly fragmented, with many competing companies.including large publicly-held companies as well as privately-owned companies on a national, regional and local level. No single company has a dominant share of the industry. We compete primarily with local and regional companies, as well as online and app-based companies providing a variety of flexible workforce solutions. The strongest staffing services competitor in a particular market is a company with established relationships and a track record of meeting the clients’ needs. The most significant competitive factors are price, ability to promptly fill client orders, success in meeting clients’ expectations of recruiting qualified associates, quality of client and associate technology tools, and appropriately addressing client service issues.
Staffing companies compete both to recruit and retain a supply of temporary workers,associates, and to attract and retain customersclients who will employutilize these workers. Customerassociates. Client demand for contingent staffing services is dependent onheavily influenced by the overall strength of the economy and labor market, specific industry and sector performance, and workforce flexibility trends. This creates volatility for the staffing industry based on overall economic conditions. Historically, in periods of economic growth, the
number of companies providing contingent workforce solutions has increased due to low barriers to entry, whereas, during recessionary periods, the number of companies has decreased through consolidation, bankruptcies or other events. Competitive forces have historically limited our ability to raise our prices to immediately and fully offset the increased costs of doing business, some of which include increased associate wages, workers’ compensation costs, unemployment insurance and health care.
We have a competitive advantage from our service history, our specialized approach in serving the industries of our clients, and our mobile apps, which connect associates with jobs and create virtual exchanges between our associates and clients. Our JobStack and Stafftrack mobile apps are competitively differentiating our services, expanding our reach into new demographics, and improving our recruiting, sales and service delivery. Our national presence, industry specialization, investment in technology, and proprietary systems and processes, together with specialized programs focused on worker safety, risk management, and legal and regulatory compliance, are key differentiators from many of our competitors.
Human resource outsourcing
Our solutions address the following key trends contributing to anticipated staffing growth:
Workforce flexibility: The staffing industry continues to experience increased demandstrongest competitors are companies who specialize in relation to total job growth as demand for a flexible workforce continues to grow with competitive and economic pressures to reduce costs, meet dynamic seasonal demands, and respond to rapidly changing market conditions.
Workforce productivity: Companies are under increasing competitive pressures to improve productivity through workforce solutions that improve performance.
Worker preferences and access to talent: Workers are demanding more flexibility in how, when and where they workRPO services, as well as access to contingent work opportunities through mobile technology. Baby boomers are leaving the workforce and leaving a talent shortage in what have traditionally been blue-collar trades. The remaining workers are in greater demand and have more power to find the employment situation they want or stay busy working on a contingent basis.
Thecompanies who offer broader human resource outsourcing industry involves transitioning various functions handled by internal human resources and labor procurement to outside service providers on a permanent or project basis. Human resource departments are faced with increasingly complex operational and regulatory requirements, a tightening recruitment market, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers. The human resource outsourcing industry includes RPO and MSP solutions, which allow customersinclude RPO services. No single provider dominates the market. Competition also includes companies that choose to more effectively findperform recruiting in-house. The most significant competitive factors for RPO services are the ability to attract top talent, reduce cost per hire, improve retention, deploy best-in-class technology solutions and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs. PeopleScout is a leaderimprove employer branding. Important factors for success in RPO and MSP services which are ininclude the early stages of their adoption cycles, and therefore, we believe they continueability to have significant growth potential.
Our solutions address the following key trends contributing to anticipated RPO growth:
Talent access and engagement: As the competition for talent, shortage of skilled workers, and changes in worker demographics continue to increase, customers are relying on RPO providers to seamlessly blend talent acquisition processes and technology to more effectively access, identify and engage the best talent. RPO providers bring experience building talent communities, meeting candidates where they are, leveraging innovative talent technology, and facilitating effective recruitment marketing and candidate communication strategies.
Leveraging talent acquisition technology: Automation, artificial intelligence and machine learning are transforming talent acquisition and the fragmented talent technology ecosystem is becoming more crowded, with significant investments flowing in and new technology coming online rapidly. RPO providers are continuously identifying, evaluating and investing in new technology to leverage as part of their talent technology stack to best meet today’s candidate’s expectations of a personalized, mobile-optimized and efficient hiring process. RPO providers are uniquely positioned to successfully integrate and deploy new talent technology based on the volume of candidate engagements they manage and their understanding of the talent landscape, thereby reducing the investments required to be made by customers.
Scalability: RPO providers can add significant scalability to a company’sclient’s recruiting and hiring efforts, including accommodating seasonal project or peakand irregular hiring, needs without sacrificing quality. Providers also help customersthe ability to increase efficiency and drive better performance by standardizing processes and reducing timefacilitating transitions for candidates and employees, and the ability to fill and onboardsource the best fit talent into a customer’s organization, and enabling customers to focus on their core business.
Our solutions address the following key trends contributing to anticipated MSP growth:
Vendor consolidation and cost savings: As an organization’s spend on contingent workforce rises, it becomes increasingly interested in reducing the administrative burden of managing multiple outside vendors, having consistency among contractors and processes, and maintaining robust performance tracking and analytics. Vendor consolidation can achieve significant efficiencies through enhanced scale and cost advantages such as single point of contact, standardized contracts, and consolidated invoicing and reporting.
Access to talent: An MSP solution allows a company access to a large variety of staffing vendors with the efficiency of working with one supplier. An MSP can access numerous vendors to find the bestmost attractive talent at the best price more quickly, thereby delivering a better outcome for the customer.
Compliance pressure: Demand for temporary employee sourcingprice. Our tailored solutions, client partnerships, proprietary technologies and workforce vendor management solutions is driven by increasing work eligibility legislation and compliance monitoring to ensure correct worker classification in order to properly
address tax withholding, overtime, Social Security, unemployment and health care obligations to avoid government penalties and lawsuits.
BUSINESS STRATEGY
Market leadership through organic growthservice delivery are key differentiators from many of our specialized workforce solutions.competitors.
CLIENTS
Our customers have a variety of challenges in running their businesses, many of which are unique to the industries in which they operate, their competitive pressures, and business performance. We are industry leaders dedicated to staffing solutions tailored to our customers’ needs and the industries in which they operate. Our differentiated solutions keep pace with their changing needs and are as follows:
We will continue to evaluate opportunities to expand our market presence for specialized blue-collar staffing services and expand our geographical reach through new physical locations, expand use of existing locations to provide the full range of blue-collar staffing services, and dispatch of our temporary workers to areas without branches. Continued investment in specialized sales, recruiting and service expertise will create a more seamless experience for our customers to access all of our services with more comprehensive solutions to enhance their performance and our growth. Our service lines offer complementary workforce solutions with unique value propositions to meet our customers’ demand for talent.
We will continue to invest in technology that increases our ability to attract more customers and employees as well as reduce the cost of delivering our services. We are committed to leveraging technology to improve the temporary worker and customer experience. Our technological innovation makes it easier for our customers to do business with us and easier to connect workers to work opportunities. We are making significant investments in online and mobile applications to improve the access, speed and ease of connecting our customers with both high-quality temporary and permanent employee workforce solutions.
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◦ | We introduced our mobile application, JobStackTM, and completed the roll out to our temporary workers in 2017. We expect to fully roll out JobStackTM to our customers in 2018. This will create a virtual exchange between our workers and customers, which will allow our branch resources to expand their recruiting and sales efforts and service delivery. We expect JobStackTM will increase the competitive differentiation of our services, expand our reach into new demographics, and improve both service delivery and work-order fill rates.
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◦ | We introduced a mobile-first, cloud-based proprietary platform, AffinixTM, in 2017 that creates a consumer-like candidate experience and streamlines the sourcing process within PeopleScout’s talent solutions. AffinixTM delivers speed and scalability while leveraging artificial intelligence, recruitment marketing, machine learning, predictive analytics and other emerging technology with one-point applicant tracking system and vendor management system integration and single sign-on. Currently, AffinixTM is available exclusively to PeopleScout customers and is continuously evolving to make the end-to-end process seamless for the candidate.
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We are well positioned for growth by providing customers with the talent and flexible workforce solutions they need to enhance business performance. Our customers utilize our workforce solutions to improve the performance of their businesses. With growing demand for improved productivity and accessing temporary workers, our customers are looking for a full range of workforce services.
We are recognized as an industry leader for RPO services. The RPO industry is in the early stages of its adoption cycle, and therefore, we believe it has significant growth potential. The success of early adopters is generating greater opportunity to expand our service offering. We have a differentiated service that leverages innovative technology for high-volume sourcing and dedicated client service teams for connecting people to opportunities. We have a track record of helping our customers reduce the cost of hiring, add significant scalability to recruiting and hiring, and access numerous sources to prospect for the best talent quickly, thereby delivering a better outcome for the customer. Companies are facing rapidly changing employment demographics, shortage of talent, and dynamic changes to how people connect to work opportunities. Our solution addresses these growing challenges.
Our MSP solution is focused on domestic middle-market companies with a growing dependence on contingent labor. We believe that we are uniquely positioned to supply blue-collar temporary workers to our customers and, with our MSP solution, manage the full range of their contingent labor needs.
Growth through strategic acquisitions.
Strategic acquisitions continue to be a key growth strategy with a focus on globalizing our RPO services. We believe we have a core competence in assessing, valuing and integrating acquisitions culminating in higher shareholder returns. We are excited about the future of the staffing industry and human resource outsourcing and believe we can continue to create shareholder value through
acquisitions, which expand our workforce solutions in high-growth markets, enhance our use of technology to better serve our customers, and increase our own efficiency.
CUSTOMERS
Our customersclients range from small and medium-sized businesses to Fortune 100 companies.
During fiscal 2017,2023, we served approximately 108,000 customers67,000 clients in industries including construction, energy, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, transportation, aviation,retail, hospitality and general labor, and many more.labor. Our ten largest customersclients accounted for 17.6%20.5% of total revenue for fiscal 2017, 19.9%2023, 19.2% for fiscal 20162022 and 25.5%17.2% for fiscal 2015. Our single largest customer for fiscal 2017 accounted for less than 3.0% of total company revenue.
2021. No single customerclient represented more than 10.0% of total company revenue for fiscal 20172023, 2022 or 2016. One customer, Amazon, Inc. (“Amazon”), represented 13.1%2021.
CYCLICAL AND SEASONAL NATURE OF OUR BUSINESS
The workforce solutions business has historically been cyclical, often acting as an indicator of totalboth economic downturns and upswings. Clients tend to use a contingent workforce to supplement their existing workforce and generally hire permanent employees when long-term demand is expected to increase. As a consequence, our revenue tends to increase quickly when the economy begins to grow. Conversely, our revenue decreases quickly when the economy begins to weaken and contingent staff positions are eliminated, permanent hiring is frozen, and turnover replacement diminishes.
Our business experiences seasonal fluctuations for contingent staffing services. Demand is lower during the first and second quarters, due in part to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season. Demand for contingent labor peaks during the third quarter for outdoor work and the fourth quarter for manufacturing and logistics, warehousing and distribution, and retail for the holiday season. Our working capital requirements are primarily driven by our associate payroll and client accounts receivable. Since receipts from clients lag payroll to associates, working capital requirements increase substantially in periods of growth.
HUMAN CAPITAL MANAGEMENT
TrueBlue is The People Company®. We specialize in connecting people with work and discovering solutions to our clients’ workforce needs. Our team has extensive experience in a variety of industries, and is highly focused on the safety of our workforce. Human capital management is at the heart of what we do every day.
Our employees
We believe our success as a company revenue for fiscal 2015. Amazon represented 2.2%depends on our ability to attract, develop and 6.2% for fiscal 2017retain talented employees. The skills, experience and 2016, respectively.
EMPLOYEES
industry knowledge of our employees significantly benefit our operations and performance. As of December 31, 2017,2023, we employed approximately 5,5005,000 full-time equivalent (“FTE”) employees. We have approximately 3,700 FTE employees in North America, of which approximately 97% are in the U.S., 1,000 FTE employees in Asia Pacific, and 300 FTE employees in Europe. None of our permanent employees are represented by a labor union. We have not experienced work stoppages and believe that our employee relations are in good standing, as evidenced by our periodic employee engagement survey results. The appropriate committees of the Board of Directors (“Board”) regularly receive reports directly from the Chief People Officer and Chief Diversity Officer regarding the progress on our key human capital initiatives, including updates on diversity, equity and inclusion initiatives and progress. These reports inform discussions regarding the development, retention and engagement of our employees. Some of our key human capital management initiatives are discussed below.
TEMPORARY WORKERSValues and ethics
Our PeopleReadycommitment to certain core values is what we believe attracts and, PeopleManagementmore importantly, retains individuals who live these values. Our values are:
•Be Optimistic – We believe there is a solution to every problem. By being innovative and working together, we can find new ways to get results.
•Be Passionate – We believe in what we do, are committed to doing good, and will go above and beyond the call of duty for our clients and workers.
•Be Accountable – We empower our people to take personal responsibility and make an impact.
•Be Respectful – We listen and learn from each other, embrace diverse views and experiences, and know that finding successful solutions comes from working together.
•Be True – We are true to who we are and what our clients need.
In addition to our values, our Code of Conduct & Business Ethics (the “Code”) describes the expectations we hold for each employee, from our commitment to treat each other kindly to our zero tolerance for fraud, bribery or corruption. It reflects who we are, how we work, and is based on our core values and the law. The Code applies to members of the Board, officers and all other employees who work for TrueBlue and its affiliates worldwide. We require all of our employees to complete our Code training, as well as courses about sexual harassment awareness and prevention and cybersecurity awareness.
Culture and engagement
We believe a strong corporate culture includes an emphasis on employee engagement. As we have continued to maintain remote and hybrid work models, we have utilized live virtual and recorded video town hall meetings to ensure employees throughout the company remain engaged, connected to leadership, and focused on our values and business strategies. To assess and improve our culture, we utilize an independent third-party survey provider to measure how favorably our employees view our organizational culture and engagement. These surveys include corporate culture assessments, as well as feedback on employee engagement and employee-management relations. The results of these surveys are reported and distributed throughout management and the Board, and are used to create actionable plans to improve employee engagement and retention. Our August 2023 survey delivered an engagement score of 77, which exceeded the target benchmark score of 74 set by the survey provider.
Developing our people
In order to retain talented employees, our Full Performance program focuses on personal development and career growth through setting and monitoring performance goals, continuous learning, and the creation of internal career opportunities. Employees are encouraged to create individual development plans, identify specific skill gaps and development goals, and chart a path for career growth. We aim to strengthen skills that transfer across roles, business segments and functions. Managers meet regularly with employees to discuss their plans, and yearly assessments provide a formal process for tracking progress. This standardized process also ensures employees in similar positions are similarly evaluated. To support employee growth, we provide access to a wide range of training and development programs to enable more effective onboarding, work performance, compliance and advancement of corporate initiatives. This strategy supports our intent to foster a culture that enables all employees to realize their full professional potential and cultivates a qualified network of future leaders. During 2023, our employees completed nearly 21,000 trainings.
Supplementing our Full Performance program, we launched an enterprise-wide Global Mentorship Program in 2020. The program is designed to pair mentees with mentors based on a common area of interest for personal and professional development. In 2022, we introduced the Diversity, Equity & Inclusion stream, which gave employees the opportunity to be paired based on alignment with common personal characteristics.
In 2022, we launched the Leadership BluePrint program, available to all global people leaders. In 2023, we offered targeted and bespoke programs to senior leadership teams and select high-potential leaders. These leadership development programs, solutions, and services placed approximately 443,000 temporary workers on assignmentswere designed to build leadership capabilities and behaviors in alignment with our customers during fiscal 2017. internal competency model. This demonstrates our commitment to growing internal talent, while enhancing leadership proficiency, and positioning TrueBlue leadership for current and future roles.
Diversity, equity and inclusion
We recruit temporary workers daily soare dedicated to fostering, recognizing and embracing diversity at every level of the organization. Our focus on diversity, equity and inclusion demonstrates that we canbelieve human capital is one of our most valuable assets. We strive to create an environment that supports and values our people. TrueBlue’s ability to embrace inclusion helps to attract and retain excellent talent, boost innovation, foster collaboration, and increase employee engagement. Because our client population is comprised of a wide variety of demographics and backgrounds, having a diverse workforce boosts client perception of the organization, improves the client experience, helps us be responsive to our clients’ needs, and increases client satisfaction.
Our Chief Executive Officer and executive team are committed to having opportunities and a career path for everyone in the plannedorganization. Our Chief Diversity Officer leads the Diversity, Equity & Inclusion Council (the “Council”). The Council is a group of employees across multiple service lines who design and unplannedlaunch initiatives that advance acceptance and foster a diverse and inclusive workplace. The Council sponsors training to build diversity and inclusion awareness, and supports our Employee Resource Groups (“ERGs”).
Our ERGs are employee-led groups that create opportunities for employees to collaborate based on shared characteristics or life experiences to support each other for enhanced career and personal development. These ERGs seek to maximize employee engagement and contribute to our overall business objectives by offering diverse perspectives, networking opportunities and increased cultural awareness. We have nine ERGs for employees sharing similar ethnicity, nationality, gender, or life experiences and their respective allies. Through these initiatives, we learn how our differences build stronger teams and how our histories reveal similarities. In 2023, we launched the Global Culture Awareness campaign, which focused on the unique cultures of six countries we operate in. Our focus on diversity, equity and inclusion creates an environment where every employee can experience merit-based career growth, receive the training and development they need to succeed, gain access to new opportunities, and be their authentic selves.
Today, 78% of our Board is comprised of members from under-represented groups. As of December 31, 2023, approximately 64% of our global FTE employee population and 48% of our directors and above were female. Approximately 48% of our total domestic FTE employee population and 19% of our directors and above consider themselves ethnically diverse. While we believe we have assembled a diverse internal employee workforce, we are committed to making further improvements.
Health and wellness
We provide our employees and their families with flexible health and wellness programs, including competitive benefits. Our benefits include health, dental and vision insurance, health savings and flexible spending accounts, paid time off, family leave, mental health resources and family care resources.
Our associates
Associates are the individuals who make up our contingent workforce to serve the needs of the customers we serve.our staffing clients. We attract our pool of temporary workersassociates through our proprietary mobile applications,apps, online resources, extensive internal databases, advertising, job fairs, community-based organizations and various other methods. We identify the skills, knowledge, abilities and personal characteristics of a temporary workerour associates and match their competencies and capabilities to a customer’sour clients’ requirements. This enables our customersclients to obtain immediate value by placing a highly productive employee on the job site. We use a variety of proprietary programs and methods for identifying and assessing the skill level of our temporary workersassociates when selecting a particular individual for a specific assignment and retaining those workersassociates for future assignments. We believe that our programs and methods enable us to offer a higher quality of service by increasing productivity, decreasing turnover, reducing absenteeism and improving workerassociate safety.
We provide a bridge to permanent, full-time employment for thousands of temporary workers each year. Workers alsoSkill development
Associates come to us because of the flexibility we offer to fill a short-term financial need and/or provide longer-term contingent flexible labor opportunities. WorkersWe act as a bridge to permanent, full-time employment for thousands of associates each year. Associates may be assigned to different jobs and job sites, and their assignments could last for as little as a few hours or extend for several weeksmonths or months.years. We provide our workersassociates meaningful work and the opportunity to improve their skills. Through our WorkUp program, we provide skills training and career development for associates. We are expanding the program into select markets where we operate. During 2023, we established an approved apprenticeship program to support skills development and long-term employment in the renewable energy industry, and launched a commercial truck driver training scholarship for female truck drivers. We are considered the legal employer of our workers,associates, and laws regulating the employment relationship are applicable to our operations. We consider our relationsbelieve we have an overall positive relationship with our temporary workers to be good.associates.
Safety
We remain focused andare committed to workerour associates’ safety. We have developed an integrated risk management program that focuses on loss analysis, education and safety improvement programs to reduce the risk of injury to our operational costsassociates. We implemented an employee incentive compensation program tied to metrics that promote associate safety. We continuously track injuries to our associates at our client job sites across regions, industries and risk exposure. We regularly analyze our workers’ compensation claimsbrands to identify trends. This allowstrends that allow us to focus our safety resources on those areasthe types of jobs that may have the greatest impact on us, price our services appropriately, and adjust our sales and operational approach in these areas.lead to more injuries. Costs associated with accidents are charged to each branch or location, providing additional incentive to promote safety. We have also developeddistribute educational materials for distribution to our customersclients and workersprovide safety training to all associates. We also perform client site visits to identify and address specific safety risks unique to their industry.
COMPETITION
Contingent staffing services
The strongest staffing services competitor in a particular market is a company with established relationships and a track record of meeting the customer’s needs. We compete with other large publicly-held staffing companies as well as privately-owned staffing companies on a national, regional and local level. We also experience competition from internet-based companies providing a variety of flexible workforce solutions. Competition exists in attracting customers as well as qualified temporary workers for our customers. No single company has a dominant share of the industry. Competitive forces have historically limited our ability to raise our prices to immediately and fully offset increased costs of doing business, some of which include increased temporary worker wages, costs for workers’ compensation, unemployment insurance and health care.
The most significant competitive factors are price, ability to promptly fill customer orders, success in meeting customers’ expectations of recruiting temporary workers, and appropriately addressing customer service issues. We believe we derive a competitive advantage from our service history, and our specialized approach in serving the industries of our customers. Our national presence,an industry specialization, investment in technology, and proprietary systems and processes, together with
specialized programs focused on worker safety, risk management, and legal and regulatory compliance are key differentiators from many of our competitors.
Human resource outsourcing
The strongest competitors are companies specializing in RPO services and business process outsourcing companies that also offer RPO services. No one provider dominates the market. Competition also includes internal human resource departments that have not or are not considering outsourcing. The most significant competitive factors for RPO services are the ability to reduce customer cost by deploying an RPO solution and reducing the internal human resource cost structure of our customers. Important factors for success in RPO services include the ability to add significant scalability to a customer’s recruiting and hiring efforts, including accommodating seasonal and irregular hiring; the ability to increase efficiency by standardizing processes and facilitating transitions for candidates and employees; and the ability to source the most attractive talent at the best price. Our tailored solutions, customer partnership, proprietary technology and service delivery are key differentiators from many of our competitors.
CYCLICAL AND SEASONAL NATURE OF OUR BUSINESS
The workforce solutions business has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Customers tend to use temporary workers to supplement their existing workforce and generally hire permanent workers when long-term demand is expected to increase. As a consequence, our revenues tend to increase quickly when the economy begins to grow. Conversely, our revenues also decrease quickly when the economy begins to weaken and thus temporary staff positions are eliminated, permanent hiring is frozen, and turnover replacement diminishes.
Our business experiences seasonal fluctuations for contingent staffing services. Demand is lower during the first and second quarters, in part due to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season. Our working capital requirements are primarily driven by temporary worker payroll and customer accounts receivable. Since receipts from customers lag payroll to temporary workers, working capital requirements increase substantially in periods of growth. Demand for contingent labor peaks during the third quarter for outdoor work and the fourth quarter for manufacturing, assembly, warehousing, distribution and logistics for the holiday season.job site.
REGULATION
Our services are subject to a variety of complex federal, state, and stateforeign laws and regulations. We continuously monitor legislation and regulatory changes for their potential effect on our business. We invest in technology and process improvements to implement required changes while minimizing the impact toon our operating efficiency and effectiveness. Regulatory cost increases are passed through to our customersclients to the fullest extent possible.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREASTRADEMARKS
For information regarding revenue from operationsWe own several trademarks that are registered with the U.S. Patent and long-lived assets by domesticTrademark Office, the European Union Community Trademark Office and foreign operations, please refer to the information presented in Note 16: Segment Information, to our Consolidated Financial Statements found in Part II, Item 8 of this Annual Report on Form 10-K.numerous individual country trademark offices.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, along with all other reports and amendments filed with or furnished to the Securities and Exchange Commission (“SEC”), are publicly available, free of charge, on our website at www.trueblue.com or at www.sec.gov as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our Corporate Governance Guidelines, Code of Business Conduct and Business Ethics and Board Committee Charters are also posted to our website. The information on our website is not part of this or any other report we file with, or furnish to, the SEC.
Investing in our securities involves risk. The following risk factors and all other information set forth in this Annual Report on Form 10-K should be considered in evaluating our future prospects. If any of the events described below occur, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.
To develop the following risk factors, we review risks to our business that are informed by our formal Enterprise Risk Management program, industry trends, the external market, and financial environment as well as dialogue with leaders throughout our organization. Our risk factors descriptions are intended to convey our assessment of each applicable risk and such assessments are prioritized and integrated into our strategic and operational planning.
RISKS RELATED TO OUR COMPANY’S OPERATIONS
Demand for our workforce solutions areis significantly affected by fluctuations in general economic conditions.
The demand for our workforce solutions is highly dependent upon the state of the economy and upon the workforce needs of our customers,clients, which creates uncertainty and volatility.volatility in our operations. Our profitability is sensitive to decreases in demand. National and global economic activity is slowed by many factors, including rising interest rates, recessionary periods, inflation, declining consumer confidence, political and legislative changes, international conflict or instability, epidemics, other significant health concerns, and global trade uncertainties. As economic activity slows, companies tend to reduce their use of temporary workersassociates and reduce their recruitment of new employees. We work in a broad range of industries that primarily include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, energy, transportation, retail and hospitality. Significant declines in demand offrom any region or industry in which we have a major presence, may severely reducedomestic or global supply chain disruptions, or decline in the financial health of our clients, significantly decreases our revenues and profits. For example, we experienced significantly reduced demand from our clients due to the coronavirus pandemic (“COVID-19”) and the resulting supply chain disruptions in the manufacturing and renewable energy sectors we serve. The extent to which global pandemics impact our financial condition or results of operations will depend on factors such as the duration and scope of the pandemic, as well as whether there is a material impact on the businesses or productivity of our clients, employees, associates and other partners.
A deterioration in economic conditions, global supply chain issues, political instability, rising energy prices, a recession or fear of a recession, and the related governmental responses to these concerns, or otherwise, could lead to a prolonged decline in demand for our services and thereby significantly decreasenegatively impact our revenues and profits.business. Deterioration in economic conditions or the financial or credit markets could also have an adverse impact on our customers’clients’ financial health or their ability to pay for services we have already provided.
It is difficult for us to forecast future demand for our services due to the inherent uncertainty in forecasting the direction and strength of economic cycles and the project nature of our staffing assignments. The uncertainty can be exacerbated by volatile economic conditions, which has caused and may continue to cause customersclients to reduce or defer projects for which they utilize our services. The negative impact to our business can occur before, during or after a decline in economic activity is seen in the broader economy. When it is difficult for us to accurately forecast future demand, we may not be able to determine the optimal level of personnel and investment necessary to profitably take advantagemanage our business in light of growth opportunities.opportunities and risks we face.
WeAdvances in technology may be unabledisrupt the labor and recruiting markets. Failure to attract sufficient qualified candidatesconstantly improve our technology to meet the needsexpectations of our customers.
We compete to meet our customers’ needs for workforce solutions and, therefore, we must continually attract qualified candidates to fill positions. Attracting qualified candidates depends on factors such as desirability of the assignment, location, and the associated wages and other benefits. We have experienced shortages of qualifiedclients, associates, candidates and we may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase. If we are unable to pass those costs through to our customers, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our temporary workers. If we are subject to unreasonable collective bargaining agreements or work disruptions, our business could be adversely affected.
We may not achieve the intended effects of our business strategy.
Our business strategy focuses on driving growth in our PeopleReady, PeopleManagement and PeopleScout business lines by investing in innovative technology, acquisitions, and initiatives which drive organic growth. If we are unsuccessful in executing any of these strategies, we may not achieve our stated goal of revenue growth, which could negatively impact profitability.
Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.
Our workforce solutions are subject to extensive government regulation. The cost to comply, and any inability to comply with government regulation,employees could have a material adverse effect on our business and financial results. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.
Our temporary staffing services employ temporary workers. The wage rates we pay to temporary workers are based on many factors including government mandated minimum wage requirements, payroll taxes and benefits. If we are not able to increase the fees charged to customers to absorb any increased costs related to government-mandated minimum wages, payroll-related taxes, or benefits, our results of operations and financial condition could be adversely affected.
We offer our temporary workers in the United States government-mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because the requirements, regulations, and interpretations of the ACA may change, the ultimate financial effect of the ACA is not yet known, and changes in its requirements and interpretations could increase or change our costs. In addition, because of the uncertainty surrounding a potential repeal or replacement of the ACA, we cannot predict with any certainty the likelynegative impact of the ACA’s repeal or the adoption of any other health care reform legislation on our financial condition or operating results. Whether or not thereposition and results of operations.
The increased use of internet-based and mobile technology is a change in health care legislation inattracting additional online and app-based companies and resources to our industry. Our associates, candidates and clients increasingly demand technological innovation to improve the United States, there is likelyaccess to be significant disruption to the health care market in the future, and the costsdelivery of our health care expendituresservices. Our clients increasingly rely on automation, artificial intelligence, generative artificial intelligence, machine learning and other new technologies to reduce their dependence on labor needs, which may increase.reduce demand for our services and impact our operations.
We face extensive pressure for lower prices and new service offerings and must continue to invest in and implement new technology and industry developments in order to remain relevant to our associates, candidates and clients. As a result of this increasing dependence upon technology, we must timely and effectively identify, develop, or license technology from third parties, and integrate such enhanced or expanded technologies into the solutions that we provide. In addition, our business relies on a variety of technologies, including those that support recruiting, hiring, paying, order management, billing, collecting, associate data analytics and client data analytics. If we are unabledo not sufficiently invest in and implement new technology, or evolve our business at sufficient speed and scale, our business results may decline materially. Acquiring technological resources and expertise to comply with changesdevelop new technologies for our business may require us to the ACA, or any future health care legislation in the United States, or sufficiently raise the rates we charge our customers to cover any additional costs, such increases in costs could materially harm our business.
incur significant expenses and capital costs. For some
Wesolutions, we depend on key vendors and partners to provide technology and support. If these third parties fail to perform their obligations or cease to work with us, our business operations could be negatively affected. The development, adoption, and use of generative artificial intelligence are still in their early stages and ineffective, insufficient, or inadequate development or deployment practices by us or third-party vendors could result in harm to our business, financial condition and results of operations. For example, algorithms and models utilized by generative artificial intelligence that we use may incur employment related claimshave limitations, including bias, errors, and coststhe inability to handle certain data sets. Furthermore, there is risk of system failures, disruptions, or vulnerabilities that could materially harmcompromise the integrity, security, or privacy of generated content. These limitations or failures could result in reputational damage, legal liabilities, or loss of user confidence. Developing, testing, and deploying these systems may require additional investment and increase our business.
We are in the business of employing people in the workplaces of our customers. We incur a risk of liability for claims for personal injury, wage and hour violations, immigration, discrimination, harassment, and other liabilities arising from the actions of our customers and/or temporary workers. Some or all of these claims may give rise to negative publicity, litigation, settlements, or investigations. We may incur costs, charges or other material adverse impacts on our financial statements for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.
We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain that our insurance will be available, or if available, will be in sufficient amount or scope to cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our business. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, or at all, or that our insurance providers will be able to pay claims we make under such policies.costs.
We are dependent on obtaining workers’ compensation and other insurance coverage at commercially reasonable terms. Unexpected changes in claim trends on our workers’ compensation or an inability to obtain appropriate insurance coverage may negatively impact our financial condition.
Our temporarycontingent staffing services employ workersassociates for which we provide workers’ compensation insurance. Our workers’ compensation insurance policies are renewed annually. The majority of our insurance policies are with AIG. Our insurance carriers require us to collateralize a significant portion of our workers’ compensation obligation. The majority of our collateral is held in trust by a third-party for the payment of these claims. The loss or decline in the value of theour collateral could require us to seek additional sources of capital to pay our workers’ compensation claims. As our business grows or financial results deteriorate, we have seen the amount of collateral required increase and the timing of providing collateral accelerate, which could occur again in the future. Resources to meet these requirements may not be available. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. As our business grows or if our financial results deteriorate, the amount of collateral required will likely increase and the timing of providing collateral could be accelerated. Resources to meet these requirements may not be available. The loss of our workers’ compensation insurance coverage would prevent us from operating as a staffing services business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.
We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program. UnexpectedWe have experienced unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, orand medical cost inflation, and may experience such changes in the future which could result in costs that are significantly different than initially reported.anticipated or reported and could cause us to record adjustments to the reserves in our financial statements. There can be no assuranceis a risk that we will not be able to increase the fees charged to our customersclients in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.
We actively manage the safety of our temporary workers withassociates through our safety programs and actively control costs with our network of workers’ compensation related service providers. These activities have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the current and prior periods. The benefit of these adjustments has been decliningis likely to decline and there can be no assurance that we will be able to continue to reduce accident rates and control costs to produce these results in the future.
We operate in a highly competitive industrySome clients require extensive insurance coverage and mayrequest insurance endorsements that are not available under standard policies. There can be unable to retain customers or market share.
Our industry is highly competitive and rapidly innovating, with low barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing companies. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain customersnegotiate acceptable compromises with clients or market share in the future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.
Advances in technology may disrupt the labor and recruiting markets.
We expect the increased use of internet-based and mobile technology will attract additional technology-oriented companies and resources to the staffing industry. Our candidates and customers increasingly demand technological innovation to improve the access to and delivery of our services. We face extensive pressure for lower prices and new service offerings and must continue to invest in new technology and industry developments in order to remain relevant to our customers. If we are unable to do so, our business and results of operations may decline materially.
We are at risk of damage to our brands and reputation, which is important to our success.
Our ability to attract and retain customers, temporary workers, candidates, and employees is affected by external perceptions of our brands and reputation. Reputational damage from negative perceptions or publicity could damage our reputation with customers and employees as well as prospective customers and employees. We may not be successful in detecting, preventing, or negating allnegotiate appropriate changes in or impacts upon, our reputation.
Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.
Extensions of credit under our Second Amended and Restated Revolving Credit Agreement as amended (“Revolving Credit Facility”) are permitted based on a borrowing base, which is an agreed percentage of eligible accounts receivable and an agreed percentage of the appraised value of our Tacoma headquarters building, less required reserves and other adjustments. If the amount or quality of our accounts receivable deteriorates, then our ability to borrow under the Revolving Credit Facility will be directly affected. Our lenders can impose additional conditions which may reduce the amounts available to us under the Revolving Credit Facility.
Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidityinsurance contracts. An inability to meet our working capitalclient insurance requirements fund our workers’ compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.
Our Revolving Credit Facility and Term Loan Agreement contain restrictive covenants that require us to maintain certain financial conditions. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates.
Our debt levels could have significant consequences for the operation of our business including: requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limitingaffect our ability to take advantage of significant business opportunities, such as acquisition opportunities; limiting our abilityon new clients or continue providing services to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.existing clients.
The loss of, continued reduction in or substantial decline in revenue from a major customerlarger clients or certain industries could have a material adverse effect on our revenues, profitability and liquidity.
We experience a degree of revenue concentration with large customers.clients and in certain industries. Generally, our contracts do not contain guarantees of minimum duration, revenue levels, or profitabilityprofitability. Our clients have in the past and our customers maycould in the future terminate their contracts or materially reduce their requested levels of service at any time. Although we have no client that represents over 10% of our consolidated revenue, there are a few clients that exceed 10% of revenues within some of our reportable segments. The lossdeterioration of the financial condition of a large client or reduced demand for our services from, major customersa particular industry could have a material adverse effect on our business, financial condition, and results of operations. In addition, customera significant change to the business, staffing, or recruiting model of these clients, for example a decision to insource our services, has had, and could again have, a material adverse effect on our business, financial condition, and results of operations. Reduced demand for our services from larger clients or certain industries, or supply interruptions for manufacturing, have had, and in the future could have, a material adverse effect on our business, financial condition, and results of operations. Client concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from a small number of customers.clients. If we are unable to collect our receivables, or are required to take additional reserves, our results and cash flows will be adversely affected.
The efficient operation of our business is dependent on our information technology systems. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and provide services to customers. We rely heavily on proprietary and third-party information technology systems, mobile device technology and related services, and other technology which may not yield the intended results. Our systems may experience problems with functionality and associated delays. The failure of our systems to perform as anticipated could disrupt our business and operations have undergone, and will continue to undergo, significant change as we seek to improve our operational and support effectiveness, which if not managed effectively could result in decreased revenue and increased overhead costs, causinghave an adverse outcome on our business and results of operations to suffer materially.
Our information technology systems may need to be updated or replaced.operations.
We occasionally implement, modify, retirehave significantly changed our operations, support center structure and changeinternal processes in recent periods, such as our systems. For example,continued development of technology to leverage our operational effectiveness, and we are in the process of implementing a new cloud-based enterprise accounting system. Thesewill continue making similar changes to improve our information technologyoperational effectiveness. These efforts could strain our systems, management, administrative, operations and financial infrastructure. We believe these efforts are important to our long-term success. Managing and cascading these changes throughout the company will continue to require the further attention of our management team and refinements to our operational, financial and management controls, reporting systems and procedures. These activities will require ongoing expenditures and allocation of valuable management and employee resources. If we fail to manage these changes effectively, our costs and expenses may be disruptive, take longerincrease more than desired, be more expensive than anticipated, be distracting to management, or fail, causingwe expect and our business, financial condition, and results of operations to suffer materially.may be harmed.
A cyberattack, or improper disclosure of, or access to, our confidential and/or proprietary information could materially harm our business.
OurNew business uses confidential information about applicants, candidates, temporary workers, other employees and customers. We experience cyberattacks, computer viruses, social engineering schemes and other means of unauthorized access to our systems. The security controls over sensitive or confidential information and other practices we and our third-party vendors followinitiatives may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could exposecause us to regulatory fines, litigation, contractual liability, damage to our reputationincur additional expenditures and increased compliance costs.
A data breach, or improper disclosure of, or access to our customers’ information could materially harm our business.
Our temporary workers and employees may have access to or exposure to confidential information about applicants, candidates, temporary workers, other employees and customers. The security controls over sensitive or confidential information and other practices we, customers and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Our facilities, operations and information technology systems are vulnerable to damage and interruption.
Our primary computer systems, headquarters, support facilities and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, employee errors, security breaches, natural disasters and catastrophic events. Failure of our systems or damage to our facilities may require significant additional capital and management resources to resolve, causing material harm to our business.
