UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended: October 1, 2017June 28, 2020
or
Commission File Number: 001-14543
____________________________________
TrueBlue, Inc.
(Exact name of registrant as specified in its charter)
______________________________________
| Washington | 91-1287341 | |||
| (State of incorporation) | (I.R.S. | |||
1015 A Street, Tacoma, Washington98402
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (253) (253) 383-9101
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common | TBI | |
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. Yesý☒ 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). Yesý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | Non-accelerated filer | ||||
| Smaller reporting company | Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
As of October 16, 2017,July 13, 2020, there were 41,361,50736,061,289 shares of the registrant’s common stock outstanding.
TrueBlue, Inc.
Table of Contents
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | ||
| Item 2. | ||
| Item 3. | ||
| Item 4. | ||
| PART II. OTHER INFORMATION | ||
| Item 1. | ||
| Item 1A. | ||
| Item 2. | ||
| Item 3. | ||
| Item 4. | ||
| Item 5. | ||
| Item 6. | ||
Page - 2
PART I. FINANCIAL INFORMATION
| Item 1. | CONSOLIDATED FINANCIAL STATEMENTS |
| (in thousands, except par value data) | October 1, 2017 | January 1, 2017 | ||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 35,055 | $ | 34,970 | ||
| Accounts receivable, net of allowance for doubtful accounts of $5,741 and $5,160 | 380,473 | 352,606 | ||||
| Prepaid expenses, deposits and other current assets | 18,923 | 21,373 | ||||
| Income tax receivable | 5,945 | 18,854 | ||||
| Total current assets | 440,396 | 427,803 | ||||
| Property and equipment, net | 63,079 | 63,998 | ||||
| Restricted cash and investments | 244,173 | 231,193 | ||||
| Deferred income taxes, net | 1,037 | 6,770 | ||||
| Goodwill | 226,771 | 224,223 | ||||
| Intangible assets, net | 109,963 | 125,671 | ||||
| Other assets, net | 46,931 | 50,787 | ||||
| Total assets | $ | 1,132,350 | $ | 1,130,445 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable and other accrued expenses | $ | 67,364 | $ | 66,758 | ||
| Accrued wages and benefits | 79,607 | 79,782 | ||||
| Current portion of workers’ compensation claims reserve | 76,406 | 79,126 | ||||
| Contingent consideration | — | 21,600 | ||||
| Current portion of long-term debt | 23,422 | 2,267 | ||||
| Other current liabilities | 1,408 | 1,602 | ||||
| Total current liabilities | 248,207 | 251,135 | ||||
| Workers’ compensation claims reserve, less current portion | 202,929 | 198,225 | ||||
| Long-term debt, less current portion | 111,408 | 135,362 | ||||
| Other long-term liabilities | 26,033 | 20,544 | ||||
| Total liabilities | 588,577 | 605,266 | ||||
| Commitments and contingencies (Note 5) | ||||||
| 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; 41,339 and 42,171 shares issued and outstanding | 1 | 1 | ||||
| Accumulated other comprehensive loss | (6,880 | ) | (11,433 | ) | ||
| Retained earnings | 550,652 | 536,611 | ||||
| Total shareholders’ equity | 543,773 | 525,179 | ||||
| Total liabilities and shareholders’ equity | $ | 1,132,350 | $ | 1,130,445 | ||
Page - 3
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)BALANCE SHEETS
(unaudited)
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except per share data)\ | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Revenue from services | $ | 660,780 | $ | 697,097 | $ | 1,839,146 | $ | 2,015,689 | |||||
| Cost of services | 488,761 | 518,702 | 1,372,418 | 1,516,858 | |||||||||
| Gross profit | 172,019 | 178,395 | 466,728 | 498,831 | |||||||||
| Selling, general and administrative expense | 131,552 | 134,679 | 378,150 | 401,090 | |||||||||
| Depreciation and amortization | 11,189 | 11,690 | 34,650 | 34,673 | |||||||||
| Goodwill and intangible asset impairment charge | — | 4,275 | — | 103,544 | |||||||||
| Income (loss) from operations | 29,278 | 27,751 | 53,928 | (40,476 | ) | ||||||||
| Interest expense | (1,365 | ) | (1,721 | ) | (3,893 | ) | (5,430 | ) | |||||
| Interest and other income | 1,146 | 854 | 3,903 | 2,657 | |||||||||
| Interest and other income (expense), net | (219 | ) | (867 | ) | 10 | (2,773 | ) | ||||||
| Income (loss) before tax expense | 29,059 | 26,884 | 53,938 | (43,249 | ) | ||||||||
| Income tax expense (benefit) | 7,838 | 3,455 | 14,909 | (9,911 | ) | ||||||||
| Net income (loss) | $ | 21,221 | $ | 23,429 | $ | 39,029 | $ | (33,338 | ) | ||||
| Net income (loss) per common share: | |||||||||||||
| Basic | $ | 0.52 | $ | 0.56 | $ | 0.94 | $ | (0.80 | ) | ||||
| Diluted | $ | 0.51 | $ | 0.56 | $ | 0.94 | $ | (0.80 | ) | ||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 41,046 | 41,762 | 41,420 | 41,651 | |||||||||
| Diluted | 41,276 | 42,056 | 41,671 | 41,651 | |||||||||
| Other comprehensive income: | |||||||||||||
| Foreign currency translation adjustment | $ | 1,143 | $ | 1,247 | $ | 3,483 | $ | 3,341 | |||||
| Unrealized gain on investments, net of tax | 424 | 784 | 1,070 | 946 | |||||||||
| Total other comprehensive income, net of tax | 1,567 | 2,031 | 4,553 | 4,287 | |||||||||
| Comprehensive income (loss) | $ | 22,788 | $ | 25,460 | $ | 43,582 | $ | (29,051 | ) | ||||
| (in thousands, except par value data) | June 28, 2020 | December 29, 2019 | ||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 92,051 | $ | 37,608 | ||
| Accounts receivable, net of allowance of $7,656 and $4,288 | 224,078 | 342,303 | ||||
| Prepaid expenses, deposits and other current assets | 25,776 | 30,717 | ||||
| Income tax receivable | 17,996 | 11,105 | ||||
| Total current assets | 359,901 | 421,733 | ||||
| Property and equipment, net | 67,447 | 66,150 | ||||
| Restricted cash and investments | 217,844 | 230,932 | ||||
| Deferred income taxes, net | 30,234 | 3,228 | ||||
| Goodwill | 94,000 | 237,498 | ||||
| Intangible assets, net | 32,617 | 73,673 | ||||
| Operating lease right-of-use assets | 37,740 | 41,082 | ||||
| Workers’ compensation claims receivable, net | 46,530 | 44,624 | ||||
| Other assets, net | 16,688 | 17,235 | ||||
| Total assets | $ | 903,001 | $ | 1,136,155 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable and other accrued expenses | $ | 46,405 | $ | 68,406 | ||
| Accrued wages and benefits | 56,795 | 67,604 | ||||
| Current portion of workers’ compensation claims reserve | 66,193 | 73,020 | ||||
| Current portion of long-term debt | 27,051 | — | ||||
| Current operating lease liabilities | 13,999 | 14,358 | ||||
| Other current liabilities | 9,582 | 7,418 | ||||
| Total current liabilities | 220,025 | 230,806 | ||||
| Workers’ compensation claims reserve, less current portion | 183,757 | 182,598 | ||||
| Long-term debt, less current portion | 17,949 | 37,100 | ||||
| Long-term deferred compensation liabilities | 24,166 | 26,765 | ||||
| Long-term operating lease liabilities | 25,668 | 28,849 | ||||
| Other long-term liabilities | 18,675 | 4,064 | ||||
| Total liabilities | 490,240 | 510,182 | ||||
| Commitments and contingencies (Note 7) | ||||||
| Shareholders’ equity: | ||||||
| Preferred stock, $0.131 par value, 20,000 shares authorized; No shares issued and outstanding | — | — | ||||
| Common stock, no par value, 100,000 shares authorized; 36,052 and 38,593 shares issued and outstanding | 1 | 1 | ||||
| Accumulated other comprehensive loss | (17,765 | ) | (13,238 | ) | ||
| Retained earnings | 430,525 | 639,210 | ||||
| Total shareholders’ equity | 412,761 | 625,973 | ||||
| Total liabilities and shareholders’ equity | $ | 903,001 | $ | 1,136,155 | ||
See accompanying notes to consolidated financial statements
Page - 4
TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
| Thirty-nine weeks ended | ||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | ||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $ | 39,029 | $ | (33,338 | ) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 34,650 | 34,673 | ||||
| Goodwill and intangible asset impairment charge | — | 103,544 | ||||
| Provision for doubtful accounts | 6,321 | 6,361 | ||||
| Stock-based compensation | 6,161 | 7,443 | ||||
| Deferred income taxes | 4,890 | (23,874 | ) | |||
| Other operating activities | 2,563 | 5,603 | ||||
| Changes in operating assets and liabilities, net of effects of acquisition of business: | ||||||
| Accounts receivable | (34,198 | ) | 102,722 | |||
| Income tax receivable | 12,788 | 4,018 | ||||
| Other assets | 6,306 | (3,563 | ) | |||
| Accounts payable and other accrued expenses | (784 | ) | (3,764 | ) | ||
| Accrued wages and benefits | (176 | ) | (3,254 | ) | ||
| Workers’ compensation claims reserve | 1,985 | 11,938 | ||||
| Other liabilities | 1,086 | 4,740 | ||||
| Net cash provided by operating activities | 80,621 | 213,249 | ||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | (16,303 | ) | (17,766 | ) | ||
| Acquisition of business | — | (71,863 | ) | |||
| Change in restricted cash and cash equivalents | 8,623 | 732 | ||||
| Purchases of restricted investments | (36,015 | ) | (35,940 | ) | ||
| Maturities of restricted investments | 15,042 | 12,273 | ||||
| Net cash used in investing activities | (28,653 | ) | (112,564 | ) | ||
| Cash flows from financing activities: | ||||||
| Purchases and retirement of common stock | (29,371 | ) | — | |||
| Net proceeds from stock option exercises and employee stock purchase plans | 1,179 | 1,183 | ||||
| Common stock repurchases for taxes upon vesting of restricted stock | (2,956 | ) | (2,692 | ) | ||
| Net change in Revolving Credit Facility | (1,099 | ) | (104,586 | ) | ||
| Payments on debt | (1,700 | ) | (1,700 | ) | ||
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — | |||
| Other | — | 20 | ||||
| Net cash used in financing activities | (52,247 | ) | (107,775 | ) | ||
| Effect of exchange rate changes on cash and cash equivalents | 364 | 2,090 | ||||
| Net change in cash and cash equivalents | 85 | (5,000 | ) | |||
| Cash and cash equivalents, beginning of period | 34,970 | 29,781 | ||||
| Cash and cash equivalents, end of period | $ | 35,055 | $ | 24,781 | ||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid (received) during the period for: | ||||||
| Interest | $ | 2,612 | $ | 3,071 | ||
| Income taxes | (2,972 | ) | 8,801 | |||
| Non-cash transactions: | ||||||
| Property, plant, and equipment purchased but not yet paid | 2,863 | 2,244 | ||||
| Non-cash acquisition adjustments | — | 3,783 | ||||
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except per share data) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Revenue from services | $ | 358,944 | $ | 588,594 | $ | 853,196 | $ | 1,140,946 | |||||
| Cost of services | 275,719 | 431,911 | 643,812 | 837,568 | |||||||||
| Gross profit | 83,225 | 156,683 | 209,384 | 303,378 | |||||||||
| Selling, general and administrative expense | 97,200 | 125,965 | 214,581 | 253,945 | |||||||||
| Depreciation and amortization | 7,256 | 9,827 | 16,350 | 19,779 | |||||||||
| Goodwill and intangible asset impairment charge | — | — | 175,189 | — | |||||||||
| Income (loss) from operations | (21,231 | ) | 20,891 | (196,736 | ) | 29,654 | |||||||
| Interest expense | (1,933 | ) | (660 | ) | (2,476 | ) | (1,382 | ) | |||||
| Interest and other income, net | 1,521 | 1,487 | 2,327 | 2,762 | |||||||||
| Interest and other income (expense), net | (412 | ) | 827 | (149 | ) | 1,380 | |||||||
| Income (loss) before tax expense (benefit) | (21,643 | ) | 21,718 | (196,885 | ) | 31,034 | |||||||
| Income tax expense (benefit) | (13,475 | ) | 2,312 | (38,223 | ) | 3,352 | |||||||
| Net income (loss) | $ | (8,168 | ) | $ | 19,406 | $ | (158,662 | ) | $ | 27,682 | |||
| Net income (loss) per common share: | |||||||||||||
| Basic | $ | (0.23 | ) | $ | 0.50 | $ | (4.39 | ) | $ | 0.71 | |||
| Diluted | $ | (0.23 | ) | $ | 0.49 | $ | (4.39 | ) | $ | 0.70 | |||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 35,077 | 39,163 | 36,166 | 39,264 | |||||||||
| Diluted | 35,077 | 39,554 | 36,166 | 39,619 | |||||||||
| Other comprehensive income (loss): | |||||||||||||
| Foreign currency translation adjustment | $ | 2,098 | $ | (693 | ) | $ | (4,527 | ) | $ | 633 | |||