Acquisitions and new business initiatives may have an adverse effect on our business.
We expect to continue making acquisitions, adjusting the composition of our business lines,segments and entering into new business initiatives as part of our business strategy. This strategy may be impeded, however, if we cannot identify suitable acquisition candidates or new business initiatives, or if acquisition candidates are not available under acceptable terms. Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. New business initiatives, andstrategic business partners, or changes in the composition of our business mix can be distracting to our management and disruptive to our operations, causing our business and results of operations to suffer materially. Acquisitions and newNew business initiatives, including initiatives outside of our workforce solutions business, in new end markets, or new geographies, could involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on our investment, experiencing difficulty in implementing initiatives, or integrating acquired operations, or directingdiverting management’s attention from our other businesses. In particular, we are making significant investments to advance our technology, and we cannot be sure that those initiatives will be successful, will not interrupt our operations, or that we will achieve a return on our investment. These events could cause material harm to our business, operating results or financial condition.
Our results of operations could materially deteriorate if we failDamage to attract, developour brands and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our customers. We believe our competitive advantage is providing unique solutions for each individual customer, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply. Our inability to recruit, train and motivate a sufficient number of qualified individuals may delay or affect the speed and quality of our strategy execution and planned growth. Delayed expansion, significant increases in employee turnover rates, or significant increases in labor costsreputation could have a materialan adverse effect on our business.
Our ability to attract and retain clients, associates, candidates and employees is affected by external perceptions of our brands and reputation. Negative perceptions or publicity could damage our reputation with current or prospective clients, associates, candidates and employees. Negative perceptions or publicity regarding our employees, business financial conditionpractices, vendors, clients, or business partners may adversely affect our brand and resultsreputation. We may not be successful in detecting, preventing, or negating all changes in or impacts on our reputation, including reputational effects of operations.negative social media use by our clients, employees, or associates. If any factor, including unethical behavior, illegal conduct, poor performance or negative publicity, whether or not true, hurts our reputation, we may experience negative repercussions which could harm our business.
We may not achieve the intended effects of our business strategy which could negatively impact our results.
Our business strategy focuses on driving growth in our business segments by investing in innovative technology and initiatives which drive organic growth. These investments may not achieve our desired results, may be distracting to management or may be impacted by matters outside of our control. If we are unsuccessful in executing any of these strategies, or if these strategies fail to address the changing demands of the market, we may not achieve our goal of revenue and profit growth, which could negatively impact financial results.
Outsourcing certain aspects of our business could result in disruption and increased costs.
We have additional tax liabilities that exceedoutsourced certain aspects of our estimates.
business to third-party vendors. These relationships subject us to significant risks including disruptions in our business and increased costs. For example, we license software from third parties, much of which is central to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated, or if any of these parties were to cease doing business or supporting the applications we currently utilize, our business could be disrupted and we may be forced to spend significant time and money to replace the licensed software. In addition, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile apps, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our clients. We are subject to federal taxes,the risks associated with the vendors’ inability to provide these services in a multitude of statemanner that meets our needs and local taxes in the United States, and taxes in foreign jurisdictions. We face continued uncertainty surrounding the recent 2017 Tax Cuts and Jobs Act and any reductionrisks associated with changing vendors or change in tax credits which we utilize, such as the Work Opportunity Tax Credit. In the ordinary courseinsourcing these aspects of our business, there are transactionsbusiness. If the cost of these services is more than expected, if the vendors suddenly cease providing their services, if we or the vendors fail to adequately protect our data and calculations where the ultimate tax determinationinformation is uncertain. We are regularly subjectlost or compromised, or if our ability to audit by tax authorities. Although we believedeliver our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different fromservices is interrupted, then our historical tax provisions and accruals. The results of an audit or litigation could materially harm our business. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements or may change their laws, which could increase our worldwide effective tax rate and harm our financial positionbusiness and results of operations.operations may be negatively impacted.
RISKS RELATED TO OUR FINANCIAL POSITION
We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term shareholder value.
In September 2017, ourOur Board of Directors (the “Board”) has authorized a share repurchase program. Under the program, we are authorized to repurchase shares of common stock for ana set aggregate purchase price, notor we may choose to exceed $100 million, excluding fees, commissions and other ancillary expenses.purchase shares in the open market, from individual holders, through an accelerated share repurchase agreement or otherwise. Although the Board of Directors has authorized a share repurchase program, the share repurchase program does not obligate the companyus to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of the repurchases, if any, will be determined at management’s discretion and depend upon several factors, including market and business conditions, the trading price of the company’sour common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. Future regulatory action could impact our ability to continue this program or our ability to repurchase shares under the existing program. In addition, repurchases of our common stock pursuant to our share
repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that these share repurchases will enhance shareholder value because the market price of our common stock may decline below the level at which we repurchased shares of stock. Although our share repurchase programsprogram is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.
Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.
Our revolving credit agreement (“Revolving Credit Facility”) contains restrictive covenants that require us to maintain certain financial conditions, which we may fail to meet if there is a material decrease in our profitability. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, would require us to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates.
Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidity to meet our working capital requirements, fund our workers’ compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.
If our debt level significantly increases in the future, it could have significant consequences for the operation of our business including requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limiting our ability to take advantage of significant business opportunities, such as acquisitions; limiting our ability to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.
We may have additional tax liabilities that exceed our estimates.
We are subject to federal taxes, a multitude of state and local taxes in the United States of America (“U.S.”), and taxes in foreign jurisdictions. Changes in the mix of our taxable income by jurisdiction could have a material impact on our financial condition or results of operations. Changes in interpretation of existing laws and regulations by a taxing authority could result in penalties and increased costs in the future. Taxing authorities may challenge our methodologies for valuing intercompany arrangements or may change their laws, which could increase our worldwide effective tax rate and harm our financial position and results of operation.
We face continued uncertainty surrounding ongoing hiring tax credits we utilize, and for the recent business tax incentives related to measures taken to soften the impact of COVID-19. Also, in the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation with tax authorities could materially harm our business.
The Organization for Economic Co-operation and Development (“OECD”) has introduced a framework to implement a global minimum corporate tax of 15%, referred to as “Pillar Two” or “the minimum tax directive.” Many aspects of the minimum tax directive will be effective beginning in fiscal years 2025 and 2026. While it is uncertain whether the United States will enact legislation responding to Pillar Two, certain countries in which we operate have or are in the process of adopting minimum tax legislation. While we do not currently expect the minimum tax directive to have a material impact on our effective tax rate, our analysis is ongoing as additional guidance is released. It is possible that these legislative changes could have an adverse impact on our effective tax rates or operations.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.reporting or fail to prevent fraud.
If our management is unable to certify the effectiveness of our internal controls, including those over our third partythird-party vendors, or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny, and a loss of public confidence.confidence and litigation. In addition, if we do not maintain adequate financial, technology, and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, or prevent fraud which could cause our stock price to fall.decline.
Outsourcing certain aspectsLEGAL AND COMPLIANCE RELATED RISKS
We may experience employment-related claims, commercial indemnification claims and other legal proceedings that could materially harm our business.
We incur a risk of liability for claims relating to personal injury, wage and hour violations, immigration, discrimination, harassment, securities law matters, contractual obligations, government inquiries and other claims. Some or all of these claims may give rise to negative publicity, investigations, litigation or settlements, which may cause us to incur costs or have other material adverse impacts on our financial statements. Additionally, new employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation.
Certain clients have negotiated broad indemnification provisions regarding the services we provide. In addition, we may have liability to our clients for the action or inaction of our employees that may cause harm to our clients or third parties. In some cases, we must indemnify our clients for certain acts of our associates or arising from our associates’ presence on the client’s job site. We may also incur fines, penalties, and losses that are not covered by insurance or negative publicity with respect to these matters.
We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. Should the final judgments or settlements exceed our insurance coverage, they could have a material adverse effect on our business. Our ability to obtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history, and insurance providers’ assessments of our overall risk profile. Further, we cannot be certain our current and former insurance carriers will be able to pay claims we make under such policies.
Failure to protect our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of others.
We have invested in developing specialized technology and intellectual property, proprietary systems, processes and methodologies that we believe provide us a competitive advantage in serving clients. We cannot guarantee that trade secret, trademark, patent, and copyright law protections are adequate to deter misappropriation of our intellectual property, which is an important part of our business. We may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our rights. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability or prevent us from offering some services or products to clients.
Our efforts to maintain adequate compliance policies and controls may not prevent violations that could result in disruptionsignificant fines and penalties.
We could be exposed to fines and penalties under U.S., foreign, or local jurisdictions for failure to adequately monitor operating requirements and changes thereto, including rules related to the employment and recruiting of associates and candidates. Failure to comply with laws in a particular market may result in substantial liability and could have a significant and negative effect not only on our business in that market, but also on our reputation generally. Although we have implemented policies, procedures and training programs designed to monitor, ensure compliance with and build awareness of these various regulations, we cannot be sure that our employees, contractors, vendors, or agents will not violate such policies. Any such violations could materially damage our reputation, brand, business and operating results.
RISKS RELATED TO OUR INDUSTRY
Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.
Our workforce solutions are subject to extensive federal, state, local and foreign government regulation. The cost to comply, and any inability to comply with government regulation, could have a material adverse effect on our business and financial results. Increases or changes in government regulation of the workplace, contingent staffing, the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business. From time to time, the contingent staffing industry, in which we operate, has come under criticism from organizations and regulatory agencies which maintain that employment protections, such as wages and benefits, are subverted when clients use our services. For example, some states have addressed these concerns by making it more challenging for clients to use our services, or adding additional administrative burden to our industry. Our business is dependent on contingent staffing arrangements continuing to be a viable source of flexible labor for our clients and flexible employment opportunities for our associates. If additional jurisdictions adopt regulations to our industry due to pressure from organized labor, political groups, or regulatory agencies, it could have a material adverse impact on our business, results of operations and financial conditions.
The wage rates we pay to associates are based on many factors including government-mandated increases to minimum wage requirements, payroll-related taxes and benefits. If we are not able to increase the fees charged to clients to absorb any increased costs.costs related to these factors, our results of operations and financial condition could be adversely affected.
We may be unable to attract sufficient qualified associates and candidates to meet the needs of our clients.
We compete to meet our clients’ needs for workforce solutions; therefore, we must continually attract qualified associates and candidates to fill positions. Attracting qualified associates and candidates depends on factors such as desirability of the assignment, position requirements, location, the associated wages and other benefits. Many of these factors are outside of our control, including the reputational effects of unfavorable comments on social media outlets about our business or a work site. When unemployment in the U.S. is low, it is challenging to find sufficient eligible associates and candidates to meet our clients’ orders. Government responses to COVID-19, including generous unemployment benefits, stimulus payments and other direct payments to individuals, negatively impacted our ability to recruit qualified associates and candidates. A return to similar benefits in the future could further negatively impact our ability to recruit qualified associates and candidates.
We have outsourced certain aspectsexperienced shortages of qualified associates and candidates and may experience such shortages in the future. Such a shortage of associates and candidates can increase the cost to employ or recruit these individuals, cause us to be unable to fulfill our clients’ needs, or otherwise negatively impact our business. If general market conditions or wage inflation increases the wage rates required to attract and retain associates, and we are unable to pass those costs through to our clients, it could materially and adversely affect our business. Organized labor is increasing its unionization efforts in many of the industries we serve and periodically engages in efforts to represent various groups of our business to third-party vendors that subject us to risks including disruptions in our business and increased costs. For example, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile applications, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our customers. Accordingly,associates. If we are subject to unreasonable collective bargaining agreements or work disruptions, our business could be adversely affected.
We operate in a highly competitive industry and may be unable to retain clients, market share or profit margins.
Our industry is highly competitive and rapidly innovating, with low barriers to entry. We compete in global, national, regional and local markets with full-service and specialized companies offering contingent staffing as well as business process outsourcing. New entrants to the risks associated withmarket include online and app-based staffing providers. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain clients or market share in the vendors’future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.
Our business is subject to evolving regulations and stakeholders’ expectations, including environmental, social and governance (“ESG”) matters, that could expose us to numerous risks.
Institutional, individual and other investors, proxy advisor services, regulatory authorities, clients, employees and other stakeholders are increasingly focused on the ESG practices of companies, including sustainability, diversity, equity and inclusion, human capital management, data privacy and security, supply chains (including human rights issues) and climate change, among other topics. Our reputation could be affected by our position, or silence, regarding one or more of these ESG initiatives.
These evolving stakeholder expectations and our efforts and ability to respond to and manage these issues, provide these servicesupdates on them, and establish and meet appropriate goals, commitments and targets related to ESG initiatives present numerous operational, regulatory, reputational, financial, legal, and other risks and impacts. Our efforts in this area may result in a manner thatsignificant increase in costs and may nevertheless not meet, or conflict with, investor, client or other stakeholder expectations and evolving standards or regulatory requirements. Such costs or conflicts may negatively impact our needs. If the cost of these services is more than expected, if we or the vendors are unable to adequately protectfinancial results, our data and information is lost, or ifreputation, our ability to deliverattract and retain employees, our attractiveness as a service provider, investment or business partner, or may expose us to government enforcement actions, litigation, and actions by shareholders or stakeholders.
RISKS RELATED TO CYBERSECURITY, DATA PRIVACY AND INFORMATION SECURITY
Cybersecurity vulnerabilities and incidents could lead to the improper disclosure of information about our clients, candidates, associates and employees.
Our business requires the use, processing, and storage of confidential information about candidates, associates, employees and clients. We use information technology and other computer resources to carry out operational and support activities and maintain our business records. We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, vendors, associates, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.
Our systems and networks, and the systems and networks of our vendors and clients, are vulnerable to computer viruses, malware, ransomware, hackers and other malicious activity, including physical and electronic break-ins, disruptions from unauthorized access and tampering, social engineering attacks, impersonation of authorized users and coordinated denial-of-services attacks. Even with increased security training, an increasingly remote workforce and flexible workplace practices may increase these risks, for example with the use of home networks that may lack encryption or secure password protection. A material incident involving system failure, data loss or security breach could harm our reputation and subject us to significant monetary damages or losses, litigation, negative publicity, regulatory enforcement actions, fines, criminal prosecution, as well as liability under our contracts and laws that protect personal and/or confidential data. We and our vendors have experienced cybersecurity incidents and attacks that have not had a material impact on our business or results of operations; however, there is no assurance that the impacts of any future incidents or attacks will not be material. The security controls over sensitive or confidential information and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Continued investments in cybersecurity will increase our costs and a failure to prevent access to our systems could lead to penalties, litigation, and damage to our reputation. Perceptions that we or our vendors do not adequately protect the privacy of information could harm our relationship with clients and employees.
Data security, data privacy, data protection and artificial intelligence usage laws and other technology regulations increase our costs.
Laws and regulations related to privacy, data protection and artificial intelligence usage are evolving and generally becoming more stringent and complex. We may fail to implement practices and procedures that comply with increasing foreign and domestic privacy regulations, such as the General Data Protection Regulations, the European Union Artificial Intelligence Act or the California Consumer Privacy Act. Several additional U.S. states and foreign countries where we operate have issued cybersecurity and data security regulations that outline a variety of required security measures for protection of data. These regulations are designed to protect client, candidate, associate, and employee data and require that we meet stringent requirements regarding the handling of personal data, including the use, protection and transfer of personal data. As these laws continue to change, we may be required to make changes to our services, solutions or products to meet the new legal requirements. Changes in these laws may increase our costs to comply as well as our potential costs through higher potential penalties for non-compliance. Failure to protect or implement adequate controls to secure the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Improper disclosure of, or access to, our clients’ information could materially harm our business.
Our associates and employees may have access or exposure to confidential information about candidates, associates, employees and clients. The security controls over sensitive or confidential information and other practices we, our clients, and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information, including through failure of employees or associates to properly comply with such controls or practices. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.
Failure of our information technology systems could adversely affect our operating results.
The efficient operation of our business applications and services we provide is interrupted, thendependent on reliable technology. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives and provide services to clients. We rely heavily on proprietary and third-party information technology systems, mobile device technology, data centers, cloud-based environments and other technology. We take various precautions and have enhanced controls around these systems, but information technology systems are susceptible to damage, disruptions, shutdowns, power outages, hardware failures, computer viruses, malicious attacks, telecommunication failures, user errors, catastrophic events or failures during the process of upgrading or replacing software, vendors, or databases. The failure of technology and our applications and services, and our information systems to perform as anticipated could disrupt our business and result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.
Our facilities and operations are vulnerable to damage and interruption.
Our primary technology systems, headquarters, support facilities and operations are vulnerable to damage or interruption from power outages, employee errors, security breaches, natural disasters, extreme weather conditions, civil unrest and catastrophic events. Failure of our systems, or damage to our facilities, may cause significant interruption to our business and require significant additional capital and management resources to resolve, causing material harm to our business.
GENERAL RISK FACTORS
Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.
Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our clients. We believe our competitive advantage is providing unique solutions for each client, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, onboard, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service, technology and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals may be negatively impacted.
Ifdifficult to attract and hire. Our inability to recruit, train, motivate, retain, integrate and provide a safe working environment to a sufficient number of qualified individuals may delay or affect the speed and quality of our acquired intangible assets become impaired we may be requiredstrategy execution and planned growth. Significant increases in employee turnover rates, failure to record akeep our staff healthy or significant charge to earnings.
We regularly review acquired intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We test goodwill and indefinite-lived intangible assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of the intangible assets may not be recoverable, include: macroeconomic conditions, such as deterioration in general economic conditions; industry and market considerations, such as deterioration in the environment in which we operate; cost factors, such as increases in labor costs could have a material adverse effect on our business, financial condition and results of operations.
Loss of our executive officers or other costs thatkey personnel or other changes to our management team could disrupt our operations or harm our business.
We depend on the efforts of our executive officers and certain key personnel. Our failure to develop an adequate succession plan for one or more of our executive officers or other key positions could deplete our institutional knowledge base and erode our competitive advantage during a transition. The loss or limited availability of the services of one or more of our executive officers or other key personnel, or our inability to recruit and retain qualified executive officers or other key personnel in the future, could, at least temporarily, have a negativematerial adverse effect on earningsour operating results and cash flows;financial condition. We have recently experienced a CEO and CFO transition, and could have additional executive leadership changes as part of our overall succession plans. Such leadership transitions can be inherently difficult to manage, and an inadequate transition could cause disruption to our business, including our relationships with our clients and employees and fluctuations in the price of our stock.
Acquisitions may have an adverse effect on our business.
We may make acquisitions as part of our business strategy. However, this strategy may be impeded and we may not achieve our long-term growth goals if we cannot identify suitable acquisition candidates or if acquisition candidates are not available under acceptable terms. We may have difficulty integrating acquired companies into our operating, financial planning, and financial reporting systems and may not effectively manage acquired companies to achieve expected growth.
Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. Additional indebtedness could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for an acquisition, which could result in dilution to our shareholders. Any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock. Acquisitions can also result in the addition of goodwill and intangible assets to our financial performance, such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actualstatements and projected results of relevant prior periods; other relevant entity-specific events, such as changes in management, key personnel, strategy, or customers; and sustained decreases in share price. Wewe may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired goodwill and intangible assets has occurred, thereforewhich would negatively impactingimpact our financial results. The potential loss of key executives, employees, clients, suppliers, vendors, and other business partners of businesses we acquire may adversely impact the value of the assets, operations, or business we acquire. These events could cause material harm to our business, operating results or financial condition.
Our stock priceWe may be volatile. subject to actions of activist shareholders, which could disrupt our business and impact the trading value of our securities.
Our stock price has experienced substantial fluctuation based onWe value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance. Activist shareholders who disagree with the composition of the Board, our strategy or the way the Company is managed may seek to effect change through various strategies and channels, such as through commencing a varietyproxy contest, making public statements critical of factors, severalour performance or business, or engaging in other similar activities. Responding to shareholder activism can be costly and time-consuming, disrupt our operations, and divert the attention of which are beyondmanagement and our control. Some of these factors include general economic conditions; actualemployees from strategic initiatives. Activist campaigns can create perceived uncertainties as to our future direction, strategy or anticipated variations in our quarterly operating results; changes in financial estimates by securities analysts; changes or volatilityleadership and may result in the financial markets; announcements byloss of potential business opportunities, harm our competitors relatedability to attract new services or acquisitions;employees, investors and shareholder activism. Fluctuations inclients, and cause our stock price could mean that investors will not be able to sell their shares atexperience periods of volatility or above the price they paid and may impair our ability in the future to offer common stock as a source of additional capital.stagnation.
We face risks in operating internationally.
A portion of our business operations and support functions are located outside of the United States.U.S. These international operations are subject to a number of risks, including the effects of global health crises and resulting governmental actions, political and economic conditions in those foreign countries, foreign currency fluctuations, the burden of complying with various foreign laws and technical standards, and unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. We could also be exposed to fines and penalties under U.S. or local jurisdictionforeign laws, prohibitingsuch as the Foreign Corrupt Practices Act and/or the UK Anti-Bribery Act, which prohibit improper payments to governmental officials and others for the purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot be sure that our employees, vendors, contractors or agents will not violate such policies. Any such violations could materially damage our reputation, brands, business and operating results. Further, changes in U.S. laws and policies governing foreign investment and use of foreign operations or workers, and any negative sentiments towards the United States as a result ofU.S. resulting from such changes, could adversely affect the our operations.
The price of our common stock may fluctuate significantly, which may result in losses for investors.
Foreign currencyThe market price for our common stock has been and may be subject to significant volatility. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include, but are not limited to, changes in general economic conditions, including those caused by COVID-19; social unrest; announcement of new services or acquisitions by us or our competitors; changes in financial estimates or other statements by securities analysts; changes in industry trends or conditions; regulatory developments; and any major change in our Board, leadership team or management. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated to the operating performance of listed companies. These broad market and industry factors may have a material adverse effect onimpact the price of our common stock, regardless of our operating results.performance.
We reportNatural disasters and unusual weather conditions, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events could disrupt business and otherwise materially adversely affect our business and financial condition.
With operations in every state and multiple foreign countries, we are subject to numerous risks outside of our control, including risks arising from natural disasters, such as fires, earthquakes, hurricanes, floods, tornadoes, unusual weather conditions, pandemic outbreaks such as the COVID-19 pandemic and other global health emergencies, unplanned utility outages, terrorist acts or disruptive global political events including war, or similar disruptions that could materially adversely affect our business and financial performance. Any public health emergencies, including a real or potential global pandemic such as those caused by COVID-19 or even a particularly virulent flu or respiratory virus could decrease demand for our services or our ability to provide such services. Uncharacteristic or significant weather conditions may increase in frequency or severity due to climate change, which may increase our expenses, exacerbate other risks to the Company, and affect travel and the ability of businesses to remain open, which could lead to a decreased ability to offer our services and materially adversely affect our results of operations in U.S. dollars. The majority of our revenues are generated in the United States. Our international operations are denominated in currencies other than the U.S. dollar, and unfavorable fluctuations in foreign currency exchange rates could have an adverse effect on our reported financial results. Increases or decreases in the value of the U.S. dollar against other major currencies could affect our revenues, operating profit and the value of balance sheet items denominated in foreign currencies. Our exposure to foreign currencies could have an adverse effect on our business, financial condition, cash flow and/or results of operations. Furthermore, the volatility of currencies may impact year-over-year comparability.
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| | | | |
| Item 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
CYBERSECURITY RISK MANAGEMENT AND STRATEGY
We acknowledge the importance of assessing, identifying, and managing material risks associated with cybersecurity threats. These risks include, among other things, harm to our candidates, associates, employees and clients; operational disruptions; violation of privacy laws and regulations; breach of confidentiality and other contractual obligations; litigation and legal action; financial and reputational harm. We leverage cybersecurity technologies and established processes, procedures, and controls to identify, assess, and manage material cybersecurity risks.
Risk assessments
Our Information Security Team, led by our Chief Information Security Officer (“CISO”), consists of a Cybersecurity function and a Governance, Risk and Compliance function, and is constantly monitoring for cybersecurity risks and assessing any such risks’ potential severity. This team employs a range of tools and services, including regular network and endpoint monitoring, vulnerability assessments, penetration testing and tabletop exercises to inform the company of potential risks and mitigation strategies. We also execute an annual enterprise risk management assessment, which includes cybersecurity threat risks in addition to other risk areas that could impact the company.
We use a risk-based approach that is aligned with the National Institute of Standards and Technology. We maintain policies and standards that provide the framework for assessing risk. We conduct an annual information security focused risk assessment, which leverages the process and control areas provided by the International Organization for Standardization (“ISO”) 27001. In September 2021, we received our ISO 27001 Information Security Management certification. In fiscal 2022 and 2023, management performed procedures to validate our continued conformity with the ISO 27001 standard and concluded that existing controls continued to operate effectively. In addition, we assess our cybersecurity threat risks by conducting periodic internal and external risk assessments and annual external penetration testing, as well as maintaining an active vulnerability management program to assess threats at the network, systems and application levels.
Ongoing activities
To provide for the availability of critical data and systems, maintain regulatory compliance, manage our material risks from cybersecurity threats, and protect against, detect, and respond to cybersecurity incidents, we undertake the following activities:
•Perform an annual review of all of our policies related to cybersecurity;
•Monitor emerging data protection laws and implement changes to our policies to remain compliant;
•Run tabletop exercises with the cybersecurity incident response team, including executive team members, to simulate a response to a cybersecurity incident and use the findings to improve our processes and technologies;
•Conduct regular phishing email simulations and quarterly security awareness trainings for all employees to enhance awareness and responsiveness to such possible threats;
•Require all employees to review and acknowledge the company’s information security policies upon hiring and annually thereafter;
•Leverage the company’s incident response plan framework and a full set of cybersecurity technology tools, processes and procedures including, for example, security incident and cyber event management, endpoint detection and response, extended detection and response, e-mail gateway, and vulnerability management to monitor any cyber threats and to proactively detect, respond and recover when there is an actual or potential cybersecurity incident;
•Carry insurance that provides protection against the potential losses arising from a cybersecurity incident;
•Conduct annual penetration testing of our external technology and systems perimeter, including remediation and retesting;
•Conduct security assessments for code level vulnerabilities of all our internally developed business-critical applications; and
•Engage independent third parties to perform penetration testing of select business applications.
Incident response
Our incident response plan identifies the key employees responsible for responding to a cybersecurity incident and coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate, and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage.
As part of the above processes, we regularly engage with assessors, consultants, auditors, and other third parties, including periodic third-party reviews of our cybersecurity program to help identify areas for continued focus, improvement and compliance.
Third-party risk management
Our polices and processes address cybersecurity threat risks associated with the use of third-party service providers, including those who access, use and/or store our client, candidate, associate and employee data or have access to our network and systems. Third-party risks are included within our enterprise risk management assessment program, as well as our information security-specific risk identification program, both of which are discussed above. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers. We perform due diligence on third parties that have access to our systems, data or facilities that house such systems or data. This allows us to identify high-risk providers and continually monitor for cybersecurity threat risks appropriately. Additionally, we require contracts with all third parties that have access to our network and systems to include baseline security requirements for adequate data handling, as well as to provide the company with audit rights. Such contractual requirements are reviewed during each subsequent contract renewal process.
Additional information
We describe how the risks related to cybersecurity could materially impact our business strategy, results of operations, or financial condition, in more detail under the heading “Risks Related to Cybersecurity, Data Privacy and Information Security,” see Item 1A. Risk Factors of this Annual Report on Form 10-K.
In the last three fiscal years, we have not experienced any cybersecurity incidents that have materially impacted or are reasonably likely to materially impact our business strategy, results of operations, or financial condition.
CYBERSECURITY GOVERNANCE
Cybersecurity is an important part of our risk management processes and an area of focus for our Board and management.
Our Innovation and Technology (“I&T”) Committee of the Board is responsible for the oversight of risks from cybersecurity threats. All of our Board members are members of the I&T Committee. At least quarterly, management provides the I&T Committee with updates regarding our cybersecurity risks, threats, and efforts focused on mitigating those risks. These updates are provided by our Chief Technology Officer (“CTO”) and our CISO, and include recent developments in cybersecurity, the company’s actual experience with cybersecurity incidents, and the systems and processes in place to defend against cyberattacks. Should a material or potentially material cybersecurity incident occur, the Board will immediately be notified of such event by the company’s CEO. Our CTO and CISO frequently communicate with affected business and finance leaders regarding any cybersecurity related event.
Our cybersecurity risk management and strategy processes are led by our CTO and our CISO. Such individuals have collectively over 25 years of prior work experience in various roles involving managing information security; developing cybersecurity strategy; and implementing effective information and cybersecurity programs, including governance, risk and compliance oversight for regulatory and contractual compliance. Such individuals are required by their job description to possess several relevant degrees and certifications, including the Information Systems Audit and Control Association (“ISACA”) Certified Information Security Manager and the International Information System Security Certification Consortium (“ISC2”) Certified Information Systems Security Professional certifications. These individuals are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our incident response plan.
We lease the building space atfor all our PeopleReady branches, and other offices except for onetwo that we own in Florida. In addition, to branches for our PeopleReady operations, we lease domestic and international office spaces forspace to support our PeopleManagement, PeopleScoutoperations and PeopleReady centralized support functions. Under the majority of our PeopleReady branch leases, we have the right to terminate the lease onwith 90 days’ notice. We do not anticipate any difficulty in renewing these leases or in finding alternative sites in the ordinary course of business. We own an office building in Tacoma, Washington, which serves as our corporate headquarters. ManagementWe continued to utilize a remote or hybrid work model for our headquarters’ and U.S.-based support employees, while utilizing our support center facilities when necessary or beneficial. While management believes all our facilities are currently suitable for their intended use.use, we continually evaluate our business and facilities and may decide to expand or dispose of facilities in the future.
See Note 9: 8: Commitments and Contingencies, to our Consolidated Financial Statementsconsolidated financial statements found in Part II, of Item 8 of this Annual Report on Form 10-K.
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| Item 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
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| | | | |
| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market information
Our common stock is listed on the New York Stock Exchange under the ticker symbol TBI. The table below sets forth the high and low sales prices for our common stock as reported by the New York Stock Exchange during the last two fiscal years:
|
| | | | | | |
| | High | Low |
| 2017 | | |
| Fourth Quarter | $ | 29.50 |
| $ | 22.45 |
|
| Third Quarter | $ | 27.25 |
| $ | 19.30 |
|
| Second Quarter | $ | 28.70 |
| $ | 25.30 |
|
| First Quarter | $ | 27.85 |
| $ | 23.40 |
|
| 2016 | | |
| Fourth Quarter | $ | 24.90 |
| $ | 16.50 |
|
| Third Quarter | $ | 23.65 |
| $ | 17.35 |
|
| Second Quarter | $ | 27.57 |
| $ | 17.84 |
|
| First Quarter | $ | 26.51 |
| $ | 20.03 |
|
Holders of the corporation’s common stock
We had approximately 509364 shareholders of record as of February 1, 2018.14, 2024. This number does not include shareholders for whom shares were held in “nominee” or “street name.”
Dividends
No cash dividends have been declared on our common stock to date nor have any decisions been made to pay a dividend in the future. Payment of dividends is evaluated on a periodic basis and if a dividenddividends were paid, itthey would be subject to the covenants of our Second Amended and Restated Revolving Credit Agreement,revolving credit agreement, which may have the effect of restricting our ability to pay dividends.
Stock repurchases
The table below includes repurchases of our common stock pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs during the thirteenfourteen weeks ended December 31, 2017.2023.
| | | | | | | | | | | | | | |
| Period | Total number
of shares
purchased (1) | Weighted
average price
paid per
share (2) | Total number of shares
purchased as part of
publicly announced plans
or programs | Approximate dollar value that
may yet be purchased under
plans or programs at period
end (3) |
| 09/25/2023 through 10/22/2023 | 1,279 | | $14.67 | | — | | $55.1 million |
| 10/23/2023 through 11/19/2023 | 554 | | $11.40 | | — | | $55.1 million |
| 11/20/2023 through 12/31/2023 | 1,500 | | $14.70 | | — | | $55.1 million |
| Total | 3,333 | | $14.14 | | — | | |
|
| | | | | | | | |
| Period | Total number of shares purchased (1) | Weighted average price paid per share (2) | Total number of shares purchased as part of publicly announced plans or programs (3) | Maximum number of shares (or approximate dollar value) that may yet be purchased under plans or programs at period end (4) |
| 10/02/2017 through 10/29/2017 | 1,662 |
|
| $22.82 |
| — |
| $100.0 million |
| 10/30/2017 through 11/26/2017 | 1,497 |
|
| $26.32 |
| — |
| $100.0 million |
| 11/27/2017 through 12/31/2017 | 3,459 |
|
| $27.12 |
| 261,990 |
| $92.7 million |
| Total | 6,618 |
|
| $25.86 |
| 261,990 |
| |
(2) Weighted average price paid per share does not include any adjustments for commissions.
| |
(1) | During the year ended December 31, 2017, we purchased 6,618 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to any publicly announced purchase plan or program. |
| |
(2) | Weighted average price paid per share does not include any adjustments for commissions. |
| |
(3) | The weighted average price per share for shares repurchased under the share repurchase program during the period was $27.90. |
| |
(4) | During fiscal 2017, we repurchased shares using the remaining $29.4 million available under our $75.0 million share repurchase program. On September 15, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. During the thirteen weeks ended December 31, 2017, we used $7.3 million under this new program to repurchase shares. |
(3) On January 31, 2022, our Board of Directors authorized a $100.0 million share repurchase program of our outstanding common stock. The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. As of December 31, 2023, $55.1 million remains available for repurchase under the existing authorization.
TrueBlue stock comparative performance graph
The following graph depicts our stock price performance from December 28, 201230, 2018 through December 31, 2017,2023, relative to the performance of the S&P SmallCap 600 Index and S&P 1500 Human Resources and Employment Services Index.
All indices shown in the graph have been reset to a base of 100 as of December 28, 201230, 2018, and assume an investment of $100 on that date and the reinvestment of dividends, if any, paid since that date.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN (1)
| | | | | | | | | | | | | | | | | | | | |
| Total return analysis | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| TrueBlue, Inc. | $ | 100 | | $ | 108 | | $ | 88 | | $ | 127 | | $ | 88 | | $ | 70 | |
| S&P SmallCap 600 Index | $ | 100 | | $ | 123 | | $ | 138 | | $ | 172 | | $ | 147 | | $ | 170 | |
| S&P 1500 Human Resources and Employment Services Index | $ | 100 | | $ | 124 | | $ | 127 | | $ | 186 | | $ | 142 | | $ | 151 | |
|
| | | | | | | | | | | | | | | | | | |
| Total Return Analysis | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| TrueBlue, Inc. | $ | 100 |
| $ | 167 |
| $ | 146 |
| $ | 171 |
| $ | 159 |
| $ | 177 |
|
| S&P SmallCap 600 Index | 100 |
| 144 |
| 153 |
| 152 |
| 189 |
| 214 |
|
| S&P 1500 Human Resources and Employment Services Index | 100 |
| 179 |
| 182 |
| 193 |
| 212 |
| 270 |
|
|
| | | | |
| Item 6. | SELECTED FINANCIAL DATA[RESERVED] |
The following selected financial data is derived from our audited Consolidated Financial Statements. The data below should be read in conjunction with Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Summary consolidated financial and operating data
as of and for the fiscal years ended (1)
|
| | | | | | | | | | | | | | | | | |
| Statements of operations data: | (52 Weeks) | | (53 Weeks) | | (52 Weeks) |
| (in thousands, except per share data) | 2017 | | 2016 | | 2015 | 2014 | 2013 |
| Revenue from services | $ | 2,508,771 |
| | $ | 2,750,640 |
| | $ | 2,695,680 |
| $ | 2,174,045 |
| $ | 1,668,929 |
|
| Cost of services | 1,874,298 |
| | 2,070,922 |
| | 2,060,007 |
| 1,637,066 |
| 1,226,626 |
|
| Gross profit | 634,473 |
| | 679,718 |
| | 635,673 |
| 536,979 |
| 442,303 |
|
| Selling, general and administrative expense | 510,794 |
| | 546,477 |
| | 495,988 |
| 425,777 |
| 362,248 |
|
| Depreciation and amortization | 46,115 |
| | 46,692 |
| | 41,843 |
| 29,474 |
| 20,472 |
|
| Goodwill and intangible asset impairment charge | — |
| | 103,544 |
| | — |
| — |
| — |
|
| Interest and other income (expense), net | (14 | ) | | (3,345 | ) | | (1,395 | ) | 116 |
| 1,354 |
|
| Income (loss) before tax expense | 77,550 |
| | (20,340 | ) | | 96,447 |
| 81,844 |
| 60,937 |
|
| Income tax expense (benefit) | 22,094 |
| | (5,089 | ) | | 25,200 |
| 16,169 |
| 16,013 |
|
| Net income (loss) | $ | 55,456 |
| | $ | (15,251 | ) | | $ | 71,247 |
| $ | 65,675 |
| $ | 44,924 |
|
| | | | | | | | |
| Net income (loss) per diluted share | $ | 1.34 |
| | $ | (0.37 | ) | | $ | 1.71 |
| $ | 1.59 |
| $ | 1.11 |
|
| | | | | | | | |
| Weighted average diluted shares outstanding | 41,441 |
| | 41,648 |
| | 41,622 |
| 41,176 |
| 40,502 |
|
| | | | | | | | |
Balance sheet data(2): | | | | | | | |
| (in thousands) | 2017 | | 2016 | | 2015 | 2014 | 2013 |
| Working capital | $ | 215,860 |
| | $ | 176,668 |
| | $ | 314,989 |
| $ | 223,133 |
| $ | 227,409 |
|
| Total assets | 1,109,031 |
| | 1,130,445 |
| | 1,259,442 |
| 1,061,227 |
| 719,461 |
|
| Long-term liabilities | 341,765 |
| | 354,131 |
| | 495,893 |
| 404,663 |
| 204,692 |
|
| Total liabilities | 554,184 |
| | 605,266 |
| | 723,869 |
| 591,893 |
| 326,101 |
|
| |
(1) | In the fourth quarter of fiscal 2016, we changed our fiscal year-end from the last Friday in December to the Sunday closest to the last day in December. In addition, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks. |
| |
(2) | Fiscal years 2015 through 2013 data have been impacted by the adoption and retrospective application of ASU 2015-17, which classifies all deferred income taxes as non-current. |
The operating results reported above include the results of acquisitions subsequent to their respective purchase dates. In January 2016, we acquired the recruitment process outsourcing business of Aon Hewitt. In December 2015, we acquired SIMOS Insourcing Solutions Corporation. In June 2014, we acquired Seaton. In February 2013, we acquired MDT Personnel, LLC. In October 2013, we acquired The Work Connection, Inc.
|
| | | | |
| Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Management’s discussionDiscussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations (“MD&A”) is designed to provide the reader of our accompanying consolidated financial statements (“financial statements”) with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our financial statements.