| Comprehensive income (loss) | $ | (6,070 | ) | $ | 18,713 | $ | (163,189 | ) | $ | 28,315 | |||
See accompanying notes to consolidated financial statements
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TRUEBLUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Twenty-six weeks ended | ||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | ||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $ | (158,662 | ) | $ | 27,682 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 16,350 | 19,779 | ||||
| Goodwill and intangible asset impairment charge | 175,189 | — | ||||
| Provision for doubtful accounts | 5,923 | 3,761 | ||||
| Stock-based compensation | 4,345 | 5,260 | ||||
| Deferred income taxes | (27,049 | ) | 2,393 | |||
| Non-cash lease expense | 7,454 | 6,934 | ||||
| Other operating activities | 2,669 | (2,072 | ) | |||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 111,803 | 16,162 | ||||
| Income tax receivable | (7,291 | ) | (6,347 | ) | ||
| Other assets | 4,682 | (4,472 | ) | |||
| Accounts payable and other accrued expenses | (22,197 | ) | (16,542 | ) | ||
| Accrued wages and benefits | 4,921 | (4,667 | ) | |||
| Workers’ compensation claims reserve | (5,668 | ) | (7,109 | ) | ||
| Operating lease liabilities | (7,643 | ) | (6,957 | ) | ||
| Other liabilities | (1,344 | ) | 3,174 | |||
| Net cash provided by operating activities | 103,482 | 36,979 | ||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | (11,641 | ) | (11,064 | ) | ||
| Purchases of restricted available-for-sale investments | (1,739 | ) | (4,295 | ) | ||
| Sales of restricted available-for-sale investments | 2,581 | 2,435 | ||||
| Purchases of restricted held-to-maturity investments | (11,458 | ) | (7,020 | ) | ||
| Maturities of restricted held-to-maturity investments | 16,190 | 17,250 | ||||
| Net cash used in investing activities | (6,067 | ) | (2,694 | ) | ||
| Cash flows from financing activities: | ||||||
| Purchases and retirement of common stock | (52,346 | ) | (9,077 | ) | ||
| Net proceeds from employee stock purchase plans | 536 | 700 | ||||
| Common stock repurchases for taxes upon vesting of restricted stock | (1,956 | ) | (1,631 | ) | ||
| Net change in Revolving Credit Facility | 7,900 | (55,300 | ) | |||
| Other | (1,344 | ) | (119 | ) | ||
| Net cash used in financing activities | (47,210 | ) | (65,427 | ) | ||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (736 | ) | 560 | |||
| Net change in cash, cash equivalents and restricted cash | 49,469 | (30,582 | ) | |||
| Cash, cash equivalents and restricted cash, beginning of period | 92,371 | 102,450 | ||||
| Cash, cash equivalents and restricted cash, end of period | $ | 141,840 | $ | 71,868 | ||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid (received) during the period for: | ||||||
| Interest | $ | 2,402 | $ | 1,199 | ||
| Income taxes | (3,707 | ) | 7,277 | |||
| Operating lease liabilities | 8,841 | 8,798 | ||||
| Non-cash transactions: | ||||||
| Property and equipment purchased but not yet paid | 1,189 | 1,227 | ||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | 4,841 | 7,711 | ||||
See accompanying notes to consolidated financial statements
Page - 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited) |
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Financial statement preparation
The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “Company,“company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission.Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.
We also considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods. However, we believe that the accounting estimates used are appropriate after giving consideration to the increased uncertainties surrounding the severity and duration of COVID-19. These estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
We expect to fund operations over the next 12 months with cash from operations and funds borrowed on our revolving credit facility. On June 24, 2020, we entered into an amendment to our revolving credit facility agreement, which modified the terms of our financial covenants. We believe that we will meet the financial covenants under our amended revolving credit facility agreement over the next 12 months. This amendment resolved the potential covenant compliance issues previously disclosed in our Quarterly report on Form 10-Q for the thirteen weeks ended March 29, 2020. Refer to Note 6: Long-Term Debt for additional details of our revolving credit facility.
These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.December 29, 2019. The results of operations for the thirty-ninethirteen and twenty-six weeks ended October 1, 2017,June 28, 2020, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.
Recently adopted accounting standards
Credit losses
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 (“CECL”), which requires the measurement of allcredit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.forecasted information rather than the previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This replacesguidance was adopted at the existing incurred loss model and is applicablebeginning of the first quarter of 2020. We were required to apply the measurementnew standard by means of a cumulative-effect adjustment to opening retained earnings as of the beginning of the first quarter of 2020. The total impact upon adoption to opening retained earnings was immaterial to both the individual financial assets affected as well as in the aggregate.
The following policies have been updated to reflect our adoption of the new standard on accounting for credit losses on financial instruments.
Accounts receivable and allowance for credit losses
Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets measured at amortized costwith similar risk characteristics. Based on an analysis of the risk characteristics of our clients and some off-balance sheet exposures,associated receivables, we have concluded our pools are as well as trade account receivables. This guidance is effective for fiscal years beginning after December 15, 2019 (Q1 2020 for TrueBlue)follows:
PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally 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 priorfrequent, low dollar invoices due 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 impactdaily nature of the adoptionwork we perform. This results in high turnover in accounts receivable and lower rates of this guidance on our financial statements.non-payment.
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.
Page - 7
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 and current economic data. The allowance for credit loss is required for all leases existing or entered into after the beginningreviewed quarterly and represents our best estimate of the earliest comparative periodamount of expected credit losses. Each month, 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 consolidated financial statements. We plan to adopt the guidanceallowance for credit losses are recorded in selling, general and administrative (“SG&A”) expense 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.Income (Loss).
Due to the dynamic current economic environment, it is difficult to estimate the impact caused by COVID–19 on our clients. However, we believe the allowance for credit loss for accounts receivable as of June 28, 2020, is our best estimate of the amount of expected credit losses. Should actual results deviate from what we have currently estimated, our allowance for credit losses could change significantly.
| (in thousands) | |||
| Beginning balance | $ | 4,288 | |
| Cumulative-effect adjustment (1) | 524 | ||
| Current period provision | 5,923 | ||
| Write-offs | (3,053 | ) | |
| Foreign currency translation | (26 | ) | |
| Ending balance | $ | 7,656 | |
| (1) | As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to our account receivable allowance of $0.5 million as of the beginning of the first quarter of 2020. |
Restricted cash and investments
We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the accounting for equity investments, financial liabilities underissuer credit rating. We report the fairentire change in present value option,as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and the presentation and disclosure requirements for financial instruments.Comprehensive Income (Loss). 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 sheetour held-to-maturity debt securities as a result of adopting CECL as of the beginning of the fiscal yearfirst quarter of adoption. 2020 was immaterial, as was the allowance as of June 28, 2020.
Workers’ compensation claims reserves
We plan to adoptestablish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the guidanceprobability of default rate based on the effective date. We dothird-party insurance carrier 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). The cumulative-effect adjustment to our workers’ compensation insurance receivables as a result of adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of June 28, 2020.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation. Specifically, the company has made certain reclassifications between cost of services and SG&A expense to more accurately reflect the costs of delivering our services. Such reclassifications did not expect the adoption to have a materialsignificant impact on our consolidated financial statements.the company’s gross profit or SG&A expense.
Page - 8
Recently issued accounting pronouncements not yet adopted
There are no accounting pronouncements which have not yet been adopted that are expected to have a significant impact on our financial statements and related disclosures.
NOTE 2: FAIR VALUE MEASUREMENT
Assets measured at fair value on a recurring basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following:
| October 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) | $ | 35,055 | $ | 35,055 | $ | — | $ | — | ||||
| Restricted cash and cash equivalents (1) | 59,788 | 59,788 | — | — | ||||||||
| Other restricted assets (2) | 21,115 | 21,115 | — | — | ||||||||
| Restricted investments classified as held-to-maturity | 165,053 | — | 165,053 | — | ||||||||
| June 28, 2020 | ||||||||||||
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | ||||||||
| Cash and cash equivalents | $ | 92,051 | $ | 92,051 | $ | — | $ | — | ||||
| Restricted cash and cash equivalents | 49,789 | 49,789 | — | — | ||||||||
| Cash, cash equivalents and restricted cash (1) | $ | 141,840 | $ | 141,840 | $ | — | $ | — | ||||
| Municipal debt securities | $ | 74,528 | $ | — | $ | 74,528 | $ | — | ||||
| Corporate debt securities | 73,462 | — | 73,462 | — | ||||||||
| Agency mortgage-backed securities | 931 | — | 931 | — | ||||||||
| U.S. government and agency securities | 1,134 | — | 1,134 | — | ||||||||
| Restricted investments classified as held-to-maturity | $ | 150,055 | $ | — | $ | 150,055 | $ | — | ||||
| Deferred compensation investments (2) | $ | 11,981 | $ | 11,981 | $ | — | $ | — | ||||
| 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 | ||||||||
| December 29, 2019 | ||||||||||||
| (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 | $ | 37,608 | $ | 37,608 | $ | — | $ | — | ||||
| Restricted cash and cash equivalents | 54,763 | 54,763 | — | — | ||||||||
| Cash, cash equivalents and restricted cash (1) | $ | 92,371 | $ | 92,371 | $ | — | $ | — | ||||
| Municipal debt securities | $ | 74,236 | $ | — | $ | 74,236 | $ | — | ||||
| Corporate debt securities | 76,068 | — | 76,068 | — | ||||||||
| Agency mortgage-backed securities | 1,376 | — | 1,376 | — | ||||||||
| U.S. government and agency securities | 1,051 | — | 1,051 | — | ||||||||
| Restricted investments classified as held-to-maturity | $ | 152,731 | $ | — | $ | 152,731 | $ | — | ||||
| Deferred compensation investments (2) | $ | 13,670 | $ | 13,670 | $ | — | $ | — | ||||
| (1) | Cash, cash equivalents and restricted cash |
| (2) |
| (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 | $ | — | |
There were no material transfers between Levellevel 1, Levellevel 2 and Levellevel 3 of the fair value hierarchy during the thirty-ninetwenty-six weeks ended October 1, 2017June 28, 2020 or September 23, 2016.June 30, 2019.
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Assets measured at fair value on a nonrecurring basis
We measure the fair value of certain non-financial assets on a nonrecurring basis, including goodwill and certain intangible assets. During the first quarter of 2020, we performed an interim impairment test as of the last day of our first fiscal quarter (March 29, 2020) due to market conditions. As a result of that test, we recognized an impairment charge of $175.2 million comprised as follows:
| March 29, 2020 | |||||||||||||||
| (in thousands) | Total fair value | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | Total impairment loss | ||||||||||
| Goodwill | $ | 31,705 | $ | — | $ | — | $ | 31,705 | $ | (140,489 | ) | ||||
| Client relationships | 14,700 | — | — | 14,700 | (34,700 | ) | |||||||||
| Total | $ | 46,405 | $ | — | $ | — | $ | 46,405 | $ | (175,189 | ) | ||||
In the first quarter of 2020, goodwill and client relationship intangible assets with a total carrying value of $221.6 million were written down to their fair value, resulting in a goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.
NOTE 3: RESTRICTED CASH AND INVESTMENTS
The following is a summary of the carrying value of our restricted cash and investments:
| (in thousands) | June 28, 2020 | December 29, 2019 | ||||
| Cash collateral held by insurance carriers | $ | 24,308 | $ | 24,612 | ||
| Cash and cash equivalents held in Trust | 21,922 | 23,681 | ||||
| Investments held in Trust | 143,731 | 149,373 | ||||
| Deferred compensation investments | 11,981 | 13,670 | ||||
| Company owned life insurance policies | 12,343 | 13,126 | ||||
| Other restricted cash and cash equivalents | 3,559 | 6,470 | ||||
| Total restricted cash and investments | $ | 217,844 | $ | 230,932 | ||
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 debt 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 for the thirteen and thirty-nine weeks ended October 1, 2017.
The following is a summaryamortized cost and estimated fair value of our restricted cashheld-to-maturity investments held in Trust, aggregated by investment category as of June 28, 2020 and investments:December 29, 2019, were as follows:
| (in thousands) | October 1, 2017 | January 1, 2017 | ||||
| Cash collateral held by insurance carriers | $ | 29,122 | $ | 34,910 | ||
| Cash and cash equivalents held in Trust | 30,666 | 32,841 | ||||
| Investments held in Trust | 163,270 | 146,517 | ||||
| Other (1) | 21,115 | 16,925 | ||||
| Total restricted cash and investments | $ | 244,173 | $ | 231,193 | ||
| June 28, 2020 | ||||||||||||
| (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||
| Municipal debt securities | $ | 71,117 | $ | 3,411 | $ | — | $ | 74,528 | ||||
| Corporate debt securities | 70,717 | 2,746 | (1 | ) | 73,462 | |||||||
| Agency mortgage-backed securities | 897 | 34 | — | 931 | ||||||||
| U.S. government and agency securities | 1,000 | 134 | — | 1,134 | ||||||||
| Total held-to-maturity investments | $ | 143,731 | $ | 6,325 | $ | (1 | ) | $ | 150,055 | |||
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| October 1, 2017 | ||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | ||||||||
| Municipal debt securities | $ | 76,373 | $ | 1,561 | $ | (233 | ) | $ | 77,701 | |||
| Corporate debt securities | 81,395 | 572 | (166 | ) | 81,801 | |||||||
| Agency mortgage-backed securities | 4,502 | 36 | (13 | ) | 4,525 | |||||||
| U.S. government and agency securities | 1,000 | 26 | — | 1,026 | ||||||||
| $ | 163,270 | $ | 2,195 | $ | (412 | ) | $ | 165,053 | ||||
| December 29, 2019 | ||||||||||||
| (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||
| Municipal debt securities | $ | 72,017 | $ | 2,219 | $ | — | $ | 74,236 | ||||
| Corporate debt securities | 75,000 | 1,102 | (34 | ) | 76,068 | |||||||
| Agency mortgage-backed securities | 1,357 | 21 | (2 | ) | 1,376 | |||||||
| U.S. government and agency securities | 999 | 52 | — | 1,051 | ||||||||
| Total held-to-maturity investments | $ | 149,373 | $ | 3,394 | $ | (36 | ) | $ | 152,731 | |||
| January 1, 2017 | ||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | 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 | ||||
The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows:
| June 28, 2020 | ||||||
| (in thousands) | Amortized cost | Fair value | ||||
| Due in one year or less | $ | 25,297 | $ | 25,545 | ||
| Due after one year through five years | 90,729 | 94,717 | ||||
| Due after five years through ten years | 27,705 | 29,793 | ||||
| Total held-to-maturity investments | $ | 143,731 | $ | 150,055 | ||
| October 1, 2017 | ||||||
| (in thousands) | Amortized Cost | Fair Value | ||||
| Due in one year or less | $ | 16,796 | $ | 16,816 | ||
| Due after one year through five years | 83,156 | 83,764 | ||||
| Due after five years through ten years | 63,318 | 64,473 | ||||
| $ | 163,270 | $ | 165,053 | |||
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.
Equity investments
We hold mutual funds and money market funds to support our deferred compensation liability. Unrealized gains related to equity investments still held at June 28, 2020 and June 30, 2019, totaled $3.1 million and $0.8 million for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Unrealized gains and losses related to equity investments still held at June 28, 2020 and June 30, 2019, totaled a $1.7 million loss and a $3.2 million gain for the twenty-six weeks then ended, respectively.
NOTE 4: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table reflects changes in the carrying amount of goodwill during the period by reportable segments:
| (in thousands) | PeopleReady | PeopleManagement | PeopleScout | Total company | |||||||||
| Balance at | December 29, 2019 | ||||||||||||
| Goodwill before impairment | $ | 106,304 | $ | 81,092 | $ | 145,181 | $ | 332,577 | |||||
| Accumulated impairment loss | (46,210 | ) | (33,700 | ) | (15,169 | ) | (95,079 | ) | |||||
| Goodwill, net | 60,094 | 47,392 | 130,012 | 237,498 | |||||||||
| Impairment loss | — | (45,901 | ) | (94,588 | ) | (140,489 | ) | ||||||
| Foreign currency translation | — | — | (3,009 | ) | (3,009 | ) | |||||||
| Balance at | June 28, 2020 | ||||||||||||
| Goodwill before impairment | 106,304 | 81,092 | 142,172 | 329,568 | |||||||||
| Accumulated impairment loss | (46,210 | ) | (79,601 | ) | (109,757 | ) | (235,568 | ) | |||||
| Goodwill, net | $ | 60,094 | $ | 1,491 | $ | 32,415 | $ | 94,000 | |||||
Intangible assets
Finite-lived intangible assets
The following table presents our purchased finite-lived intangible assets:
| June 28, 2020 | December 29, 2019 | ||||||||||||||||||
| (in thousands) | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||
| Finite-lived intangible assets (1): | |||||||||||||||||||
| Client relationships (2) | $ | 96,811 | $ | (71,665 | ) | $ | 25,146 | $ | 149,299 | $ | (83,317 | ) | $ | 65,982 | |||||
| Trade names/trademarks | 1,958 | (507 | ) | 1,451 | 2,052 | (441 | ) | 1,611 | |||||||||||
| Technologies | 600 | (580 | ) | 20 | 600 | (520 | ) | 80 | |||||||||||
| Total finite-lived intangible assets | $ | 99,369 | $ | (72,752 | ) | $ | 26,617 | $ | 151,951 | $ | (84,278 | ) | $ | 67,673 | |||||
| (1) | Excludes assets that are fully amortized. |
| (2) | Balance at June 28, 2020 is net of impairment loss of $34.7 million recorded in the twenty-six weeks endedJune 28, 2020. |
Amortization expense of our finite-lived intangible assets was $2.1 million and $5.0 million for the thirteen weeks ended June 28, 2020 and June 30, 2019, respectively, and $6.1 million and $10.0 million for the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively.
Indefinite-lived intangible assets
We also held indefinite-lived trade names/trademarks of $6.0 million as of June 28, 2020 and December 29, 2019.
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Impairments
Goodwill
We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, client engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year.
Interim impairment test
During the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter.
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our staffing services in a volatile economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. We experienced a significant drop in client demand associated with government and societal actions to address COVID-19.We have experienced and expect to continue to experience significant decreases to our revenues and corresponding operating results due to weakness in pricing and demand for our services during this severe economic downturn. While demand is expected to recover in the future, the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections decline to a contained level.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions to evaluate the impact of operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit was estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. 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 11.5% to 12.0%. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. As a result of this impairment test, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. The total goodwill carrying value of $45.9 million for PeopleManagement On-site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it is more likely than not that the fair value of any of our reporting units is less than the carrying value. We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $22.7 million and $9.7 million, respectively, as of June 28, 2020. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units as it relates to goodwill impairment.
Finite-lived intangible assets
We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change
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in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important 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 loss 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 loss 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.
Interim impairment test
With the decrease in demand for our services due to the economic impact caused by the response to COVID-19, we lowered our future expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the twenty-six weeks ended June 28, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0%.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-site were $5.8 million and $8.1 million, respectively, as of June 28, 2020.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names. We test our trade names annually for impairment, and when indicators of potential impairment exist. We utilize 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.
Interim impairment test
We performed an interim impairment test of our indefinite-lived intangible assets as of the last day of our first fiscal quarter for 2020 and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized.
Annual impairment test
Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it is more likely than not that the fair value of any of our indefinite-lived trade names is less than the carrying value. We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management and PeopleScout trade names were impaired as of the first day of our fiscal second quarter. Therefore, a quantitative assessment was not performed as of March 30, 2020.
Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the thirteen weeks ended June 28, 2020.
NOTE 4:5: WORKERS’ COMPENSATION INSURANCE AND RESERVES
We provide workers’ compensation insurance for our temporarycontingent and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured.
Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value using discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. The weighted average discount rate was 1.6%1.9% and 2.0% at October 1, 2017June 28, 2020 and January 1, 2017.December 29, 2019, respectively. Payments made against self-insured claims are made over a weighted average period of approximately 4.55 years at October 1, 2017.as of June 28, 2020.
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The following table below presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented (in thousands):presented:
| (in thousands) | June 28, 2020 | December 29, 2019 | ||||
| Undiscounted workers’ compensation reserve | $ | 268,128 | $ | 274,934 | ||
| Less discount on workers’ compensation reserve | 18,178 | 19,316 | ||||
| Workers’ compensation reserve, net of discount | 249,950 | 255,618 | ||||
| Less current portion | 66,193 | 73,020 | ||||
| Long-term portion | $ | 183,757 | $ | 182,598 | ||
| (in thousands) | October 1, 2017 | January 1, 2017 | ||||
| Undiscounted workers’ compensation reserve | $ | 295,969 | $ | 292,169 | ||
| Less discount on workers’ compensation reserve | 16,634 | 14,818 | ||||
| Workers' compensation reserve, net of discount | 279,335 | 277,351 | ||||
| Less current portion | 76,406 | 79,126 | ||||
| Long-term portion | $ | 202,929 | $ | 198,225 | ||
Payments made against self-insured claims were $48.2$28.0 million and $55.6$32.6 million for the thirty-ninetwenty-six weeks ended October 1, 2017June 28, 2020 and September 23, 2016,June 30, 2019, 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. At June 28, 2020 and December 29, 2019, the weighted average rate was 1.7% and 2.4%, respectively. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 1517 years. The discounted workers’ compensation reserve for excess claims was $50.7$47.6 million and $52.9$45.3 million, and the corresponding gross receivable for the insurance on excess claims was $46.6 million and $45.3 million as of October 1, 2017June 28, 2020 and January 1, 2017,December 29, 2019, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $45.7 million and $48.9 million as of October 1, 2017 and January 1, 2017, respectively, and are included in Other assets, net on the accompanying Consolidated Balance Sheets.