BUSINESS OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,”“us” and “our”) is a leading provider of specialized workforce solutions that help our customers create growth,clients improve efficiency,productivity and increase reliability. Ourgrow their businesses. Client demand for contingent workforce solutions meetand 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 customers’ needsservices. That environment also reduces demand for a reliable, efficient workforcepermanent 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 a wide varietyeach of industries.
We report our business as three distinctsegments 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, PeopleManagementPeopleScout and PeopleScout. See Note 16: Segment Information,PeopleManagement. For additional discussion on our business and strategy, refer to our Consolidated Financial StatementsBusiness, found in Part I, Item 81 of this Annual Report on Form 10-K, for additional details on our service lines and reportable segments.10-K.
Fiscal 2023 highlights
Our fiscal year-end changed from the last Friday in December to the Sunday closest to the last day in December effective in the fourth quarter of 2016. The week ending date was moved forward from Friday to Sunday to better align with the work week of our customers. In addition, our 20162023 fiscal year includedcontained 53 weeks, with the 53rd week falling in the fiscal fourth quarter, while our fourth2022 and 2021 fiscal quarter. All other years presented includecontained 52 weeks.
Due to the reduction in the use of our PeopleManagement services by Amazon Inc. ("Amazon"), our former largest customer, which was announced in 2016, we are also providing certain year-over-year comparisons excluding this customer. We believe these comparisons are helpful in understanding the underlying business trends. The revenue headwind from the previously announced reduction in the scope of our services has now lapsed.
Fiscal 2017 highlights
Revenue from services
Total company revenue declined 15.4% to $2.5$1.9 billion for the fiscal year ended December 31, 2017, an 8.8% decrease2023, compared to the year ended January 1, 2017.prior year. The 53rd week contributed an additional $20.3 million in revenue. The decline was primarily duedriven by continued economic uncertainty impacting demand trends across all three segments. Our contingent staffing clients are focused on employee retention and cost reduction, causing them to our former largest customer substantially insourcing the recruitment and management of contingent labor for its warehouse fulfillment centers and distribution sitesbecome increasingly selective in the United States. Revenue from our former largest customer declined by $118 million, or 68.8% for the year ended December 31, 2017, when compared to the year ended January 1, 2017, which represented apositions they fill using outsourced labor providers. The decline in total company revenue of 4.0%. Our fiscal 2017 also had nine fewer days when compared to fiscal 2016, which represented a decline in total company revenue of 1.2%. The remaining decrease of 3.6% was primarily due to lower PeopleReady volume partially offset by higher PeopleScout volume.
PeopleReady revenue from services
PeopleReady revenue declined to $1.5 billion for the year ended December 31, 2017, a 7.2% decrease compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented a decline in PeopleReady revenue of 1.1%. Demand for our temporary staffing services is largely dependent upon general economicdemand has impacted most industries and labor trendsmarkets, especially retail, hospitality and continues to be mixed across geographies and the industries we serve. Financial results were negatively impacted by weakness with our residential construction, manufacturing and retail customers. However, this decline was partially offset by an increase in revenue from improving performance with our commercial construction and hospitality customers.
We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. Excluding the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly decline of 0.7%, which was an improvement from a decline of 4.8% in the third quarter of fiscal 2017, and a decline of 8.8% in the second quarter of fiscal 2017. The improving year-over-year results were due to improving customer trends across the industries we serve, with the exception of manufacturing and retail.
Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions impact our revenue trends in the near term.
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| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleReady performance was impacted by temporary disruptions from operational changes related to our consolidation of Labor Ready, CLP Resources, and Spartan Staffing into one specialized workforce solutions business at the beginning of fiscal 2017 in order to create a more seamless experience for our customers to access all of our blue-collar, contingent on-demand general and skilled labor service offerings. The transition is largely complete.
PeopleManagement revenue from services
PeopleManagementrevenue declined to $807 million for the year ended December 31, 2017, a 14.2% decrease compared to the year ended January 1, 2017. Revenue from Amazon, our former largest customer, declined by $118 million, or 68.8% to $53 million for the year ended December 31, 2017, compared to the year ended January 1, 2017, which represented a decline in PeopleManagement revenue of 12.2%. This customer substantially insourced the recruitment and management of contingent labor for their warehouse fulfillment centers and distribution sites in the United States, commencing in the second quarter of fiscal 2016. Our fiscal 2017 also had nine fewer days when compared to fiscal 2016, which represented a decline in PeopleManagement revenue of 1.3%.
We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. Excluding the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly decline of 6.3%, which was an improvement from a decline of 9.2% in the third quarter of fiscal 2017, and a decline of 12.1% in the second quarter of fiscal 2017. The improving year-over-year quarterly results were primarily due to increasingly favorable prior year comparisons associated with our former largest customer.
PeopleScout revenue from services
PeopleScoutrevenue grew to $190 million for the year ended December 31, 2017, a 5.2% increase compared to fiscal 2016. The nine fewer days in fiscal 2017 represented a decline in PeopleScout revenue of 1.2%. We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. Excluding the nine additional days in fiscal 2016, we exited fiscal 2017 with a year-over-year quarterly growth of 15.1%, which was an improvement from an increase of 10.0% in the third quarter of fiscal 2017, and a decrease of 1.0% in the second quarter of fiscal 2017. The increase was primarily driven by new client wins and expanding our scope of services with existing customers.
Gross profitservices.
Total company gross profit as a percentage of revenue for the fiscal year ended December 31, 2017 was 25.3%2023 declined 20 basis points to 26.5%, compared to 24.7%26.7% for the year ended January 1, 2017. The increaseprior year. This decrease was primarily due to favorabledriven by changes in revenue mix with less PeopleManagement revenue fromfavoring our former largest customer, which carries a lower gross margin than the blended average, and additional efficiency gains in the sourcing and recruiting activities of PeopleScout.staffing businesses.
Selling,Total company selling, general and administrative (“SG&A”) expense
Total company SG&A expense decreased by $36 million1.2% to $511$494.6 million for the fiscal year ended December 31, 2017,2023, compared to the year ended January 1, 2017.prior year. The nine fewer days in fiscal 2017 represented $853rd week added an additional $6.6 million of expense. During the decrease. Additionally, fiscal 2016 included $7 millionyear, cost management actions were taken to adjust our operating cost structure to better align with reduced client demand. The resulting cost savings exceeded both the cost to execute these actions and inflation of integrationcertain employee costs, most notably medical benefits. We remain focused on managing costs to fully integrate the recruitment process outsourcing business of Aon Hewitt into the PeopleScout service line, and $6 million in costs incurredenhance profitability, while maintaining our operational strengths to exit the delivery business of our former largest customer and certain other realignment costs.The remaining decrease of $15 millionprepare for the year ended December 31, 2017 was primarily due to cost control programs commencing in the prior year, which have continued in the current year.demand recovery.
Total company SG&A expense asWe recorded a percentage of revenue increased to 20.4% for the year ended December 31, 2017, from 19.9% for the year ended January 1, 2017, largely due to the decline in revenue outpacing the decline in expense.
Income from operations
Total company income from operations was $78 million, or 3.1% as a percentage of revenue for the year ended December 31, 2017, compared to a loss from operations of $17 million, or 0.6% for the year ended January 1, 2017. The prior year included a goodwill and intangible impairment charge of $104 million. Excluding the prior year goodwill and intangible asset impairment charge of $9.5 million ($9.3 million net income from operations was $87 million, or 3.1% as a percentage of revenuetax), for the year ended January 1, 2017. This decline was primarily due to the decline in revenue outpacing improved gross profit and the decline in SG&A expenses.
Effective tax rate
Our effective tax rate for thefiscal year ended December 31, 2017 was 28.5%,2023, primarily within our PeopleScout MSP reporting unit.
The items described above contributed to our net loss of $14.2 millionfor the fiscal year ended December 31, 2023, compared to 25.0% in the same periodnet income of $62.3 million in the prior year. The increase in the effective tax rate was primarily due to the U.S. government-enacted comprehensive tax legislation commonly r
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
eferred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects fiscal 2017, including, but not limited to, requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries (payable over eight years) and the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%.
Net income
Net income was $55 million, or $1.34 per diluted share for the year ended December 31, 2017, compared to a net loss of $15 million, or $0.37 per diluted share for the year ended January 1, 2017. Excluding the prior year goodwill and intangible asset impairment charge, net income would have been $67 million for the year ended January 1, 2017.
Additional highlights
We believe we are taking the right steps to preserve our operating margin and produce long-term growth for shareholders. We also believe we are in a strong financial position to fund working capital needs for growth opportunities. As of December 31, 2017,2023, we had cash and cash equivalents of $29$61.9 million, no outstanding debt, and $117$85.9 million available under the Second Amended and Restated Revolving Credit Agreement for a securedmost restrictive covenant of our revolving credit facilityagreement (“Revolving Credit Facility”), for total liquidity of $146$147.8 million.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data:
| | | | | | | | | | | | | | | |
| |
| (in thousands, except percentages and per share data) | 2023 | % of revenue | 2022 | % of revenue | |
| Revenue from services | $ | 1,906,243 | | | $ | 2,254,184 | | | |
| | | | | |
| Gross profit | 506,059 | | 26.5 | % | 602,144 | | 26.7 | % | |
| Selling, general and administrative expense | 494,603 | | 25.9 | | 500,686 | | 22.2 | | |
| Depreciation and amortization | 25,821 | | 1.4 | | 29,273 | | 1.3 | | |
| Goodwill and intangible asset impairment charge | 9,485 | | 0.5 | | — | | — | | |
| Income (loss) from operations | (23,850) | | (1.3) | % | 72,185 | | 3.2 | % | |
| Interest and other income (expense), net | 3,205 | | | 1,231 | | | |
| Income (loss) before tax expense (benefit) | (20,645) | | | 73,416 | | | |
| Income tax expense (benefit) | (6,472) | | | 11,143 | | | |
| Net income (loss) | $ | (14,173) | | (0.7) | % | $ | 62,273 | | 2.8 | % | |
| | | | | |
| Net income (loss) per diluted share | $ | (0.45) | | | $ | 1.86 | | | |
|
| | | | | | | | | | | | | | | |
| | Years ended |
| (in thousands, except percentages and per share data) | 2017 | % of revenue | 2016 | % of revenue | 2015 | % of revenue |
| Revenue from services | $ | 2,508,771 |
| | $ | 2,750,640 |
| | $ | 2,695,680 |
| |
| Total revenue growth % | (8.8 | )% | | 2.0 | % | | 24.0 | % | |
| | | | | | | |
| Gross profit | $ | 634,473 |
| 25.3 | % | $ | 679,718 |
| 24.7 | % | $ | 635,673 |
| 23.6 | % |
| Selling, general and administrative expense | 510,794 |
| 20.4 | % | 546,477 |
| 19.9 | % | 495,988 |
| 18.4 | % |
| Depreciation and amortization | 46,115 |
| 1.8 | % | 46,692 |
| 1.7 | % | 41,843 |
| 1.6 | % |
| Goodwill and intangible asset impairment charge | — |
|
|
| 103,544 |
| 3.8 | % | — |
|
|
|
| Income (loss) from operations | 77,564 |
| 3.1 | % | (16,995 | ) | (0.6 | )% | 97,842 |
| 3.6 | % |
| Interest and other income (expense), net | (14 | ) | | (3,345 | ) | | (1,395 | ) | |
| Income (loss) before tax expense | 77,550 |
|
|
| (20,340 | ) | | 96,447 |
| |
| Income tax expense (benefit) | 22,094 |
| | (5,089 | ) | | 25,200 |
| |
| Net income (loss) | $ | 55,456 |
| 2.2 | % | $ | (15,251 | ) | (0.6 | )% | $ | 71,247 |
| 2.6 | % |
| Net income (loss) per diluted share | $ | 1.34 |
| | $ | (0.37 | ) | | $ | 1.71 |
| |
| | | | | | | | | | | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | Growth
% | Segment % of total | 2022 | Segment % of total |
| Revenue from services: | | | | | |
| PeopleReady | $ | 1,096,318 | | (13.9) | % | 57.5 | % | $ | 1,272,852 | | 56.5 | % |
| PeopleScout | 229,334 | | (27.8) | % | 12.0 | | 317,518 | | 14.1 | |
| PeopleManagement | 580,591 | | (12.5) | % | 30.5 | | 663,814 | | 29.4 | |
| Total company | $ | 1,906,243 | | (15.4) | % | 100.0 | % | $ | 2,254,184 | | 100.0 | % |
Total company revenue declined 15.4% to $1.9 billion for the fiscal year ended December 31, 2023, compared to the prior year. The 53rd week contributed an additional $20.3 million in revenue. The decline was primarily driven by continued economic uncertainty impacting demand trends across all three segments. Our year-over-year trendscontingent staffing clients are significantlyfocused on employee retention and cost reduction, causing them to become increasingly 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.
PeopleReady
PeopleReady revenue declined 13.9% to $1.1 billion for the fiscal year ended December 31, 2023, compared to the prior year. The 53rd week contributed an additional $11.9 million in revenue. Revenue declined as a result of continued economic uncertainty, leading our clients to reduce their dependence on variable labor in order to manage their costs. Our clients are focused on employee retention, causing them to become increasingly selective in the positions they fill using outsourced labor providers. The decline in demand has impacted clients across most industries, especially within retail, hospitality and services, partially offset by growth in the following acquisitions:renewable energy industry which continues to gain momentum.
EffectivePeopleScout
PeopleScoutrevenue declined 27.8% to $229.3 million for the fiscal year ended December 1, 2015, we acquired SIMOS Insourcing Solutions (“SIMOS”), a leading provider of on-premise31, 2023, compared to the prior year. The 53rd week contributed an additional $0.8 million in revenue. Revenue declined as clients continued to respond to economic uncertainty and unknown future workforce management solutions. SIMOS specializes in helping customers streamline warehouse/distribution operationsneeds by reducing hiring volumes, sourcing candidates with internal resources, and initiating hiring freezes to meet the growing demand for e-commerce and supply chain solutions. They are also experts in providing scalable solutions for pick and pack and shipping requirements. Their unique productivity model incorporates fixed price-per-unit solutions to drive client value. Additionally, their continuous analysis and improvement of processes and incentive pay drives workforce efficiency and reduces costs, lowers risk of injury and damage, and improves productivity and service levels. SIMOS expands our existing services for on-premise staffing and management of a facility’s contingent workforce.
control costs.
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MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
PeopleManagement
Effective January 4, 2016,PeopleManagementrevenue declined 12.5% to $580.6 million for the fiscal year ended December 31, 2023, compared to the prior year. The 53rd week contributed an additional $7.6 million in revenue. Revenue declined as clients in our on-site business continued to respond to economic uncertainty by reducing dependence on variable labor to supplement their core workforce. The decline in demand has impacted clients across most industries, especially within retail and transportation.
Gross profit
| | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Gross profit | $ | 506,059 | | $ | 602,144 | |
| Percentage of revenue | 26.5 | % | 26.7 | % |
Gross profit as a percentage of revenue contracted 20 basis points to 26.5% for the fiscal year ended December 31, 2023, compared to 26.7% for the prior year. Unfavorable revenue shifts towards our lower margin staffing businesses caused a contraction of 100 basis points; specifically revenue growth in the renewable energy industry within PeopleReady, which has lower margins than average PeopleReady margins, and revenue declines in PeopleScout. The contraction was partially offset by an expansion of 40 basis points from lower workers’ compensation costs and 40 basis points from higher bill rates in our staffing businesses, which have increased ahead of pay rates.
Selling, general and administrative expense
| | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Selling, general and administrative expense | $ | 494,603 | | $ | 500,686 | |
| Percentage of revenue | 25.9 | % | 22.2 | % |
Total company SG&A expense decreased by $6.1 million or 1.2% for the fiscal year ended December 31, 2023, compared to the prior year. Cost reduction efforts were taken in fiscal 2023 to promote a return to profitability, while maintaining our operational strengths and readiness to increase market share when demand rebounds. These efforts resulted in savings of approximately $31 million during the fiscal year ended December 31, 2023, partially offset by $3.2 million in workforce reduction costs. Operating cost savings were also offset by inflation of certain employee costs, most notably for employee medical benefits, which have been rising nation-wide, and $5.8 million of accelerated compensation costs related to transitions in our executive leadership. The 53rd week added an additional $6.6 million of expense. SG&A expense in the prior year included a benefit of $3.3 million for the reversal of accrued compensation related to the resignation of a former Chief Executive Officer.
Depreciation and amortization
| | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Depreciation and amortization | $ | 25,821 | | $ | 29,273 | |
| Percentage of revenue | 1.4 | % | 1.3 | % |
Depreciation and amortization decreased primarily due to certain assets becoming fully depreciated and amortized during fiscal 2022.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Goodwill and intangible asset impairment charge
A summary of the goodwill and intangible asset impairment charge for the fiscal year ended December 31, 2023, by reportable segment, is as follows:
| | | | | | | | | | | | |
| (in thousands) | | PeopleScout | PeopleManagement | Total company |
| Goodwill | | $ | 8,885 | | $ | — | | $ | 8,885 | |
| Trade names/trademark | | — | | 600 | | 600 | |
| Total | | $ | 8,885 | | $ | 600 | | $ | 9,485 | |
Goodwill
We performed our annual impairment test as of the first day of our fiscal second quarter of 2023. As a result of this impairment test, we acquiredconcluded that the RPO businesscarrying amount of Aon Hewitt, a leading provider of RPO services. The acquired operations expand and complement our PeopleScout servicesMSP reporting unit exceeded its fair value and we recorded a non-cash goodwill impairment charge of $8.9 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The PeopleScout MSP goodwill impairment was related to our revised internal revenue projections, which anticipated the current year declining trends would continue into future periods. These projections were fully integrated into this service line in 2016.
We reportupdated based on our then-current outlook and recent industry analysis, which indicated that our business would underperform due to a strategic lack of investment in technology within an increasingly competitive market. No further impairment loss was recognized during the fiscal year ended December 31, 2023. The remaining goodwill balance for PeopleScout MSP was $0.8 million as three distinct segments: PeopleReady, PeopleManagement and PeopleScout.of December 31, 2023. See Note 16: Segment Information5: Goodwill and Intangible Assets, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional detailsdetails.
Indefinite-lived intangible assets
We performed our annual impairment test as of the first day of our service lines and reportable segments.
PeopleReadyprovides access to reliable workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for blue-collar, contingent on-demand general and skilled labor. PeopleReady connects people to work in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others. PeopleReady helped approximately 107,000 businesses in fiscal 2017 to be more productive by providing easy access to dependable contingent labor. Additionally, we connected approximately 352,000 people with work in fiscal 2017. We have a network of 623 branches across all 50 states, Canada and Puerto Rico.
PeopleManagement predominantly encompasses our on-site placement and management services and provides a wide range of workforce management solutions for blue-collar, contingent, on-premise staffing and management of a facility’s workforce. We use distinct brands to market our PeopleManagement contingent workforce solutions and operate as Staff Management | SMX (“Staff Management”), SIMOS, PlaneTechs and Centerline Drivers. Staff Management specializes in exclusive recruitment and on-premise management of a facility’s contingent industrial workforce. SIMOS specializes in exclusive recruitment and on-premise management of warehouse/distribution operations to meet the growing demand for e-commerce and scalable supply chain solutions. PlaneTechs specializes in recruitment and on-premise management of temporary skilled mechanics and technicians to the aviation and transportation industries. Centerline Drivers specializes in dedicated and temporary truck drivers to the transportation and distribution industries. PeopleManagement helped approximately 1,000 customers in fiscal 2017 to be more productive by providing easy access to dependable blue-collar contingent workforce solutions. Additionally, we connected approximately 91,000 people with work in fiscal 2017. We have 251 on-premise locations at customers’ facilities.
PeopleScout provides permanent employee recruitment process outsourcing (“RPO”) for our customers for all major industries and jobs. The RPO solution delivers improved talent quality, faster hiring, increased scalability, reduced turnover, lower cost of recruitment, greater flexibility, and increased compliance. We leverage our proprietary candidate applicant tracking system, along with dedicated service delivery teams to work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees. The solution is highly scalable and flexible, allowing for outsourcing of all or a subset of skill categories across a series of recruitment processes and onboarding steps. Customer contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire. Volume, job type, degree of recruiting difficulty, and number of recruiting process steps from sourcing to onboarding factor into pricing. Our PeopleScout segment also includes a management service provider business, which provides customers with improved quality and spend management of their contingent labor vendors. In fiscal 2017, PeopleScout connected approximately 297,000 individuals with work for approximately 200 customers.
Our fiscal year-end changed from the last Friday in December to the Sunday closest to the last day in December effective in the fourthsecond quarter of 2016. The week ending date was moved forward from Friday to Sunday to better align with the work week2023. As a result of our customers. In addition, the 2016 fiscal year included 53 weeks, with the 53rd week falling in our fourth quarter. All other years presented include 52 weeks.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
FISCAL 2017 AS COMPARED TO FISCAL 2016
Revenue from services
Revenue from services by reportable segment was as follows: |
| | | | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | Growth (decline) % | 2016 |
| Revenue from services: | | | |
| PeopleReady | $ | 1,511,360 |
| (7.2 | )% | $ | 1,629,455 |
|
| PeopleManagement | 807,273 |
| (14.2 | )% | 940,453 |
|
| PeopleScout | 190,138 |
| 5.2 | % | 180,732 |
|
| Total company | $ | 2,508,771 |
| (8.8 | )% | $ | 2,750,640 |
|
Total company revenue declined to $2.5 billion for the year ended December 31, 2017, an 8.8% decrease compared to the year ended January 1, 2017, primarily due to lower volumes for staffing services within our PeopleReady business and with our former largest customer. Revenue from our former largest customer declined by $118 million, or 68.8% for the year ended December 31, 2017, when compared to the year ended January 1, 2017, which representedthis impairment test, we concluded that a decline in total company revenue of 4.0%. Our fiscal 2017 also had nine fewer days when compared to fiscal 2016, which represented a decline in total company revenue of 1.2%.The remaining decrease of 3.6% was primarily due to lower PeopleReady volume partially offset by higher PeopleScout volume.
PeopleReady
PeopleReady revenue declined to $1.5 billion for the year ended December 31, 2017, a 7.2% decrease compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented a decline in PeopleReady revenue of 1.1%. The remaining decline was primarily due to weakness with our residential construction, manufacturing and retail customers. However, this decline was partially offset by an increase in revenue from improving performance in the commercial construction and hospitality customers.
We saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. We exited fiscal 2017 with a year-over-year quarterly decline of 0.7%, excluding the nine additional days in fiscal 2016. The improving year-over-year results were due to improving customer trends across all the industries we serve, with the exception of manufacturing and retail.
Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-up. While we believe our pricing strategy is the right long-term decision, these actions impact our revenue trends in the near term.
PeopleReady performance was impacted by temporary disruptions from operational changestrade name/trademark related to our consolidation of Labor Ready, CLP Resources, and Spartan Staffing into one specialized workforce solutions business in order to create a more seamless experience for our customers to access all of our blue-collar, contingent on-demand general and skilled labor service offerings. The transition is largely complete.
PeopleManagement
PeopleManagementrevenue declined to $807 million for the year ended December 31, 2017, a 14.2% decrease compared to the year ended January 1, 2017. Revenue from our former largest customer declined by $118 million, or 68.8% to $53 million for the year ended December 31, 2017, compared to the year ended January 1, 2017, which represented a decline in PeopleManagement revenue of 12.2%. Our fiscal 2017 also had nine fewer days when compared to fiscal 2016, which represented a decline in PeopleManagement revenue of 1.3%. During fiscal 2017, revenue trends have stabilized with a more diverse customer basesegment exceeded its estimated fair value and we have seen modest increases in demand from existing and new customers supporting e-commerce and transportation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleScout
PeopleScoutrevenue grew to $190$0.6 million, for the year ended December 31, 2017, a 5.2% increase compared to the year ended January 1, 2017. New customer wins and expansion of our services with existing customers represented an increase in revenue of 6.4%, partially offset by the nine fewer days in fiscal 2017, which represented a decline in PeopleScout revenue of 1.2%.
Gross profit
Gross profit was as follows: |
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Gross profit | $ | 634,473 |
| $ | 679,718 |
|
| Percentage of revenue | 25.3 | % | 24.7 | % |
Total company gross profit as a percentage of revenue for the year ended December 31, 2017 was 25.3%, compared to 24.7% for the year ended January 1, 2017. The increase was primarily due to favorable mix with less PeopleManagement revenue from our former largest customer, which carries a lower gross margin than the blended average, and additional efficiency gains in the sourcing and recruiting activities of PeopleScout as growth has accelerated.
Selling, general and administrative expense
SG&A expense was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Selling, general and administrative expense | $ | 510,794 |
| $ | 546,477 |
|
| Percentage of revenue | 20.4 | % | 19.9 | % |
Total company SG&A expense decreased by $36 million to $511 million for the year ended December 31, 2017, compared to the year ended January 1, 2017. The nine fewer days in fiscal 2017 represented $8 million of the decrease. Additionally, fiscal 2016 included $7 million of integration costs to fully integrate the RPO business of Aon Hewitt into the PeopleScout service line and $6 million in costs incurred to exit the delivery business of our former largest customer and certain other realignment costs. The remaining decrease of $15 million was primarily due to cost control programs commencing in the prior year, which have continued in the current year.
Total company SG&A expense as a percentage of revenue increased to 20.4% for the year ended December 31, 2017, from 19.9% for the year ended January 1, 2017, largely due to the decline in revenue outpacing the decline in expense.
Depreciation and amortization
Depreciation and amortization was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Depreciation and amortization | $ | 46,115 |
| $ | 46,692 |
|
| Percentage of revenue | 1.8 | % | 1.7 | % |
Depreciation increased due to investments designed to further improve our efficiency and effectiveness in recruiting and retaining our contingent workers, and attracting and retaining customers, which was more than offset by a declineincluded in amortization for the year ended December 31, 2017, due to the intangible asset impairment in the prior year.
Goodwill and intangible asset impairment charge
The goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The charge was primarily the result of an increase in the priordiscount rate, as well as lower projected revenues given our then-current outlook. No further impairment loss was recognized during the fiscal year ended December 31, 2023. The remaining balance for this trade name/trademark was primarily driven by a change in the scope$3.3 million as of services with our former largest customer and other changes in our outlook reflecting changes in economic and industry conditions.December 31, 2023.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Income taxes
The income tax expense (benefit) and the effective income tax rate were as follows:
|
| | | | | | |
| Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Income tax expense (benefit) | $ | 22,094 |
| $ | (5,089 | ) |
| Effective income tax rate | 28.5 | % | 25.0 | % |
Our effective tax rate for the years ended December 31, 2017 and January 1, 2017 was 28.5% and 25.0%, respectively. We recognized discrete tax benefits from prior years hiring credits of $1 million for the year ended December 31, 2017, compared to $6 million for the year ended January 1, 2017.
As a result of the Tax Act, we recognized $2 million of additional tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%. Upon completion of our fiscal 2017 U.S. income tax return in 2018, we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. | | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Income tax expense (benefit) | $ | (6,472) | | $ | 11,143 | |
| Effective income tax rate | 31.3 | % | 15.2 | % |
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in law,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 our pre-tax income. For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. We do not provide for deferred income taxes on undistributed earnings of our foreign subsidiaries because we consider those earnings to be permanently invested outside of the United States.
A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories, and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. 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 categories; 2) the targeted categories 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 additional prior year hiring credits if credits in excess of original estimates have been certified by government offices. WOTC was restored through December 31, 2019, as a result of the Protecting Americans from Tax Hikes Act of 2015, signed into law on December 18, 2015.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affect fiscal 2017, including, but not limited to, requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries (payable over eight years) and the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%.
Changes to our effective tax rate as a result of hiring credits, impairment and the Tax Act were as follows:
|
| | | | |
| | Years ended |
| | 2017 | 2016 |
| Effective income tax rate without adjustments below | 38.1 | % | 40.5 | % |
Hiring credits estimate from current year wages | (10.9 | )% | (14.4 | )% |
| Additional hiring credits from prior year wages | (1.9 | )% | (7.6 | )% |
| Transition to the U.S. Tax Cuts and Jobs Act | 3.2 | % | — | % |
| Goodwill and intangible asset impairment impact | — | % | 6.5 | % |
| Effective income tax rate | 28.5 | % | 25.0 | % |
| | | | | | | | |
| | |
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
The items creating differences between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
| | | | | | | | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | % | 2022 | % |
| Income tax expense (benefit) based on statutory rate | $ | (4,335) | | 21.0 | % | $ | 15,417 | | 21.0 | % |
| Increase (decrease) resulting from: | | | | |
| State income taxes, net of federal benefit | (1,384) | | 6.7 | | 3,008 | | 4.1 | |
| Hiring tax credits, net | (4,997) | | 24.2 | | (7,911) | | (10.8) | |
| | | | |
| Uncertain tax positions | (206) | | 1.0 | | (1,336) | | (1.8) | |
| Non-deductible goodwill impairment charge | 2,287 | | (11.1) | | — | | — | |
| Non-deductible and non-taxable items | 1,178 | | (5.7) | | 1,377 | | 1.9 | |
| Foreign taxes | 587 | | (2.9) | | 654 | | 0.9 | |
| Other, net | 398 | | (1.9) | | (66) | | (0.1) | |
| Total income tax expense (benefit) | $ | (6,472) | | 31.3 | % | $ | 11,143 | | 15.2 | % |
Our effective tax rate for the fiscal year ended December 31, 2023 was 31.3% compared to 15.2% for the prior year. The higher effective tax rate in the current year was primarily due to benefits of hiring tax credits, partially offset by certain non-deductible and non-taxable items and foreign income taxes. Because of the loss before tax benefit for the fiscal year ended December 31, 2023, hiring tax credits add to the income tax benefit and rate and non-deductible items subtract from the income tax benefit and rate.
See Note 1: Summary of Significant Accounting Policies and Note 12: Income Taxes, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional information.
Segment performance
We realigned our reporting structure in the fourth quarter of fiscal 2016 to streamline our operations and make it easier for our customers to leverage our total workforce solution by using both our contingent work and permanent placement services. We now report our business as three distinct segments. Our former Staffing Services reportable segment was separated into two reportable segments, PeopleReady and PeopleManagement, and our former Managed Services reportable segment was renamed PeopleScout. In addition, we changed our methodology for allocating certain corporate costs to our segments, which decreased our corporate unallocated expenses. The 2015 amounts have been recast to reflect this change for consistency.
A primary measure ofevaluate segment performance evaluated by our chief operating decision-maker, to determine resource allocationbased on segment revenue and assess performance is segment earnings before interest, taxes, depreciation and amortization (“segment EBITDA”).profit. Segment EBITDAprofit includes net sales to third parties,revenue, related cost of sales, selling, generalservices, and administrative expense, and goodwill and intangible impairment chargesongoing operating expenses directly attributable to the reportable segment together with certain allocated corporate generalsegment. Segment profit excludes goodwill and administrative expense. Segment EBITDA excludesintangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense.expense, interest expense, other income and expense, income taxes, and other costs and benefits not considered to be ongoing. See Note 16: 14: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details ofon our service lines and reportable segments, as well as a reconciliation of segment EBITDAprofit to income (loss) before tax expense.expense (benefit).
Segment EBITDAprofit should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and may not be comparable to similarly titled measures of other companies.
PeopleReadysegment performance was as follows:
| | | | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| (in thousands, except percentages) | |
| (in thousands, except percentages) | | 2023 | 2022 |
| Revenue from services | $ | 1,511,360 |
| $ | 1,629,455 |
|
| Segment EBITDA | 78,372 |
| 101,270 |
|
| Segment profit | |
| Percentage of revenue | 5.2 | % | 6.2 | % | Percentage of revenue | 2.4 | % | 6.9 | % |
PeopleReady segment EBITDA decreased to $78profit declined 69.7% or $61.1 million or 5.2% of revenue for the year ended December 31, 2017, compared to $101 million, or 6.2% of revenue in the year ended January 1, 2017. The revenue decline outpaced the cost control programs primarily due to the de-leveraging effect associated with the fixed costs in a branch network. Through disciplined pricing, we have passed through increased costs for minimum wages, payroll taxes and benefits, together with higher contingent worker wages in a tightening labor market, as well as most of our standard markup on these costs. With the decline in revenue, we put in place cost control programs commencing in the prior year, which continue in the current year, and have reduced SG&A costs in line with our plans.
PeopleManagementsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Revenue from services | $ | 807,273 |
| $ | 940,453 |
|
| Segment EBITDA | 27,043 |
| (60,452 | ) |
| Percentage of revenue | 3.3 | % | (6.4 | )% |
PeopleManagement segment EBITDA increased to $27 million, or 3.3% of revenue for the year ended December 31, 2017, compared to a loss of $60 million, or 6.4% of revenue in the year ended January 1, 2017. The loss of $60 million for the year ended January 1, 2017 included a goodwill and intangible asset impairment charge of $84 million primarily driven by a change in the scope of services with our former largest customer. Excluding the goodwill and intangible asset impairment charge, segment EBITDA as a percentage of revenue improved by 0.8% for the year ended December 31, 2017. This improvement in segment EBITDA as a percentage of revenue was primarily due to a more favorable mix of less revenue from our former largest customer which carried a lower gross margin than our blended average, and the results of a cost reduction program. Revenue from our former largest customer declined by $118 million, or 68.8% to $53 million for the year ended December 31, 2017, compared to the year ended January 1, 2017.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleScoutsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | 2016 |
| Revenue from services | $ | 190,138 |
| $ | 180,732 |
|
| Segment EBITDA | 39,232 |
| 19,116 |
|
| Percentage of revenue | 20.6 | % | 10.6 | % |
PeopleScout segment EBITDA increased to $39 million, or 20.6% of revenue for the year ended December 31, 2017, compared to $19 million, or 10.6% of revenue for the year ended January 1, 2017. The increase was primarily due to the goodwill and intangible asset impairment charge of $15 million in the year ended January 1, 2017. Excluding the goodwill and intangible asset impairment charge, segment EBITDA as a percentage of revenue was 19.0% for the year ended January 1, 2017. The improved performance was due primarily to new client wins and expanding the scope of services with existing customers together with efficiency gains in sourcing and recruiting activities.
FISCAL 2016 AS COMPARED TO FISCAL 2015
Revenue from services
Revenue from services by reportable segment was as follows:
|
| | | | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | Growth (decline) % | 2015 |
| Revenue from services: | | | |
| PeopleReady | $ | 1,629,455 |
| 0.2 | % | $ | 1,625,817 |
|
| PeopleManagement | 940,453 |
| (2.6 | )% | 965,331 |
|
| PeopleScout | 180,732 |
| 72.9 | % | 104,532 |
|
| Total company | $ | 2,750,640 |
| 2.0 | % | $ | 2,695,680 |
|
Total company revenue grew to $2.8 billion for the year ended January 1, 2017, a 2.0% increase compared to the same period in the prior year, primarily due to increased revenue from acquisitions offset by decreased revenue from our largest customer, Amazon.
For the year ended January 1, 2017, the acquisition of SIMOS contributed $145 million in revenue through November 2016, the one year anniversary of the acquisition, or 5.4% of revenue growth, compared to the prior year, and the acquisition of the RPO business of Aon Hewitt contributed $67 million in revenue, or 2.5% of revenue growth, compared to the prior year. Excluding revenue from acquisitions, organic revenue decreased by approximately $157 million, or 5.8% for the year ended January 1, 2017, as compared to the prior year. The decrease in organic revenue was primarily due to our former largest customer substantially insourcing the recruitment and management of contingent labor for its warehouse fulfillment centers and distribution sites in the United States. Revenue from our former largest customer declined by $183 million, or 51.7% for the year ended January 1, 2017. Excluding this customer, organic revenue increased by 1.1% and, excluding the nine additional days of fiscal 2016, was essentially unchanged from the prior year.
Demand for our temporary and permanent staffing services is largely dependent upon general economic and labor trends. Correspondingly, financial results for the year ended January 1, 2017 were negatively impacted by soft economic growth with mixed results by industry.
PeopleReady
Revenue grew to $1.6 billion for the year ended January 1, 2017, a 0.2% increase compared to the prior year or 1.0% decline excluding the nine additional days of fiscal 2016. Revenue trends softened in 2016 across all geographies. However, we saw some improvement during the latter part of 2016. Revenue trends were also mixed across the industries we serve. Modest revenue growth for our small to medium-sized customers was more than offset by declining revenue trends for our larger national customers. Growth in residential construction and hospitality industries was more than offset by declines in retail, commercial construction, energy, manufacturing and service-based industries. Caution over the sluggish economy persisted across many of the industries we serve.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleManagement
Revenue declined to $940 million for the year ended January 1, 2017, a 2.6% decrease compared to the prior year, or a decline of 3.8% excluding the nine additional days of fiscal 2016. Effective December 1, 2015, we acquired SIMOS which contributed $145 million in revenue through November 2016, the one year anniversary of the acquisition, for the fiscal year 2016. The increase from the SIMOS acquisition was more than offset by decreased revenue from our largest customer, which substantially insourced the recruitment and management of contingent labor for its warehouse fulfillment centers and distribution sites in the United States. Revenue from our former largest customer declined by $183 million or 51.7% for the year ended January 1, 2017, compared to the prior year. Excluding this customer, organic revenue increased by 2.1% and, excluding the nine additional days of fiscal 2016, was essentially unchanged from the prior year. Organic revenue trends improved in the latter part of the year with modest increases in demand from existing customers and the addition of new customers.