Workers’ compensation expensecost consists primarily of $22.1changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $9.2 million and $23.4$16.3 million was recorded in Costcost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended October 1, 2017June 28, 2020 and September 23, 2016, respectively. Workers’ compensation expense of $64.2June 30, 2019, respectively, and $23.5 million and $72.1$28.2 million was recorded in Cost of services foror the thirty-ninetwenty-six weeks ended October 1, 2017June 28, 2020 and September 23, 2016,June 30, 2019, respectively.
NOTE 6: LONG-TERM DEBT
Our borrowings consisted of the following:
| (in thousands) | June 28, 2020 | December 29, 2019 | ||||
| Current portion of long-term debt | $ | 27,051 | $ | — | ||
| Long-term debt, less current portion | 17,949 | 37,100 | ||||
| Total debt | $ | 45,000 | $ | 37,100 | ||
On March 16, 2020, we entered into a first amendment to our credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A. and HSBC Bank USA, N.A. dated as of July 13, 2018, which extended the maturity of the revolving credit facility established thereunder (the “Revolving Credit Facility”) to March 16, 2025 and modified certain other terms. On June 24, 2020, we entered into a second amendment to our credit agreement (the “Second Amendment”), which modified terms of our financial covenants as well as certain other provisions of the Revolving Credit Facility.
The amended credit agreement provides for a revolving line of credit of up to $300.0 million with an option, subject to lender approval, to increase the amount to $450.0 million. Included in the Revolving Credit Facility is a $30.0 million sub-limit for Swingline loans and a $125.0 million sub-limit for letters of credit. At June 28, 2020, $45.0 million was drawn on the Revolving Credit Facility and $6.2 million was utilized by outstanding standby letters of credit, leaving $248.8 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant making $125 million available for additional borrowings. At June 28, 2020, $27.1 million of the draw down was considered current due to a restriction established by the Second Amendment, which requires us to repay borrowings to the extent our cash and cash equivalents exceed $65 million. At December 29, 2019, $37.1 million was drawn on the Revolving Credit Facility, which included a $17.1 million Swingline loan.
Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, based on the London Interbank Offered Rate (“LIBOR”) plus an applicable spread between 1.25% and 3.50%. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25%
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and 1.50%. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%. The applicable spread on LIBOR is 3.50% through the end of fiscal 2020, and will be determined by the consolidated leverage ratio thereafter, as defined in the amended credit agreement. At June 28, 2020, the applicable spread on LIBOR was 3.50% and the weighted average index rate was 0.75%, resulting in a weighted average interest rate of 4.25%.
Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25% and 1.50%, as described above.
A commitment fee between 0.25% and 0.50% is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the amended credit agreement. Letters of credit are priced at a margin between 1.00% and 3.25%, plus a fronting fee of 0.50%.
Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The Second Amendment suspended testing of certain covenants through June 27, 2021 (second quarter of 2021).
The following financial covenants, as defined in the Second Amendment, are in effect:
Asset Coverage Ratio of greater than 1.00, defined as the ratio of 60% of accounts receivable to the difference of total debt outstanding and unrestricted cash in excess of $50 million. As of June 28, 2020, our asset coverage ratio was greater than 1.00 at 14.7.
Liquidity greater than $150 million, defined as the sum of unrestricted cash and availability under the aggregate revolving commitments. As of June 28, 2020, our liquidity was greater than the $150 million at $340.8 million.
The following financial covenant, as defined in the Second Amendment, will be in effect starting the first quarter of 2021:
EBITDA, as defined in the amended credit agreement, greater than $12 million for the trailing three quarters ending Q1 2021 and greater than $15 million for the trailing four quarters ending Q2 2021.
The following financial covenants, as defined in the Second Amendment, will be in effect starting the third quarter of 2021:
Consolidated leverage ratio greater than 4.00 for the third and fourth quarters of 2021 and greater than 3.00 thereafter, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the amended credit agreement.
Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense.
As of June 28, 2020, we were in compliance with all effective covenants related to the Revolving Credit Facility.
NOTE 7: COMMITMENTS AND CONTINGENCIES |
Workers’ compensation commitments
We have provided our insurance carriers and certain states with commitments in the form and amounts listed below:
| (in thousands) | June 28, 2020 | December 29, 2019 | ||||
| Cash collateral held by workers’ compensation insurance carriers | $ | 21,902 | $ | 22,256 | ||
| Cash and cash equivalents held in Trust | 21,922 | 23,681 | ||||
| Investments held in Trust | 143,731 | 149,373 | ||||
| Letters of credit (1) | 6,202 | 6,202 | ||||
| Surety bonds (2) | 20,731 | 20,731 | ||||
| Total collateral commitments | $ | 214,488 | $ | 222,243 | ||
| (in thousands) | October 1, 2017 | January 1, 2017 | ||||
| Cash collateral held by workers’ compensation insurance carriers | $ | 28,343 | $ | 28,066 | ||
| Cash and cash equivalents held in Trust | 30,666 | 32,841 | ||||
| Investments held in Trust | 163,270 | 146,517 | ||||
| Letters of credit (1) | 7,748 | 7,982 | ||||
| Surety bonds (2) | 19,524 | 20,440 | ||||
| Total collateral commitments | $ | 249,551 | $ | 235,846 | ||
| (1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
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| (2) | Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0% of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice. |
Legal contingencies and developments
We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated. The amounts recorded and resolution of those proceedings isare immaterial and are not expected to have a material effect on our results of operations or financial condition.
NOTE 8: SHAREHOLDERS’ EQUITY
Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Common stock shares | |||||||||||||
| Beginning balance | 36,128 | 40,152 | 38,593 | 40,054 | |||||||||
| Purchases and retirement of common stock | — | (156 | ) | (2,930 | ) | (390 | ) | ||||||
| Net issuance under equity plans, including tax benefits | (76 | ) | 58 | 339 | 366 | ||||||||
| Stock-based compensation | — | 4 | 50 | 28 | |||||||||
| Ending balance | 36,052 | 40,058 | 36,052 | 40,058 | |||||||||
| Common stock amount | |||||||||||||
| Beginning balance | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||
| Current period activity | — | — | — | — | |||||||||
| Ending balance | 1 | 1 | 1 | 1 | |||||||||
| Retained earnings | |||||||||||||
| Beginning balance | 435,804 | 611,609 | 639,210 | 606,087 | |||||||||
| Net income (loss) | (8,168 | ) | 19,406 | (158,662 | ) | 27,682 | |||||||
| Purchases and retirement of common stock (1) | — | (3,774 | ) | (52,346 | ) | (9,077 | ) | ||||||
| Net issuance under equity plans, including tax benefits | 51 | 127 | (1,420 | ) | (930 | ) | |||||||
| Stock-based compensation | 2,838 | 1,654 | 4,345 | 5,260 | |||||||||
| Change in accounting standard cumulative-effect adjustment (2) | — | — | (602 | ) | — | ||||||||
| Ending balance | 430,525 | 629,022 | 430,525 | 629,022 | |||||||||
| Accumulated other comprehensive loss | |||||||||||||
| Beginning balance, net of tax | (19,863 | ) | (13,323 | ) | (13,238 | ) | (14,649 | ) | |||||
| Foreign currency translation adjustment | 2,098 | (693 | ) | (4,527 | ) | 633 | |||||||
| Ending balance, net of tax | (17,765 | ) | (14,016 | ) | (17,765 | ) | (14,016 | ) | |||||
| Total shareholders’ equity ending balance | $ | 412,761 | $ | 615,007 | $ | 412,761 | $ | 615,007 | |||||
| (1) | Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on our Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered. |
Page - 16
| (2) | As a result of our adoption of the accounting standard for credit losses, we recognized a cumulative-effect adjustment to retained earnings of $0.6 million in the first quarter of 2020. |
Share repurchase plan
On October 16, 2019, 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. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. As of June 28, 2020, $66.7 million remains available for repurchase of common stock under the existing authorization. The second amendment to our revolving credit facility agreement prohibits us from repurchasing shares until July 1, 2021.
As part of the existing share repurchase plan, on February 28, 2020 we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $40.0 million of our common stock. Under the ASR agreement, we paid $40.0 million to the financial institution and received an initial delivery of 2,150,538 shares in the first quarter of 2020, which represented 80% of the total shares we expected to receive based on the market price at the time of the initial delivery. This transaction was initiated prior to the medical community’s acknowledgment of the expected severity of the impact COVID-19 would have on the United States.
The final number of shares delivered upon settlement of the agreement is determined by the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount. Under the terms of the ASR agreement, upon settlement, either we receive additional shares from the financial institution or we are required to deliver additional shares or cash to the financial institution. We control the election to either deliver additional shares or cash to the financial institution, if required. As such, the forward stock purchase contract was considered indexed to our own stock and is classified as an equity instrument as of June 28, 2020. The value of the initial shares received was recorded as a reduction to retained earnings, and the number of shares initially received was an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share. We settled our ASR agreement on July 2, 2020. Refer to Note 12: Subsequent Event for additional details.
| NOTE | INCOME TAXES |
Our income tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our quarterly tax provision and our quarterly estimate of our annual 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 ofin expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. Except as required under U.S.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax law, we do not provide for U.S. taxes on undistributed earnings of our foreign subsidiaries since we consider those earningslaws, including the ability to be permanently invested outside of the U.S.
carry back losses to obtain refunds related to prior year tax returns.
Our effective tax rate for the thirty-ninetwenty-six weeks ended October 1, 2017June 28, 2020 was 27.6%19.4%. The difference between the statutory federal income tax rate of 35.0%21% and our effective income tax rate results primarily from a non-deductible goodwill and intangible asset impairment charge, the CARES Act, and the federal Work Opportunity Tax Credit. This tax creditCredit (“WOTC”). WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of 35.0% and our effective tax rate result from state and foreign income taxes, certain non-deductible expenses, tax exempt interest, and tax effects of share basedstock-based compensation.
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except per share amounts) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Net income (loss) | $ | 21,221 | $ | 23,429 | $ | 39,029 | $ | (33,338 | ) | ||||
| Weighted average number of common shares used in basic net income (loss) per common share | 41,046 | 41,762 | 41,420 | 41,651 | |||||||||
| Dilutive effect of non-vested restricted stock | 230 | 294 | 251 | — | |||||||||
| Weighted average number of common shares used in diluted net income (loss) per common share | 41,276 | 42,056 | 41,671 | 41,651 | |||||||||
| Net income (loss) per common share: | |||||||||||||
| Basic | $ | 0.52 | $ | 0.56 | $ | 0.94 | $ | (0.80 | ) | ||||
| Diluted | $ | 0.51 | $ | 0.56 | $ | 0.94 | $ | (0.80 | ) | ||||
| Anti-dilutive shares | 354 | 302 | 388 | 521 | |||||||||
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| NOTE |
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except per share data) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Net income (loss) | $ | (8,168 | ) | $ | 19,406 | $ | (158,662 | ) | $ | 27,682 | |||
| Weighted average number of common shares used in basic net income (loss) per common share | 35,077 | 39,163 | 36,166 | 39,264 | |||||||||
| Dilutive effect of non-vested restricted stock | — | 391 | — | 355 | |||||||||
| Weighted average number of common shares used in diluted net income (loss) per common share | 35,077 | 39,554 | 36,166 | 39,619 | |||||||||
| Net income (loss) per common share: | |||||||||||||
| Basic | $ | (0.23 | ) | $ | 0.50 | $ | (4.39 | ) | $ | 0.71 | |||
| Diluted | $ | (0.23 | ) | $ | 0.49 | $ | (4.39 | ) | $ | 0.70 | |||
| Anti-dilutive shares | 580 | 246 | 565 | 336 | |||||||||
| Thirteen weeks ended | |||||||||||||||||||
| October 1, 2017 | September 23, 2016 | ||||||||||||||||||
| (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 | $ | (9,344 | ) | $ | 1,143 | $ | (8,201 | ) | $ | (11,420 | ) | $ | 1,247 | $ | (10,173 | ) | |||
| Unrealized gain (loss) on investments (1) | 897 | 424 | 1,321 | (337 | ) | 784 | 447 | ||||||||||||
| Total other comprehensive income (loss), net of tax | $ | (8,447 | ) | $ | 1,567 | $ | (6,880 | ) | $ | (11,757 | ) | $ | 2,031 | $ | (9,726 | ) | |||
| Thirty-nine weeks ended | |||||||||||||||||||
| October 1, 2017 | September 23, 2016 | ||||||||||||||||||
| (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 | ) | $ | 3,483 | $ | (8,201 | ) | $ | (13,514 | ) | $ | 3,341 | $ | (10,173 | ) | |||
| Unrealized gain (loss) on investments (1) | 251 | 1,070 | 1,321 | (499 | ) | 946 | 447 | ||||||||||||
| Total other comprehensive income (loss), net of tax | $ | (11,433 | ) | $ | 4,553 | $ | (6,880 | ) | $ | (14,013 | ) | $ | 4,287 | $ | (9,726 | ) | |||
NOTE 11: SEGMENT INFORMATION |
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 thea broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, manufacturing, warehousing, logistics,waste and recycling, energy, construction, hospitality, general labor and other industries.others.
Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-premise contingent staffing and on-premise management of those contingent staffing serviceson-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:
| • | On-site: On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and |
| • | Centerline Drivers: Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries. |
| • | PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and |
| • | PeopleScout MSP: Management of multiple third-party staffing vendors on behalf of clients. |
We evaluate performance based on segment revenue and segment profit (loss). Inter-segment revenue is minimal. Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and other adjustments not considered to be ongoing.
Page - 1318
The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Revenue from services: | |||||||||||||
| Contingent staffing | |||||||||||||
| PeopleReady | $ | 209,151 | $ | 369,261 | $ | 508,445 | $ | 696,129 | |||||
| PeopleManagement | 118,661 | 153,530 | 260,275 | 311,574 | |||||||||
| Human resource outsourcing | |||||||||||||
| PeopleScout | 31,132 | 65,803 | 84,476 | 133,243 | |||||||||
| Total company | $ | 358,944 | $ | 588,594 | $ | 853,196 | $ | 1,140,946 | |||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Revenue from services: | |||||||||||||
| PeopleReady | $ | 414,995 | $ | 435,783 | $ | 1,118,331 | $ | 1,198,067 | |||||
| PeopleManagement | 196,835 | 216,834 | 581,408 | 682,605 | |||||||||
| PeopleScout | 48,950 | 44,480 | 139,407 | 135,017 | |||||||||
| Total Company | $ | 660,780 | $ | 697,097 | $ | 1,839,146 | $ | 2,015,689 | |||||
The following table presents a reconciliation of Segment EBITDAsegment profit to income (loss) before tax expense:expense (benefit):
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Segment profit (loss): | |||||||||||||
| PeopleReady | $ | 633 | $ | 21,795 | $ | 8,288 | $ | 33,265 | |||||
| PeopleManagement | 1,803 | 4,128 | 1,489 | 6,434 | |||||||||
| PeopleScout | (2,782 | ) | 11,223 | (274 | ) | 21,650 | |||||||
| Total segment profit (loss) | (346 | ) | 37,146 | 9,503 | 61,349 | ||||||||
| Corporate unallocated | (4,929 | ) | (3,634 | ) | (10,138 | ) | (10,911 | ) | |||||
| Work Opportunity Tax Credit processing fees | — | (240 | ) | (135 | ) | (480 | ) | ||||||
| Acquisition/integration costs | — | (673 | ) | — | (1,250 | ) | |||||||
| Goodwill and intangible asset impairment charge | — | — | (175,189 | ) | — | ||||||||
| Other benefits (costs) | (8,700 | ) | (1,881 | ) | (4,427 | ) | 725 | ||||||
| Depreciation and amortization | (7,256 | ) | (9,827 | ) | (16,350 | ) | (19,779 | ) | |||||
| Income (loss) from operations | (21,231 | ) | 20,891 | (196,736 | ) | 29,654 | |||||||
| Interest and other income (expense), net | (412 | ) | 827 | (149 | ) | 1,380 | |||||||
| Income (loss) before tax expense (benefit) | $ | (21,643 | ) | $ | 21,718 | $ | (196,885 | ) | $ | 31,034 | |||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Segment EBITDA (1): | |||||||||||||
| PeopleReady | $ | 28,572 | $ | 34,100 | $ | 57,448 | $ | 75,198 | |||||
| PeopleManagement | 6,940 | 3,520 | 18,759 | (70,218 | ) | ||||||||
| PeopleScout | 10,277 | 8,358 | 29,071 | 12,527 | |||||||||
| 45,789 | 45,978 | 105,278 | 17,507 | ||||||||||
| Corporate unallocated | (5,322 | ) | (6,537 | ) | (16,700 | ) | (23,310 | ) | |||||
| Depreciation and amortization | (11,189 | ) | (11,690 | ) | (34,650 | ) | (34,673 | ) | |||||
| Income (loss) from operations | 29,278 | 27,751 | 53,928 | (40,476 | ) | ||||||||
| Interest and other income (expense), net | (219 | ) | (867 | ) | 10 | (2,773 | ) | ||||||
| Income (loss) before tax expense | $ | 29,059 | $ | 26,884 | $ | 53,938 | $ | (43,249 | ) | ||||
Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis.
NOTE 12: SUBSEQUENT EVENT
On July 2, 2020, we settled our ASR agreement resulting in the receipt of 626,948 additional shares from the third-party financial institution. The total number of shares delivered under the ASR agreement was 2,777,486 with a volume weighted average price over the term of the ASR agreement of $14.40.
Page - 1419
| Item 2. | ||
COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, the impact of and our ongoing response to COVID-19, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “goal,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in our forward-looking statements, including the risks and uncertainties described in “Risk Factors”“Management’s Discussion and Analysis” (Part II,I, Item 1A2 of this Form 10-Q), “Quantitative“Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q), and “Management’s Discussion and Analysis”“Risk Factors” (Part I,II, Item 21A of this Form 10-Q). We undertake no duty to update or revise publicly any of the forward-looking statements after the date of this report or to conform such statements to actual results or to changes in our expectations, whether because of new information, future events, or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our accompanying unaudited 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 Annual Report on Form 10-K for the fiscal year ended January 1, 2017. MD&A is provided as a supplement to,December 29, 2019, and should be read in conjunction with, our financial statements and the accompanying notes to our financial statements.
OVERVIEW
TrueBlue, Inc. (the “Company,“company,” “TrueBlue,” “we,” “us,”“us” and “our”) is a leading provider of specialized workforce solutions that help our customers createclients achieve business growth and improve efficiency,productivity. In 2019, we connected approximately 724,000 people with work and increase reliability. Our workforce solutions meet customers’ needs for a reliable, efficient workforce in a wide variety of industries.
served approximately 139,000 clients. We report our business as three distinctreportable segments: PeopleReady, PeopleManagement and PeopleScout. See Note 9: 11: Segment Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details ofon our service linesoperating segments and reportable segments.
Our PeopleReadyis segment offers on-demand, industrial staffing; our branch-based blue-collarPeopleManagement segment offers contingent, on-site industrial staffing service. PeopleReady provides a wide range of staffing solutions for contingent, on-demand, general and skilled labor to a broad range of industries that include retail, manufacturing, warehousing, logistics, energy, construction, hospitality,commercial driver services; and others. PeopleReady helped approximately 122,000 businesses in 2016 to be more productive by providing easy access to dependable contingent labor. Additionally, we connected over 414,000 people with work in 2016. At the end of the third quarter of fiscal 2017, we had a network of 628 branches across all 50 states, Puerto Rico, and Canada.
PeopleScout provides outsourced recruitment for permanent employees for all major industries and jobs. Our dedicatedsegment offers recruitment process outsourcing service delivery teams work as an integrated partner with our clients in providing end-to-end talent acquisition services from sourcing candidates to on-boarding employees. In 2016, PeopleScout placed over 268,000 individuals into permanent jobs with 200 clients. Our PeopleScout segment also includes a management(“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries.
The global economy and our business which provides clients with improved qualityhave been dramatically affected by COVID-19. There are no reliable estimates of how long the pandemic will last or how many people will be affected by it. For that reason, it is difficult to predict the short- and spend managementlong-term impacts of their contingent labor vendors.
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||||||||||
| (in thousands, except percentages and per share amounts) | October 1, 2017 | % of revenue | September 23, 2016 | % of revenue | October 1, 2017 | % of revenue | September 23, 2016 | % of revenue | |||||||||||||
| Revenue from services | $ | 660,780 | $ | 697,097 | $ | 1,839,146 | $ | 2,015,689 | |||||||||||||
| Total revenue growth (decline) % | (5.2 | )% | 1.9 | % | (8.8 | )% | 6.9 | % | |||||||||||||
| Gross profit | $ | 172,019 | 26.0 | % | $ | 178,395 | 25.6 | % | $ | 466,728 | 25.4 | % | $ | 498,831 | 24.7 | % | |||||
| Selling, general and administrative expense | 131,552 | 19.9 | % | 134,679 | 19.3 | % | 378,150 | 20.6 | % | 401,090 | 19.9 | % | |||||||||
| Depreciation and amortization | 11,189 | 1.7 | % | 11,690 | 1.7 | % | 34,650 | 1.9 | % | 34,673 | 1.7 | % | |||||||||
| Goodwill and intangible asset impairment charge | — | 4,275 | 0.6 | % | — | 103,544 | 5.1 | % | |||||||||||||
| Income (loss) from operations | 29,278 | 4.4 | % | 27,751 | 4.0 | % | 53,928 | 2.9 | % | (40,476 | ) | (2.0 | )% | ||||||||
| Interest and other income (expense), net | (219 | ) | (867 | ) | 10 | (2,773 | ) | ||||||||||||||
| Income (loss) before tax expense | 29,059 | 26,884 | 53,938 | (43,249 | ) | ||||||||||||||||
| Income tax expense (benefit) | 7,838 | 3,455 | 14,909 | (9,911 | ) | ||||||||||||||||
| Net income (loss) | $ | 21,221 | 3.2 | % | $ | 23,429 | 3.4 | % | $ | 39,029 | 2.1 | % | $ | (33,338 | ) | (1.7 | )% | ||||
| Net income (loss) per diluted share | $ | 0.51 | $ | 0.56 | $ | 0.94 | $ | (0.80 | ) | ||||||||||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||||||||||||||
| (in thousands, except percentages) | October 1, 2017 | Decline % | Segment % of Total | September 23, 2016 | Segment % of Total | October 1, 2017 | Decline % | Segment % of Total | September 23, 2016 | Segment % of Total | |||||||||||||||
| Revenue from services: | |||||||||||||||||||||||||
| PeopleReady | $ | 414,995 | (4.8 | )% | 62.8 | % | $ | 435,783 | 62.5 | % | $ | 1,118,331 | (6.7 | )% | 60.8 | % | $ | 1,198,067 | 59.4 | % | |||||
| PeopleManagement | 196,835 | (9.2 | )% | 29.8 | % | 216,834 | 31.1 | % | 581,408 | (14.8 | )% | 31.6 | % | 682,605 | 33.9 | % | |||||||||
| PeopleScout | 48,950 | 10.0 | % | 7.4 | % | 44,480 | 6.4 | % | 139,407 | 3.3 | % | 7.6 | % | 135,017 | 6.7 | % | |||||||||
| Total Company | $ | 660,780 | (5.2 | )% | 100.0 | % | $ | 697,097 | 100.0 | % | $ | 1,839,146 | (8.8 | )% | 100.0 | % | $ | 2,015,689 | 100.0 | % | |||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Gross profit | $ | 172,019 | $ | 178,395 | $ | 466,728 | $ | 498,831 | |||||
| Percentage of revenue | 26.0 | % | 25.6 | % | 25.4 | % | 24.7 | % | |||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Selling, general and administrative expense | $ | 131,552 | $ | 134,679 | $ | 378,150 | $ | 401,090 | |||||
| Percentage of revenue | 19.9 | % | 19.3 | % | 20.6 | % | 19.9 | % | |||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Goodwill and intangible asset impairment charge | $ | — | $ | 4,275 | $ | — | $ | 103,544 | |||||
| Percentage of revenue | 0.6 | % | 5.1 | % | |||||||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Depreciation and amortization | $ | 11,189 | $ | 11,690 | $ | 34,650 | $ | 34,673 | |||||
| Percentage of revenue | 1.7 | % | 1.7 | % | 1.9 | % | 1.7 | % | |||||
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We continue to monitor this rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. There may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, it is difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, we do expect that it will continue to have a material adverse impact on our future revenue, overall profitability and liquidity. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.