PeopleScout
Revenue increased to $181 million for the year ended January 1, 2017, a 72.9% increase compared to the prior year. The increase is primarily due to the acquisition of the RPO business of Aon Hewitt, which contributed $67 million in revenue, or 63.6% of our revenue growth for the year ended January 1, 2017. Organic revenue grew 9.3%, or 8.1% excluding the nine additional days of fiscal 2016. The organic revenue growth was driven primarily by winning new customers. Revenue growth from existing customers was mixed. We experienced growing demand in a tightening labor market for outsourced recruiting services for permanent positions for certain customers and industries. This was partially offset by reduced demand from some existing customers and their continued caution in a sluggish economy.
Gross profit
Gross profit was as follows: |
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Gross profit | $ | 679,718 |
| $ | 635,673 |
|
| Percentage of revenue | 24.7 | % | 23.6 | % |
Total company gross profit as a percentage of revenue for the fiscal year ended January 1, 2017 was 24.7%, compared to 23.6% in the prior year. The increase of 1.1% was due primarily to the impact of the acquired SIMOS and Aon Hewitt RPO businesses of 0.6%, which carried higher gross margins in comparison to our blended company average, and the positive impact of a revenue mix change of 0.6% largely driven by the decline in revenue from our former largest customer which carries a lower gross margin than our blended average. This increase was partially offset by a resistance from our customers for contingent staffing services to accept price increases beyond the increases caused by increasing minimum wages and benefits in a sluggish economy and higher temporary worker wages in a tightening labor market. Through disciplined pricing, we have made continuous progress throughout the current year in reducing gross margin compression and passing through our normal markup on increased statutory costs in higher bill rates.
Workers’ compensation expense as a percentage of revenue was 3.4% for the year ended January 1, 2017, compared to 3.6% in the prior year. Our continuous efforts to actively manage the safety of our temporary workers with our safety programs and control increasing costs with our network of workers’ compensation service providers have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in prior periods. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs. However, in line with our expectations, we are experiencing diminishing favorable adjustments to our workers’ compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.
Selling, general and administrative expense
SG&A expense was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Selling, general and administrative expense | $ | 546,477 |
| $ | 495,988 |
|
| Percentage of revenue | 19.9 | % | 18.4 | % |
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
SG&A expense increased by $50 million to $546 million for the year ended January 1, 2017,December 31, 2023, compared to the prior year. The increase includes expenses relateddecline was primarily due to the acquired operations of SIMOSdecline in revenue and the RPO businessrelatively high ratio of Aon Hewitt of approximately $38 million,fixed to variable costs within SG&A expense, as well as an increasechanges in incremental acquisitionrevenue mix towards lower margin renewable energy projects. The decline was partially mitigated through disciplined pricing, with bill rates increasing ahead of pay rates.
| | | | | | | | |
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
PeopleScoutsegment performance was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Revenue from services | $ | 229,334 | | $ | 317,518 | |
| Segment profit | $ | 26,922 | | $ | 44,771 | |
| Percentage of revenue | 11.7 | % | 14.1 | % |
PeopleScout segment profit declined 39.9% or $17.8 million and integration costs of $2 million to fully integrate the RPO business of Aon Hewitt into the PeopleScout service line in the current year. Excluding the impact of these acquisitions, organic SG&A expense increased by $10 million, or approximately $3 million excluding the nine additional days of fiscal 2016. The increase included approximately $6 million of costs incurred to exit the delivery business of our former largest customer and certain other realignment costs. With the slowdown in current year growth we put cost control programs in place during the first quarter of 2016 and expanded those programs in subsequent quarters as the sluggish economy persisted and revenues declined from our former largest customer as they substantially insourced the recruitment and management of contingent labor. We have reduced costs in line with our plans.
SG&A expense as a percentage of revenue increased to 19.9% for the fiscal year ended January 1, 2017 from 18.4%,December 31, 2023, compared to the prior year. The decline was a result of the decline in revenue, the effects of which were softened by workforce reductions during each quarter of 2023 to manage our operating cost control programs which commenced in the first quarterstructure.
PeopleManagementsegment performance was as follows:
| | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | 2022 |
| Revenue from services | $ | 580,591 | | $ | 663,814 | |
| Segment profit | $ | 6,963 | | $ | 15,811 | |
| Percentage of revenue | 1.2 | % | 2.4 | % |
PeopleManagement segment profit declined 56.0% or $8.8 million and expanded in subsequent quarters have progressively reduced SG&A expensedeclined as a percentage of revenue throughout the year. However, continued organic revenue declines outpaced the decline in operating expenses. We will continue to monitor and manage our SG&A costs in the current environment of sluggish growth.
Depreciation and amortization
Depreciation and amortization was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Depreciation and amortization | $ | 46,692 |
| $ | 41,843 |
|
| Percentage of revenue | 1.7 | % | 1.6 | % |
Depreciation and amortization increased $5 million to $47 million for the fiscal year ended January 1, 2017, primarily due to the amortization of acquired finite-lived intangible assets of $8 million in connection with the acquisitions of SIMOS and the RPO business of Aon Hewitt. This was partially offset by reduced amortization due primarily to the intangible asset impairment in fiscal 2016.
Goodwill and intangible asset impairment charge
The goodwill and intangible asset impairment charge of $104 million for the year ended January 1, 2017 includes a non-cash goodwill and intangible asset impairment charge of $99 million recognized in the second quarter of 2016. We test goodwill and indefinite-lived intangible assets for impairment annually on the first day of our second quarter and whenever events or circumstances arise that indicate an impairment may exist, such as the loss of key customers and adverse industry and economic conditions.
The impairment was primarily driven by a change in the scope of services with our largest customer, as we reported in April 2016, of $67 million, and also other changes in outlook reflecting recent economic and industry conditions of $32 million.
The impairment charge further includes a non-cash intangible trade name impairment charge of $4 million driven by a change to our branding in connection with the consolidation of our retail branch network service lines of Labor Ready, Spartan Staffing and CLP Resources under the PeopleReady brand name during the third quarter of 2016. See Summary of Critical Accounting Estimates for further discussion.
A summary of the goodwill and intangible asset impairment charges by service line is as follows:
|
| | | | | | | | | | | | |
| (in thousands) | Customer relationships | Trade name/trademarks | Goodwill | Total |
| Staff Management | $ | 28,900 |
| $ | 4,500 |
| $ | 33,700 |
| $ | 67,100 |
|
| PlaneTechs | — |
| — |
| 17,000 |
| 17,000 |
|
| hrX | — |
| — |
| 15,169 |
| 15,169 |
|
| Spartan Staffing and CLP Resources | — |
| 4,275 |
| — |
| 4,275 |
|
| Total non-cash impairment charges | $ | 28,900 |
| $ | 8,775 |
| $ | 65,869 |
| $ | 103,544 |
|
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
Note, our PeopleScout and hrX service lines were combined during fiscal 2016 and now represent a single operating segment (PeopleScout).
Income taxes
The income tax expense and the effective income tax rate were as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Income tax expense (benefit) | $ | (5,089 | ) | $ | 25,200 |
|
| Effective income tax rate | 25.0 | % | 26.1 | % |
Our effective tax rate for the year ended January 1, 2017 was 25.0%, which is calculated with a goodwill and intangible asset impairment charge. Excluding this impairment charge, our effective tax rate would have been 18.5%, asDecember 31, 2023, compared to 26.1% in prior year, primarily because of increased tax rate benefit from WOTC.
Changes to our effective tax rate as a result of hiring credits and impairment were as follows:
|
| | | | |
| | Years ended |
| | 2016 | 2015 |
| Effective income tax rate without hiring credits or impairment | 40.5 | % | 41.6 | % |
Hiring credits estimate from current year wages | (14.4 | )% | (10.5 | )% |
| Additional hiring credits from prior year wages | (7.6 | )% | (5.0 | )% |
| Goodwill and intangible asset impairment impact | 6.5 | % | — | % |
| Effective income tax rate | 25.0 | % | 26.1 | % |
Segment performance
PeopleReadysegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 1,629,455 |
| $ | 1,625,817 |
|
| Segment EBITDA | 101,270 |
| 123,899 |
|
| Percentage of revenue | 6.2 | % | 7.6 | % |
PeopleReady segment EBITDA decreased to $101 million, or 6.2% of revenue for the year ended January 1, 2017, compared to $124 million, or 7.6% of revenue in the prior year. Segment EBITDA included a non-cash goodwill and intangible asset impairment charge of $4 million for the year ended January 1, 2017 driven by a change to our branding in connection with the consolidation of our retail branch network service lines of Labor Ready, Spartan Staffing and CLP Resources. Excluding the goodwill and intangible asset impairment charge, segment EBITDA decreased to 6.5% of revenue for the year ended January 1, 2017, compared to 7.6% of revenue in the prior year due to gross margin compression and the de-leveraging effect associated with the fixed costs in a branch network partially offset by cost control programs. Gross margin compression was caused by resistance from our customers to accept price increases beyond the increases caused by increasing minimum wages and benefits in a sluggish economy and higher contingent worker wages in a tightening labor market. Through disciplined pricing, we have made continuous progress throughout the current year in successfully passing through our normal markup on increased statutory costs in higher bill rates. Due to the current year slowdown in revenue growth, we curtailed investments made in the prior year in selling and recruiting resources to fuel revenue growth and commenced cost control programs in the first quarter of 2016 and expanded those programs in subsequent quarters as the sluggish economy persisted. We have reduced SG&A costs in line with our plans and have generated progressively improving operating income margins during the course of the year. We will continue to closely monitor and manage our SG&A costs in the current environment.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
PeopleManagementsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 940,453 |
| $ | 965,331 |
|
| Segment EBITDA | (60,452 | ) | 36,512 |
|
| Percentage of revenue | (6.4 | )% | 3.8 | % |
PeopleManagement segment EBITDA decreased to a loss of $60 million for the year ended January 1, 2017, compared to income of $37 million in the prior year. Segment EBITDA included a non-cash goodwill and intangible asset impairment charge of $84 million for the year ended January 1, 2017. The goodwill and intangible asset impairment charge was primarily driven by a change in the scope of services with our former largest customer reported in April 2016, for our Staff Management service line, as well as other changes in our future outlook, which reflect recent economic and industry conditions for our PlaneTechs service line.
Excluding the goodwill and intangible asset impairment charge, segment EBITDA decreased to 2.5% of revenue for the year ended January 1, 2017, compared to 3.8% for the prior year. The decreasedecline was primarily due to the pace of revenue from our former largest customer slightly outpacing the decline in revenue and the associated impact from lower operating leverage. We took actions during each quarter of 2023 to reduce operating costs to supportbetter align with demand.
FISCAL 2022 AS COMPARED TO FISCAL 2021
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, found in Part II of the wind down of our largest customer’s business as they substantially insourced the recruitment and management of contingent labor, as well as the de-leveraging effect associated with the fixed costs of centralized services. With the slowdown in current year growth, we put in place cost control programs and will continue to closely monitor and manage our SG&A costs in the current environment.
PeopleScoutsegment performance was as follows:
|
| | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2016 | 2015 |
| Revenue from services | $ | 180,732 |
| $ | 104,532 |
|
| Segment EBITDA | 19,116 |
| 9,324 |
|
| Percentage of revenue | 10.6 | % | 8.9 | % |
PeopleScout segment EBITDA of $19 millionAnnual Report on Form 10-K for the fiscal year ended January 1, 2017, is netDecember 25, 2022 for discussion of a non-cash goodwill and intangible asset impairment charge of $15 million, recorded in operating expenses in the second quarter of 2016.
Excluding the goodwill and intangible asset impairment charge, segment EBITDA increased to 19.0% of revenue for the year ended January 1, 2017,fiscal 2022 compared to 8.9% in the prior year. The increase was primarily due to the impact of productivity improvement programs and the acquired RPO business of Aon Hewitt. In addition, PeopleScout implemented programs to improve the productivity of our recruitment process and service delivery, which improved segment EBITDA as a percentage of revenue, as compared to the prior year. Further improvements to segment EBITDA as a percentage of revenue were due to the acquired RPO business of Aon Hewitt, which carried higher gross margins in comparison to our legacy blended PeopleScout average, combined business synergies, and lower cost of support activities provided by Aon Hewitt for the acquired operations during the transition year.fiscal 2021.
FUTURE OUTLOOK
We have limited visibility into future demand for our services. However, we believe there is value in providing highlights of our expectations for future financial performance. The following highlights represent our expectations regarding operating trends for fiscal 2018.outlook. These expectations are subject to revision as our business changes with the overall economy.
Our top priority remains to produce solid organic revenue and gross profit growth while leveraging our cost structure to increase income from operations as a percentage of revenue. Through disciplined pricing and management of increasing minimum wages, taxes and benefits, we expect to pass through the higher cost of our temporary workers.Operating outlook
We are committed to technological innovation that makes it easier for our customers to do business with us and easier to connect people to work. We continue making investments in online and mobile applications to improve access, speed and ease of connecting our customers and workers. •We expect these investments will increaserevenue for the competitive differentiationfiscal first quarter of our services, improve the efficiency of our service delivery,2024 to decline between 16% and reduce our dependence on local branches to find temporary workers and connect them with work.
PeopleScout is a recognized industry leader of RPO services, which are in the early stages of that industry’s adoption cycle. Due to the industry growth rate for RPO services, our market leading position, and our advances in technology, we expect the revenue growth of this business to exceed the growth of our other segments.
We estimate our historical effective income tax rate of 28% will decline to approximately 16% in fiscal 2018 and 2019 as a result of the Tax Act. The lower rate could extend beyond 2019 if Congress extends the WOTC. If the WOTC is not extended beyond 2019, we estimate our effective income tax rate will return to approximately 28%.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Cash flows from operating activities
Our cash flows from operating activities were as follows:
|
| | | | | | | | | |
| Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
| |
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
|
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
|
| Provision for doubtful accounts | 6,808 |
| 8,308 |
| 7,132 |
|
| Stock-based compensation | 7,744 |
| 9,363 |
| 11,103 |
|
| Deferred income taxes | 2,440 |
| (25,355 | ) | 5,176 |
|
| Other operating activities | 2,066 |
| 7,910 |
| 446 |
|
| Changes in operating assets and liabilities, net of effects of business acquisitions: |
|
| |
| Accounts receivable | (28,483 | ) | 112,785 |
| (89,474 | ) |
| Income tax receivable | 14,875 |
| 9,450 |
| (16,678 | ) |
| Accounts payable and other accrued expenses | (10,569 | ) | (4,101 | ) | 23,261 |
|
| Accrued wages and benefits | (2,888 | ) | (7,313 | ) | 12,203 |
|
| Workers’ compensation claims reserve | (1,048 | ) | 11,070 |
| 14,736 |
|
| Other assets and liabilities | 7,335 |
| 4,652 |
| (8,923 | ) |
| Net cash provided by operating activities | $ | 99,851 |
| $ | 261,754 |
| $ | 72,072 |
|
Fiscal 201710% as compared to fiscal 2016
Net cash provided by operating activities was $100 million for the year ended December 31, 2017, compared to $262 million for the same period in the prior year.
The goodwill and intangible asset impairment charge of $104 million in the prior year, was primarily driven by a change in the scope of services with our former largest customer and the impact of other changes in economic and industry conditions which lowered future expectations. In addition, it includes a $4 million trade name impairment charge in connection with the consolidation of our retail branch network under a common brand name.
The change to deferred income taxes is due primarily to the goodwill and intangible asset impairment charge in the prior year, as well as the impact from the recently enacted Tax Act in the current year due to the revaluation of the company’s deferred income tax net assets as of December 31, 2017.
The increase in accounts receivable in the current year is primarily due to an increase in days sales outstanding caused by new customer onboarding in our PeopleScout segment,clients’ continued response to macroeconomic uncertainty.
•We anticipate gross profit as well as our fourtha percentage of revenue to decline between 210 and 170 basis points for the fiscal first quarter of fiscal 2017 mix of local and national customers in our PeopleReady segment shifting slightly toward national customers, which have a longer cash collection cycle. Accounts receivable for the prior year period declined primarily due to a decline in revenue and associated receivables from our former largest customer.
The decline in accounts payable and other accrued expenses is primarily due to cost control programs together with normal seasonal patterns and timing of payments.
Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline.
During fiscal 2017, we paid $23 million relating to the contingent consideration associated with our acquisition of SIMOS. The payment included $18 million related to the final purchase price fair value, which is reflected in cash flows used in financing activities. The remaining balance of $4 million is recognized in cash flows used in operating activities as a decrease in other assets and liabilities.
|
| | |
MANAGEMENT'S DISCUSSION AND ANALYSIS |
Fiscal 2016 as2024, compared to fiscal 2015
Net cash provided by operating activities was $262 million for the year ended January 1, 2017, compared to $72 million for the same period in 2015.
Net loss of $15 million for the year ended January 1, 2017, includes a non-cash goodwill and intangible asset impairment charge of $82 million, net of tax. Excluding this charge, net income would have been $67 million.
The goodwill and intangible asset impairment charge of $104 million was primarily driven by a change in the scope of services with our former largest customer of $67 million, as well as other changes in our future outlook reflecting recent economic and industry conditions of $32 million. In addition, it includes a $4 million trade name impairment charge in connection with the consolidation of our retail branch network under a common brand name. See Summary of Critical Accounting Estimates for further discussion.
The change in accounts receivable is primarily driven by the decline in revenue from our former largest customer of $183 million, or 51.7% for the year ended January 1, 2017, compared to the prior year. Revenue from our former largest customer peaked in the fourth quarter of fiscal 2015. The decline in accounts receivable was further driven by improved days sales outstanding due to revenue mix and improved collections.
An increase in income tax receivable is due primarily to higher than anticipated benefits from WOTC. WOTC is designed to encourage employers to hire workers from certain disadvantaged targeted categories.
The change to deferred income taxes is due primarily to the goodwill and intangible asset impairment charge.
The change in accounts payable is primarily driven by lower revenue growth, slower seasonal build and cost control programs as compared to the prior year.
Accrued wages and benefits decreased primarily due to reductions in the flex workforce to align with client volume changes.
During 2016, our workers’ compensation claims reserve increased with the delivery of contingent labor services partially offset by claim payments.
Cash flows from investing activities
Our cash flows from investing activities were as follows:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Capital expenditures | $ | (21,958 | ) | $ | (29,042 | ) | $ | (18,394 | ) |
| Acquisition of business, net of cash acquired | — |
| (72,476 | ) | (67,500 | ) |
| Sales and maturities of marketable securities | — |
| — |
| 1,500 |
|
| Change in restricted cash and investments | (8,939 | ) | (41,698 | ) | (20,632 | ) |
| Net cash used in investing activities | $ | (30,897 | ) | $ | (143,216 | ) | $ | (105,026 | ) |
Fiscal 2017 as compared to fiscal 2016
Net cash used in investing activities was $31 million for the year ended December 31, 2017, compared to $143 million for the same period in the prior year.year, primarily due to the change in business mix and higher workers’ compensation expense.
Cash used in investing activities•For the fiscal first quarter of $722024, we anticipate SG&A expense to be between $109 million and $113 million.
•We expect basic weighted average shares outstanding to be approximately 31 million for the year ended January 1, 2017, wasfiscal first quarter of 2024. This expectation does not include the impact of potential share repurchases.
•We expect our statutory income tax rate for the acquisitionfiscal 2024 to be between 24% and 28%. For fiscal 2024, we also expect an income tax benefit related to our hiring tax credits of the RPO businessbetween $5 million and $9 million.
Liquidity outlook
•Capital expenditures and spending for software as a service assets are expected to be between $23 million and $27 million for fiscal 2024, with approximately $4 million of Aon Hewitt, effective January 4, 2016.
Restricted cash and investments consists primarily of collateral that has been provided or pledgedthis amount relating to insurance carriers and state workers’ compensation programs. The decrease in the incremental cash used in investing activities was primarily due to lower collateral requirements from our workers’ compensation insurance providers,spending for software as well as the timing of collateral payments.
a service assets for fiscal 2024.
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MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 2016 as comparedWe believe we have a strong financial position and sufficient sources of funding to fiscal 2015
Net cash used in investing activities was $143 million for the year ended January 1, 2017, compared to $105 million for the same period in 2015.
Cash used in investing activitiesmeet our short and long term obligations. As of $72December 31, 2023, we had $61.9 million in 2016 was for the acquisition of the RPO business of Aon Hewitt, effective January 4, 2016.
The change in restricted cash and investments was primarily due to an increase in collateral requirements paid to our workers’ compensation insurance providers, as well as timing of collateral payments.
Cash flows from financing activities
Our cash flows from financing activities were as follows:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Purchases and retirement of common stock | $ | (36,680 | ) | $ | (5,748 | ) | $ | — |
|
| Net proceeds from stock option exercises and employee stock purchase plans | 1,646 |
| 1,542 |
| 1,563 |
|
| Common stock repurchases for taxes upon vesting of restricted stock | (3,127 | ) | (2,851 | ) | (3,869 | ) |
| Net change in Revolving Credit Facility | (16,607 | ) | (105,579 | ) | 46,091 |
|
| Payments on debt and other liabilities | (2,267 | ) | (2,456 | ) | (2,078 | ) |
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — |
| — |
|
| Other | — |
| (29 | ) | 1,079 |
|
| Net cash provided by (used in) financing activities | $ | (75,335 | ) | $ | (115,121 | ) | $ | 42,786 |
|
Fiscal 2017 as compared to fiscal 2016
Net cash used in financing activities was $75 million forequivalents and no debt outstanding. Under the year ended December 31, 2017, compared to $115 million for the same period in the prior year.
During fiscal 2017, we repurchased shares using the remaining $29 million available under our $75 million share repurchase program. Under this program we repurchased and retired 4.8 million shares of our common stock. On September 15, 2017, our Board of Directors authorized a $100 million share repurchase program of our outstanding common stock. During the year ended December 31, 2017, we used $7 million under this new program to repurchase shares.
During fiscal 2017, we paid $23 million relating to contingent consideration in connection with our acquisition of SIMOS in December 2015. The total contingent consideration payment included $18 million related to the final purchase price fair value, which is reflected in cash flows used in financing activities, with the remaining balance of $4 million reflected in cash flows used in operating activities as a decrease in other assets and liabilities.
Fiscal 2016 as compared to fiscal 2015
Net cash used in financing activities was $115 million for the year ended January 1, 2017, compared to net cash provided by financing activities of $43 million for the same period in 2015. This change was primarily due to repayments on our Revolving Credit Facility, net$6.2 million was utilized by outstanding standby letters of the acquisition of the RPO business of Aon Hewitt, effective January 4, 2016 in the amount of $72 million.credit, leaving $293.8 million unused , which is constrained by our most restrictive covenant making $85.9 million available for additional borrowing. See Note 8: Long-term7: Long-Term Debt, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our revolving credit facility.
On February 9, 2024, we entered into an amended and restated revolving credit agreement (the “2024 Revolving Credit Facility”), which matures on February 9, 2029. The 2024 Revolving Credit Facility provides for a revolving line of credit of up to $255.0 million, with an option to increase the amount to $405.0 million, subject to lender approval.
The following financial covenants, as defined in the 2024 Revolving Credit Facility, will be in effect beginning the fiscal first quarter of 2024:
•Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense.
•Asset coverage ratio of greater than 1.00, defined as the ratio of (a) 60% of accounts receivable to (b) total debt outstanding less unrestricted cash in excess of $50.0 million, subject to certain minimums. Under this covenant we are limited to $25.0 million in aggregate share repurchases in any 12 month period.
The following financial covenant, as defined in the 2024 Revolving Credit Facility, will replace the asset coverage ratio beginning the fiscal first quarter of 2026, or earlier at our discretion, subject to the terms of the agreement:
•Consolidated leverage ratio less than 3.00, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the 2024 Revolving Credit Facility.
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.
Future outlook
Our cash-generating capability provides us with financial flexibility in meeting our operating and investing needs. Our current financial position is highlighted as follows:
Our Revolving Credit Facility of up to a maximum of $300 million expires on June 30, 2019. The Revolving Credit Facility is an asset-backed facility, which is secured by a pledge of substantially all of the assets of TrueBlue, Inc. and material U.S. domestic subsidiaries. The additional amount available to borrow at December 31, 2017 was $117 million. We believe the Revolving Credit Facility provides adequate borrowing availabilitysometimes necessary to support our anticipated needs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
accounts payable.
We had cashcontinue to make investments in online and cash equivalents of $29 million at December 31, 2017.
The majoritymobile apps to increase the competitive differentiation of our workers’ compensation payments are made from restricted cash rather than cash from operations. At December 31, 2017, we had restricted cashservices over the long term and investments totaling $239 million.
We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements forimprove the foreseeable future.
Capital resources
Revolving credit facility
See Note 8: Long-term Debt, to our Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K, for detailsefficiency of our Revolving Credit Facility.service delivery model. 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.
RestrictedOutside of ongoing cash and investments
Restricted cash and investments consist principally of collateral that has been provided or pledgedneeded to insurance carriers for workers’ compensation and state workers’ compensation programs. Oursupport 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 agreements with certain financial institutionsrisk that allow usthese collateral requirements may be increased by our insurers due to restrictour 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 for the purpose of providing collateral instruments tosupporting our insurance carriers to satisfyself-insured workers’ compensation claims. At December 31, 2017, we had restricted cash and investments totaling $239 million. The majority of our collateral obligationsobligation 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 4:6: Workers' Compensation Insurance and Reserves, and Note 3: Restricted Cash and Investments, to our Consolidated Financial Statementsconsolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details ofon our Restricted Cashworkers’ compensation program as well as the restricted cash and Investments.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, secondthird to maintaindiversify the investment portfolio and ensure a high degree of liquidity, and thirdfourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.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 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 |
Workers’ compensation insurance, collateral and claims reserves
Workers’ compensation insurance
We provide workers’ compensation insurance for our temporary and permanent employees. The majorityat time of our current workers’ compensation insurance policies cover claims for a particular event above a $2 million deductible limit, on a “per occurrence” basis and accordingly, we are substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our PeopleReady service lines in Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.
Workers’ compensation collateral
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. The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit and/or surety bonds. 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 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 majority of the restricted cash and investments collateralizing our self-insured workers’ compensation policies are held in the Trust.
purchase are:
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MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
| | | | | | | | | | | |
| S&P | Moody’s | Fitch |
| Short-term rating | A-1/SP-1 | P-1/MIG-1 | F-1 |
| Long-term rating | A | A2 | A |
Our totalTotal collateral commitments were made up of the following components fordecreased $25.2 million during the fiscal period end dates presented:
|
| | | | | | |
| (in thousands) | December 31, 2017 | January 1,
2017 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,148 |
| $ | 28,066 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Letters of credit (1) | 7,748 |
| 7,982 |
|
| Surety bonds (2) | 19,829 |
| 20,440 |
|
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| |
(1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
| |
(2) | Our surety bonds are issued by independent insurance companiesyear ended December 31, 2023 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 8 of this Annual Report on Form 10-K, for additional details on our behalf and bear annual fees based on a percentage of the bond, which is determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice. |
Workers’ compensation reserve
The following table provides a reconciliation of our collateral commitments to our workers’ compensation reserve as of the fiscal period end dates presented:
|
| | | | | | |
| (in thousands) | December 31, 2017 | January 1,
2017 |
| Total workers’ compensation reserve | $ | 274,323 |
| $ | 277,351 |
|
| Add back discount on workers’ compensation reserve (1) | 19,277 |
| 14,818 |
|
| Less excess claims reserve (2) | (48,826 | ) | (52,930 | ) |
| Reimbursable payments to insurance provider (3) | 5,492 |
| 10,193 |
|
| Less portion of workers’ compensation not requiring collateral (4) | (12,676 | ) | (13,586 | ) |
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| |
(1) | Our workers’ compensation reserves are discounted to their estimated net present value while our collateral commitments are based on the gross, undiscounted reserve. |
| |
(2) | Excess claims reserve includes the estimated obligation for claims above our deductible limits. These are the responsibility of the insurance carriers against which there are no collateral requirements. |
| |
(3) | This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust. When claims are paid by our carrier, the amount is removed from the workers’ compensation reserve but not removed from collateral until reimbursed to the carrier. |
| |
(4) | Represents deductible and self-insured reserves where collateral is not required. |
Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. We discount our workers’ compensation liability as we believe the estimated future cash outflows are readily determinable.
Our workers’ compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
changes in medical and time loss (“indemnity”) costs;
changes in mix between medical only and indemnity claims;
regulatory and legislative developments impacting benefits and settlement requirements;
type and location of work performed;
the impact of safety initiatives; and
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
positive or adverse development of claims. Our workers’ compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims. At December 31, 2017, the weighted average discount rate was 1.8%. The claim payments are made over an estimated weighted average period of approximately five years.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At December 31, 2017, the weighted average rate was 2.5%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 15 years. The discounted workers’ compensation reserve for excess claims and the corresponding receivable for the insurance on excess claims were $49 million and $53 million as of December 31, 2017 and January 1, 2017, respectively.
The following table provides an analysis of changes in our workers’ compensation claims reserves:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Beginning balance | $ | 277,351 |
| $ | 266,280 |
| $ | 242,839 |
|
| Self-insurance reserve expenses related to current year, net | 83,966 |
| 88,753 |
| 93,138 |
|
| Payments related to current year claims (1) | (17,123 | ) | (16,529 | ) | (19,519 | ) |
| Payments related to claims from prior years (1) | (49,668 | ) | (57,093 | ) | (51,232 | ) |
| Changes to prior years’ self-insurance reserve, net (2) | (14,349 | ) | (12,992 | ) | (10,117 | ) |
| Amortization of prior years’ discount (3) | (1,754 | ) | 5,029 |
| (1,293 | ) |
| Net change in excess claims reserve (4) | (4,100 | ) | 3,903 |
| 3,976 |
|
| Liability assumed from acquired business, net (5) | — |
| — |
| 8,488 |
|
| Ending balance | 274,323 |
| 277,351 |
| 266,280 |
|
| Less current portion | 77,218 |
| 79,126 |
| 69,308 |
|
| Long-term portion | $ | 197,105 |
| $ | 198,225 |
| $ | 196,972 |
|
| |
(1) | Payments made against self-insured claims are made over a weighted average period of approximately five years at December 31, 2017. |
| |
(2) | Changes in reserve estimates are reflected in the statement of operations in the period when the changes in estimates are made. |
| |
(3) | The discount is amortized over the estimated weighted average life. In addition, any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in the statement of operations in the period when the changes in estimates are made. |
| |
(4) | Changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims. Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation. |
| |
(5) | Effective December 1, 2015, we acquired SIMOS, including $9 million of workers’ compensation liability. For the period ended December 25, 2015, the assumed liability was reduced for payments and changes to actuarial estimates. |
Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date. We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.
commitments. We continue to actively manage workers’ compensation expense through the safety ofcost by focusing on improving our temporary workers with ourassociates’ 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.has diminished.
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:
| | | | | | | | |
| Fiscal year ended |
| (in thousands) | Dec 31, 2023 | Dec 25, 2022 |
| Net cash provided by operating activities | $ | 34,754 | | $ | 120,503 | |
| Net cash used in investing activities | (32,322) | | (20,945) | |
| Net cash used in financing activities | (37,583) | | (64,692) | |
| Change in cash, cash equivalents and restricted cash reclassified to assets held-for-sale | (300) | | — | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (874) | | (2,420) | |
| Net change in cash, cash equivalents and restricted cash | $ | (36,325) | | $ | 32,446 | |
Cash flows from operating activities
Cash provided by operating activities consists of net income (loss) adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.
As client demand for our services 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.
Net cash provided by accounts receivable collections through deleveraging during the fiscal year ended December 31, 2023 was partially offset by net cash used for payments on accounts payable and accrued expenses. Net cash used for payments on accrued wages and benefits was primarily due to lower annual employee bonuses. In addition, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline, as was the case in fiscal 2023.
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 fiscal year ended December 31, 2023 were higher compared to the fiscal year ended December 25, 2022, due in part to the continued investments we are making to upgrade our PeopleReady technology platform. For the fiscal year ended December 31, 2023, maturities of restricted investments were reinvested by the Trust resulting in only a small impact to cash used in investing activities. In the prior period, cash provided by maturities of restricted investments was not immediately reinvested by the Trust, and partially offset capital expenditures.
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MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
Cash flows from financing activities
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table provides a summaryFinancing cash flows consist primarily of repurchases of common stock as part of our contractualpublicly announced share repurchase program, amounts to satisfy employee tax withholding obligations asupon the vesting of restricted stock, the end of fiscal 2017. We expect to fund these commitments with existing cashnet change in our Revolving Credit Facility, and cash equivalents, and cash flows from operations.
|
| | | | | | | | | | | | | | | |
| | Payments due by period (in thousands) |
| Contractual obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| Long-term debt obligations, including interest and fees (1): | | | | | |
| Revolving Credit Facility | $ | 105,279 |
| $ | 3,650 |
| $ | 101,629 |
| $ | — |
| $ | — |
|
| Term Loan | 23,539 |
| 2,899 |
| 20,640 |
| — |
| — |
|
| Workers’ compensation claims (2) | 244,771 |
| 77,216 |
| 69,326 |
| 27,262 |
| 70,967 |
|
| Deferred compensation (3) | 3,200 |
| 270 |
| 1,414 |
| 735 |
| 781 |
|
| Operating leases (4) | 28,254 |
| 8,779 |
| 13,502 |
| 5,471 |
| 502 |
|
| Purchase obligations (5) | 27,574 |
| 9,199 |
| 14,353 |
| 2,778 |
| 1,244 |
|
| Total contractual cash obligations | $ | 432,617 |
| $ | 102,013 |
| $ | 220,864 |
| $ | 36,246 |
| $ | 73,494 |
|
| |
(1) | Interest and fees are calculated based on the rates in effect at December 31, 2017. Our Revolving Credit Facility expires in 2019. For additional information, see Note 8: Long-term Debt to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
|
| |
(2) | Excludes estimated expenses related to claims above our self-insured limits, for which we have a corresponding receivable based on the contractual policy agreements we have with insurance carriers. For additional information, see Note 7: Workers’ Compensation Insurance to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
|
| |
(3) | Represents scheduled distributions based on the elections of plan participants. Additional payments may be made if plan participants terminate, retire, or schedule distributions during the periods presented. For additional information, see Note 12: Defined Contribution Plans to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
|
| |
(4) | Excludes all payments related to branch leases with short-term cancellation provisions, typically within 90 days. For additional information, see Note 9: Commitments and Contingencies to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
|
| |
(5) | Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelable without significant penalty. |
Liability for unrecognized tax benefits has been excludedproceeds from the table above, assale of common stock through our employee stock purchase plans.
Net cash used in financing activities during the timing and/or amountsfiscal year ended December 31, 2023 was primarily due to use of any cash payment is uncertain. For additional information, see Note 13: Income Taxes,$34.2 million to repurchase our common stock in the Consolidatedopen market. During the fiscal year ended December 25, 2022, we used $60.9 million to repurchase our common stock in the open market. As of December 31, 2023, $55.1 million remains available for repurchase under existing authorization.
FISCAL 2022 AS COMPARED TO FISCAL 2021
See Item 7. Management’s Discussion and Analysis of Financial Statements includedCondition and Results of Operations, found in Item 8Part II of thisthe Annual Report on Form 10-K.10-K for the fiscal year ended December 25, 2022 for discussion of fiscal 2022 compared to fiscal 2021.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following accounting estimates are the most critical to aid in fully understandingunderstand and evaluatingevaluate our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
Such estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
Workers’ compensation reserve
We maintain reserves for workers’ compensation claims, including the excessestimated expenses related to claims portion above our deductible,self-insured limits (“excess claims”), using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns onof “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceedsexceed the amountsamount estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the statementConsolidated Statements of operationsOperations and Comprehensive Income (Loss) in the period when the changes in estimates are made.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”)claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount thethis reserve and its corresponding receivable to its respective estimated net present value using the risk-freediscount rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, based on our best estimate,average returns on “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. When appropriate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
There are two main factors that impact workers’ compensation expense:cost: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix, which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. AFor fiscal 2023 claims, a 5% change in one or more of the above factors would result in a change to workers’ compensation expensecost of approximately $4$2 million. Our reserve balances have been positively impacted primarily by the success of our accident prevention programs. In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
•changes in medical and time loss (“indemnity”) costs;
•changes in mix between medical only and indemnity claims;
•regulatory and legislative developments impacting benefits and settlement requirements;
•type and location of work performed;
•impact of safety initiatives; and
•positive or adverse development of claims.
Accounts receivable allowance for doubtful accountscredit losses
We establish an estimate for the allowance for doubtful accounts for estimatedcredit losses resulting from the failure of our customersclients to make required payments.payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
•PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable.
•PeopleManagement On-Site has a smaller number of clients and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
•PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information. The allowance for doubtful accountscredit loss is determined based on historical write-off experience, expectations of future write-offs, and current economic data,reviewed and represents our best estimate of the amount of probableexpected credit losses. The allowance for doubtful accounts is reviewed quarterlyPast due or delinquent balances are identified based upon a review of aged receivables performed by collections and pastoperations. Past due balances are written-offwritten off when it is probable the receivable will not be collected. IfChanges in the financial conditionallowance for credit losses are recorded in SG&A expense on the Consolidated Statements of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.Operations and Comprehensive Income (Loss).
Business combinations
We account for our business acquisitions using the purchaseacquisition method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. The significant judgments include estimation of future cash flows, which is dependent on forecasts; estimation of the long-term rate of growth; estimation of the useful life over which cash flows will occur; and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized inon the Consolidated Statements of Operations and Comprehensive Income (Loss). Cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities withinon the Consolidated Statements of Cash Flows.
Goodwill and indefinite-lived intangible assets
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MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS |
Goodwill and indefinite-lived intangible assets
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occursor whenever events or circumstances changemake it more likely than not that would indicatean impairment may exist.have occurred. These events or circumstances could include a significant change in the business climate, legalgeneral economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, customerclient engagement, orchanges in the carrying amount of net assets, sale or disposition of a significant portion of a reporting unit.unit, or a sustained decrease in share price. We monitor the existence of potential impairment indicators throughout the fiscal year.
Goodwill
We test for goodwill impairment at the reporting unit level. We consider our service linesoperating segments to be our reporting units for goodwill impairment testing. Our service linesoperating segments with remaining goodwill are PeopleReady, PlaneTechs,PeopleManagement Centerline, Drivers, Staff Management, SIMOS, PeopleScout RPO and PeopleScout MSP. The
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. TheWe estimate the fair value of each reporting unit isusing a weighted averageweighting 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 internalinternally-developed forecasts of revenue and profitability, 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. Our weighted average cost of capital for our most recent annual impairment test ranged from 11.5% to 12.0%. We also apply a market approach, which identifiesdevelops a value correlation based on the market capitalization of similar publicly traded companies, and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation, resulting in a reasonable control premium.
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 consider aconfirm the reasonableness of the valuation conclusions by comparing the indicated values of all the reporting unit’s fairunits to the overall company value to be substantially in excessindicated by the stock price and outstanding shares as of its carrying value at a 20% premiumthe valuation date, or greater. Based onmarket capitalization.
Annual impairment test
We performed our annual goodwill impairment test performed as of the first day of our fiscal second quarter of fiscal 2017,2023. 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 13.0% to 13.5%. The combined fair values for all reporting units’units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, resulting in a control premium of 27.9%.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
As a result of our annual impairment test, we concluded that the carrying amount of the PeopleScout MSP reporting unit exceeded its fair valuesvalue and we recorded a non-cash goodwill impairment charge of $8.9 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The PeopleScout MSP goodwill impairment was related to our revised internal revenue projections, which anticipated the current year declining trends would continue into future periods. These projections were updated based on our then-current outlook and recent industry analysis, which indicated that our business would underperform due to a strategic lack of investment in technology within an increasingly competitive market. The remaining goodwill balance for PeopleScout MSP was $0.8 million as of December 31, 2023. Any further declines in PeopleScout MSP revenue, in excess of our projections used in the annual impairment test, could give rise to an additional impairment. Based on our annual impairment test, we concluded the fair value of all other reporting units were substantially in excess of their respective carrying values. Accordingly, novalue, and the goodwill associated with those reporting units was not impaired.
Operating results have declined compared to our expectations as of the date of the annual impairment loss was recognized.
Based ontest; however, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred during the fiscal year ended December 31, 2023. Further declines in our test performedprojected operating performance, or a sustained decrease in 2016, we recordedour stock price, could give rise to a goodwill impairment charge of $66 million.future impairment. See Note 6: 5:Goodwill and intangible assets,Intangible Assets, to the Consolidated Financial Statements includedour consolidated financial statements found in Item 8 of this Annual Report on Form 10-K.10-K, for additional details on the 2023 goodwill impairment.
There were no goodwill impairment charges recorded during fiscal 2022 or 2021.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We testevaluate our trade names annuallyindefinite-lived intangible assets for impairment and whenon 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 exist. We utilizeindicators 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 asset is greater than its carrying amount, the quantitative impairment test is unnecessary.
The quantitative impairment test, if necessary, utilizes the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.
Annual impairment test
We performed our annual indefinite-lived intangible asset impairment test as of the first day of our fiscal second quarter of fiscal 2017 and determined2023. As a result of this impairment test, we concluded that a trade name/trademark related to the PeopleManagement segment exceeded its estimated fair values exceeded the carrying amounts for both of our indefinite-lived trade names. Accordingly, no impairment loss was recognized.
Based on our test performed in 2016,value and we recorded ana non-cash impairment charge of $5 million.$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 fiscal year ended December 31, 2023. The charge was primarily the result of an increase in the discount rate, as well as lower projected revenues given our then-current outlook. The remaining balance for this trade name/trademark was $3.3 million as of December 31, 2023. See Note 6: 5:Goodwill and intangible assets,Intangible Assets, to the Consolidated Financial Statements includedour consolidated financial statements found in Item 8 of this Annual Report on Form 10-K.10-K, for additional details on the 2023 indefinite-lived intangible asset impairment.
IntangibleThe fair value of the trade name/trademark related to the PeopleScout segment was substantially in excess of its carrying value of $2.1 million, and therefore did not result in an impairment. Additionally, following performance of the annual impairment test, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred during the fiscal year ended December 31, 2023.
No impairment charge was recorded during fiscal 2022 nor 2021.
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |
Finite-lived intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered importantImportant factors that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment losscharge is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment losscharge is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
In 2016, weNo impairment charge was recorded an impairment to our acquired trade names/trademarks intangible assets of $4 million and an impairment to our customer relationships intangible assets of $29 million. See Note 6: Goodwill and intangible assets, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.during fiscal 2023, 2022 or 2021.
Estimated contingent legal and regulatory liabilities
From time to time weWe are subject to compliance audits by federal, state, local and localforeign authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when our management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company or other third-party is contractuallylegally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our estimated liability regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowances
We account for income taxes by recording taxes payable or refundablereceivable 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. We measure theseThese expected future tax consequences are measured based upon theon provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. FutureWe recognize deferred tax law changes,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 as changes to federal and state corporate tax rates and the mixdetermination, including future reversals of states and theirexisting taxable temporary differences, projected future taxable income, could have a material impact on our financial condition ortax-planning strategies, carryback potential if permitted, and results of recent operations. When appropriate, we record a valuation allowance against deferred tax assets to offset futurereduce deferred tax benefitsassets to the amount that mayis more likely than not to be realized. In determining whetherBased on our deferred tax asset realizability analysis, we have determined that a valuation allowance is appropriate for certain tax credits and net operating losses that we consider whether it is more likely than not that all or some portion of our deferred tax assetsexpect will not be realized, basedutilized within the permitted carryforward periods as of December 31, 2023 and December 25, 2022. See Note 12: Income Taxes, to our consolidated financial statements found in part upon management’s judgments regarding future events and past operating results.Item 8 of this Annual Report on Form 10-K, for details on our current valuation allowance.
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our Consolidated Financial Statementsconsolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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| Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates, each of which could adversely affect the value of our investments. We do not currently use derivative financial instruments.
Interest rate risks
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt.revolving credit facility. The interest on our revolving credit agreement is based on the Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.10%, plus an applicable spread between 1.25% and 3.50%. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25% and 1.50%. The base rate is the higher of the prime rate (as announced by Bank of America) or the federal funds rate plus 0.50%.
Trust assets
Restricted cash and investments consist principally of collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of the workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and agency mortgage-backed securities. The majority of our collateral obligations are held in a trust (“Trust”) at the Bank of New York Mellon.Mellon (“Trust”). The individual investments within the Trust are subject to credit risk due to possible rating changes, default or impairment. We monitor the portfolio to ensure this risk does not exceed prudent levels. We consistently apply and adhere to our investment policy of holding high-quality, diversified securities. We have the positive intent and ability to hold these investments until maturity and accordingly have classified them as held-to-maturity. For additional information, see Note 4: 3: Restricted Cash and Investments, to the Consolidated Financial Statementsconsolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Long-term debt
We are subject to the risk of fluctuating interest rates on our Revolving Credit Facility and Term Loan, which bear interest at variable rates. For additional information, see Note 8: Long-term Debt, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Based on the principal balance of our outstanding Term Loan of $23 million and Revolving Credit Facility of $96 million as of December 31, 2017, an increase or decrease of the interest rate by 10% over the next year would not have a material effect on our annual interest expense.
Foreign currency exchange rate risk
The majority of our revenue, expense, liabilities and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the United States of America, we have minimal transactions in other currencies, primarily the Canadian and Australian dollar.dollars, British pound sterling and Indian rupee. We have not hedged our foreign currency translation risk. We have the ability to hold our foreign currency denominated assets indefinitely and do not expect that a sudden or significant change in foreign exchange rates will have a material impact on future operating results or cash flows.
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| Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TrueBlue, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 31, 20172023 and January 1, 2017, andDecember 25, 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 20172023, and the related notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and January 1, 2017,December 25, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2023, based on the criteria established in Internal Control -— Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 201821, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.SU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the riskrisks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by the management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Workers’ Compensation Claims Reserves - Refer to Notes 1 and 6 to the Financial Statements
Critical Audit Matter Description
The Company bears the financial responsibility for a significant portion of expected losses under its workers’ compensation program and records reserves for workers’ compensation claims based on estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. The determination of the undiscounted reserve requires significant estimates and assumptions related to the future cost of claims and related expenses for claims that have been reported but not settled, as well as those that have been incurred but not reported. The undiscounted workers’ compensation reserve was $214.6 million as of December 31, 2023.
Given the fact that changes in actuarial assumptions could have a significant impact on the reserve, auditing management judgments regarding the workers’ compensation reserve, including estimates of the future cost of claims and related expenses, involved a high degree of auditor judgment, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the workers’ compensation reserve included the following, among others:
•We tested the effectiveness of controls over workers’ compensation, including those over payments and related expenses, claims data provided to the actuary, and review of actuarial results.
•We evaluated the methods and assumptions used by management to estimate the workers’ compensation reserve by:
◦Making selections of the underlying claims data that serves as the basis for the actuarial analysis, including claims payments and related expenses, to evaluate whether the inputs to the actuarial estimate were reasonable; and
◦Comparing management’s prior-year assumptions of expected future cost of claims and related expenses to actuals incurred during the current year to identify potential bias in the determination of the workers’ compensation reserve.
•With the assistance of our actuarial specialists, we developed independent estimates of the workers’ compensation reserve and compared our estimates to the Company’s recorded workers’ compensation reserve.
Goodwill - PeopleScout MSP Reporting Unit - Refer to Notes 1, 2, and 5 to the Financial Statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches, except for the PeopleScout MSP reporting unit (“MSP”) which relied only on the income approach. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows, which requires management to make significant judgments related to the estimation of future revenue and profitability, and determination of the risk-adjusted weighted average cost of capital (“discount rate”). Changes in these assumptions could have a significant impact on either the fair value of MSP and the related amount of the goodwill impairment charge. The goodwill balance was $84.1 million as of December 31, 2023, of which $0.8 million was allocated to MSP. A goodwill impairment charge of $8.9 million was recorded within MSP during the year ended December 31, 2023.
The MSP goodwill impairment recorded during the year ended December 31, 2023 was due to management’s revised internal revenue projections. These projections were updated based on management’s current macroeconomic outlook and industry analysis, which indicates that MSP will underperform due to a strategic lack of investment in technology within an increasingly competitive market.
We identified goodwill for the MSP reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of MSP. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and profitability.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and forecasts of future revenue and profitability used by management to estimate the fair value of MSP included the following, among others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of MSP, such as controls related to management’s selection of the discount rate and forecasts of future revenues and profitability.
•We evaluated management’s ability to accurately forecast future revenues and profitability by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s revenue and profitability forecasts by comparing the forecasts to:
◦Historical revenues and profitability.
◦Internal communications to management and the Board of Directors, including related to strategic decisions that could impact MSP’s future revenues.
◦Industry reports containing analyses of expected trends and the competitive environment in the industry in which MSP operates.
•With the assistance of our fair value specialists, we evaluated the reasonableness of (1) valuation methodology and (2) the discount rate by:
◦Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.
◦Developing an independent estimate of the discount rate and comparing that estimate to the discount rate selected by management.
/s/ Deloitte & Touche, LLP
Seattle, Washington
February 26, 2018
21, 2024
We have served as the Company’s auditor since 2009.
TRUEBLUE, INC.
CONSOLIDATED BALANCE SHEETS
| | | (in thousands, except par value data) | December 31,
2017 | January 1,
2017 |
| (in thousands, except par value and share count data) | | (in thousands, except par value and share count data) | December 31,
2023 | December 25,
2022 |
| ASSETS | |
| Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | $ | 28,780 |
| $ | 34,970 |
|
| Accounts receivable, net of allowance for doubtful accounts of $4,344 and $5,160 | 374,273 |
| 352,606 |
|
| Prepaid expenses, deposits and other current assets | 20,605 |
| 21,373 |
|
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, net of allowance of $2,005 and $3,212 | |
| Prepaid expenses and other current assets | |
| Income tax receivable | 4,621 |
| 18,854 |
|
| Total current assets | 428,279 |
| 427,803 |
|
| Property and equipment, net | 60,163 |
| 63,998 |
|
| Restricted cash and investments | 239,231 |
| 231,193 |
|
| Deferred income taxes, net | 3,783 |
| 6,770 |
|
| Goodwill | 226,694 |
| 224,223 |
|
| Intangible assets, net | 104,615 |
| 125,671 |
|
| Operating lease right-of-use assets, net | |
| Workers’ compensation claims receivable, net | |
| Other assets, net | 46,266 |
| 50,787 |
|
| Total assets | $ | 1,109,031 |
| $ | 1,130,445 |
|
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable and other accrued expenses | |
| Accounts payable and other accrued expenses | |
| Accounts payable and other accrued expenses | $ | 55,091 |
| $ | 66,758 |
|
| Accrued wages and benefits | 76,894 |
| 79,782 |
|
| Income tax payable | |
| Current portion of workers’ compensation claims reserve | 77,218 |
| 79,126 |
|
| Contingent consideration | — |
| 21,600 |
|
| Current operating lease liabilities | |
| Other current liabilities | 3,216 |
| 3,869 |
|
| Total current liabilities | 212,419 |
| 251,135 |
|
| Workers’ compensation claims reserve, less current portion | 197,105 |
| 198,225 |
|
| Long-term debt, less current portion | 116,489 |
| 135,362 |
|
| | Long-term deferred compensation liabilities | 21,866 |
| 14,946 |
|
| | Long-term deferred compensation liabilities | |
| | Long-term deferred compensation liabilities | |
| Long-term operating lease liabilities | |
| | Other long-term liabilities | |
| Other long-term liabilities | |
| Other long-term liabilities | 6,305 |
| 5,598 |
|
| Total liabilities | 554,184 |
| 605,266 |
|
| | |
| Commitments and contingencies (Note 9) |
|
| Commitments and contingencies (Note 8) | |
| Commitments and contingencies (Note 8) | |
| Commitments and contingencies (Note 8) | | |
| | |
| Shareholders’ equity: | |
| Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding | — |
| — |
|
| Common stock, no par value, 100,000 shares authorized; 41,098 and 42,171 shares issued and outstanding | 1 |
| 1 |
|
| Shareholders’ equity: | |
| Shareholders’ equity: | |
| Preferred stock, $0.131 par value, 20,000,000 shares authorized; No shares issued and outstanding | |
| Preferred stock, $0.131 par value, 20,000,000 shares authorized; No shares issued and outstanding | |
| Preferred stock, $0.131 par value, 20,000,000 shares authorized; No shares issued and outstanding | |
| Common stock, no par value, 100,000,000 shares authorized; 31,245,732 and 32,729,689 shares issued and outstanding | |
| Accumulated other comprehensive loss | (6,804 | ) | (11,433 | ) |
| Retained earnings | 561,650 |
| 536,611 |
|
| Total shareholders’ equity | 554,847 |
| 525,179 |
|
| Total liabilities and shareholders’ equity | $ | 1,109,031 |
| $ | 1,130,445 |
|
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| | | | Years ended |
| (in thousands, except per share data) | |
| (in thousands, except per share data) | |
| (in thousands, except per share data) | 2017 | 2016 | 2015 | 2023 | 2022 | 2021 |
| Revenue from services | $ | 2,508,771 |
| $ | 2,750,640 |
| $ | 2,695,680 |
|
| Cost of services | 1,874,298 |
| 2,070,922 |
| 2,060,007 |
|
| Gross profit | 634,473 |
| 679,718 |
| 635,673 |
|
| Selling, general and administrative expense | 510,794 |
| 546,477 |
| 495,988 |
|
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
|
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
|
| Income (loss) from operations | 77,564 |
| (16,995 | ) | 97,842 |
|
| Interest expense | (5,494 | ) | (7,166 | ) | (4,160 | ) |
| Interest and other income | 5,480 |
| 3,821 |
| 2,765 |
|
| | Interest and other income (expense), net | (14 | ) | (3,345 | ) | (1,395 | ) |
| Income (loss) before tax expense | 77,550 |
| (20,340 | ) | 96,447 |
|
| | Interest and other income (expense), net | |
| | Interest and other income (expense), net | |
| Income (loss) before tax expense (benefit) | |
| Income tax expense (benefit) | 22,094 |
| (5,089 | ) | 25,200 |
|
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| | |
| Net income (loss) per common share: | |
| Net income (loss) per common share: | |
| Net income (loss) per common share: | |
| Basic | |
| Basic | |
| Basic | $ | 1.35 |
| $ | (0.37 | ) | $ | 1.73 |
|
| Diluted | $ | 1.34 |
| $ | (0.37 | ) | $ | 1.71 |
|
| | |
| Weighted average shares outstanding: | |
| Weighted average shares outstanding: | |
| Weighted average shares outstanding: | |
| Basic | |
| Basic | |
| Basic | 41,202 |
| 41,648 |
| 41,226 |
|
| Diluted | 41,441 |
| 41,648 |
| 41,622 |
|
| | |
| Other comprehensive income (loss): | |
| Foreign currency translation adjustment, net of tax | $ | 3,355 |
| $ | 1,830 |
| $ | (14,362 | ) |
| Unrealized gain (loss) on investments, net of tax | 1,274 |
| 750 |
| (522 | ) |
| Other comprehensive income (loss): | |
| Other comprehensive income (loss): | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | |
| | Total other comprehensive income (loss), net of tax | |
| Total other comprehensive income (loss), net of tax | |
| Total other comprehensive income (loss), net of tax | 4,629 |
| 2,580 |
| (14,884 | ) |
| Comprehensive income (loss) | $ | 60,085 |
| $ | (12,671 | ) | $ | 56,363 |
|
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | Common stock | | Accumulated other comprehensive income (loss) | Total shareholders’ equity | | Common stock | | Accumulated other comprehensive loss | Total shareholders’ equity |
| (in thousands) | Shares | Amount | Retained earnings | (in thousands) | Shares | Amount | Retained earnings |
| Balances, December 26, 2014 | 41,530 |
| $ | 1 |
| $ | 468,462 |
| $ | 871 |
| $ | 469,334 |
|
| Balances, December 27, 2020 | |
| Net income | — |
| — |
| 71,247 |
| — |
| 71,247 |
|
| Other comprehensive loss, net of tax | — |
| — |
| — |
| (14,884 | ) | (14,884 | ) |
| Issuances under equity plans, including tax benefits | 494 |
| — |
| (1,227 | ) | — |
| (1,227 | ) |
| Stock-based compensation | — |
| — |
| 11,103 |
| — |
| 11,103 |
|
| Balances, December 25, 2015 | 42,024 |
| 1 |
| 549,585 |
| (14,013 | ) | 535,573 |
|
| Net loss | — |
| — |
| (15,251 | ) | — |
| (15,251 | ) |
| Other comprehensive income, net of tax | — |
| — |
| — |
| 2,580 |
| 2,580 |
|
| Foreign currency translation adjustment | |
| Purchases and retirement of common stock | (332 | ) | — |
| (5,748 | ) | — |
| (5,748 | ) |
| Issuances under equity plans, including tax benefits | 445 |
| — |
| (1,338 | ) | — |
| (1,338 | ) |
| Stock-based compensation | 34 |
| — |
| 9,363 |
| — |
| 9,363 |
|
| Balances, January 1, 2017 | 42,171 |
| 1 |
| 536,611 |
| (11,433 | ) | 525,179 |
|
| | Balances, December 26, 2021 | |
| Balances, December 26, 2021 | |
| Balances, December 26, 2021 | |
| Net income | — |
| — |
| 55,456 |
| — |
| 55,456 |
|
| Other comprehensive income, net of tax | — |
| — |
| — |
| 4,629 |
| 4,629 |
|
| Foreign currency translation adjustment | |
| Purchases and retirement of common stock | (1,530 | ) | — |
| (36,680 | ) | — |
| (36,680 | ) |
| Issuances under equity plans, including tax benefits | 418 |
| — |
| (1,481 | ) | — |
| (1,481 | ) |
| Stock-based compensation | 39 |
| — |
| 7,744 |
| — |
| 7,744 |
|
| Balances, December 31, 2017 | 41,098 |
| $ | 1 |
| $ | 561,650 |
| $ | (6,804 | ) | $ | 554,847 |
|
| | Balances, December 25, 2022 | |
| Balances, December 25, 2022 | |
| Balances, December 25, 2022 | |
| Net loss | |
| Foreign currency translation adjustment | |
| Purchases and retirement of common stock | |
| Issuances under equity plans, including tax benefits | |
| Stock-based compensation | |
| | Balances, December 31, 2023 | |
| Balances, December 31, 2023 | |
| Balances, December 31, 2023 | |
See accompanying notes to consolidated financial statements
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| (in thousands) | |
| (in thousands) | | 2023 | 2022 | 2021 |
| Cash flows from operating activities: | |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| Adjustments to reconcile net income (loss) to net cash from operating activities: | |
| Net income (loss) | |
| Net income (loss) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Depreciation and amortization | 46,115 |
| 46,692 |
| 41,843 |
|
| Goodwill and intangible asset impairment charge | — |
| 103,544 |
| — |
|
| Provision for doubtful accounts | 6,808 |
| 8,308 |
| 7,132 |
|
| Provision for credit losses | |
| Stock-based compensation | 7,744 |
| 9,363 |
| 11,103 |
|
| Deferred income taxes | 2,440 |
| (25,355 | ) | 5,176 |
|
| Non-cash lease expense | |
| Other operating activities | 2,066 |
| 7,910 |
| 446 |
|
| Changes in operating assets and liabilities, net of effects of business acquisitions: | |
| Changes in operating assets and liabilities | |
| Accounts receivable | (28,483 | ) | 112,785 |
| (89,474 | ) |
| Income tax receivable | 14,875 |
| 9,450 |
| (16,678 | ) |
| Accounts receivable | |
| Accounts receivable | |
| Income taxes receivable and payable | |
| Operating lease right-of-use asset | |
| Other assets | 5,289 |
| 470 |
| (6,398 | ) |
| Accounts payable and other accrued expenses | (10,569 | ) | (4,101 | ) | 23,261 |
|
| Accrued wages and benefits | (2,888 | ) | (7,313 | ) | 12,203 |
|
| Other accrued wages and benefits | |
| Deferred employer payroll taxes | |
| Workers’ compensation claims reserve | (1,048 | ) | 11,070 |
| 14,736 |
|
| Operating lease liabilities | |
| Other liabilities | 2,046 |
| 4,182 |
| (2,525 | ) |
| Net cash provided by operating activities | 99,851 |
| 261,754 |
| 72,072 |
|
| Cash flows from investing activities: | |
| Capital expenditures | (21,958 | ) | (29,042 | ) | (18,394 | ) |
| Acquisitions of businesses | — |
| (72,476 | ) | (67,500 | ) |
| Sales and maturities of marketable securities | — |
| — |
| 1,500 |
|
| Change in restricted cash | 21,505 |
| (19,773 | ) | 18,374 |
|
| Purchases of restricted investments | (50,601 | ) | (37,173 | ) | (51,516 | ) |
| Maturities of restricted investments | 20,157 |
| 15,248 |
| 12,510 |
|
| Capital expenditures | |
| Capital expenditures | |
| | Payments for company-owned life insurance | |
| | Payments for company-owned life insurance | |
| | Payments for company-owned life insurance | |
| Proceeds from company-owned life insurance | |
| Purchases of restricted available-for-sale investments | |
| Sales of restricted available-for-sale investments | |
| Purchases of restricted held-to-maturity investments | |
| Maturities of restricted held-to-maturity investments | |
| Other | |
| Net cash used in investing activities | (30,897 | ) | (143,216 | ) | (105,026 | ) |
| Cash flows from financing activities: | |
| Purchases and retirement of common stock | (36,680 | ) | (5,748 | ) | — |
|
| Net proceeds from stock option exercises and employee stock purchase plans | 1,646 |
| 1,542 |
| 1,563 |
|
| Purchases and retirement of common stock | |
| Purchases and retirement of common stock | |
| Net proceeds from employee stock purchase plans | |
| Common stock repurchases for taxes upon vesting of restricted stock | (3,127 | ) | (2,851 | ) | (3,869 | ) |
| Net change in Revolving Credit Facility | (16,607 | ) | (105,579 | ) | 46,091 |
|
| Payments on debt | (2,267 | ) | (2,456 | ) | (2,078 | ) |
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — |
| — |
|
| | Other | — |
| (29 | ) | 1,079 |
|
| Net cash provided by (used in) financing activities | (75,335 | ) | (115,121 | ) | 42,786 |
|
| Effect of exchange rate changes on cash and cash equivalents | 191 |
| 1,772 |
| 283 |
|
| Net change in cash and cash equivalents | (6,190 | ) | 5,189 |
| 10,115 |
|
| CASH AND CASH EQUIVALENTS, beginning of period | 34,970 |
| 29,781 |
| 19,666 |
|
| CASH AND CASH EQUIVALENTS, end of period | $ | 28,780 |
| $ | 34,970 |
| $ | 29,781 |
|
| | Other | |
| | Other | |
| Net cash used in financing activities | |
| Change in cash, cash equivalents and restricted cash reclassified to assets held-for-sale | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| Net change in cash, cash equivalents and restricted cash | |
| Cash, cash equivalents and restricted cash, beginning of period | |
| Cash, cash equivalents and restricted cash, end of period | |
| Supplemental disclosure of cash flow information: | |
| Cash paid during the period for: | |
| Cash paid (received) during the period for: | |
| Cash paid (received) during the period for: | |
| Cash paid (received) during the period for: | |
| Interest | |
| Interest | |
| Interest | $ | 3,811 |
| $ | 4,083 |
| $ | 3,504 |
|
| Income taxes | 4,593 |
| 10,312 |
| 34,401 |
|
| Operating lease liabilities | |
| Non-cash transactions: | |
| Property and equipment purchased but not yet paid | 375 |
| 1,471 |
| 341 |
|
| Non-cash acquisition adjustments | — |
| 3,783 |
| — |
|
| Property and equipment purchased but not yet paid | |
| Property and equipment purchased but not yet paid | |
| | Right-of-use assets obtained in exchange for new operating lease liabilities | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | |
See accompanying notes to consolidated financial statements
| | |
|
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
NOTE 1: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
TrueBlue, Inc. (“TrueBlue,(the “company,” “TrueBlue,” “we,” “us,”“us” and “our”) is a leading provider of specialized workforce solutions and services, helping customers improvethat help clients achieve business growth and performance by providing contingent staffing, recruitment process outsourcing solutions and management of contingent staffing. Our workforce solutions meet customers’ needs for a reliable, efficient workforceimprove productivity. We serve clients in a wide variety of industries. Throughindustries through our workforce solutions, we help businesses be more productivePeopleReady segment which offers general, industrial and we connect people to work each year. We are headquartered in Tacoma, Washington.
We operateskilled trade contingent staffing, our workforce solutions through three reportable segments, PeopleReady, PeopleManagement segment which offers contingent, on-site industrial staffing and PeopleScout. For additional information oncommercial driver services, and our segments see Note 16: Segment Information.PeopleScout segment which offers recruitment process outsourcing (“RPO”), managed service provider (“MSP”) and talent advisory solutions.
Basis of presentation
The consolidated financial statements (“financial statements”) include the accounts of TrueBlue and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Fiscal period end
On December 15, 2016, we changed our fiscal period end day from the last Friday to the Sunday closest to the last day of December. Our fiscal quarters also ended on the Sunday closest to the last day in March, June and September in fiscal 2017. In prior years, the consolidated financial statements were presented with the last day of the fiscal year ending on the last Friday of December. The change in fiscal year end and quarter end did not have a material effect on the comparability of the periods presented.
The consolidated financial statements are presented on a 52/53-week fiscal year-end basis, with the last day of the fiscal year ending on the Sunday closest to the last day of December. In fiscal years consisting of 53 weeks, the final quarter will consistconsists of 14 weeks, while in fiscal years consisting of 52 weeks, all quarters will consist of 13 weeks. Of the three most recent years ended on December 31, 2017, the 2016Our 2023 fiscal year includedcontained 53 weeks, with the 53rd week falling in the fiscal fourth quarter, while our fourth quarter. All other2022 and 2021 fiscal years presented includecontained 52 weeks.
Use of estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates in our financial statements include, but are not limited to, acquisition method of accounting, allowance for credit losses, estimates for asset and goodwill impairments, stock-based awards, assumptions underlying self-insurance reserves, contingent legal, regulatory and government incentive liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment.
Revenue recognition
RevenueWe account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Consolidated revenues are presented net of intercompany eliminations. Additionally, consolidated revenues are recognized atnet of any discounts, allowances and sales incentives, including rebates. Revenues are recognized over time using an output measure, as the timecontrol of the service is provided by the temporary worker. Revenue from permanent placementpromised services is recognized attransferred to the timeclient, in an amount that reflects the permanent placement candidate begins full-time employment.consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the contingent staffing needs of our clients, or include termination clauses that allow either party to cancel within a short notice period, without cause. Revenue from other staffing fee-based services is recognized when the services are provided. Revenue also includes billable travel and other reimbursable costs. Customer discounts or other incentives are recognized in the period the related revenue is earned. Revenuescosts and are reported net of sales, use or other transaction taxes collected from customersclients and remitted to taxing authorities. Payment terms vary by client and the services offered, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less.
We primarily record revenue on a gross basis as a principal versus on a net basis as an agent in the Consolidated Statements of Operations and Comprehensive Income (Loss). We have determined that gross reporting as a principal is the appropriate treatment based upon the following key factors:
•We maintain the direct contractual relationship with the customer.client and are responsible for fulfilling the service promised to the client.
•We demonstrate control over the services provided to our clients.
•We establish our billing rates.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Contingent staffing
We recognize revenue for our PeopleReady and PeopleManagement contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to collect in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We incur immaterial costs to obtain our contingent staffing contracts. We have discretion in selectingconcluded that the amortization period for these costs would be less than one year and assigninghave elected to use the temporary workerpractical expedient to a particular job and establishing their billing rate.expense these costs as incurred. Also, we incur immaterial costs to fulfill some contingent staffing contracts, which are expensed as incurred.
Human resource outsourcing
We bearprimarily recognize revenue for our PeopleScout outsourced recruitment of permanent employees over time in an amount that reflects the riskconsideration we expect to be entitled to in exchange for our services. The client simultaneously receives and rewardsconsumes the benefits of the transaction, including credit risk, ifservices as they are provided. We recognize revenue using an output method, generally based on the customer failsnumber of hires made during each month multiplied by the agreed-upon rate per hire. We incur immaterial costs to payobtain our outsourced recruitment of permanent employee contracts. We have concluded that the amortization period for these costs would be less than one year and have elected to use the practical expedient to expense these costs as incurred. Also, we incur immaterial costs to fulfill these contracts, which are expensed as incurred.
Unsatisfied performance obligations
As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at an amount for which we have the right to invoice for services performed.
Cost of services
Cost of services refers to costs directly associated with the earning of revenue and primarily includes wages, and related payroll taxes, benefits, and workers’ compensation expenses. Costexpenses for our associates and employees involved with the delivery of our services. These costs differ fundamentally from selling, general and administrative ("SG&A") expenses in that they arise specifically from the action of providing services also includes billable travel as well as other reimbursable and non-reimbursable expenses.to clients, whereas SG&A costs are incurred regardless of whether or not we provide service to our clients.
Advertising costs
Advertising costs consist primarily of print, digital and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in selling, general and administrative expenseSG&A were $7.3$9.2 million, $7.8$12.5 million and $9.1$9.7 million in fiscal 2017, 20162023, 2022 and 2015,2021, respectively.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Cash, cash equivalents and marketable securities
We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is generally not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities. We have not experienced any losses related to these balances, and we believe credit risk to be minimal.
Accounts receivable and allowance for doubtful accountscredit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for doubtful accounts for estimatedcredit losses resulting from the failure of our customersclients to make required payments.payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:
•PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable.
•PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The allowanceinvoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
•PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for doubtful accounts is determineda client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.
When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, customerclient credit risk, and current economic data.data and forecasted information. The allowance for doubtful accountscredit loss is reviewed quarterly and represents our best estimate of the amount of probableexpected credit losses. Past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations. Past due balances are written off when it is probable the receivable will not be collected. Changes in the allowance for credit losses are recorded in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Restricted cash and investments
Cash and investments pledged as collateral and restricted tofor use forin workers’ compensation insurance programs are included as restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly-ratedhighly rated investment grade debt securities, which areat the time of purchase, were rated A1/P1 or higher for short-term securities and A or higher for long-term securities, by nationally recognized rating organizations. We have the positive intent and ability to hold our restricted investments until maturity in accordance with our investment policy and, accordingly, all of our restricted investments are classified as held-to-maturity. In the event that an investment is downgraded below our investment policy criteria, it ismay be replaced with a highly-rated investment gradenew security.
We reviewestablish an allowance for impairmentcredit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on a quarterly basis and do not consider temporary unrealized losses to be an impairment.the issuer’s credit rating.
We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets.
Fair value of financial instruments and investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following:
•Level 1: The carrying value of cash and cash equivalents and mutual funds approximates fair value because of the short-term nature of these instruments. Inputs are valued using quoted market prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities. Instead we use quoted prices for similar instruments in active markets or quoted prices or we estimate the fair value using a variety of valuation methodologies, which include observable inputs for comparable instruments and unobservable inputs.liabilities are used.
•Level 3: For assetsAssets and liabilities with unobservable inputs, we typically rely on management’s estimates of assumptions that market participants would use in pricing the asset or liability.inputs.
The carrying value of our cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. We hold money market funds to support our workers’ compensation program, which are carried at fair value based on quoted market prices in active markets for identical assets. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions.
The carrying value of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximates fair value due to their short-term nature. We alsohold company-owned life insurance policies that fund our deferred compensation liability. Company-owned life insurance policies are carried at cash surrender value, which approximates fair value. We hold certain restricted investments whichto collateralize our workers’ compensation programs, andwhich are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets. We determine the fair value of these restricted investments based on comparisons to similar financial instruments or financial models based on observable inputs to arrive at consensus pricing.
Certain items such asAnnual and interim impairment tests may subject our reporting units with goodwill and other intangible assets are recognized or disclosed atto nonrecurring fair value on a non-recurring basis.measurement. We typically determine the fair value of these items using level 3 inputs.
internal estimates and assumptions that market participants would use in pricing the asset.
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Property and equipment
Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets as follows:
| | | | | |
| Years |
| Buildings | 40 |
| Software | Years3 - 8 |
Buildings | 40 |
Computers, furniture and softwareequipment | 3 - 10 |
Furniture and equipment | 3 - 10 |
Leasehold improvements are amortized over the shorter of the related non-cancelable lease term or their estimated useful lives.
Non-capital expenditures associated with opening new locations are expensed as incurred.
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Costs associated with the acquisition or development of software for internal use, including internal and external labor costs, are capitalized and amortized over the expected useful life of the software, from three to teneight years. Capitalization of costs begins when the preliminary project stage is complete, when management authorizes and commits to funding the project, and it is probable the project will be completed for the intended use. Capitalization of costs ends when the project is substantially complete and ready for its intended use. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred.
Leases
We conduct our PeopleReady branch office operations primarily from leased locations. We also lease office spaces for our other operations, centralized support functions, office equipment, and machinery for use at client sites. Many leases require payment of real estate taxes, insurance andvariable payments for common area maintenance, sales tax, and repairs and maintenance, and insurance coverage, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, along with any non-lease components of a contract, are expensed when the obligation for those payments is incurred and are included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing. The terms of our lease agreements generally range from three to five years, with some as high as 15 years and many containing options to cancel, typically withinrenew. Under the majority of our leases, we have the right to terminate the lease with 90 days of notification.days’ notice.
ForOperating leases that contain predetermined fixed escalations of the minimum rent, we recognize the related rentare included in operating lease right-of-use assets, net and current and long-term operating lease liabilities on our Consolidated Balance Sheets. Lease expense on a straight-line basis from the date we take possession of the property to the end of the minimum lease term. We record any difference between the straight-line rent amounts and amounts payable under thefor operating leases as part of deferred rent, in accrued liabilities or long-term liabilities, as appropriate.
Cash or lease incentives received upon entering into certain leases (“tenant allowances”) areis recognized on a straight-line basis over the lease term and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss).
Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a reductionsingle lease component.
For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent frompayments on a straight-line basis over the date we take possessionlease term within SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, for those leases where the property throughright to cancel the end oflease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial lease term. We recordnon-cancelable period plus the unamortized portionnotice period, which is typically 90 days, and not greater than one year.
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Goodwill and other long-lived assets
We reviewindefinite-lived intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Based on our review there was no impairment loss recognized for the year ended December 31, 2017 nor December 25, 2015. In the prior year, we recorded an impairment to our acquired trade names/trademarks intangible assets of $4.3 million and an impairment to our customer relationships intangible assets of $28.9 million.
Goodwill
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and more frequently if an event occursor whenever events or circumstances changemake it more likely than not that would indicatean impairment may exist.have occurred. These events or circumstances could include a significant change in the business climate,general economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, competition, customer engagement, legal factors, orcompetition, client engagement, changes in the carrying amount of net assets, sale or disposition of a significant portion of a reporting unit.unit, or a sustained decrease in share price. We monitor the existence of potential impairment indicators throughout the fiscal year.
Based on our annualGoodwill
We test for goodwill impairment test performed asat the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments with remaining goodwill are PeopleReady, PeopleManagement Centerline, PeopleScout RPO and PeopleScout MSP.
When evaluating goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance. If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the first dayreporting 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 our second quarter, alleach reporting units’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 values were substantiallyvalue 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 their respective carrying values for fiscal 2017.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. Accordingly, no
We performed our annual impairment loss was recognizedtest for
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fiscal 2017. In the prior year, we recorded a goodwill impairment charge of $65.9 million. There was no goodwill impairment charge recorded in fiscal 2015.
Long-lived asset impairment
Long-lived assets include property and equipment, and finite-lived intangible assets. Property and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying valueas of the first day of our fiscal second quarter of 2023. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.