Second quarter of 2020 highlights
Revenue from services
Total company revenue declined 39% to $359 million for the thirteen weeks ended June 28, 2020, compared to the same period in the prior year. The decline was due to a significant drop in client demand associated with government and societal actions to address COVID-19. In particular, the outbreak and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Declines were broad-based across multiple geographies and industries.
PeopleReady, our largest segment, experienced a revenue decline of 43%. PeopleManagement, our lowest margin segment, experienced a revenue decline of 23%. PeopleScout, our highest margin segment, experienced a revenue decline of 53%. PeopleScout has a large number of clients in the travel and leisure sectors which have been impacted significantly by COVID-19.
Gross profit
Total company gross profit as a percentage of revenue for the thirteen weeks ended June 28, 2020, decreased by 340 basis points to 23.2%, compared to 26.6% for the same period in the prior year. Our PeopleScout business contributed approximately 240 basis points to the decline, partially due to 80 basis points of severance and the remaining decline from the continued impact of lower volume due to the rapid revenue decline caused by COVID-19, which outpaced the reductions to our service delivery team. Our staffing businesses contributed 100 basis points to the decline primarily due to health concerns and higher pay rates necessary to attract employees given the availability of federal unemployment benefits.
Selling, general and administrative expense
Total company SG&A expense decreased by $29 million to $97 million, or 27.1% of revenue for the thirteen weeks ended June 28, 2020, compared to $126 million, or 21.4% of revenue for the same period in the prior year. The decrease in SG&A expense is primarily due to comprehensive actions we put in place in March 2020 to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19. We have taken appropriate steps to reduce SG&A expense while preserving the key strengths of our business to ensure we are prepared when business conditions improve. The decrease in SG&A expense also included $3 million in employee retention credits made available under the Canada Emergency Wage Subsidy for Canadian employees and the Australian JobKeeper subsidy for Australian employees during the thirteen weeks ended June 28, 2020. These reductions were partially offset by $8 million in workforce reduction costs recorded in the thirteen weeks ended June 28, 2020, compared to $1 million for the same period in the prior year. We will continue to monitor and manage our SG&A expense in the current environment.
Loss from operations
Total company loss from operations was $21 million for the thirteen weeks ended June 28, 2020, compared to operating income of $21 million for the same period in the prior year. We experienced a loss from operations primarily due to the significant drop in client demand associated with government and societal actions to address COVID-19. The significant drop in demand, increased price sensitivity, increased contingent worker wages and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results. The declines were partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.
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Net loss
Net loss was $8 million, or $0.23 per diluted share for the thirteen weeks ended June 28, 2020, compared to net income of $19 million, or $0.49 per diluted share for the same period in the prior year. This loss from operations was partially offset by the income tax benefit of $13 million. The difference between the statutory federal income tax rate of 21% and our effective income tax rate results primarily from the federal Work Opportunity Tax Credit (“WOTC”) and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns where the federal tax rate was 35%.
Additional highlights
We are focused on capital preservation as a top priority. In response to the rapidly changing market conditions, we have taken swift action to reduce operating costs and other cash outflows to preserve capital to fund working capital needs. On March 16, 2020, we amended our revolving credit agreement which extended the maturity of the revolving credit facility established thereunder (“Revolving Credit Facility”) to March 16, 2025. On June 24, 2020, we further amended our revolving credit agreement, which modified terms of our financial covenants as well as certain other provisions. Under the amended credit agreement, we have the option, subject to lender approval, to increase the Revolving Credit Facility to $450 million. As of June 28, 2020, we are in a strong financial position with cash and cash equivalents of $92 million and $125 million available under the most restrictive covenant of our Revolving Credit Facility for total liquidity of $217 million.
RESULTS OF OPERATIONS
Total company results
The global economy and our business have been dramatically affected by COVID-19. To date, COVID-19 has surfaced all around the world and resulted in country-level quarantines, global travel restrictions and broad-based economic slowdowns. There are no reliable estimates of how long the pandemic will last or how many people will be affected by it. For that reason, it is difficult to predict the short- and long-term impacts of the pandemic on our business at this time.
Our first priority, with regard to COVID-19, has been to ensure the safety, health and hygiene of our associates, employees, clients, suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented business environment. We implemented comprehensive measures across our businesses to keep our workers and clients healthy and safe, including adherence to guidance from the Centers for Disease Control and Prevention, World Health Organization, Occupational Safety and Health Administration and other key authorities. We formed a specialized task force tracking the most up-to-date developments and safety standards, and created an internal information hub with safety protocols, dashboards, FAQs, and daily reporting by location on the COVID-19 impact. In addition to posting TrueBlue’s action plan on our external websites, we are actively sharing information on how companies and workers can protect themselves via ongoing emails, social outreach, webinars and other digital communications. We are fully leveraging our JobStackTM app to help companies and workers connect safely through a digital environment, and are rolling out a new virtual onboarding capability to minimize in-person branch visits. We are also leveraging our AffinixTM technology to enable companies to connect with permanent talent through virtual hiring and sourcing. Working closely with clients to enforce safety standards, we are supporting efforts in providing masks for associates, hand sanitizer, workplace disinfecting, social distancing, and infrared temperature checks. We instruct all our workers to stay home if they are not feeling well or have been exposed to COVID-19. Immediate notification and self-quarantine protocols are in place if a staff member, associate or client’s employee is exposed to COVID-19, and our Field Safety Specialists closely evaluate any assignments related to clean-up of potentially infectious job sites. To ensure business continuity and support for clients who need workers for essential services, we established a Centralized Branch Support Center and are ready to implement Regional Command Centers as needed to serve as backup for our 600+ branches. Our branches follow strict sanitation and social distancing guidelines. In addition, across the TrueBlue organization, we suspended all international travel and restricted nonessential domestic travel for our employees and are providing remote work capabilities for our Tacoma and Chicago support centers as well as other locations.
In response to these rapidly changing market conditions, we are taking all appropriate steps to reduce SG&A expense and other cash outflows. We continue to monitor this rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. There may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, it is difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, we do expect that it will continue to have a material adverse impact on our future revenue, overall profitability
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and liquidity. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
The following table presents selected financial data:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||||||||
| (in thousands, except percentages and per share data) | June 28, 2020 | % of revenue | June 30, 2019 | % of revenue | June 28, 2020 | % of revenue | June 30, 2019 | % of revenue | |||||||||||||
| Revenue from services | $ | 358,944 | $ | 588,594 | $ | 853,196 | $ | 1,140,946 | |||||||||||||
| Total revenue growth (decline) % | (39.0 | )% | (4.2 | )% | (25.2 | )% | (2.4 | )% | |||||||||||||
| Gross profit | $ | 83,225 | 23.2 | % | $ | 156,683 | 26.6 | % | $ | 209,384 | 24.5 | % | $ | 303,378 | 26.6 | % | |||||
| Selling, general and administrative expense | 97,200 | 27.1 | % | 125,965 | 21.4 | % | 214,581 | 25.2 | % | 253,945 | 22.3 | % | |||||||||
| Depreciation and amortization | 7,256 | 2.0 | % | 9,827 | 1.7 | % | 16,350 | 1.9 | % | 19,779 | 1.7 | % | |||||||||
| Goodwill and intangible asset impairment charge | — | — | 175,189 | — | |||||||||||||||||
| Income (loss) from operations | (21,231 | ) | (5.9 | )% | 20,891 | 3.5 | % | (196,736 | ) | (23.1 | )% | 29,654 | 2.6 | % | |||||||
| Interest and other income (expense), net | (412 | ) | 827 | (149 | ) | 1,380 | |||||||||||||||
| Income (loss) before tax expense (benefit) | (21,643 | ) | 21,718 | (196,885 | ) | 31,034 | |||||||||||||||
| Income tax expense (benefit) | (13,475 | ) | 2,312 | (38,223 | ) | 3,352 | |||||||||||||||
| Net income (loss) | $ | (8,168 | ) | (2.3 | )% | $ | 19,406 | 3.3 | % | $ | (158,662 | ) | (18.6 | )% | $ | 27,682 | 2.4 | % | |||
| Net income (loss) per diluted share | $ | (0.23 | ) | $ | 0.49 | $ | (4.39 | ) | $ | 0.70 | |||||||||||
We report our business as three reportable segments described below and in Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q.
| • | PeopleReadyprovides access to reliable workers in the United States, Canada and Puerto Rico through a wide range of staffing solutions for on-demand contingent 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, energy, retail, hospitality, and others. As of December 29, 2019, we had a network of 614 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our mobile application, JobStackTM, which connects workers with jobs, creates a virtual exchange between our workers and clients, and allows our branch resources to expand their recruiting and sales efforts and service delivery. JobStack is helping to competitively differentiate our services, expand our reach into new demographics, and improve both service delivery and work order fill rates as we lead our business into a digital future. |
| • | PeopleManagement predominantly provides a wide range of on-site contingent staffing and workforce management solutions to larger multi-site manufacturing, distribution and fulfillment clients. In comparison with PeopleReady, services are larger in scale, longer in duration, and dedicated service teams are located at the client’s facility. Effective December 30, 2019 (first day of our 2020 fiscal year), we combined our two on-site contingent industrial workforce operating segments, Staff Management | SMX and SIMOS Insourcing Solutions (“SIMOS”) into one operating segment titled “On-site,” which continues to be reported under PeopleManagement. On-site includes our branded service offerings for hourly (Staff Management | SMX) and productivity-based (SIMOS) industrial staffing solutions serving the same industries and similar clients. PeopleManagement also includes Centerline Drivers (“Centerline”), which specializes in dedicated and contingent commercial truck drivers to the transportation and distribution industries. |
| • | PeopleScout provides recruitment process outsourcing of end-to-end talent acquisition services from candidate sourcing and engagement through the onboarding of employees as well as employer branding services. Our solution is highly scalable and flexible, which allows for the outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps. Our solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and increased compliance. Our clients outsource the recruitment process to PeopleScout in all major industries and jobs. We leverage our proprietary technology platform (AffinixTM) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days. |
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Our PeopleScout reportable segment also includes a managed service provider business, which provides clients with improved quality and cost management of their contingent labor vendors.