Indefinite-lived intangible assets may not be recoverable.
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We testevaluate our trade names annuallyindefinite-lived intangible assets for impairment and when indicationson 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 exist. We utilizeindicators 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 asset is greater than its carrying amount, the quantitative impairment test is unnecessary.
The quantitative impairment test, if necessary, utilizes the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment
We performed our annual impairment test for indefinite-lived intangible assets as of the first day of our fiscal second quarter of 2023. Refer to determine key assumptions, including projected revenue, royalty ratesNote 5: Goodwill and appropriate discount rates.Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.
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Other long-lived assets
We have finite-lived intangible assets related to acquired company customers, trade names/trademarks, and technology, as well as purchased trade names/trademarks. We capitalize implementation costs incurred in a cloud computing arrangement that is a service contract. Capitalized implementation costs are recorded in both prepaid expenses and other current assets, and in other assets, net on our Consolidated Balance Sheets, depending on the timing of future amortization. The related amortization expense is recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) on a straight-line basis over the fixed, non-cancelable term of the associated arrangement plus any reasonably certain renewal periods. License fees incurred during the development period are expensed as incurred.
Other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Other long-lived assets include property and equipment, lease right-of-use assets, finite-lived intangible assets and capitalized implementation costs for cloud computing arrangements that are service contracts. There were no triggering events during fiscal 2017 nor 2015 that would require us to perform an impairment test over ourmaterial other long-lived assets. Accordingly, there were noasset impairment charges recorded during the fiscal 2017 nor 2015.year ended December 31, 2023.
Workers’ compensation claims reserves
We maintain reserves for workers’ compensation claims using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns of “risk-free” United States of America (“U.S.”) Treasury instruments available during the year in which the liability was incurred, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss) in the period when the changes are made.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. We also establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
•changes in medical and time loss (“indemnity”) costs;
•changes in mix between medical only and indemnity claims;
•regulatory and legislative developments impacting benefits and settlement requirements;
•type and location of work performed;
•impact of safety initiatives; and
•positive or adverse development of claims.
Legal contingency reserves and regulatory liabilities
We are subject to compliance audits by federal, state, local and international authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the estimate changes.
Income taxes and related valuation allowance
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
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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.
Our liability for unrecognized tax benefits is recorded in other long-term liabilities on our Consolidated Balance Sheets. We recognize interest and penalties related to unrecognized tax benefits within income tax expense (benefit) on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets.
A significant driver of fluctuations in our effective income tax rate is the federal Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. 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 associates qualify for one or more of the many targeted categories; 2) the targeted categories 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 WOTC program has been approved through the end of 2025.
Deferred compensation plan
We offer a non-qualified defined contribution plan (the “Plan”) to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The Plan allows participants to direct their account based on the investment options determined by TrueBlue and offers discretionary matching contributions.
The current portion of the deferred compensation liability is included in accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is funded through company-owned life insurance policies recorded in restricted cash and investments on our Consolidated Balance Sheets. The carrying value of company-owned life insurance policies is based on the cash surrender value of the policies, which approximates fair value. Changes in the cash surrender value, premiums incurred, and proceeds received relating to the company-owned life insurance policies are recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). Prior to fiscal 2022, we also held mutual funds and money market funds to support the deferred compensation liability, which were measured at fair value, with unrealized gains and losses recognized in SG&A expense, while realized gains and losses were recorded in interest and other income (expense), net on our Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 26, 2021, all of the mutual funds and money market funds had been converted into company-owned life insurance policies.
Stock-based compensation
Compensation expense for restricted stock-based awards is generally recognized on a straight-line basis over the vesting period, based on our stock’s fair market value on the grant date. For restricted stock-based awards with non-market performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. Compensation expense for our employee stock purchase plan (“ESPP”) is based on the estimated fair value on the date of grant, using the Black-Scholes valuation model, and is recognized on a straight-line basis over the offering period, which is over a calendar month. We recognize forfeitures as they occur.
In the event that there are changes to an employee’s requisite service period based on terms existing in the original award agreement, any unrecognized compensation expense is recognized prospectively over the updated remaining requisite service period. In the case that terms of an existing stock award agreement are modified, the sum of any unrecognized compensation expense as of the modification date and the modification charge will be expensed on a straight-line basis over the new requisite service period. The modification charge is the incremental amount of the fair value of the award before the modification and the fair value after the modification.
Foreign currency
Our financial statements are reported in U.S. dollars. Assets and liabilities of foreign subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period.
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Translation adjustments resulting from this process are included, net of tax, in accumulated other comprehensive loss on our Consolidated Statements of Operations and Comprehensive Income (Loss), when applicable.
Revenue and expense transactions denominated in a currency other than our functional currency are converted to our functional currency using the exchange rate on the transaction date. Gains or losses resulting from these transactions are included in interest and other income (expense), net on our Consolidated Statements of Operations and Comprehensive Income (Loss).
Purchases and retirement of our common stock
We purchase our common stock under a program authorized by our Board of Directors (“Board”). Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on the Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases and the related excise tax as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.
Net income (loss) per share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units, and shares issued under the ESPP, except where their inclusion would be anti-dilutive.
Anti-dilutive shares primarily include non-vested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented.
Segments
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. We evaluate performance based on segment revenue and segment profit. Segment revenue is net of intercompany eliminations. 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 costs and benefits not considered to be ongoing.
Government assistance
There is limited U.S. GAAP accounting guidance for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a client. We are permitted to utilize other accounting standards, and have elected to analogize to International Financial Reporting Standards (“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance. Following IAS 20, we recognize government assistance on a systematic basis over the periods in which we recognize the related costs for which the grant is intended to compensate, but only when there is reasonable assurance we will comply with all conditions attached to the grant and there is reasonable assurance the assistance will be received. We have interpreted “reasonable assurance” to mean “probable,” as defined in loss contingencies guidance in U.S. GAAP.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which among other things, provided payroll tax credits to eligible employers to address the negative economic impacts of the coronavirus pandemic (“COVID-19”) outbreak. Also during fiscal 2020, the Canadian and Australian governments enacted subsidy programs to help employers offset a portion of wage and rent expenses for a limited period. During fiscal 2016,2021, Canadian subsidies reduced operating expenses by $3.9 million on our Consolidated Statement of Operations and Comprehensive Income (Loss). Based on the reasonable assurance criteria, we recognized an impairment chargehave deferred recognition of certain benefits of $27.6 million and $21.8 million as of December 31, 2023 and December 25, 2022, respectively until recognition becomes probable, and we have included these amounts in accrued wages and benefits on indefinite-lived intangible assetsour Consolidated Balance Sheets.
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Additionally, under the CARES Act, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. Deferred employer payroll taxes of $59.9 million were paid in full on September 15, 2021.
Business combinations
We account for our business acquisitions using the purchaseacquisition method of accounting. The fair value of the net assets acquired and the results of the acquired business are included in the financial statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible assets, useful lives of property and equipment, and amortizable lives for acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. We estimate the fair value of acquired assets and liabilities as of the date of the acquisition based on information available at that time. The initial valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. Any changes to these estimates may have a material impact on our operating results or financial condition.
All acquisition-related costs are expensed as incurred and recorded in selling, general and administrativeSG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Additionally, we recognize liabilities for anticipated restructuring costs that will be necessary due to the elimination of excess capacity, redundant assets or unnecessary functions, and record them as selling, general and administrative expense.
Workers’ compensation claims reserves
We maintain reserves for workers’ compensation claims using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the period when the changes in estimates are made.
Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount the liability and its corresponding receivable to its estimated net present value using the “risk-free” rates associated with the actuarially determined weighted average lives of our excess claims. When appropriate, based on our best estimate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
Legal contingency reserves and regulatory liabilities
From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company is contractually obligated to reimburse us for a liability, we record a receivable
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for the amount of the probable reimbursement. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.
Income taxes and related valuation allowance
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. Future tax law changes, such as changes to the federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. Based on that analysis, we have determined that a valuation allowance is appropriate for certain net operating losses and tax credits that we expect will not be utilized within the permitted carryforward periods as of December 31, 2017 and January 1, 2017.
A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories, and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. 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 categories; 2) the targeted categories 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 additional prior year hiring credits if credits in excess of original estimates have been certified by government offices.
Stock-based compensation
Under various plans, officers, employees and non-employee directors have received or may receive grants of stock, restricted stock awards, performance share units or options to purchase common stock. We also have an employee stock purchase plan.
Compensation expense for restricted stock awards and performance share units is generally recognized on a straight-line basis over the vesting period, based on the stock’s fair market value on the grant date. For restricted stock and performance share unit grants issued with performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. We recognize compensation expense for only the portion of restricted stock and performance share units that is expected to vest, rather than record forfeitures when they occur. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in the future periods. We determine the fair value of options to purchase common stock using the Black-Scholes valuation model, which requires the input of subjective assumptions. We recognize expense over the service period for options that are expected to vest and record adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Foreign currency
Our consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in other comprehensive income (“OCI”), where applicable. Currency gains and losses on intercompany loans intended to be a permanent investments in international subsidiaries are included, net of tax, in OCI.
Purchases and retirement of our common stock
We may purchase our common stock under a program authorized by our Board of Directors. Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on the Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered.
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Net income (loss) per share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units and shares issued under the employee stock purchase plan, except where their inclusion would be anti-dilutive.
Anti-dilutive shares primarily include non-vested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. Anti-dilutive shares associated with our stock options relate to those stock options with an exercise price higher than the average market value of our stock during the periods presented.
Use of estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates in our financial statements include, but are not limited to, purchase accounting, allowance for doubtful accounts, estimates for asset and goodwill impairments, stock-based performance awards, assumptions underlying self-insurance reserves, contingent legal and regulatory liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.
Recently adopted accounting standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the subsequent measurement of goodwill by eliminating the requirement to perform a Step 2 impairment test to compute the implied fair value of goodwill. As a result, companies will only compare the fair value of a reporting unit to its carrying value (Step 1) and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized may not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this guidance for our fiscal 2017 annual impairment test. The adoption of the new standard did not have any impact to our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In February 2018, the FASB issued guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice when accounting for a change to the terms or conditions of share-based payment awards. The objective is to reduce the scope of transactions that would require modification accounting. Disclosure requirements remain unchanged. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In November 2016, the FASB issued guidance to amend the presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amended guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. We plan to adopt this guidance on the effective date. Changes in restricted cash recorded in cash flows from investing were $21.5 million, $19.8 million and $18.4 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
In October 2016, FASB issued guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted. The guidance will require a modified retrospective application with a cumulative catch-up adjustment to opening retained earnings. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In August 2016, the FASB issued guidance relating to how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The update is intended to reduce the existing diversity in practice. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (Q1 2018 for TrueBlue), with early adoption permitted, including adoption in an interim period. The adoption should be applied using the retrospective transition method, if practicable. We plan to adopt this guidance on the effective date and do not expect the adoption to have a material impact on our financial statements.
In June 2016, the FASB issued guidance on accounting for credit losses on financial instruments. This guidance sets forth a current expected credit loss model, which requires measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and some off-balance sheet exposures, as well as trade account receivables. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted no sooner than Q1 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach. We plan to adopt this guidance on the effective date and are currently assessing the impact of the adoption of this guidance on our financial statements.
In February 2016, the FASB issued guidance on lease accounting. The new guidance will continue to classify leases as either finance or operating and will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet with classification affecting the pattern of expense recognition in the statement of income. This guidance is effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We plan to adopt the guidance on the effective date. We are currently evaluating the impact of this guidance on our financial statements and expect that, upon adoption, a majority of our operating lease commitments will be recognized on our Consolidated Balance Sheets as operating lease liabilities and right-of-use assets. We do not expect the adoption to have a material impact on the pattern of expense recognition in our Consolidated Statements of Operations and Comprehensive Income (Loss).
In January 2016, the FASB issued guidance on the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance is effective for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). Early adoption of the amendments in the guidance is not permitted, with limited exceptions, and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We plan to adopt the guidance on the effective date. We do not expect the adoption to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued guidance outlining a single comprehensive model for accounting for revenue arising from contracts with customers, which supersedes the current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments as well as assets recognized from costs incurred to obtain or fulfill a contract. The guidance provides two methods of initial adoption: retrospective for all periods presented (full retrospective), or a cumulative adjustment in the year of adoption (modified retrospective). Since the issuance of the original standard, the FASB has issued several other subsequent updates including the following: 1) clarification of the implementation guidance on principal versus agent considerations; 2) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance; and 3) additional guidance and practical expedients in response to identified implementation issues. The effective date is for annual and interim periods beginning after December 15, 2017 (Q1 2018 for TrueBlue). We will adopt the guidance using the modified retrospective approach in the first quarter of 2018.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We utilized a cross-functional implementation team consisting of representatives from across our business segments and various departments. This included a bottoms-up analysis to determine the impact of the standard on our various revenue streams by reviewing our current contracts with customers, accounting policies and business practices to identify potential differences that would result from applying the requirements of the new standard.
We have completed our evaluation of the impact that adopting the new standard will have on our financial statements and have concluded that it will not have a material impact on our financial reporting other than expanded disclosures as a majority of our revenues are from contingent staffing and other staffing fee-based arrangements. For such arrangements, the performance obligation transfer of control and revenue recognition occurs at the time when the service is provided, consistent with previous revenue recognition guidance.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
NOTE 2: ACQUISITIONS
2016 acquisition
Effective January 4, 2016, we acquired certain assets and assumed certain liabilities of the recruitment process outsourcing (“RPO”) business of Aon Hewitt for a cash purchase price of $72.5 million, net of the final working capital adjustment. We amended our existing credit facility to temporarily increase the borrowing capacity by $30.0 million, which was used to fund the acquisition. The RPO business of Aon Hewitt broadened our PeopleScout RPO services and has been fully integrated into our PeopleScout service line, which is part of our PeopleScout reportable segment.
We incurred acquisition and integration-related costs of $6.6 million in connection with the acquisition of the RPO business of Aon Hewitt, which are included in selling, general and administrativeSG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Recently issued accounting pronouncements not yet adopted
Segments
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires disclosure of incremental segment information on an interim and cash flows from operating activitiesannual basis, primarily regarding significant segment expenses and information used to assess segment performance. This ASU is effective for fiscal years beginning after December 15, 2023 (2024 for TrueBlue), and interim periods beginning after December 15, 2024 (Q1 2025 for TrueBlue). Retrospective application is required for all periods presented. We are currently evaluating the impact of this ASU on our required disclosures.
Income Taxes
In December 2023, the Consolidated StatementsFASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures,” which requires enhancements and further transparency to certain income tax disclosures, primarily to the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 (2025 for TrueBlue), on a prospective basis with retrospective application permitted. We are currently evaluating the impact of Cash Flows forthis ASU on our required disclosures.
There are no other new accounting pronouncements, issued or effective during the fiscal year, ended January 1, 2017.
The following table reflectsthat are expected to have a significant impact on our final allocation of the purchase price:
|
| | | |
| (in thousands) | Purchase price allocation |
| Cash purchase price, net of working capital adjustment | $ | 72,476 |
|
| Purchase price allocated as follows: | |
| Accounts receivable | $ | 12,272 |
|
| Prepaid expenses, deposits and other current assets | 894 |
|
| Customer relationships | 34,900 |
|
| Technologies | 400 |
|
| Total assets acquired | 48,466 |
|
| Accrued wages and benefits | 1,025 |
|
| Other long-term liabilities | 456 |
|
| Total liabilities assumed | 1,481 |
|
| Net identifiable assets acquired | 46,985 |
|
| Goodwill (1) | 25,491 |
|
| Total consideration allocated | $ | 72,476 |
|
| |
(1) | Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of the RPO business of Aon Hewitt. Goodwill is deductible for income tax purposes over 15 years as of January 4, 2016. |
Intangible assets include identifiable intangible assets for customer relationshipsfinancial statements and developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and the cost approach for developed technologies. No residual value was estimated for any of the intangible assets.
related disclosures.
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of January 4, 2016:
|
| | | | |
| (in thousands, except for estimated useful lives, in years) | Estimated Fair Value | Estimated Useful Lives in Years |
| Customer relationships | $ | 34,900 |
| 9.0 |
| Technologies | 400 |
| 3.0 |
| Total acquired identifiable intangible assets | $ | 35,300 |
| |
The amount of revenue from the RPO business of Aon Hewitt included in our Consolidated Statements of Operations and Comprehensive Income (Loss) was $66.5 million for the period from the acquisition date to January 1, 2017. The acquired operations have been fully integrated with our existing PeopleScout operations.
The acquisition of the RPO business of Aon Hewitt was not material to our consolidated results of operations and as such, pro forma financial information was not required.
2015 acquisition
Effective December 1, 2015, we acquired SIMOS Insourcing Solutions Corporation (“SIMOS”), an Atlanta-based provider of on-premise workforce management solutions for a cash purchase price of $66.6 million, net of the final working capital adjustment, which was funded by our existing credit facility. An additional cash payment of $22.5 million of contingent consideration was paid during the second quarter of fiscal 2017 as a result of SIMOS achieving a fiscal 2016 earnings before interest, taxes, depreciation and amortization target. SIMOS broadened our on-premise contingent staffing solution, which is part of our PeopleManagement reportable segment. Refer to Note 3: Fair Value Measurement for further details regarding the contingent consideration.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table reflects our final allocation of the purchase price:
|
| | | |
| (in thousands) | Purchase price allocation |
| Purchase price: | |
| Cash purchase price, net of working capital adjustment | $ | 66,603 |
|
| Contingent consideration (1) | 18,300 |
|
| Total consideration | $ | 84,903 |
|
| | |
| Purchase price allocated as follows: | |
| Accounts receivable (2) | $ | 19,207 |
|
| Prepaid expenses, deposits and other current assets | 461 |
|
| Property and equipment | 464 |
|
| Customer relationships | 39,000 |
|
| Trade name/trademarks | 800 |
|
| Technologies | 100 |
|
| Restricted cash | 4,277 |
|
| Other non-current assets | 2,439 |
|
| Total assets acquired | 66,748 |
|
| | |
| Accounts payable and other accrued expenses | 3,741 |
|
| Accrued wages and benefits | 4,075 |
|
| Workers’ compensation liability | 8,520 |
|
| Total liabilities assumed | 16,336 |
|
| | |
| Net identifiable assets acquired | 50,412 |
|
| Goodwill (3) | 34,491 |
|
| Total consideration allocated | $ | 84,903 |
|
| |
(1) | The present value of the $22.5 million contingent consideration as of the acquisition date based on a probability-weighted fair value measurement. |
| |
(2) | The gross contractual amount of accounts receivable was $19.3 million of which $0.1 million was estimated to be uncollectible. |
| |
(3) | Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers and future cash flows after the acquisition of SIMOS. Goodwill is deductible for income tax purposes over 15 years as of December 1, 2015. |
Intangible assets include identifiable intangible assets for customer relationships, trade name/trademarks and developed technologies. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach for customer relationships and trade name/trademarks, and the cost approach for developed technologies.
The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of December 1, 2015:
|
| | | | |
| (in thousands, except for estimated useful lives, in years) | Estimated fair value | Estimated useful life in years |
| Customer relationships | $ | 39,000 |
| 9.0 |
| Trade name/trademarks | 800 |
| 3.0 |
| Technologies | 100 |
| 2.0 |
| Total acquired identifiable intangible assets | $ | 39,900 |
| |
The acquisition of SIMOS was not material to our consolidated results of operations and as such, pro forma financial information was not required.
| |
NOTE 3: | FAIR VALUE MEASUREMENT |
NOTE 2: FAIR VALUE MEASUREMENT
Assets and liabilities measured at fair value on a recurring basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
| | | | | | | | | | | | | | |
| December 31, 2023 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Cash and cash equivalents | $ | 61,885 | | $ | 61,885 | | $ | — | | $ | — | |
| Restricted cash and cash equivalents | 37,421 | | 37,421 | | — | | — | |
| Cash, cash equivalents and restricted cash (1) | $ | 99,306 | | $ | 99,306 | | $ | — | | $ | — | |
| | | | |
| Municipal debt securities | $ | 31,804 | | $ | — | | $ | 31,804 | | $ | — | |
| Corporate debt securities | 74,912 | | — | | 74,912 | | — | |
| Agency mortgage-backed securities | 13,235 | | — | | 13,235 | | — | |
| U.S. government and agency securities | 962 | | — | | 962 | | — | |
| Restricted investments classified as held-to-maturity (2) | $ | 120,913 | | $ | — | | $ | 120,913 | | $ | — | |
| | | | |
| | | | |
|
| | | | | | | | | | | | |
| | December 31, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Financial assets: | | | | |
| Cash and cash equivalents (1) | $ | 28,780 |
| $ | 28,780 |
| $ | — |
| $ | — |
|
| Restricted cash and cash equivalents (1) | 39,039 |
| 39,039 |
| — |
| — |
|
| Other restricted assets (2) | 28,440 |
| 28,440 |
| — |
| — |
|
| Restricted investments classified as held-to-maturity | 172,238 |
| — |
| 172,238 |
| — |
|
| | | | | | | | | | | | | | |
| December 25, 2022 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Cash and cash equivalents | $ | 72,054 | | $ | 72,054 | | $ | — | | $ | — | |
| Restricted cash and cash equivalents | 63,577 | | 63,577 | | — | | — | |
| Cash, cash equivalents and restricted cash (1) | $ | 135,631 | | $ | 135,631 | | $ | — | | $ | — | |
| | | | |
| Municipal debt securities | $ | 42,431 | | $ | — | | $ | 42,431 | | $ | — | |
| Corporate debt securities | 76,097 | | — | | 76,097 | | — | |
| Agency mortgage-backed securities | 48 | | — | | 48 | | — | |
| U.S. government and agency securities | 949 | | — | | 949 | | — | |
| Restricted investments classified as held-to-maturity (2) | $ | 119,525 | | $ | — | | $ | 119,525 | | $ | — | |
| | | | |
| | | | |
(1)Cash, cash equivalents and restricted cash include money market funds and deposits. |
| | | | | | | | | | | | |
| | January 1, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) |
| Financial assets: | | | | |
| Cash and cash equivalents (1) | $ | 34,970 |
| $ | 34,970 |
| $ | — |
| $ | — |
|
| Restricted cash and cash equivalents (1) | 67,751 |
| 67,751 |
| — |
| — |
|
| Other restricted assets (2) | 16,925 |
| 16,925 |
| — |
| — |
|
| Restricted investments classified as held-to-maturity | 145,953 |
| — |
| 145,953 |
| — |
|
| | | | | |
| Financial liabilities: | | | | |
| Contingent consideration (3) | 21,600 |
| — |
| — |
| 21,600 |
|
| |
(1) | Cash equivalents and restricted cash equivalents consist of money market funds, deposits and investments with original maturities of three months or less. |
| |
(2) | Other restricted assets primarily consist of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. |
| |
(3) | The estimated fair value of the contingent consideration associated with the acquisition of SIMOS, which was estimated using a probability-adjusted discounted cash flow model. Refer to Note 2: Acquisitions for further details regarding the SIMOS acquisition.
|
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table presents the change in the estimated fair value of(2)Refer to Note 3: Restricted Cash and Investments for additional details on our liability for contingent consideration measured using significant unobservable inputs (level 3) for the year ended December 31, 2017:
|
| | | |
| (in thousands) | |
| Fair value measurement at beginning of period | $ | 21,600 |
|
| Accretion on contingent consideration | 900 |
|
| Payment of contingent consideration | (22,500 | ) |
| Fair value measurement at end of period | $ | — |
|
During the second quarter of fiscal 2017, we paid $22.5 million relating to the contingent consideration associated with our acquisition of SIMOS. The purchase price fair value of the contingent consideration of $18.3 million is reflected in cash flows used in financing activities and the remaining balance of $4.2 million is recognized in cash flows used in operating activities as a decrease in other assets and liabilities.
Changes in the fair value of the contingent consideration are recorded in selling, general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Amortization of the present value discount was recorded in interest expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
There were no material transfers between level 1, level 2 and level 3 of the fair value hierarchy during the years ended December 31, 2017 and January 1, 2017.held-to-maturity debt securities.
Assets measured at fair value on a nonrecurring basis
We measure certain non-financialIn addition to assets that are recorded at fair value on a non-recurringrecurring basis, includingannual and interim impairment tests may subject our reporting units with goodwill and certainother intangible assets.assets to nonrecurring fair value measurement. We performed our annual impairment tests for goodwill and indefinite-lived intangible assets as of the first day of our fiscal second quarter of 2023. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements.
For our 2023 annual goodwill impairment test, the fair value of each reporting unit was estimated using a weighting of the income and market approaches, except for PeopleScout MSP, which relied only on the income approach. The various inputs to these fair value models are considered Level 3. As a result of those measurements, we recognized impairment charges of $103.5 million during the year ended January 1, 2017, as follows:
|
| | | | | | | | | | | | | | | |
| | January 1, 2017 |
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | Total impairment loss |
| Goodwill | $ | 42,629 |
| $ | — |
| $ | — |
| $ | 42,629 |
| $ | (65,869 | ) |
| Customer relationships | 11,100 |
| — |
| — |
| 11,100 |
| (28,900 | ) |
| Trade names/trademarks | 3,600 |
| — |
| — |
| 3,600 |
| (8,775 | ) |
| Total | $ | 57,329 |
| $ | — |
| $ | — |
| $ | 57,329 |
| $ | (103,544 | ) |
Goodwill, finite-lived customer relationships, trade names/trademarks intangible assets and indefinite-lived intangible trade names/trademarks intangible assetstest, goodwill with a total carrying value of $160.8$9.7 million were written down to their fair value of $57.3 million, resulting inassociated with the PeopleScout MSP reporting unit was impaired, and an impairment charge of $103.5$8.9 million which was recorded in earningsrecognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended January 1, 2017.December 31, 2023.
For our 2023 annual indefinite-lived intangible asset impairment test, the fair value of our trade names/trademarks were estimated utilizing the relief from royalty method. The various inputs to this fair value model are considered Level 3. As a result of the test, one of our trade names/trademarks with a carrying value of $3.9 million was written down to its fair value, and an impairment charge of $0.6 million was recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
There were no goodwill or intangible asset impairment charges recorded during fiscal 2017 nor 2015.2022 or 2021. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
| |
NOTE 4: | RESTRICTED CASH AND INVESTMENTS |
NOTE 3: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
| | | | | | | | |
| (in thousands) | December 31,
2023 | December 25,
2022 |
| Cash collateral held by insurance carriers | $ | 23,598 | | $ | 29,567 | |
| Cash and cash equivalents held in Trust | 12,703 | | 30,857 | |
| Investments held in Trust | 122,659 | | 123,678 | |
| | |
| Company-owned life insurance policies | 32,905 | | 26,479 | |
| Other restricted cash and cash equivalents | 1,120 | | 3,153 | |
| Total restricted cash and investments | $ | 192,985 | | $ | 213,734 | |
Held-to-maturity
Restricted cash and investments consist principally ofinclude collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in municipal debt securities, corporate debt securities and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). Our investments have not resulted in any other-than-temporary impairments.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Trust.
The following is a summary of our restricted cashamortized cost and investments:
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Cash collateral held by insurance carriers | $ | 22,926 |
| $ | 34,910 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Other (1) | 28,440 |
| 16,925 |
|
| Total restricted cash and investments | $ | 239,231 |
| $ | 231,193 |
|
| |
(1) | Primarily consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. |
The following tables presentestimated fair value disclosures forof our held-to-maturity investments which are carried at amortized cost:held in Trust, aggregated by investment category as of December 31, 2023 and December 25, 2022, were as follows: | | | | December 31, 2017 |
| December 31, 2023 | | | December 31, 2023 |
| (in thousands) | Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Municipal debt securities | $ | 82,770 |
| $ | 974 |
| $ | (378 | ) | $ | 83,366 |
|
| Corporate debt securities | 83,916 |
| 309 |
| (434 | ) | 83,791 |
|
| Agency mortgage-backed securities | 4,066 |
| 22 |
| (26 | ) | 4,062 |
|
| U.S. government and agency securities | 1,000 |
| 19 |
| — |
| 1,019 |
|
| | $ | 171,752 |
| $ | 1,324 |
| $ | (838 | ) | $ | 172,238 |
|
| Total held-to-maturity investments | |
| | | | January 1, 2017 |
| December 25, 2022 | | | December 25, 2022 |
| (in thousands) | Amortized cost | Gross unrealized gain | Gross unrealized loss | Fair value | (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value |
| Municipal debt securities | $ | 71,618 |
| $ | 443 |
| $ | (865 | ) | $ | 71,196 |
|
| Corporate debt securities | 68,934 |
| 212 |
| (352 | ) | 68,794 |
|
| Agency mortgage-backed securities | 5,965 |
| 30 |
| (32 | ) | 5,963 |
|
| | $ | 146,517 |
| $ | 685 |
| $ | (1,249 | ) | $ | 145,953 |
|
| U.S. government and agency securities | |
| Total held-to-maturity investments | |
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
| | | | | | | | |
| December 31, 2023 |
| (in thousands) | Amortized cost | Fair value |
| Due in one year or less | $ | 27,414 | | $ | 27,118 | |
| Due after one year through five years | 82,847 | | 81,146 | |
| Due after five years through ten years | 5,818 | | 5,922 | |
| Due after ten years | 6,580 | | 6,727 | |
| Total held-to-maturity investments | $ | 122,659 | | $ | 120,913 | |
|
| | | | | | |
| | December 31, 2017 |
| (in thousands) | Amortized cost | Fair value |
| Due in one year or less | $ | 17,265 |
| $ | 17,248 |
|
| Due after one year through five years | 90,906 |
| 90,825 |
|
| Due after five years through ten years | 63,581 |
| 64,165 |
|
| | $ | 171,752 |
| $ | 172,238 |
|
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.
Deferred compensation investments and company-owned life insurance policies
We hold company-owned life insurance policies to support our deferred compensation liability. During 2021, we also held mutual funds and money market funds, which were converted into company-owned life insurance policies by the end of fiscal 2021. During the fiscal year ended December 31, 2023, we received proceeds from company-owned life insurance policies of $1.7 million, of which $1.4 million was in excess of the cash surrender value of the related policies and recognized in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). The unrealized gains and losses related to investments still held at December 31, 2023, December 25, 2022 and December 26, 2021, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:
| | | | | | | | | | | |
| |
| (in thousands) | 2023 | 2022 | 2021 |
| Unrealized gains (losses) | $ | 4,383 | | $ | (5,841) | | $ | 1,061 | |
NOTE 4: SUPPLEMENTAL BALANCE SHEET INFORMATION
Accounts receivable allowance for credit losses
| | | | | | | | | | | |
| (in thousands) | 2023 | 2022 | 2021 |
| Beginning balance | $ | 3,212 | | $ | 6,687 | | $ | 2,921 | |
| | | |
| Current period provision | 4,972 | | 4,462 | | 6,493 | |
| Write-offs | (6,184) | | (7,917) | | (2,713) | |
| Foreign currency translation | 5 | | (20) | | (14) | |
| Ending balance | $ | 2,005 | | $ | 3,212 | | $ | 6,687 | |
Prepaid expenses and other current assets
| | | | | | | | |
| (in thousands) | December 31,
2023 | December 25,
2022 |
| Prepaid software agreements | $ | 8,435 | | $ | 9,994 | |
| Other prepaid expenses | 9,355 | | 9,455 | |
| Assets held-for-sale | 4,845 | | — | |
| Other current assets | 6,259 | | 13,081 | |
| Prepaid expenses and other current assets | $ | 28,894 | | $ | 32,530 | |
Other current liabilities
| | | | | | | | |
| (in thousands) | December 31,
2023 | December 25,
2022 |
| Contract liabilities | $ | 1,844 | | $ | 3,812 | |
| Liabilities held-for-sale | 1,998 | | — | |
| Other current liabilities | 6,529 | | 7,077 | |
| Other current liabilities | $ | 10,371 | | $ | 10,889 | |
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
NOTE 5: | PROPERTY AND EQUIPMENT, NET |
Property and equipment are stated at cost and consist of the following:
| | | (in thousands) | December 31,
2017 | January 1,
2017 | (in thousands) | December 31,
2023 | December 25,
2022 |
| Buildings and land | $ | 37,672 |
| $ | 35,514 |
|
| Computers and software | 149,835 |
| 130,317 |
|
| Furniture and equipment | 15,527 |
| 12,262 |
|
| Software | |
| Computers, furniture and equipment | |
| Construction in progress | 7,157 |
| 12,073 |
|
| Gross property and equipment | 210,191 |
| 190,166 |
|
| Less accumulated depreciation | (150,028 | ) | (126,168 | ) |
| Property and equipment, net | $ | 60,163 |
| $ | 63,998 |
|
Capitalized software costs, net of accumulated depreciation, were $21.9$73.3 million and $19.2$28.1 million as of December 31, 20172023 and January 1, 2017,December 25, 2022, respectively, excluding amounts in construction in progress. Construction in progress consists primarily of purchased and internally-developed software.
Depreciation expense of property and equipment totaled $24.7$20.6 million, $21.6$23.5 million and $21.9$20.9 million for the fiscal years ended December 31, 2017, January 1, 20172023, December 25, 2022 and December 25, 2015,26, 2021, respectively.
Assets and liabilities held-for-sale
During fiscal 2023, as part of our strategic initiative to simplify our organizational structure and sharpen our focus on core operations, management, with approval from the Board, began actively marketing Labour Ready Temporary Services, Ltd. (“LRTS”). LRTS is a wholly-owned subsidiary of the company, and provides contingent staffing solutions to clients in Canada under the PeopleReady brand. The operational results of LRTS are included as part of our PeopleReady operating segment and reportable segment for all years presented. LRTS is not an individually significant component of the company.
As of December 31, 2023, all criteria for classifying this entity as held-for-sale were met, and did not result in recognition of a loss on our Consolidated Statements of Operations and Comprehensive Income (Loss) for fiscal 2023. The assets and liabilities classified as held-for-sale as of December 31, 2023 are presented within other current assets and other current liabilities, respectively, on our Consolidated Balance Sheets. The following represents the carrying amounts of the major classes of assets and liabilities included as part of the disposal group classified as held-for-sale:
| | | | | |
| (in thousands) | December 31,
2023 |
| Current assets held-for-sale: | |
| Cash and cash equivalents | $ | 300 | |
| Accounts receivable, net | 1,919 | |
| Prepaid expenses and other current assets | 80 | |
| Income tax receivable | 201 | |
| Property and equipment, net | 156 | |
| Deferred income taxes, net | 23 | |
| Goodwill (1) | 1,020 | |
| Operating lease right-of-use assets, net | 1,146 | |
| Total current assets held-for-sale | $ | 4,845 | |
| |
| Current liabilities held-for-sale: | |
| Accounts payable and other accrued expenses | $ | 289 | |
| Accrued wages and benefits | 427 | |
| Operating lease liabilities | 1,180 | |
| Other current liabilities | 102 | |
| Total current liabilities held-for-sale | $ | 1,998 | |
(1) Goodwill was allocated based on the relative fair value of LRTS to the total PeopleReady reporting unit prior to being reclassified as held-for-sale.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The expected divestiture of our PeopleReady operations in Canada does not represent a strategic shift, nor do we expect it to have a major effect on the company’s operations and financial results and, therefore will not be reported as discontinued operations in our Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income (Loss). A sale is expected to be finalized during the fiscal first quarter of 2024.
Subsequent event
On February 20, 2024, the company entered into a definitive share purchase agreement to sell LRTS to Vertical Staffing Resources. The transaction is expected to close during the fiscal first quarter of 2024, subject to customary closing conditions.
| |
NOTE 6: | NOTE 5: GOODWILL AND INTANGIBLE ASSETS |
Goodwill
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by our reportable segments:segments:
| | | | | | | | | | | | | | | | | |
| (in thousands) | PeopleReady | PeopleScout | PeopleManagement | Total company |
| Balance at | December 26, 2021 | | | | |
| Goodwill before impairment | $ | 106,304 | | $ | 142,710 | | $ | 81,092 | | $ | 330,106 | |
| Accumulated impairment charge | (46,210) | | (109,757) | | (79,601) | | (235,568) | |
| Goodwill, net | 60,094 | | 32,953 | | 1,491 | | 94,538 | |
| | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Foreign currency translation | — | | (754) | | — | | (754) | |
| | | | | |
| Balance at | December 25, 2022 | | | | |
| Goodwill before impairment | 106,304 | | 141,956 | | 81,092 | | 329,352 | |
| Accumulated impairment charge | (46,210) | | (109,757) | | (79,601) | | (235,568) | |
| Goodwill, net | 60,094 | | 32,199 | | 1,491 | | 93,784 | |
| | | | | |
| Goodwill reclassified as held-for-sale (1) | (1,020) | | — | | — | | (1,020) | |
| | | | |
| | | | |
| | | | |
| Impairment charge | — | | (8,885) | | — | | (8,885) | |
| Foreign currency translation | — | | 235 | | — | | 235 | |
| | | | | |
| Balance at | December 31, 2023 | | | | |
| Goodwill before impairment | 105,284 | | 142,191 | | 81,092 | | 328,567 | |
| Accumulated impairment charge | (46,210) | | (118,642) | | (79,601) | | (244,453) | |
| Goodwill, net | $ | 59,074 | | $ | 23,549 | | $ | 1,491 | | $ | 84,114 | |
|
| | | | | | | | | | | | |
| (in thousands) | PeopleReady | PeopleManagement | PeopleScout | Total company |
| Balance at December 25, 2015 | | | | |
| Goodwill before impairment | $ | 106,304 |
| $ | 103,977 |
| $ | 104,424 |
| $ | 314,705 |
|
| Accumulated impairment loss | (46,210 | ) | — |
| — |
| (46,210 | ) |
| Goodwill, net | 60,094 |
| 103,977 |
| 104,424 |
| 268,495 |
|
| | | | | |
| Acquired goodwill and other (1) | — |
| (3,831 | ) | 25,491 |
| 21,660 |
|
| Impairment loss | — |
| (50,700 | ) | (15,169 | ) | (65,869 | ) |
| Foreign currency translation | — |
| — |
| (63 | ) | (63 | ) |
| | | | | |
| Balance at January 1, 2017 | | | | |
| Goodwill before impairment | 106,304 |
| 100,146 |
| 129,852 |
| 336,302 |
|
| Accumulated impairment loss | (46,210 | ) | (50,700 | ) | (15,169 | ) | (112,079 | ) |
| Goodwill, net | 60,094 |
| 49,446 |
| 114,683 |
| 224,223 |
|
| | | | | |
| Foreign currency translation | — |
| — |
| 2,471 |
| 2,471 |
|
| | | | | |
| Balance at December 31, 2017 | | | | |
| Goodwill before impairment | 106,304 |
| 100,146 |
| 132,323 |
| 338,773 |
|
| Accumulated impairment loss | (46,210 | ) | (50,700 | ) | (15,169 | ) | (112,079 | ) |
| Goodwill, net | $ | 60,094 |
| $ | 49,446 |
| $ | 117,154 |
| $ | 226,694 |
|
(1) Effective January 4, 2016, we acquired the RPO business of Aon Hewitt, which is part of our PeopleScout reportable segment. Accordingly, the goodwill associated with the acquisition has been assignedRefer to our PeopleScout reportable segment based on our purchase price allocation. Effective December 1, 2015, we acquired SIMOS, which is part of our PeopleManagement reportable segment. The amount presented includes year-to-date adjustments to the preliminary SIMOS purchase accountingNote 4: Supplemental Balance Sheet Information for goodwill. For additional information see Note 2:Acquisitions.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | January 1, 2017 |
| (in thousands) | Gross carrying amount | Accumulated amortization | Net carrying amount | | Gross carrying amount | Accumulated
amortization | Net
carrying
amount |
| Finite-lived intangible assets (1): | | | | | | | |
| Customer relationships (2) | $ | 148,114 |
| $ | (53,801 | ) | $ | 94,313 |
| | $ | 165,725 |
| $ | (54,676 | ) | $ | 111,049 |
|
| Trade names/trademarks (3) | 4,149 |
| (3,736 | ) | 413 |
| | 4,378 |
| (3,385 | ) | 993 |
|
| Non-compete agreements | 1,400 |
| (1,377 | ) | 23 |
| | 1,400 |
| (1,097 | ) | 303 |
|
| Technologies | 17,500 |
| (13,588 | ) | 3,912 |
| | 17,009 |
| (9,683 | ) | 7,326 |
|
| Total finite-lived intangible assets | $ | 171,163 |
| $ | (72,502 | ) | $ | 98,661 |
| | $ | 188,512 |
| $ | (68,841 | ) | $ | 119,671 |
|
| |
(1) | Excludes assets that are fully amortized. |
| |
(2) | Balance at January 1, 2017, is net of impairment loss of $28.9 million. |
| |
(3) | Balance at January 1, 2017, is net of impairment loss of $4.3 million. |
Amortization expense of our finite-lived intangible assets was $21.4 million, $25.1 million and $19.9 million for the years ended December 31, 2017, January 1, 2017 and December 25, 2015, respectively.
The following table provides the estimated future amortization of finite-lived intangible assets as of December 31, 2017:
|
| | | |
| (in thousands) | |
| 2018 | $ | 19,821 |
|
| 2019 | 17,299 |
|
| 2020 | 15,736 |
|
| 2021 | 12,431 |
|
| 2022 | 12,128 |
|
| Thereafter | 21,246 |
|
| Total future amortization | $ | 98,661 |
|
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of December 31, 2017 and January 1, 2017.
Impairments
There were no goodwill or intangible asset impairment charges recorded during fiscal 2017 or 2015.
2016 impairmentsfurther discussion.
We performed our annual goodwill impairment analysistest as of the first day of our fiscal second quarter of fiscal 2016.2023, for our reporting segments with remaining goodwill: PeopleReady; PeopleManagement Centerline; PeopleScout RPO; and PeopleScout MSP. The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requiredrequires significant judgments, including estimation of future cash flows, which is dependent on internalinternally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 13.0% to 13.5%. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, 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. The income and market approaches were equally weighted in our most recent annual impairment test, was risk-adjusted to reflectexcept for PeopleScout MSP which relied only on the specific risk profile of theincome approach.
The combined fair values for all reporting units and ranged from 12.0%were then reconciled to 17.0%.
our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Based on our most recent impairment test, all of our reporting units’ fair values were substantially in excess of their respective carrying values, except for PeopleScout MSP.
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As a result of our 2023 annual impairment test, we concluded that the carrying amount of the PeopleScout MSP reporting unit exceeded its fair value and we recorded a non-cash goodwill impairment charge of $65.9$8.9 million, relatingwhich was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The PeopleScout MSP goodwill impairment was related to our revised internal revenue projections, which anticipated the Staff Management, PlaneTechscurrent year declining trends would continue into future periods. These projections were updated based on our then-current outlook and hrXrecent industry analysis, which indicated that our business would underperform due to a strategic lack of investment in technology within an increasingly competitive market. The remaining goodwill balance for the PeopleScout MSP reporting unitsunit was $0.8 million as follows:of December 31, 2023.
Additionally, following performance of the annual impairment test, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred. Accordingly, no further impairment loss was recognized during the fiscal year ended December 31, 2023.
Intangible assets
Staff Management: In April 2016, we were notified byFinite-lived intangible assets
The following table presents our former largest customer of its plans to reduce the use of contingent labor and realign its contingent labor vendors for warehousing. Our former largest customer announced it would be reducing the usepurchased finite-lived intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 25, 2022 |
| (in thousands) | Gross carrying amount | Accumulated
amortization | Net
carrying
amount | | Gross carrying amount | Accumulated
amortization | Net
carrying
amount |
| Finite-lived intangible assets (1): | | | | | | | |
| Customer relationships | $ | 94,270 | | $ | (90,149) | | $ | 4,121 | | | $ | 94,134 | | $ | (84,994) | | $ | 9,140 | |
| Trade names/trademarks | 1,653 | | (649) | | 1,004 | | | 1,569 | | (504) | | 1,065 | |
| | | | | | | |
| | | | | | | |
| Total finite-lived intangible assets | $ | 95,923 | | $ | (90,798) | | $ | 5,125 | | | $ | 95,703 | | $ | (85,498) | | $ | 10,205 | |
(1)Excludes assets that are fully amortized.
Amortization expense of our servicesfinite-lived intangible assets was $5.2 million, $5.7 million and $6.7 million for its warehouse fulfillment centers in the United Statesfiscal years ended December 31, 2023, December 25, 2022 and focusing our services on its planned expansionDecember 26, 2021, respectively.
The following table provides the estimated future amortization of distribution service sites to a national network for delivery direct to the customer.
| |
◦ | Goodwill impairment - We estimated that the change in scope of our services would decrease revenues by approximately $125 million compared to the prior year. As a result, we lowered our future expectations, which resulted in a goodwill impairment charge of $33.7 million.
|
| |
◦ | Intangible asset impairment - The significant decrease in scope of services by our former largest customer required us to lower our future expectations, which was the primary trigger of an impairment charge to our acquired customer relationships intangible asset of $28.9 million and indefinite-livedfinite-lived intangible assets trade name of $4.5 million. Considerable management judgment was necessary to determine key assumptions, including projected revenue, royalty rates, and an appropriate discount rate of 13.0% for the customer relationships intangibles asset and 17.0% for the indefinite-lived trade-name. In addition, we utilized the relief from royalty method to determine the fair value of Staff Management’s indefinite-lived trade name using a royalty rate of 10.0%.
|
PlaneTechs: Revenue declined significantly compared to fiscal 2015 as large projects were completed for a major aviation customer and its supply chain and anticipated projectsof December 31, 2023:
| | | | | |
| (in thousands) | |
| 2024 | $ | 4,049 | |
| 2025 | 309 | |
| 2026 | 118 | |
| 2027 | 118 | |
| 2028 | 118 | |
| Thereafter | 413 | |
| Total future amortization | $ | 5,125 | |
We did not occuridentify any events or conditions that make it more likely than not that an impairment of our finite-lived intangible assets may have occurred for the fiscal year ended December 31, 2023.
Indefinite-lived intangible assets
We held indefinite-lived trade names/trademarks of $5.4 million and $6.0 million as of December 31, 2023 and December 25, 2022, respectively, related to the extent expected. PlaneTechs has been diversifying from providing services to one primary customer without offsetting growth in the broader aviationbusinesses within our PeopleScout and transportation marketplace. PeopleManagement segments.
As a result of significantly underperforming against current year expectationsour 2023 annual impairment test, we concluded that the carrying amount of a trade name/trademark related to the PeopleManagement segment exceeded its estimated fair value and increased future uncertainty, we lowered our future expectations, which resulted inrecorded a goodwillnon-cash impairment charge of $17.0 million.
hrX: Sales$0.6 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of this service line included our internally developed applicant tracking software (“ATS”). ATS salesOperations and prospects have underperformed against our expectations. As aComprehensive Income (Loss) for the fiscal year ended December 31, 2023. The charge was primarily the result of underperforming againstan increase in the discount rate, as well as lower projected revenues given our expectations and increased future uncertainty in customer demand,then-current outlook. The remaining balance for this trade name/trademark was $3.3 million as of December 31, 2023.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Additionally, following performance of the annual impairment test, we lowered our future expectations, which resulted in adid not identify any additional events or conditions that make it more likely than not that an additional impairment may have occurred. Accordingly, no further impairment loss was recognized during the fiscal year ended December 31, 2023.
There were no goodwill or intangible asset impairment charge of $15.2 million. Note, our PeopleScout and hrX service lines were combinedcharges recorded during fiscal 2016 and now represent a single operating segment (PeopleScout).
2022 or 2021.Spartan and CLP Resources: In the third quarter of fiscal 2016, we finalized the changes to the organizational and reporting structure of our Labor Ready, Spartan Staffing and CLP Resources service lines, which resulted in them merging into one service line. The combined service line was re-branded as PeopleReady. As a result, we recognized an impairment charge of $4.3 million for the remaining net book value of the Spartan and CLP Resources trade name/trademarks intangible assets.
NOTE 7:WORKERS’6: WORKERS' COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporaryassociates and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0our $5.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of our PeopleReady service lines in the state of Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions. Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value usingvalue. The discount rates used to estimate net present value are based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. Theincurred and the weighted average discount rate was 1.8% and 1.6% at December 31, 2017 and January 1, 2017, respectively.duration of the payments against the self-insured claims. Payments made against self-insured claims are made over a weighted average period of approximately five5.5 years as of December 31, 2023. The weighted average discount rate was 2.4% and 2.0% at December 31, 2017.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
2023 and December 25, 2022, respectively.
The following table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented as follows:presented:
| | | (in thousands) | December 31,
2017 | January 1,
2017 | (in thousands) | December 31,
2023 | December 25,
2022 |
| Undiscounted workers’ compensation reserve | $ | 293,600 |
| $ | 292,169 |
|
| Less discount on workers’ compensation reserve | 19,277 |
| 14,818 |
|
| Workers’ compensation reserve, net of discount | 274,323 |
| 277,351 |
|
| Less current portion | 77,218 |
| 79,126 |
|
| Long-term portion | $ | 197,105 |
| $ | 198,225 |
|
Payments made against self-insured claims were $66.8$45.0 million, $73.6$39.4 million and $70.7$41.9 million for the fiscal years ended December 31, 2017, January 1, 20172023, December 25, 2022 and December 25, 2015,26, 2021, respectively.
Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred.incurred and the weighted average duration of the payments against the excess claims. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 1518 years. The rates used to discount excess claims incurred during the fiscal years ended December 31, 2023 and December 25, 2022 were 4.1% and 3.0%, respectively. The discounted workers’ compensation reserve for excess claims was $48.8were $54.9 million and $52.9$76.7 million, as of December 31, 20172023 and January 1, 2017,December 25, 2022, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45.0$53.8 million and $48.9$75.2 million as of December 31, 20172023 and January 1, 2017, respectively, and are included in other assets, net on the accompanying Consolidated Balance Sheets.December 25, 2022, respectively.
Management evaluates the adequacy
changes in medical and time loss (“indemnity”) costs; | | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
changes in mix between medical only and indemnity claims;
regulatory and legislative developments impacting benefits and settlement requirements;
type and location of work performed;
impact of safety initiatives; and
positive or adverse development of claims.
The table below presents the estimated future payout of our discounted workers’ compensation claims reserve for the next five years and thereafter as of December 31, 2017:2023:
| | | | | |
| (in thousands) | |
| 2024 | $ | 44,866 | |
| 2025 | 23,494 | |
| 2026 | 13,764 | |
| 2027 | 9,193 | |
| 2028 | 6,705 | |
| Thereafter | 43,566 | |
| Sub-total | 141,588 | |
| Excess claims (1) | 54,927 | |
| Total | $ | 196,515 | |
|
| | | |
| (in thousands) | |
| 2018 | $ | 76,536 |
|
| 2019 | 42,611 |
|
| 2020 | 24,429 |
|
| 2021 | 15,227 |
|
| 2022 | 10,187 |
|
| Thereafter | 56,507 |
|
| Sub-total | 225,497 |
|
| Excess claims (1) | 48,826 |
|
| Total | $ | 274,323 |
|
| |
(1) | Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements. |
Workers’ compensation expensecost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation expensecost of $83.7$20.1 million, $94.0$29.8 million and $98.2$39.8 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended December 31, 2017, January 1, 20172023, December 25, 2022 and December 25, 2015,26, 2021, respectively.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The components of our borrowings were as follows:
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Revolving Credit Facility | $ | 95,900 |
| $ | 112,507 |
|
| Term Loan | 22,856 |
| 25,122 |
|
| Total debt | 118,756 |
| 137,629 |
|
| Less current portion | 2,267 |
| 2,267 |
|
| Long-term debt, less current portion | $ | 116,489 |
| $ | 135,362 |
|
Revolving credit facility
Effective June 30, 2014, we entered intoWe have a Second Amended and Restated Revolving Credit Agreement for a secured revolving credit facility of $300.0 millionagreement with Bank of America, N.A., Wells Fargo Bank, National Association,N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A., which provides for a revolving line of credit of up to $300.0 million, and PNC Capital Markets LLCmatures on March 16, 2025 (“Revolving Credit Facility”). The Revolving Credit Facility, which matures June 30, 2019, amended and restated our previous credit facility.
The maximumWe have an option to increase the amount we can borrow underto $450.0 million, subject to lender approval. Included in the Revolving Credit Facility is subject to certain borrowing limits. Specifically, we are limited to the suma $30.0 million sub-limit for “Swingline” loans and a $125.0 million sub-limit for letters of 90% of our eligible billed accounts receivable, plus 85% of our eligible unbilled accounts receivable limited to 15% of all our eligible receivables, plus the value of our Tacoma headquarters office building. The real estate lending limit is $17.4 million, and is reduced by $0.4 million on the first day of each calendar quarter. As of December 31, 2017, the Tacoma headquarters office building liquidation value totaled $11.8 million. The borrowing limit is further reduced by the sum of a reserve in an amount equal to the payroll and payroll taxes for our temporary employees for one payroll cycle and certain other reserves, if deemed applicable. Each borrowing has a stated maturity of 90 days or less.credit. At December 31, 2017, $221.5 million was available under the Revolving Credit Facility, $95.9 million was utilized as a draw on the facility, and $8.32023, $6.2 million was utilized by outstanding standby letters of credit, leaving $117.4$293.8 million available for additional borrowings. The letters of credit are primarily used to collateralize a portion of our workers’ compensation obligation.
Excess liquidity is an amount equal to the unused borrowing capacity under the Revolving Credit Facility, plus certain unrestricted cash, cash equivalents and marketable securities. We are required to satisfy a fixed charge coverage ratio in the event we do not meet the excess liquidity requirement. Thewhich is constrained by our most restrictive covenant making $85.9 million available for additional amount available to borrow atborrowing. At December 31, 201725, 2022, $7.2 million was $117.4 million and the amountutilized by outstanding standby letters of cash and cash equivalents under control agreements was $19.0 million, for a total of $136.4 million, which was well in excess of the $37.5 million liquidity requirement in effect on December 31, 2017. We are currently in compliance with all covenants related to the Revolving Credit Facility.
credit.
Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed that isunder the revolving line of credit in excess of the Swingline loans, based on London Interbank Offeredthe Secured Overnight Financing Rate (LIBOR)(“SOFR”), plus an adjustment of 0.10%, plus an applicable spread between 1.25% and 2.00%3.50%. Alternatively, at our option, we may pay interest based uponon a base rate plus an applicable spread between 0.25% and 1.00%1.50%. The applicable spread is determined by certain liquidity to debt ratios. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%. At December 31, 2017, theThe applicable spread is determined by the consolidated leverage ratio, as defined under the Revolving Credit Facility.
Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on LIBOR was 1.75% andfunds borrowed under the applicable spreadSwingline loan based on the base rate was 1.38%. As of December 31, 2017, the weighted average interest rate on outstanding borrowings was 3.13%.
plus applicable spread between 0.25% and 1.50%, as described above.
A commitment fee of 0.375%between 0.25% and 0.50% is applied against the Revolving Credit Facility’s unused borrowing capacity, when utilization is less than 25%, or 0.25% when utilization is greater than or equalwith the specific rate determined by the consolidated leverage ratio, as defined in the second amendment to 25%.our credit agreement. Letters of credit are priced at thea margin in effect for LIBOR loans,between 1.00% and 3.25%, plus a fronting fee of 0.125%0.50%.
Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by a pledge of substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The Revolving Credit Facility has variable rate interestsecond amendment to our credit agreement contains customary representations and approximates fair valuewarranties, events of default, and affirmative and negative covenants, including, among others, financial covenants.
The following financial covenants, as defined in the second amendment to our credit agreement, were in effect as of December 31, 2017 and January 1, 2017.2023:
•Consolidated leverage ratio less than 3.00, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the second amendment to our credit agreement. As of December 31, 2023, our consolidated leverage ratio was 0.20.
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
•Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense. As of December 31, 2023, our consolidated fixed charge coverage ratio was 15.16.
Term loan agreementAs of December 31, 2023, and throughout fiscal 2023, we were in compliance with all effective covenants related to the Revolving Credit Facility.
Subsequent event
On February 4, 2013,9, 2024, we entered into an unsecured Term Loan Agreement (“Term Loan”)amended and restated revolving credit agreement with Synovus Bank in the principal amount of $34.0 million. The Term Loan has a five-year maturity with fixed monthly principal payments, which total $2.3 million annually based on a loan amortization term of 15 years. Interest accrues at the one-month LIBOR index rate plus an applicable spread of 1.50%America, N.A., which is paid in addition to the principal payments. At our discretion, we may elect to extend the term of the Term Loan by five consecutive one-year extensions. In October 2017, we extended the term of the Term Loan for one year. At December 31, 2017, the interest rate for the Term Loan was 2.86%.
At December 31, 2017, the remaining balance of the Term Loan was $22.9 million, of which $2.3 million is currentPNC Bank, N.A., HSBC Bank USA, N.A., Wells Fargo Bank, N.A., and is included in other current liabilities on our Consolidated Balance Sheets. The Term Loan has variable rate interest and approximates fair valueKey Bank, N.A. dated as of December 31, 2017 and January 1, 2017.
February 9, 2024 (the “2024 Revolving Credit Facility”). The scheduled principal payments for debt are as follows:
|
| | | |
| (in thousands) | |
| 2018 | $ | 2,267 |
|
| 2019 | 20,589 |
|
| Total | $ | 22,856 |
|
Our obligations under the Term Loan may be accelerated upon the occurrence of an event of default under the Term Loan, which includes customary events of default, as well as cross-defaults related to indebtedness under our2024 Revolving Credit Facility provides for a revolving line of credit of up to $255.0 million, and other Term Loan specific defaults. The Term Loan contains customary negative covenants applicablematures on February 9, 2029. We have an option to increase the companyamount to $405.0 million, subject to lender approval. Included in the 2024 Revolving Credit Facility is a $25.0 million sub-limit for “Swingline” loans and our subsidiaries such as indebtedness, certain dispositionsa $25.0 million sub-limit for letters of property, the imposition of restrictions on payments under the Term Loan, and other Term Loan specific covenants. We are currently in compliance with all covenants related to the Term Loan.credit.
| |
NOTE 9: | NOTE 8: COMMITMENTS AND CONTINGENCIES |
Workers’ compensationcommitments
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. The collateral typically takes the form of cash and cash equivalents, highly-rated investment grade debt securities, letters of credit, and/or surety bonds. On a regular basis these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. The majority of our collateral obligations are held in the Trust.
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
| | | | | | | | |
| (in thousands) | December 31,
2023 | December 25,
2022 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 17,737 | | $ | 23,716 | |
| Cash and cash equivalents held in Trust | 12,703 | | 30,857 | |
| Investments held in Trust | 122,659 | | 123,678 | |
| Letters of credit (1) | 6,077 | | 6,077 | |
| Surety bonds (2) | 20,725 | | 20,806 | |
| Total collateral commitments | $ | 179,901 | | $ | 205,134 | |
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Cash collateral held by workers’ compensation insurance carriers | $ | 22,148 |
| $ | 28,066 |
|
| Cash and cash equivalents held in Trust | 16,113 |
| 32,841 |
|
| Investments held in Trust | 171,752 |
| 146,517 |
|
| Letters of credit (1) | 7,748 |
| 7,982 |
|
| Surety bonds (2) | 19,829 |
| 20,440 |
|
| Total collateral commitments | $ | 237,590 |
| $ | 235,846 |
|
| |
(1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
| |
(2) | (2)Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice. |
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.
Operating leases
We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 13 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options is at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances.
Operating lease costs were comprised of the following:
| | | | | | | | |
| |
| (in thousands) | 2023 | 2022 |
| Operating lease costs | $ | 14,710 | | $ | 14,994 | |
| Short-term lease costs (1) | 6,915 | | 7,487 | |
| Other lease costs, net (2) | 3,748 | | 4,501 | |
| Total lease costs | $ | 25,373 | | $ | 26,982 | |
(1)Excludes expenses related to leases with a lease term of less than one month.
(2)Other lease costs include variable lease costs, net of rental and sublease income.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Other information related to our operating leases was as follows:
| | | | | | | | |
| December 31,
2023 | December 25,
2022 |
| Weighted average remaining lease term in years | 7.6 | 8.3 |
| Weighted average discount rate | 4.9% | 4.9% |
Future non-cancelable minimum lease payments under our operating lease commitments as of December 31, 20172023, are as follows for each of the next five years and thereafter:
| | | | | |
| (in thousands) | |
| 2024 | $ | 14,961 | |
| 2025 | 12,465 | |
| 2026 | 9,639 | |
| 2027 | 7,558 | |
| 2028 | 5,882 | |
| Thereafter | 24,589 | |
| Total undiscounted future non-cancelable minimum lease payments (1) | 75,094 | |
| Less: Imputed interest (2) | 12,578 | |
| Less: Present value of operating lease liabilities held-for-sale | 1,180 | |
| Present value of lease liabilities | $ | 61,336 | |
|
| | | |
| (in thousands) | |
| 2018 | $ | 8,779 |
|
| 2019 | 7,132 |
|
| 2020 | 6,370 |
|
| 2021 | 4,253 |
|
| 2022 | 1,218 |
|
| Thereafter | 502 |
|
| Total future non-cancelable minimum lease payments | $ | 28,254 |
|
Operating(2)Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases are generally renewed in the normal course of business, and mostexistence as of the options are negotiated atadoption date of the time of renewal. However, fornew lease standard) or lease inception (for those leases entered into after the majority of our office space leases, we have the right to cancel the lease, typically within 90 days of notification. Accordingly, we have not included the leases with these cancellation provisions in our disclosure of future minimum lease payments. Total rent expense for fiscal 2017, 2016 and 2015 was $25.9 million, $26.5 million and $23.1 million, respectively.
adoption date).
Purchase obligations
Purchase obligations include agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancelablecancellable without significant penalty. We had $27.6$37.4 million of purchase obligations as of December 31, 2017,2023, of which $9.2$17.7 million are expected to be paid in 2018.
2024, $16.1 million in 2025, and the remaining $3.6 million in 2026.
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The resolutionestimated and are immaterial. We also believe that the aggregate range of those proceedingsreasonably possible losses for the Company's exposure in excess of the amount accrued is not expected to be immaterial to the Company. It remains possible that despite our current belief, material differences in actual outcomes or changes in management's evaluation or predictions could arise that could have a material effect on ourthe Company's financial condition, results of operations or financial condition.cash flows.
| |
NOTE 10: | SHAREHOLDERS’ EQUITY |
NOTE 9: SHAREHOLDERS' EQUITY
Common stock
During fiscal 2017, we repurchasedShares of common stock outstanding include shares using the remaining $29.4of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.1 million available under our $75.0 million share repurchase program. Under this program we repurchased and retired 4.80.2 million shares as of our common stock at an average share price of $15.52, which excludes commissions. December 31, 2023 and December 25, 2022, respectively.
On September 15, 2017,October 16, 2019, our Board of Directors authorized a $100.0 million addition to our share repurchase program offor our outstanding common stock.stock (“2019 authorization”). On January 31, 2022, our Board authorized a $100.0 million addition to our share repurchase program for our outstanding common stock (“2022 authorization”). The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. DuringWe may choose to purchase shares in the year ended December 31, 2017,open market, from individual holders, through an accelerated share repurchase agreement or otherwise.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Under the 2019 authorization, we used $7.3repurchased shares during fiscal 2021 using $16.7 million, under this new program to repurchaseand during fiscal 2022 using the remaining $50.0 million. The 2019 authorization was fully utilized as of April 2022. Under the 2019 authorization, we repurchased and retired a total of 4.7 million shares of our common stock over three fiscal years, at an average share price of $27.90.$21.09. Under the 2022 authorization we repurchased shares using $33.9 million during fiscal 2023 and $11.0 million during fiscal 2022.
SharesThe details of common stock outstanding include shares repurchased in the open market as part of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.8 million and 0.7 million sharesthe authorizations described above are as of December 31, 2017 and January 1, 2017, respectively.follows:
| | | | | | | | | | | | | | | | | |
| | | Shares repurchased (in thousands) |
| | | Year ended |
| Authorization | Amount authorized (in millions) | Remaining available (in millions) | 2023 | 2022 | 2021 |
| 2019 Authorization | $ | 100.0 | | $ | — | | — | | 1,800 | | 620 | |
| 2022 Authorization | $ | 100.0 | | $ | 55.1 | | 1,877 | | 434 | | — | |
| | | 1,877 | 2,234 | 620 |
| | | | | |
| | | | | |
| | | | | |
Preferred stock
We have authorized 2020.0 million shares of blank check preferred stock. The blank check preferred stock is issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as our Board of Directors may determine and set forth in supplemental resolutions at the time of issuance, without further shareholder action. The initial series of blank check preferred stock authorized by the Board of Directors was designated as Series A Preferred Stock. We had no outstanding shares of preferred stock in any of the years presented.
| |
NOTE 11: | NOTE 10: STOCK-BASED COMPENSATION |
We record stock-based compensation expense for restricted and unrestricted stock awards, restricted stock units, performance share units (collectively, “stock-based awards”), and shares purchased under an employee stock purchase plan.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
plan (“ESPP”).
Our 2016 Omnibus Incentive Plan (“Incentive Plan”), effective May 11, 2016, (“Incentive Plan”), provides forapplies to directors, officers, employees and consultants of the issuance or deliveryCompany and permits the granting of up to 1.54nonqualified and incentive stock options, restricted stock awards, performance share units, restricted stock units and stock appreciation rights. At the time of adoption, there were 1.5 million shares of our common stock overavailable for issuance. Effective May 9, 2018, an additional 1.8 million shares were authorized under the full term ofIncentive Plan. Additionally, effective May 11, 2023, an additional 0.7 million shares were authorized under the Incentive Plan.
Stock-based awards
Restrictedand unrestricted stock awards and performance share units
Under the Incentive Plan, restricted stockstock-based awards are granted to the Board, executive officers and key employees. Stock-based awards granted to executive officers and key employees andgenerally vest annually over three or four years. UnrestrictedRestricted stock awardsunits granted to members of our Board vest in the fourth quarter of Directors vest immediately. Restricted and unrestricted stock-based compensationthe same fiscal year in which the shares are granted. Receipt of the vested shares may be deferred until after a director leaves the Board. Compensation expense related to these grants is calculated based on the grant-date marketfair value. We recognize compensation expense on a straight-line basis over the vesting period, net of estimated forfeitures.
Performance share units have beenare only granted to certain executive officers and certain key employees.officers. Vesting of the performance share units is contingent upon the achievement of revenue andreturn on equity, profitability, growthor individual performance goals at the end of each three-year performance period.period, which is generally three years. Each performance share unit is equivalent to one share of common stock. Compensation expense for these grants is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period only for the performance share units which are expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter.
Restricted and unrestricted stock awards and performance share unitsPage - 66
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Stock-based award activity for the fiscal year ended December 31, 2017,2023, was as follows:
| | | (shares in thousands) | Shares | Weighted- average grant-date price | (shares in thousands) | Shares | Weighted-average grant-date fair value |
| Non-vested at beginning of period | 1,209 |
| $ | 22.76 |
|
| Granted | 657 |
| $ | 25.45 |
|
| Vested | (438 | ) | $ | 23.73 |
|
| Forfeited | (107 | ) | $ | 24.65 |
|
| Non-vested at the end of the period | 1,321 |
| $ | 23.50 |
|
The weighted averagefollowing table summarizes the weighted-average grant-date price of restricted and unrestricted stockfair value per share for stock-based awards and performance share units granted during the years 2016 and 2015 was $21.53 and $23.03, respectively. granted:
| | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Weighted-average grant-date fair value | $17.77 | $25.51 | $20.21 |
As of December 31, 2017,2023, total estimated unrecognized stock-based compensation expense relatedwas $14.2 million. We expect to non-vested restricted stock was approximately $11.9 million, which is estimated to be recognizedrecognize this expense over a weighted average remaining period of 1.7 years. As of December 31, 2017, total unrecognized stock-based compensation expense related to performance share units was approximately $2.1 million, which is estimated to be recognized over a weighted average period of 2.0 years. The total fair value of restricted sharesstock-based awards that vested during fiscal 2017, 20162023, 2022 and 20152021 was $6.9$12.2 million, $6.6$13.9 million and $6.2$20.6 million, respectively. The total fair value of performance shares vested during fiscal 2017, 2016 and 2015 was $2.9 million, $3.3 million and $4.0 million, respectively.
Stock options
Our Incentive Plan provides for both nonqualified stock options and incentive stock options (collectively, “stock options”) for directors, officers and certain employees. We issue new shares of common stock upon exercise of stock options. All of our stock options are vested and expire if not exercised within seven years from the date of grant. Stock option activity was de minimis for fiscal 2017, 2016 and 2015.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (“ESPP”) reserves for purchaseAt the time of adoption in 2010, there was 1.0 million shares of common stock.stock authorized for purchase under our ESPP. Effective May 11, 2023, an additional 1.0 million shares of common stock were authorized for purchase under our ESPP. The plan allows eligible employees to contribute up to 10% of their earnings toward the monthly purchase of the company’s common stock. The employee’s purchase price is 85% of the lesser of the fair market value of sharescompany’s common stock price on either the first day or the last day of each calendar month. We consider our ESPP to be a component of our stock-based compensation and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan. The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes transactions under our ESPP from fiscal 2017, 2016 and 2015:ESPP:
|
| | | | | | |
| (shares in thousands) | | Shares | Average price per
share |
| Issued during fiscal | 2017 | 72 |
| $ | 20.43 |
|
| Issued during fiscal | 2016 | 87 |
| $ | 17.51 |
|
| Issued during fiscal | 2015 | 68 |
| $ | 20.65 |
|
| | | | | | | | | | | |
| (shares in thousands) | 2023 | 2022 | 2021 |
| Shares issued | 63 | | 52 | | 44 | |
| Average price per share | $ | 13.58 | | $ | 18.85 | | $ | 19.77 | |
Stock-based compensation expense
Total stock-based compensation expense for fiscal years 2017, 20162023, 2022 and 2015,2021, which is included in Selling, general and administrativeSG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was $7.7$13.9 million, $9.4$9.7 million and $11.1$13.9 million, respectively. The related tax benefit was $2.7$2.9 million, $3.3$2.0 million and $3.9$2.9 million for fiscal 2017, 20162023, 2022 and 2015,2021, respectively.
| |
NOTE 12: | NOTE 11: DEFINED CONTRIBUTION PLANS |
We offer both qualified and non-qualified defined contribution plans to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The plans offer discretionary matching contributions. The liability for the non-qualified plansplan was $24.1$41.0 million and $17.8$31.3 million as of December 31, 20172023 and January 1, 2017, respectively. The currentDecember 25, 2022, respectively, of which $5.8 million and non-current portion of the deferred compensation liability is$5.1 million have been included in other current liabilitiesaccrued wages and other long-term liabilities, respectively, on our Consolidated Balance Sheets, and is largely offset by restricted investments recorded in restricted cash and investmentsbenefits on our Consolidated Balance Sheets. The net expense forrelated to our qualified and non-qualified deferred compensation plans including our discretionary matching contributions, totaled $6.1$4.1 million, $5.1 million and $6.5 million for fiscal 20172023, 2022 and $2.8 million for 2016 and 2015,2021, respectively, and is recorded in selling, general and administrativeSG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). The net expense includes changes in cash surrender value of the company-owned life insurance policies held to support the deferred compensation liability, premiums incurred for and proceeds received from company-owned life insurance, unrealized gains (losses) on deferred compensation liabilities, as well as our discretionary matching contributions. Refer to Note 3: Restricted Cash and Investments for additional details on deferred compensation assets.
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
NOTE 12: INCOME TAXES
The provision for income taxes is comprised of the following:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Current taxes: | | | |
| Federal | $ | 12,134 |
| $ | 12,082 |
| $ | 12,665 |
|
| State | 3,979 |
| 5,448 |
| 5,611 |
|
| Foreign | 3,545 |
| 2,677 |
| 1,882 |
|
| Total current taxes | 19,658 |
| 20,207 |
| 20,158 |
|
| Deferred taxes: | | | |
| Federal | 3,645 |
| (20,693 | ) | 4,963 |
|
| State | (195 | ) | (4,064 | ) | 81 |
|
| Foreign | (1,014 | ) | (539 | ) | (2 | ) |
| Total deferred taxes | 2,436 |
| (25,296 | ) | 5,042 |
|
| Provision for income taxes | $ | 22,094 |
| $ | (5,089 | ) | $ | 25,200 |
|
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| | | | | | | | | | | |
| |
| (in thousands) | 2023 | 2022 | 2021 |
| Current taxes: | | | |
| Federal | $ | 329 | | $ | 1,360 | | $ | 4,925 | |
| State | 582 | | 1,397 | | 4,067 | |
| Foreign | 2,817 | | 4,635 | | 2,393 | |
| Total current taxes | 3,728 | | 7,392 | | 11,385 | |
| Deferred taxes: | | | |
| Federal | (8,109) | | 3,434 | | 617 | |
| State | (1,383) | | 345 | | 88 | |
| Foreign | (708) | | (28) | | 126 | |
| Total deferred taxes | (10,200) | | 3,751 | | 831 | |
| Provision for income taxes | $ | (6,472) | | $ | 11,143 | | $ | 12,216 | |
The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported inon the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
| | | | Years ended |
| (in thousands, except percentages) | |
| (in thousands, except percentages) | |
| (in thousands, except percentages) | 2017 | % | 2016 | % | 2015 | % | 2023 | % | 2022 | % | 2021 | % |
| Income tax expense (benefit) based on statutory rate | $ | 27,140 |
| 35.0 | % | $ | (7,119 | ) | 35.0 | % | $ | 33,745 |
| 35.0 | % | Income tax expense (benefit) based on statutory rate | $ | (4,335) | | 21.0 | 21.0 | % | $ | 15,417 | | 21.0 | 21.0 | % | $ | 15,508 | | 21.0 | 21.0 | % |
| Increase (decrease) resulting from: | | | | | | |
| State income taxes, net of federal benefit | 2,667 |
| 3.4 | % | 1,373 |
| (6.8 | )% | 4,175 |
| 4.3 | % |
| Tax credits, net | (9,964 | ) | (12.9 | )% | (17,141 | ) | 84.3 | % | (14,483 | ) | (15.0 | )% |
| Transition to the U.S. Tax Cuts and Job Act | 2,466 |
| 3.2 | % | — |
| — | % | — |
| — | % |
| State income taxes, net of federal benefit | |
| State income taxes, net of federal benefit | |
| Hiring tax credits, net | |
| CARES Act | |
| Uncertain tax positions | |
| Non-deductible goodwill impairment charge | — |
| — | % | 17,694 |
| (87.0 | )% | — |
| — | % |
| Non-deductible/non-taxable items | 1,157 |
| 1.5 | % | 630 |
| (3.1 | )% | 2,456 |
| 2.5 | % |
| Non-deductible and non-taxable items | |
| Foreign taxes | (342 | ) | (0.4 | )% | 993 |
| (4.8 | )% | (933 | ) | (1.0 | )% |
| Other, net | (1,030 | ) | (1.3 | )% | (1,519 | ) | 7.4 | % | 240 |
| 0.3 | % |
| Total taxes on income (loss) | $ | 22,094 |
| 28.5 | % | $ | (5,089 | ) | 25.0 | % | $ | 25,200 |
| 26.1 | % |
| Total income tax expense (benefit) | | Total income tax expense (benefit) | $ | (6,472) | | 31.3 | % | $ | 11,143 | | 15.2 | % | $ | 12,216 | | 16.5 | % |
Our effective tax rate for fiscal 20172023 was 28.5%31.3%. The difference between the statutory federal income tax rate of 35.0%21.0% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”). This tax credit is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. During fiscal 2017, we recognized $1.4 million of tax benefits from prior year WOTC. Other differences betweenhiring tax credits and state income taxes, partially offset by the statutory federal incomenon-deductible goodwill impairment charge and other non-deductible and non-taxable items.