Revenue from services
Revenue from services by reportable segment was as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||||||||||||
| (in thousands, except percentages) | June 28, 2020 | Growth (decline) % | Segment % of total | June 30, 2019 | Segment % of total | June 28, 2020 | Growth (decline) % | Segment % of total | June 30, 2019 | Segment % of total | |||||||||||||||
| Revenue from services: | |||||||||||||||||||||||||
| PeopleReady | $ | 209,151 | (43.4 | )% | 58.2 | $ | 369,261 | 62.7 | % | $ | 508,445 | (27.0 | )% | 59.6 | % | $ | 696,129 | 61.0 | % | ||||||
| PeopleManagement | 118,661 | (22.7 | ) | 33.1 | 153,530 | 26.1 | 260,275 | (16.5 | ) | 30.5 | 311,574 | 27.3 | |||||||||||||
| PeopleScout | 31,132 | (52.7 | ) | 8.7 | 65,803 | 11.2 | 84,476 | (36.6 | ) | 9.9 | 133,243 | 11.7 | |||||||||||||
| Total company | $ | 358,944 | (39.0 | )% | 100.0 | % | $ | 588,594 | 100.0 | % | $ | 853,196 | (25.2 | )% | 100.0 | % | $ | 1,140,946 | 100.0 | % | |||||
The workforce solutions business is dependent on the overall strength of the labor market. Clients tend to use contingent workers to supplement their existing workforce and generally hire permanent workers when long-term demand is expected to increase. As a consequence, our revenue from services tends to increase quickly when the economy begins to grow. Conversely, our revenue decreases quickly when the economy begins to weaken and thus contingent staff positions are eliminated, permanent hiring is frozen and turnover replacement diminishes.
Total company revenue declined 39.0% to $358.9 million for the thirteen weeks ended June 28, 2020, compared to the same period in the prior year. During the quarter, revenue declined 42.3% in April 2020, then moderated to a decline of 34.6% in June 2020, compared to the same periods in the prior year. The decline was due to a significant drop in client demand associated with government and societal actions to address COVID-19. In particular, the outbreak and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Declines were broad-based across multiple geographies and industries. Our business remained open as we continued to provide key services to essential businesses. We expect significant adverse impact on our future revenue as well as our overall profitability and liquidity for as long as the negative economic impacts of COVID-19 are being experienced.
PeopleReady
PeopleReady revenue declined to $209.2 million for the thirteen weeks ended June 28, 2020, a 43.4% decrease compared to the same period in the prior year, and declined to $508.4 million for the twenty-six weeks ended June 28, 2020, a 27.0% decrease compared to the same period in the prior year. The decline was due to a significant drop in client demand associated with government and societal actions to address COVID-19. In particular, the outbreak and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Declines were broad-based across multiple geographies and industries and most significant during the month of April 2020, when revenue declined 46.2% compared to the prior year. Demand partially recovered to a decline of 39.3% in June 2020.
We believe the decline was partially offset by the use of our industry-leading JobStack mobile application that digitally connects workers with jobs. During the second quarter of 2020, PeopleReady dispatched approximately 0.6 million shifts via JobStack and achieved an all-time high digital fill rate of 53%. JobStack has an 88% worker adoption rate and 24,300 client users as of the second quarter of 2020, or an increase of 38% compared to the same period in the prior year. JobStack is helping us safely connect people with work during this time of crisis.
PeopleManagement
PeopleManagementrevenue declined to $118.7 million for the thirteen weeks ended June 28, 2020, a 22.7% decrease compared to the same period in the prior year, and declined to $260.3 million for the twenty-six weeks ended June 28, 2020, a 16.5% decrease compared to the same period in the prior year. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Declines were broad-based across multiple industries and the most significant during the month of April 2020, when revenue declined 29.9% compared to the prior year. Demand partially recovered to a decline of 15.5% in June 2020, as compared to the prior year driven by manufacturers reopening (including food processors and auto manufacturing suppliers) and strength in e-commerce.
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PeopleScout
PeopleScoutrevenue declined to $31.1 million for the thirteen weeks ended June 28, 2020, a 52.7% decrease compared to the same period in the prior year, and declined to $84.5 million for the twenty-six weeks ended June 28, 2020, a 36.6% decrease compared to the same period in the prior year. The revenue decline was partially due to the impact of reduced project-based recruiting volumes at a large industrial client, which declined throughout 2019 due to the client’s adverse business conditions resulting in no order volume in the fourth quarter of 2019. Revenue declined further due to less demand from existing clients resulting from the economic disruption caused by COVID-19. Our clients in the travel and leisure industries were hit especially hard.
Gross profit
Gross profit was as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Gross profit | $ | 83,225 | $ | 156,683 | $ | 209,384 | $ | 303,378 | |||||
| Percentage of revenue | 23.2 | % | 26.6 | % | 24.5 | % | 26.6 | % | |||||
Gross profit as a percentage of revenue declined to 23.2%, or 340 basis points for the thirteen weeks ended June 28, 2020, compared to 26.6% for the same period in the prior year. Our PeopleScout business contributed approximately 240 basis points to the decline partially due to 80 basis points of severance and the remaining decline from the continued impact of lower volume due to the rapid revenue decline caused by the disruption of COVID-19, which outpaced the reductions to our service delivery team. Our staffing businesses contributed 100 basis points to the decline primarily due to health concerns and higher pay rates necessary to attract employees given the availability of federal unemployment benefits.
Gross profit as a percentage of revenue declined to 24.5%, or 210 basis points for the twenty-six weeks ended June 28, 2020, compared to 26.6% for the same period in the prior year. Our PeopleScout business contributed approximately 160 basis points to the decline partially due to 40 basis points of severance and the remaining decline from the continued impact of lower volume due to the rapid revenue decline caused by the disruption of COVID-19, which outpaced the reductions to our service delivery team. Our staffing businesses contributed 50 basis points to the decline primarily due to health concerns and higher pay rates necessary to attract employees given the availability of federal unemployment benefits, partially offset by a benefit from a reduction in estimated costs to comply with the Affordable Care Act, which were recorded in prior fiscal years, net of additional insurance coverage associated with former workers’ compensation carriers in liquidation in the prior year. We do not expect the benefit from lower affordable health care costs to reoccur.
Selling, general and administrative expense
SG&A expense was as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Selling, general and administrative expense | $ | 97,200 | $ | 125,965 | $ | 214,581 | $ | 253,945 | |||||
| Percentage of revenue | 27.1 | % | 21.4 | % | 25.2 | % | 22.3 | % | |||||
Total company SG&A expense decreased by $28.8 million and $39.4 million for the thirteen and twenty-six weeks ended June 28, 2020, compared to the same periods in the prior year, respectively. The decrease in SG&A expense was primarily due to comprehensive actions we put in place in March 2020 to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19. We have taken appropriate steps to reduce SG&A expense while preserving the key strengths of our business to ensure we are prepared for the time when business conditions improve. The decrease in SG&A expense included $3.1 million in employee retention credits made available under the Canada Emergency Wage Subsidy for Canadian employees and the Australian JobKeeper subsidy for Australian employees during the thirteen weeks ended June 28, 2020. These reductions were partially offset by $8.0 million and $8.8 million in workforce reduction costs recorded in the thirteen and twenty-six weeks ended June 28, 2020, respectively, compared to $0.5 million for the same periods in the prior year. We will continue to monitor and manage our SG&A expense in the current environment.
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Depreciation and amortization
Depreciation and amortization was as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Depreciation and amortization | $ | 7,256 | $ | 9,827 | $ | 16,350 | $ | 19,779 | |||||
| Percentage of revenue | 2.0 | % | 1.7 | % | 1.9 | % | 1.7 | % | |||||
Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets of $34.7 million in the first quarter of 2020 and several intangible assets that were fully amortized in the second half of 2019, which resulted in a decline in amortization expense for the thirteen and twenty-six weeks ended June 28, 2020.
Goodwill and intangible asset impairment charge
Goodwill and intangible asset impairment charge were as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Goodwill and intangible asset impairment charge | $ | — | $ | — | $ | 175,189 | $ | — | |||||
A summary of the goodwill and intangible asset impairment charge by reportable segment is as follows:
| (in thousands) | PeopleManagement | PeopleScout | Total company | ||||||
| Goodwill | $ | 45,901 | $ | 94,588 | $ | 140,489 | |||
| Client relationships | 9,700 | 25,000 | 34,700 | ||||||
| Total | $ | 55,601 | $ | 119,588 | $ | 175,189 | |||
We evaluate goodwill for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred. These events or circumstances could include a significant change in the business climate, operating performance indicators, competition, client engagement, legal factors, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year. During the first quarter of 2020, the following events made it more likely than not that an impairment had occurred and accordingly, we performed an interim impairment test as of the last day of our fiscal first quarter of 2020.
We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our services in an uncertain economic climate. This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock. Most industries we serve have been impacted by a significant decrease in demand for their products and services and, as a result, we experienced a significant drop in client demand associated with government and societal actions to address COVID-19. We have experienced and expect to continue to experience significant decreases to our revenues and corresponding operating results due to weakness in pricing and demand for our services during this severe economic downturn. While demand is expected to recover in the future, the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections decline to a contained level.
As a result of our interim impairment test in the first quarter of 2020, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $140.5 million. The total goodwill carrying value of $45.9 million for PeopleManagement On-site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively. The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $22.7 million and $9.7 million, respectively, as of June 28, 2020.
We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. 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 important 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. With the decrease in demand for our services due to the economic impact caused
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by COVID-19, we have lowered our future expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million in the first quarter of 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively. The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleScout MSP were $5.8 million and $8.1 million, respectively, as of June 28, 2020.
Income taxes
The income tax expense and the effective income tax rate were as follows:
| Thirteen weeks ended | Thirty-nine weeks ended | Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||||||
| (in thousands, except percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | ||||||||||||||||||
| Income tax expense (benefit) | $ | 7,838 | $ | 3,455 | $ | 14,909 | $ | (9,911 | ) | $ | (13,475 | ) | $ | 2,312 | $ | (38,223 | ) | $ | 3,352 | |||||||
| Effective income tax rate | 27.0 | % | 12.9 | % | 27.6 | % | 22.9 | % | 62.3 | % | 10.6 | % | 19.4 | % | 10.8 | % | ||||||||||
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 and the mix of jurisdictions to which they relate,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 pre-tax income.income and loss. For example, the impact of the following discrete items, tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower. Except as required under U.S.The semi-fixed nature of discrete items, tax credits and non-deductible expenses is magnified on our effective tax rate due to lower pre-tax income or loss.
The items accounting for the difference between income taxes computed at the statutory federal income tax law, we do not provide for U.S. federalrate and income taxes reported on undistributed earningsthe Consolidated Statements of our foreign subsidiaries because we consider those earnings to be permanently invested outside of the United States.Operations and Comprehensive Income (Loss) are as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||||||||
| June 28, 2020 | % | June 30, 2019 | % | June 28, 2020 | % | June 30, 2019 | % | ||||||||||||||
| Income (loss) before tax expense (benefit) | $ | (21,643 | ) | $ | 21,718 | $ | (196,885 | ) | $ | 31,034 | |||||||||||
| Federal income tax expense (benefit) at statutory rate | $ | (4,545 | ) | 21.0 | % | $ | 4,561 | 21.0 | % | $ | (41,346 | ) | 21.0 | % | $ | 6,517 | 21.0 | % | |||
| Increase (decrease) resulting from: | |||||||||||||||||||||
| State income taxes, net of federal benefit | (1,644 | ) | 7.6 | 1,062 | 4.9 | (9,952 | ) | 5.1 | 1,517 | 4.9 | |||||||||||
| Goodwill and intangible asset impairment impact | — | — | — | — | 21,849 | (11.1 | ) | — | — | ||||||||||||
| Benefit from the CARES Act | (3,595 | ) | 16.6 | — | — | (5,698 | ) | 2.9 | — | — | |||||||||||
| Job tax credits, net | (3,905 | ) | 18.0 | (3,464 | ) | (16.0 | ) | (3,982 | ) | 2.0 | (5,065 | ) | (16.3 | ) | |||||||
| Other non-deductible/non-taxable items | 214 | (0.9 | ) | 153 | 0.7 | 906 | (0.5 | ) | 383 | 1.2 | |||||||||||
| Income tax expense (benefit) | $ | (13,475 | ) | 62.3 | % | $ | 2,312 | 10.6 | % | $ | (38,223 | ) | 19.4 | % | $ | 3,352 | 10.8 | % | |||
Significant fluctuations in our effective rate are primarily due to the non-deductible goodwill and intangible asset impairment charge, the CARES Act and the WOTC hiring credits. Other differences between the statutory federal income tax rate result from state and foreign income taxes and certain other non-deductible and non-taxable items.