Of the total goodwill and intangible asset impairment charge of $9.5 million recorded during fiscal 2023, $8.9 million (tax effect of $2.3 million) related to goodwill from a stock acquisition, and accordingly was not deductible for tax rate of 35.0% and our effective tax rate of 28.5% result from statepurposes.
U.S. and foreign components of income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share based compensation. Differences also result from the U.S. Tax Cuts and Job Act (the “Tax Act”) enacted December 22, 2017.
As a result of the Tax Act, we recognized $2.5 million of additional(loss) before tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0% to 21.0%. Upon completion of our fiscal 2017 U.S. income tax return in 2018, we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets. We will continue to assess our provision for income taxes(benefit) was as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.follows:
| | | | | | | | | | | |
| |
| (in thousands) | 2023 | 2022 | 2021 |
| U.S. | $ | (27,773) | | $ | 56,964 | | $ | 61,433 | |
| Foreign | 7,128 | | 16,452 | | 12,417 | |
| Income (loss) before tax expense (benefit) | $ | (20,645) | | $ | 73,416 | | $ | 73,850 | |
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The components of deferred tax assets and liabilities were as follows:
| | | | | | | | |
| (in thousands) | December 31,
2023 | December 25,
2022 |
| Deferred tax assets: | | |
| Allowance for credit losses | $ | 590 | | $ | 869 | |
| | |
| Accounts payable and other accrued expenses | 11,242 | | 9,641 | |
| Net operating loss carryforwards | 7,535 | | 1,243 | |
| Tax credit carryforwards | 16,030 | | 9,801 | |
| Accrued wages and benefits | 7,311 | | 8,877 | |
| | |
| Deferred compensation | 12,356 | | 8,641 | |
| Lease liabilities | 17,378 | | 16,025 | |
| Other | 371 | | 368 | |
| Total | 72,813 | | 55,465 | |
| Valuation allowance | (834) | | (2,152) | |
| Total deferred tax asset, net of valuation allowance | 71,979 | | 53,313 | |
| Deferred tax liabilities: | | |
| Prepaid expenses, deposits and other current assets | (655) | | (583) | |
| Lease right-of-use assets | (14,052) | | (12,909) | |
| Depreciation and amortization | (21,958) | | (14,100) | |
| Workers’ compensation | (192) | | (347) | |
| | |
| Total deferred tax liabilities | (36,857) | | (27,939) | |
| Deferred income taxes, net | $ | 35,122 | | $ | 25,374 | |
|
| | | | | | |
| (in thousands) | December 31,
2017 | January 1,
2017 |
| Deferred tax assets: | | |
| Allowance for doubtful accounts | $ | 876 |
| $ | 1,970 |
|
| Workers’ compensation | 1,420 |
| — |
|
| Accounts payable and other accrued expenses | 4,000 |
| 8,577 |
|
| Net operating loss carryforwards | 2,388 |
| 2,287 |
|
| Tax credit carryforwards | 1,615 |
| 2,835 |
|
| Accrued wages and benefits | 4,644 |
| 9,470 |
|
| Deferred compensation | 4,484 |
| 7,003 |
|
| Other | 841 |
| 1,090 |
|
| Total | 20,268 |
| 33,232 |
|
| Valuation allowance | (2,508 | ) | (2,266 | ) |
| Total deferred tax asset, net of valuation allowance | 17,760 |
| 30,966 |
|
| Deferred tax liabilities: | | |
| Prepaid expenses, deposits and other current assets | (2,096 | ) | (2,697 | ) |
| Depreciation and amortization | (11,881 | ) | (18,330 | ) |
| Workers’ compensation | — |
| (3,169 | ) |
| Total deferred tax liabilities | (13,977 | ) | (24,196 | ) |
| Net deferred tax (liabilities) asset, end of year | $ | 3,783 |
| $ | 6,770 |
|
DeferredBased on our deferred tax asset realizability analysis, we have determined that a valuation allowance is appropriate for certain tax credits and net operating losses (“NOLs”) that we expect will not be utilized within the permitted carryforward periods as of December 31, 2023 and December 25, 2022. Changes to deferred taxes related to our foreign currency translation were de minimisimmaterial for fiscal 2017, 20162023, 2022 and 2015.
2021. The following table summarizes our net operating losses (“NOLs”)credit carryforwards and credit carryforwardsNOLs along with their respective valuation allowance as of December 31, 2017:2023:
| | | | | | | | | | | | | | |
| (in thousands) | Carryover tax benefit | Valuation allowance | Expected
benefit | Year expiration begins |
| Year-end tax attributes: | | | | |
| Federal WOTCs | $ | 16,030 | | $ | — | | $ | 16,030 | | 2039 |
| State NOLs | 2,808 | | (834) | | 1,974 | | Various |
| Federal NOLs | 4,727 | | — | | 4,727 | | Indefinite |
| | | | |
| Foreign alternative minimum tax credits | 287 | | — | | 287 | | 2033 |
| Total | $ | 23,852 | | $ | (834) | | $ | 23,018 | | |
The activity related to the income tax valuation allowance was as follows:
| | | | | | | | | | | |
| (in thousands) | 2023 | 2022 | 2021 |
| Beginning balance | $ | 2,152 | | $ | 2,368 | | $ | 3,072 | |
| | | |
| Charged to expense | (58) | | (216) | | 26 | |
| | | |
| Release of allowance | (1,260) | | — | | (730) | |
| Ending balance | $ | 834 | | $ | 2,152 | | $ | 2,368 | |
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | |
| (in thousands) | Carryover tax benefit | Valuation allowance | Expected benefit | Year expiration begins |
| Year-end tax attributes: | | | | |
| State NOLs | $ | 1,593 |
| $ | (349 | ) | $ | 1,244 |
| Various |
| Foreign NOLs | 795 |
| (795 | ) | — |
| Various |
| California Enterprise Zone credits (1) | 1,615 |
| (1,364 | ) | 251 |
| 2023 |
| Total | $ | 4,003 |
| $ | (2,508 | ) | $ | 1,495 |
| |
| |
(1) | The California Enterprise Zone credits fully expire in 2023. |
We have not provided for deferred income taxes relatingThe following table summarizes the activity related to undistributed foreign earnings as we consider those earning to be permanently invested. Determination of theour unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.benefits:
| | | | | | | | | | | |
| (in thousands) | 2023 | 2022 | 2021 |
| Beginning balance | $ | 830 | | $ | 1,881 | | $ | 1,930 | |
| Increases for tax positions related to the current year | 124 | | 53 | | 188 | |
| | | |
| Decreases for tax positions related to prior years | — | | — | | (52) | |
| Reductions due to lapsed statute of limitations | (362) | | (1,104) | | (185) | |
| Ending balance | $ | 592 | | $ | 830 | | $ | 1,881 | |
As of December 31, 2017,2023, our liability for unrecognized tax benefits was $2.2$0.6 million. If recognized, $1.7$0.5 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the fiscal year ended December 31, 2017. This liability is recorded in other non-current liabilities on our Consolidated Balance Sheets.2023. In general, the tax years 20142020 through 20162022 remain open to examination by the major taxing jurisdictions where we conduct business.
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
The following table summarizes the activity related to our unrecognized tax benefits:
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of fiscal year | $ | 2,242 |
| $ | 2,195 |
| $ | 2,039 |
|
| Increases for tax positions related to the current year | 356 |
| 348 |
| 436 |
|
| Reductions due to lapsed statute of limitations | (388 | ) | (301 | ) | (280 | ) |
| Balance, end of fiscal year | $ | 2,210 |
| $ | 2,242 |
| $ | 2,195 |
|
We recognize interestInterest and penalties accrued related to unrecognized tax benefits within income tax expense on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. Related to the unrecognized tax benefits noted above we accrued a de minimis amount for interest and penalties during fiscal 2017 and, in total,were immaterial as of December 31, 2017, have recognized a liability for penalties of $0.2 million and interest of $0.9 million.2023.
| |
NOTE 14: | NOTE 13: NET INCOME (LOSS) PER SHARE |
Diluted common shares were calculated as follows:
| | | | | | | | | | | |
| |
| (in thousands, except per share data) | 2023 | 2022 | 2021 |
| Net income (loss) | $ | (14,173) | | $ | 62,273 | | $ | 61,634 | |
| | | |
| Weighted average number of common shares used in basic net income (loss) per common share | 31,317 | | 32,889 | | 34,798 | |
| Dilutive effect of non-vested stock-based awards | — | | 558 | | 636 | |
| Weighted average number of common shares used in diluted net income (loss) per common share | 31,317 | | 33,447 | | 35,434 | |
| Net income (loss) per common share: | | | |
| Basic | $ | (0.45) | | $ | 1.89 | | $ | 1.77 | |
| Diluted | $ | (0.45) | | $ | 1.86 | | $ | 1.74 | |
| | | |
| Anti-dilutive shares | 1,343 | | 394 | | 36 | |
|
| | | | | | | | | |
| | Years ended |
| (in thousands, except per share data) | 2017 | 2016 | 2015 |
| Net income (loss) | $ | 55,456 |
| $ | (15,251 | ) | $ | 71,247 |
|
| | | | |
| Weighted average number of common shares used in basic net income (loss) per common share | 41,202 |
| 41,648 |
| 41,226 |
|
| Dilutive effect of non-vested restricted stock | 239 |
| — |
| 396 |
|
| Weighted average number of common shares used in diluted net income (loss) per common share | 41,441 |
| 41,648 |
| 41,622 |
|
| Net income (loss) per common share: | | | |
| Basic | $ | 1.35 |
| $ | (0.37 | ) | $ | 1.73 |
|
| Diluted | $ | 1.34 |
| $ | (0.37 | ) | $ | 1.71 |
|
| | | | |
| Anti-dilutive shares | 418 |
| — |
| 89 |
|
| |
NOTE 15: | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Accumulated other comprehensive income (loss) is reflected asAs we reported a net increase (decrease) to shareholders’ equity and consists of foreign currency translation adjustments andloss for the unrealized gains and losses, net of taxes, on available-for-sale securities. Changes in the balance of each component of accumulated other comprehensive income (loss) during the years ended December 31, 2017 and January 1, 2017 were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Years ended |
| | December 31, 2017 | | January 1, 2017 |
| (in thousands) | Balance at beginning of period | Current period other comprehensive income | Balance at end of period | | Balance at beginning of period | Current period other comprehensive income | Balance at end of period |
| Foreign currency translation adjustment | $ | (11,684 | ) | $ | 3,355 |
| $ | (8,329 | ) | | $ | (13,514 | ) | $ | 1,830 |
| $ | (11,684 | ) |
| Unrealized gain (loss) on investments (1) | 251 |
| 1,274 |
| 1,525 |
| | (499 | ) | 750 |
| 251 |
|
| Total other comprehensive income (loss), net of tax | $ | (11,433 | ) | $ | 4,629 |
| $ | (6,804 | ) | | $ | (14,013 | ) | $ | 2,580 |
| $ | (11,433 | ) |
| |
(1) | Consists of deferred compensation plan accounts, which are comprised of mutual funds classified as available-for-sale securities. The tax impact on unrealized gain on available-for-sale securities was $0.5 million for fiscal 2017 and de minimis for fiscal 2016. |
|
| | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
During the year ended December 31, 2017, $1.2 million ($0.8 million after tax) of unrealized gain on investments was reclassified out of accumulated other comprehensive income (loss)2023, all potentially dilutive securities were antidilutive and recorded in interestaccordingly, basic net loss per share and other income on the Consolidated Statements of Operations and Comprehensive Income (Loss). Therediluted net loss per share were no material reclassifications out of accumulated other comprehensive loss during 2016 nor 2015.equal.
| |
NOTE 16: | SEGMENT INFORMATION |
NOTE 14: SEGMENT INFORMATION
Segment information
Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. Our service lines, which are our operating segments, and our reportable segments are described below:
Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady service line.operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, transportation, manufacturing, retail, hospitality and logistics, warehousing and distribution, waste and recycling, hospitality, general labor and others.renewable energy.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise at the customer’s facility, through the following operating segments, which we aggregated into one reportable segment in accordance with U.S. GAAP:
Staff Management | SMX: Exclusive recruitment and on-premise management of a facility’s contingent industrial workforce;
SIMOS Insourcing Solutions: On-premise management and recruitment of warehouse/distribution operations;
Centerline Drivers: Recruitment and management of temporary and dedicated drivers to the transportation and distribution industries; and
PlaneTechs: Recruitment and on-premise management of skilled mechanics and technicians to the aviation and transportation industries.
Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
•PeopleScout RPO: Outsourced recruitment of permanent employees on behalf of customers;clients and
employer branding services; and•PeopleScout MSP: Management of multiple third partythird-party staffing vendors on behalf of customers.
We have two primary measures of segment performance: revenue from services and segment earnings before interest, taxes, depreciation and amortization (“segment EBITDA”). Segment EBITDA includes net sales to third parties, related cost of sales, selling, general and administrative expense, and goodwill and intangible impairment charges directly attributable to the reportable segment together with certain allocated corporate general and administrative expense. Segment EBITDA excludes unallocated corporate general and administrative expense.
clients.
| | | | | | | | |
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:
•PeopleManagement On-Site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehousing and distribution facilities; and
•PeopleManagement Centerline: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries.
The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:
| | | | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| (in thousands) | |
| (in thousands) | | 2023 | 2022 | 2021 |
| Revenue from services: | |
| Contingent staffing | |
| Contingent staffing | |
| Contingent staffing | |
| PeopleReady | |
| PeopleReady | |
| PeopleReady | $ | 1,511,360 |
| $ | 1,629,455 |
| $ | 1,625,817 |
|
| PeopleManagement | 807,273 |
| 940,453 |
| 965,331 |
|
| Human resource outsourcing | |
| PeopleScout | |
| PeopleScout | |
| PeopleScout | 190,138 |
| 180,732 |
| 104,532 |
|
| Total company | $ | 2,508,771 |
| $ | 2,750,640 |
| $ | 2,695,680 |
|
The following table presents a reconciliation of segment EBITDAprofit to income (loss) before tax expense:expense (benefit):
| | | | | | | | | | | |
| |
| (in thousands) | 2023 | 2022 | 2021 |
| Segment profit: | | | |
| PeopleReady | $ | 26,606 | | $ | 87,743 | | $ | 82,398 | |
| PeopleManagement | 6,963 | | 15,811 | | 13,196 | |
| PeopleScout | 26,922 | | 44,771 | | 36,163 | |
| Total segment profit | 60,491 | | 148,325 | | 131,757 | |
| Corporate unallocated | (31,507) | | (31,326) | | (27,937) | |
| Third-party processing fees for hiring tax credits | (253) | | (594) | | (734) | |
| Amortization of software as a service assets | (4,117) | | (2,985) | | (2,709) | |
| Goodwill and intangible asset impairment charge | (9,485) | | — | | — | |
| Gain on deferred compensation assets | — | | — | | (2,897) | |
| PeopleReady technology upgrade costs | (1,342) | | (7,935) | | (1,300) | |
| Executive leadership transition costs | (5,788) | | 1,422 | | (232) | |
| COVID-19 government assistance, net | (525) | | — | | 4,222 | |
| Other benefits (costs) | (5,503) | | (5,449) | | (4,172) | |
| Depreciation and amortization | (25,821) | | (29,273) | | (27,556) | |
| Income (loss) from operations | (23,850) | | 72,185 | | 68,442 | |
| Interest and other income (expense), net | 3,205 | | 1,231 | | 5,408 | |
| Income (loss) before tax expense (benefit) | $ | (20,645) | | $ | 73,416 | | $ | 73,850 | |
|
| | | | | | | | | |
| | Years ended |
| (in thousands) | 2017 | 2016 | 2015 |
| Segment EBITDA (1): | | | |
| PeopleReady | $ | 78,372 |
| $ | 101,270 |
| $ | 123,899 |
|
| PeopleManagement | 27,043 |
| (60,452 | ) | 36,512 |
|
| PeopleScout | 39,232 |
| 19,116 |
| 9,324 |
|
| | 144,647 |
| 59,934 |
| 169,735 |
|
| Corporate unallocated | (20,968 | ) | (30,237 | ) | (30,050 | ) |
| Depreciation and amortization | (46,115 | ) | (46,692 | ) | (41,843 | ) |
| Income (loss) from operations | 77,564 |
| (16,995 | ) | 97,842 |
|
| Interest and other expense, net | (14 | ) | (3,345 | ) | (1,395 | ) |
| Income (loss) before tax expense | $ | 77,550 |
| $ | (20,340 | ) | $ | 96,447 |
|
| |
(1) | Segment EBITDA was previously referred to as segment income (loss) from operations. This change had no impact on the amounts reported. |
Domestic and international revenue
Our international operations are primarily in Canada, the United Kingdom, and Australia. RevenuesRevenue by region werewas as follows:
| | | | | | | | | | | | | | | | | | | | |
| |
| (in thousands, except percentages) | 2023 | % | 2022 | % | 2021 | % |
| United States | $ | 1,750,427 | | 91.8 | % | $ | 2,073,596 | | 92.0 | % | $ | 2,017,529 | | 92.8 | % |
| International operations | 155,816 | | 8.2 | | 180,588 | | 8.0 | | 156,093 | | 7.2 | |
| Total revenue from services | $ | 1,906,243 | | 100.0 | % | $ | 2,254,184 | | 100.0 | % | $ | 2,173,622 | | 100.0 | % |
| | | | | | | | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | | | | | | | | | | | | | | |
| | Years ended |
| (in thousands, except percentages) | 2017 | % | 2016 | % | 2015 | % |
| United States | $ | 2,387,992 |
| 95.2 | % | $ | 2,644,414 |
| 96.1 | % | $ | 2,603,085 |
| 96.6 | % |
| International operations | 120,779 |
| 4.8 | % | 106,226 |
| 3.9 | % | 92,595 |
| 3.4 | % |
| Total revenue from services | $ | 2,508,771 |
| 100.0 | % | $ | 2,750,640 |
| 100.0 | % | $ | 2,695,680 |
| 100.0 | % |
Concentrations of client risk
No single customerclient represented more than 10%10.0% of total company revenue for fiscal 2017 nor 2016. One customer represented 13.1% of total company revenue for fiscal 2015. Customer2023, 2022 or 2021. Client concentration for our reportable segments iswas as follows:
•No single customerclient represented 10.0% or more than 10.0% of our PeopleReady reportable segment revenue for fiscal 2017, 2016, nor 2015.2023, 2022, or 2021.
No single customer•One client represented more than 10.0%11.8%, 13.1% and 10.9% of our PeopleScout reportable segment revenue for fiscal 2023, 2022 and 2021, respectively.
•One client represented 12.3% and 10.6% of our PeopleManagement reportable segment revenue for fiscal 2017. One customer2023 and 2022, respectively. No single client represented 18.2% and 36.7%10.0% or more of our PeopleManagement reportable segment revenue in fiscal 2016 and 2015, respectively.
Two customers represented 14.4% and 10.1%, respectively of our PeopleScout reportable segment revenue for fiscal 2017, and 12.8% and 10.0%, respectively for fiscal 2016. Two different customers represented 10.6% and 10.2%, respectively of our PeopleScout reportable segment revenue for fiscal 2015.2021.
Net propertyProperty and equipment located in international operations was approximately 9.1%3.5% and 7.1%4.6% of total property and equipment, net as of December 31, 20172023 and January 1, 2017,December 25, 2022, respectively.
|
| | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
NOTE 17: | SELECTED QUARTERLY FINANCIAL DATA |
|
| | | | | | | | | | | | |
| (unaudited; in thousands, except per share data) | First | Second | Third | Fourth |
| 2017 | | | | |
| Revenue from services | $ | 568,244 |
| $ | 610,122 |
| $ | 660,780 |
| $ | 669,625 |
|
| Cost of services | 428,815 |
| 454,842 |
| 488,761 |
| 501,880 |
|
| Gross profit | 139,429 |
| 155,280 |
| 172,019 |
| 167,745 |
|
| Selling, general and administrative expense | 121,844 |
| 124,754 |
| 131,552 |
| 132,644 |
|
| Depreciation and amortization | 11,174 |
| 12,287 |
| 11,189 |
| 11,465 |
|
| Income from operations | 6,411 |
| 18,239 |
| 29,278 |
| 23,636 |
|
| Interest expense | (1,232 | ) | (1,296 | ) | (1,365 | ) | (1,601 | ) |
| Interest and other income | 1,306 |
| 1,451 |
| 1,146 |
| 1,577 |
|
| Interest and other income (expense), net | 74 |
| 155 |
| (219 | ) | (24 | ) |
| Income before tax expense | 6,485 |
| 18,394 |
| 29,059 |
| 23,612 |
|
| Income tax expense | 1,811 |
| 5,260 |
| 7,838 |
| 7,185 |
|
| Net income | $ | 4,674 |
| $ | 13,134 |
| $ | 21,221 |
| $ | 16,427 |
|
| Net income per common share: | | | | |
| Basic | $ | 0.11 |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.41 |
|
| Diluted | $ | 0.11 |
| $ | 0.31 |
| $ | 0.51 |
| $ | 0.40 |
|
| | | | | |
| 2016 | | | | |
| Revenue from services | $ | 645,980 |
| $ | 672,612 |
| $ | 697,097 |
| $ | 734,951 |
|
| Cost of services | 495,468 |
| 502,688 |
| 518,702 |
| 554,064 |
|
| Gross profit | 150,512 |
| 169,924 |
| 178,395 |
| 180,887 |
|
| Selling, general and administrative expense | 130,624 |
| 135,787 |
| 134,679 |
| 145,387 |
|
| Depreciation and amortization | 11,289 |
| 11,694 |
| 11,690 |
| 12,019 |
|
| Goodwill and intangible asset impairment charge | — |
| 99,269 |
| 4,275 |
| — |
|
| Income (loss) from operations | 8,599 |
| (76,826 | ) | 27,751 |
| 23,481 |
|
| Interest expense | (1,969 | ) | (1,740 | ) | (1,721 | ) | (1,736 | ) |
| Interest and other income | 950 |
| 853 |
| 854 |
| 1,164 |
|
| Interest and other income (expense), net | (1,019 | ) | (887 | ) | (867 | ) | (572 | ) |
| Income (loss) before tax expense | 7,580 |
| (77,713 | ) | 26,884 |
| 22,909 |
|
| Income tax expense (benefit) | 612 |
| (13,978 | ) | 3,455 |
| 4,822 |
|
| Net income (loss) | $ | 6,968 |
| $ | (63,735 | ) | $ | 23,429 |
| $ | 18,087 |
|
| Net income (loss) per common share: | | | | |
| Basic | $ | 0.17 |
| $ | (1.53 | ) | $ | 0.56 |
| $ | 0.43 |
|
| Diluted | $ | 0.17 |
| $ | (1.53 | ) | $ | 0.56 |
| $ | 0.43 |
|
| |
NOTE 18: | SUBSEQUENT EVENTS |
We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure.
|
| |
| Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
|
| | | | |
| Item 9A. | CONTROLS AND PROCEDURES |
Disclosure controls and procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Rule 13a-15(b) of the Securities Exchange Act Rule 13a-15(b)of 1934, as amended as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2017.
2023.
Report of management on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions;transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary forto permit preparation of our financial statements;statements in accordance with accounting principles generally accepted in the United States of America; providing reasonable assurance that receipts and expenditures are made only in accordance with management and director authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2023. Our internal control over financial reporting as of December 31, 20172023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein. Management did identify that, there was a material weakness in our internal control over financial reporting dating back to the fiscal year ended January 1, 2017, as described further below.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. During the fourth quarter of 2017, we identified and remediated a material weakness in the operating effectiveness of our internal control over financial reporting related to the operating effectiveness of the internal investigation, communication and required escalation of certain employee hotline incidents. The control was not operating as designed because reporting of certain employee hotline incidents were not sufficiently investigated, communicated and escalated to the appropriate levels in accordance with Company policy. The company remediated the control by adding additional reporting and monitoring practices to ensure the appropriate investigation, communication and escalation for certain employee hotline reports, as well as providing additional education regarding responsibilities. As of December 31, 2017, we concluded that the material weakness was sufficiently remediated. Our independent registered public accounting firm, Deloitte & Touche, LLP, who audited the consolidated financial statements included in this annual report, has expressed an unqualified report on the operating effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
Other than the remediation of the control deficiency discussed above, thereThere were no material changes in our internal control over financial reporting during the quarter and fiscal year ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During fiscal year 2017, we implemented internal controls to ensure we have adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition on our financial statements to facilitate the adoption on January 1, 2018. We do not expect significant changes to our internal control over financial reporting due to the adoption of the new standard.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TrueBlue, Inc.
Tacoma, Washington
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of TrueBlue, Inc., and subsidiaries (the “Company”) as of December 31, 20172023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20172023, of the Company and our report dated February 26, 201821, 2024, expressed an unqualified opinion on those financial statements and financial statement schedule.
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche, LLP
Seattle, Washington
February 26, 2018
21, 2024
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| | | | |
| Item 9B. | OTHER INFORMATION |
Trading plans
NoneDuring the fiscal fourth quarter ended December 31, 2023, none of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as such terms are defined in paragraphs (a) and (c), respectively, of Item 408 of Regulation S-K.
| | | | | |
| Item 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
PART III
|
| | | | |
| Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding our directors and nominees for directorship is presented under the heading “Election“Proposal 1. Election of Directors” in our definitive proxy statement for use in connection with the 20182024 Annual Meeting of Shareholders (the “Proxy Statement”) to be filed within 120 days after our fiscal year ended December 31, 2017,2023, and is incorporated herein by this reference thereto. Information concerning our executive officers is set forth under the heading “Executive Officers” in our Proxy Statement, and is incorporated herein by reference thereto. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, our codeCode of business conductConduct and ethicsBusiness Ethics and certain information related to the company’s Audit Committee and Corporate Governance and Nominating Committee, including any material changes to the procedures by which shareholders may recommend nominees to the Board of Directors, is set forth under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by reference thereto.
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| | | | |
| Item 11. | EXECUTIVE COMPENSATION |
Information regarding the compensation of our directors and executive officers and certain information related to the company’s Compensation Committee is set forth under the headings “Executive Compensation Tables,” “Compensation of Directors,” “Compensation Discussion and Analysis,” “CEO Pay Ratio,” “Pay Versus Performance,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement, and is incorporated herein by this reference thereto.
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| | | | |
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to security ownership of certain beneficial owners and management and related stockholder matters is set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy Statement, and is incorporated herein by this reference thereto.
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| | | | |
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding certain relationships and related transactions and director independence is presented under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by this reference thereto.
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| | | | |
| Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information concerning principal accounting fees and servicesbilled to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34), is presented under the heading “Fees Paid to Independent Registered Public Accountant for Fiscal Years 20172022 and 2016”2023” in our Proxy Statement, and is incorporated herein by this reference thereto. Information concerning the Audit Committee’s pre-approval policies and procedures is presented under the heading “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm” in our Proxy Statement, and is incorporated herein by this reference thereto.
PART IV
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| | | | |
| Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
a) | The following documents are filed as a part of this 10-K: |
a)The following documents are filed as a part of this 10-K:
1.Financial statements
Financial statements can be found under Item 8 of Part II of this Form 10-K.
2. Financial statement schedules
Financial statement Schedule II can be found onAll schedules have been omitted because the following page.
required information is presented in the financial statements or notes thereto, the amounts involved are not significant or the schedules are not applicable.
3. Exhibits
The exhibits are listed in the Index to Exhibits, which appears immediatelycan be found on the following the signature page.
FINANCIAL STATEMENT SCHEDULES
Schedule II, Valuation and Qualifying Accounts
Allowance for doubtful accounts activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 5,160 |
| $ | 5,902 |
| $ | 7,603 |
|
| Charged to expense | 6,903 |
| 8,171 |
| 7,132 |
|
| Write-offs | (7,719 | ) | (8,913 | ) | (8,833 | ) |
| Balance, end of year | $ | 4,344 |
| $ | 5,160 |
| $ | 5,902 |
|
Insurance receivable valuation allowance activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 4,019 |
| $ | 3,874 |
| $ | 3,933 |
|
| Charged to expense | 1,153 |
| 207 |
| 48 |
|
| Release of allowance | (1,394 | ) | (62 | ) | (107 | ) |
| Balance, end of year | $ | 3,778 |
| $ | 4,019 |
| $ | 3,874 |
|
Income tax valuation allowance activity was as follows:
|
| | | | | | | | | |
| (in thousands) | 2017 | 2016 | 2015 |
| Balance, beginning of the year | $ | 2,266 |
| $ | 3,227 |
| $ | 2,844 |
|
| Charged to expense | 2 |
| 579 |
| 383 |
|
| Transition to the U.S. Tax Cuts and Jobs Act | 240 |
| — |
| — |
|
| Release of allowance | — |
| (1,540 | ) | — |
|
| Balance, end of year | $ | 2,508 |
| $ | 2,266 |
| $ | 3,227 |
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| | | | |
| | TrueBlue, Inc. | | |
| | | | |
| | /s/ Steven C. Cooper | 2/26/2018 | |
| | Signature | Date | |
| By: | Steven C. Cooper, Director and Chief Executive Officer | | |
| | | | |
| | /s/ Derrek L. Gafford | 2/26/2018 | |
| | Signature | Date | |
| By: | Derrek L. Gafford, Chief Financial Officer and
Executive Vice President
| | |
| | | | |
| | /s/ Norman H. Frey | 2/26/2018 | |
| | Signature | Date | |
| By: | Norman H. Frey, Chief Accounting Officer and
Senior Vice President | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
/s/ Steven C. Cooper | 2/26/2018 | | /s/ Joseph P. Sambataro, Jr. | 2/26/2018 |
Signature | Date | | Signature | Date |
Steven C. Cooper, Director, Chief Executive Officer | | | Joseph P. Sambataro, Jr., Chairman of the Board | |
| | | | |
/s/ Colleen B. Brown | 2/26/2018 | | /s/ William C. Goings | 2/26/2018 |
Signature | Date | | Signature | Date |
Colleen B. Brown, Director | | | William C. Goings, Director | |
| | | | |
/s/ Kim Harris Jones | 2/26/2018 | | /s/ Stephen M. Robb | 2/26/2018 |
Signature | Date | | Signature | Date |
Kim Harris Jones, Director | | | Stephen M. Robb, Director | |
| | | | |
/s/ Jeffrey B. Sakaguchi | 2/26/2018 | | /s/ Bonnie W. Soodik | 2/26/2018 |
Signature | Date | | Signature | Date |
Jeffrey B. Sakaguchi, Director | | | Bonnie W. Soodik, Director | |
INDEX TO EXHIBITS
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | Incorporated by reference |
| Exhibit number | Exhibit description | Filed herewith | Form | File no. | Date of first filing |
| | | | | |
| 3.1 | | | 8-K | 8-K001-14543 | 001-14543 | 05/12/2016 |
| | | | | |
| 3.2 | | | 10-Q | 10-Q001-14543 | 001-14543 | 10/30/2017 |
| | | | | |
| 4.1 | | X | — | — | — |
| | | | | |
| 10.1 | | | 10-K | 10-K001-14543 | 001-14543 | 03/11/2005 |
| | | | | |
| 10.2 | | | 10-K | 10-K001-14543 | 03/11/2005 |
| | | | | |
| 10.3 | | | 8-K | 001-14543 | 03/11/200502/12/2024 |
| | | | | |
| 10.4* | | | 8-K | 001-14543 | | 08/15/2023 |
| 10.3* | | | | |
| 10.5* | | | 8-K | 001-14543 | 08/15/2023 |
| | | | | |
| 10.6* | | | 8-K | 001-14543 | 09/27/2022 |
| | | | | |
| 10.7* | | | 8-K/A | 001-14543 | 07/14/2022 |
| | | | | |
| 10.8* | | | 8-K/A | 001-14543 | 07/14/2022 |
| | | | | |
| 10.9* | | | 8-K/A | 001-14543 | 07/14/2022 |
| | | | | |
| 10.10* | | | 8-K | 001-14543 | 08/09/200510/10/2023 |
| | | | | |
10.4*10.11* | | | 8-K | 10-Q001-14543 | 001-14543 | 05/04/200710/10/2023 |
| | | | | |
10.5*10.12* | | | 10-Q | 10-Q001-14543 | 001-14543 | 05/04/2007 |
| | | | | |
10.6*10.13* | | | 10-K | 10-Q001-14543 | 001-14543 | 05/04/200702/15/2023 |
| | | | | |
10.7*10.14* | | | 10-Q | 001-14543 | 05/04/2007 |
| | | | | |
| 10.15* | | | 10-Q | 10-Q001-14543 | 001-14543 | 05/04/2007 |
| | | | | |
| 10.16* | | | 10-K | 001-14543 | | 02/24/2020 |
| 10.8* | | | | |
| 10.17* | | | 10-K | 10-Q001-14543 | 001-14543 | 05/04/200702/24/2020 |
| | | | | |
10.9*10.18* | | | 10-Q | 10-Q001-14543 | 001-14543 | 05/04/200707/27/2020 |
| | | | | |
10.10*10.19* | | | 8-K | 001-14543 | 11/19/2009 |
| | | | | |
10.11* | | | S-8 | S-8333-164614 | 333-164614 | 02/01/2010 |
| | | | | |
10.1210.20* | | | S-8 | S-8333-167770 | 333-167770 | 06/25/2010 |
| | | | | |
10.13*10.21* | | | 10-K | 10-K001-14543 | 001-14543 | 02/22/2012 |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Incorporated by reference |
10.14Exhibit number | | Filed herewith | Form | File no. | Date of February 4, 2013. | | 10-K | 001-14543 | 02/21/2013first filing |
| | | | | |
| 10.22* | | | S-8 | 333-211737 | | 06/01/2016 |
| 10.15* | | | | |
| 10.23* | | | S-8 | S-8333-238093 | 333-190220 | 07/29/201305/08/2020 |
| | | | | |
10.1610.24* | Second Amended2010 Employee Stock Purchase Plan, as amended and Restated Credit Agreement by and among Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, National Association, and TrueBlue, Inc. dated as of June 30, 2014.restated, effective May 11, 2023. | | 10-Q | 001-14543 | 07/28/201424/2023 |
| | | |
|
| 10.25* | | | | | |
| | | Incorporated by reference |
Exhibit
| | Exhibit descriptionFiled herewith | Form | File no. | Date of first filing |
10.17* | | | 10-K10-Q | 001-14543 | 02/22/201607/24/2023 |
| | | | | |
10.18*10.26* | | X | 10-K— | 001-14543— | 02/22/2016— |
| | | | | |
| 10.27* | | X | — | — | — |
| 10.19 | | | | |
| 10.28* | Third Amendment to Second Restated Credit Agreement by and Among Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, National Association andForm 2022 Restricted Share Unit Award Notice between TrueBlue, Inc. dated January 4, 2016.and Derrek L. Gafford, Taryn R. Owen, Carl Schweihs, and Garrett Ferencz. | X | 10-K— | 001-14543— | 02/22/2016— |
| | | | | |
| 10.29* | | X | — | — | — |
| 10.20* | | | | |
| 10.30* | | X | S-8— | 333-211737— | 06/01/2016— |
| | | | | |
| 10.31* | | X | — | — | — |
| 18.1 | | | | |
| 10.32* | | X | 10-Q— | 001-14543— | 04/28/2014— |
| | | | | |
| 21.1 | | X | — | — | — |
| | | | | |
| 23.1 | | X | — | — | — |
| | | | | |
| 31.1 | | X | — | — | — |
| | | | | |
| 31.2 | | X | — | — | — |
| | | | | |
| 32.1 | | X | — | — | — |
| | | | | |
| 97.1 | | X | — | — | — |
| 101.INS | | | | |
| 101 | XBRL Instance Document.The following financial statements from the Company’s 10-K, formatted as Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to consolidated financial statements. | X | — | — | — |
| | | | | |
101.SCH104 | Cover page interactive data file - The cover page from this Annual Report on Form 10-K is formatted as Inline XBRL Taxonomy Extension Schema. | X | — | — | — |
| | | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | X | — | — | — |
| | | | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. | X | — | — | — |
| | | | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase. | X | — | — | — |
| | | | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. | X | — | — | — |
| | | | | |
| * | |
* | Indicates a management contract or compensatory plan or arrangement |
Copies of Exhibits may be obtained upon request directed to Mr. James E. Defebaugh,Garrett Ferencz, TrueBlue, Inc., PO Box 2910, Tacoma, Washington, 98401 and many are available at the SEC’s website found at www.sec.gov.
| | | | | |
| Item 16. | FORM 10-K SUMMARY |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | TrueBlue, Inc. | | |
| | | | |
| | /s/ Taryn R. Owen | 2/21/2024 | |
| | Signature | Date | |
| By: | Taryn R. Owen, Chief Executive Officer and President | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| /s/ Taryn R. Owen | 2/21/2024 | | /s/ Carl R. Schweihs | 2/21/2024 |
| Signature | Date | | Signature | Date |
| Taryn R. Owen, Chief Executive Officer and President | | | Carl R. Schweihs, Chief Financial Officer and Executive Vice President | |
| | | | |
| /s/ Richard B. Christensen | 2/21/2024 | | /s/ Jeffrey B. Sakaguchi | 2/21/2024 |
| Signature | Date | | Signature | Date |
| Richard B. Christensen, Chief Accounting Officer, Treasurer and Senior Vice President | | | Jeffrey B. Sakaguchi, Chairman of the Board | |
| | | | |
| /s/ Colleen B. Brown | 2/21/2024 | | /s/ William C. Goings | 2/21/2024 |
| Signature | Date | | Signature | Date |
| Colleen B. Brown, Director | | | William C. Goings, Director | |
| | | | |
| /s/ Kim Harris Jones | 2/21/2024 | | /s/ Robert C. Kreidler | 2/21/2024 |
| Signature | Date | | Signature | Date |
| Kim Harris Jones, Director | | | Robert C. Kreidler, Director | |
| | | | |
| /s/ Sonita F. Lontoh | 2/21/2024 | | /s/ Paul G. Reitz | 2/21/2024 |
| Signature | Date | | Signature | Date |
| Sonita F. Lontoh, Director | | | Paul G. Reitz, Director | |
| | | | |
| /s/ Kristi A. Savacool | 2/21/2024 | | | |
| Signature | Date | | | |
| Kristi A. Savacool, Director | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