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As a result of our interim impairment test, we concluded that the carrying amounts of goodwill and other intangible assets for selected reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of $175.2 million. Of the total impairment loss, $84.7 million (tax effected $21.8 million) related to reporting units from stock acquisitions and accordingly are not deductible for tax purposes. The remaining impairment loss of $90.5 million (tax effected $23.3 million) related to reporting units from asset acquisitions and accordingly are deductible for tax purposes.
On March 27, 2020 the CARES Act was enacted in the United States. The CARES Act is an emergency economic aid package to help mitigate the Work Opportunity Tax Credit (“WOTC”)impact of COVID-19. Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back current year losses to obtain refunds related to prior year tax returns with a higher federal tax rate of 35%. The net operating loss carry back benefit will vary depending on estimated results for the year.
WOTC is designed to encourage hiring ofemployers to hire workers from certain disadvantaged targeted categories, andgroups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve month period up to worker maximummaximums by targeted category.group. 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;groups; 2) the targeted categoriesgroups 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 resultis due to expire at the end of the Protecting Americans from Tax Hikes Act of 2015, signed into law on December 18, 2015.2020.
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||
| October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | ||||||
| Effective income tax rate without adjustments below | 38.6 | % | 39.0 | % | 39.2 | % | 41.3 | % | |
Hiring credits estimate from current year wages | (10.2 | ) | (14.0 | ) | (10.2 | ) | (14.0 | ) | |
| Additional hiring credits from prior year wages | (1.4 | ) | (12.1 | ) | (1.7 | ) | (9.9 | ) | |
| Tax effect of share based compensation | — | — | 0.3 | — | |||||
| Goodwill and intangible asset impairment impact | — | — | — | 5.5 | |||||
| Effective income tax rate | 27.0 | % | 12.9 | % | 27.6 | % | 22.9 | % | |
Segment performance
We realigned our reporting structure in the fourth quarter of fiscal 2016 to streamline our operationsevaluate performance based on segment revenue 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 prior year amounts have been recast to reflect this change for consistency.
Information, to our Consolidated Financial Statementsconsolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details ofon our service lines and reportable segments, as well as a reconciliation of Segment EBITDAsegment profit to income (loss) before tax expense.
expense (benefit).
Segment EBITDAprofit (loss) 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, and may not be comparable to similarly titled measures of other companies.
PeopleReadysegment performance was as follows:
| Thirteen weeks ended | Thirty-nine weeks ended | Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||||||
| (in thousands, except for percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | ||||||||||||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | ||||||||||||||||||||||
| Revenue from services | $ | 414,995 | $ | 435,783 | $ | 1,118,331 | $ | 1,198,067 | $ | 209,151 | $ | 369,261 | $ | 508,445 | $ | 696,129 | ||||||||||
| Segment EBITDA | 28,572 | 34,100 | 57,448 | 75,198 | ||||||||||||||||||||||
| Segment profit | 633 | 21,795 | 8,288 | 33,265 | ||||||||||||||||||||||
| Percentage of revenue | 6.9 | % | 7.8 | % | 5.1 | % | 6.3 | % | 0.3 | % | 5.9 | % | 1.6 | % | 4.8 | % | ||||||||||
PeopleReady Segment EBITDA decreased to $29segment profit declined $21.2 million or 6.9% of revenueand $25.0 million for the thirteen and twenty-six weeks ended October 1, 2017,June 28, 2020, compared to $34 million, or 7.8% of revenue in the same periodperiods in the prior year. PeopleReady Segment EBITDA decreased to $57 million, or 5.1% of revenue for the thirty-nine weeks ended October 1, 2017, compared to $75 million, or 6.3% of revenue in the same period in the prior year. The revenueyear, respectively. We experienced a segment profit decline outpaced the cost control programs primarily due to the de-leveraging effectsignificant drop in client demand associated with the fixed costsgovernment and societal actions to address COVID-19. The significant drop in a branch network. Through disciplined pricing, we have passed through our normal mark-up on thedemand, increased costs for minimum wages, payroll taxes and benefits together with higherprice sensitivity, increased contingent worker wages in a tightening labor market. Withand preventive measures taken to help curb the decline in revenue, we put in place cost control programs commencing inspread of COVID-19 had severe adverse impacts on our operations and business results. The declines were partially offset by the prior year, which continue in the current year,decisive and have reducedcomprehensive cuts to SG&A costsexpense in line with management’s plans to preserve the key strengths of our plans. business.
We will continue to monitor and managebelieve these declines were partially offset by the strategic use of our SG&A costs.industry-leading JobStack mobile application that digitally connects workers with jobs. JobStack is helping us safely connect people with work during this time of crisis.
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except for percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Revenue from services | $ | 196,835 | $ | 216,834 | $ | 581,408 | $ | 682,605 | |||||
| Segment EBITDA | 6,940 | 3,520 | 18,759 | (70,218 | ) | ||||||||
| Percentage of revenue | 3.5 | % | 1.6 | % | 3.2 | % | (10.3 | )% | |||||
| Thirteen weeks ended | Thirty-nine weeks ended | ||||||||||||
| (in thousands, except for percentages) | October 1, 2017 | September 23, 2016 | October 1, 2017 | September 23, 2016 | |||||||||
| Revenue from services | $ | 48,950 | $ | 44,480 | $ | 139,407 | $ | 135,017 | |||||
| Segment EBITDA | 10,277 | 8,358 | 29,071 | 12,527 | |||||||||
| Percentage of revenue | 21.0 | % | 18.8 | % | 20.9 | % | 9.3 | % | |||||
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| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Revenue from services | $ | 118,661 | $ | 153,530 | $ | 260,275 | $ | 311,574 | |||||
| Segment profit | 1,803 | 4,128 | 1,489 | 6,434 | |||||||||
| Percentage of revenue | 1.5 | % | 2.7 | % | 0.6 | % | 2.1 | % | |||||
PeopleManagement segment profit declined $2.3 million or 21.0% of revenueand $4.9 million for the thirteen and twenty-six weeks ended October 1, 2017,June 28, 2020, compared to $8 million, or 18.8% of revenue for the same periodperiods in the prior year.year, respectively. We experienced a segment profit decline primarily due to a significant drop in demand from our clients associated with government and societal actions to address COVID-19. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower revenue. The improvedsignificant drop in demand, increased price sensitivity, higher pay rates necessary to attract employees given the availability of federal unemployment benefits, and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our segment profit and our segment profit as a percent of revenue. The decline in revenue was partially offset by our cost control programs which have reduced our SG&A expense in line with our plans.
PeopleScoutsegment performance is due primarily to new client wins and expanding the scope of services with existing clients together with efficiency gains in the sourcing and recruiting activities.was as follows:
| Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||
| (in thousands, except percentages) | June 28, 2020 | June 30, 2019 | June 28, 2020 | June 30, 2019 | |||||||||
| Revenue from services | $ | 31,132 | $ | 65,803 | $ | 84,476 | $ | 133,243 | |||||
| Segment profit (loss) | (2,782 | ) | 11,223 | (274 | ) | 21,650 | |||||||
| Percentage of revenue | (8.9 | )% | 17.1 | % | (0.3 | )% | 16.2 | % | |||||
PeopleScout Segment EBITDA grew to $29segment profit declined $14.0 million or 20.9% of revenueand $21.9 million for the thirty-ninethirteen and twenty-six weeks ended October 1, 2017,June 28, 2020, compared to $13 million, or 9.3% of revenue for the same periodperiods in the prior year. The increases wereyear, respectively. We experienced a segment profit decline primarily due to a decline in demand. The decline in demand was partially due to the goodwill and intangible asset impairment chargeimpact of $15 millionthe substantially reduced project-based recruiting volumes at a large industrial client, which declined throughout 2019 due to the client’s adverse business conditions resulting in no order volume in the prior period. Excludingfourth quarter of 2019. Revenue declined further due to less demand from existing clients resulting from the goodwilleconomic disruption caused by COVID-19, which significantly impacted our clients in the travel and intangible asset impairment charge, Segment EBITDAleisure industries. Due to the decline in revenue, we took actions to reduce the cost of our service delivery which lagged the rapid revenue decline caused by the disruption of COVID-19 and negatively impacted our segment profit and our segment profit as a percentagepercent of revenue. The decline in revenue was 20.5% for the thirty-nine weeks ended September 23, 2016. The improved performance is due primarily to new client wins and expanding the scope of servicespartially offset by our cost control programs which have reduced our SG&A expense in line with existing clients together with efficiency gains in the sourcing and recruiting activities.our plans.
FUTURE OUTLOOK
The global economy and our business have been dramatically affected by COVID-19. To date, COVID-19 has surfaced all around the world and resulted in country-level quarantines, global travel restrictions and broad-based economic slowdowns. There are no reliable estimates of how long the pandemic will last or how many people will be affected by it. For that reason, it is difficult to predict the short- and long-term impacts of the pandemic on our business at this time.
Most states, counties and municipalities are monitoring overall COVID-19 testing volume and changes in the percent of positive tests in relation to hospital capacity and supplies to care for COVID-19 patients and other patients needing urgent care, and reopening their respective economies in phases. The process of reopening has slowed due to increases in testing volumes and percent of positive test results. We expect the disruption due to COVID-19 will continue to have a significant adverse impact on our future revenue as well as our overall profitability and liquidity for as long as the negative economic impacts of COVID-19 are being experienced. Due to the uncertainty surrounding COVID-19 and its impact on the business environment, we have limited visibility into future demand for our services.financial condition, results of operations or cash flows in the future. However, we believe there is value in providing highlights ofanticipate pressure on our expectations for future financial performance. The following highlights representprofitability and cash flows and have taken steps to increase our expectations regarding operating trends for the remainder of fiscal 2017. These expectations are subject to revision as our business changes with the overall economy.
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| Thirty-nine weeks ended | ||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | ||||
| Net income (loss) | $ | 39,029 | $ | (33,338 | ) | |
| Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||
| Depreciation and amortization | 34,650 | 34,673 | ||||
| Goodwill and intangible asset impairment charge | — | 103,544 | ||||
| Provision for doubtful accounts | 6,321 | 6,361 | ||||
| Stock-based compensation | 6,161 | 7,443 | ||||
| Deferred income taxes | 4,890 | (23,874 | ) | |||
| Other operating activities | 2,563 | 5,603 | ||||
| Changes in operating assets and liabilities, net of effects of acquisition of business: | ||||||
| Accounts receivable | (34,198 | ) | 102,722 | |||
| Income tax receivable | 12,788 | 4,018 | ||||
| Accounts payable and other accrued expenses | (784 | ) | (3,764 | ) | ||
| Accrued wages and benefits | (176 | ) | (3,254 | ) | ||
| Workers' compensation claims reserve | 1,985 | 11,938 | ||||
| Other assets and liabilities | 7,392 | 1,177 | ||||
| Net cash provided by operating activities | $ | 80,621 | $ | 213,249 | ||
| • | We have taken appropriate and swift steps to reduce our operating cost structure and other cash outflows to preserve capital to fund working capital needs. These actions will have the effect of reducing our operating expenses by between $90 million and $100 million in fiscal 2020 and $28 million and $33 million in the third quarter of 2020 compared to the same periods in the prior year, while preserving the key strengths of our business to ensure we are prepared when business conditions improve. |
We are reducing planned cash capital expenditures by a changeapproximately $10 million to $22 million for fiscal 2020 to preserve operating capital and focus investment efforts. Capital expenditures of $22 million are net of $4 million of build-out costs for our Chicago headquarters that will be reimbursed by our landlord in the scope of services with our former largest customer and the impact of other changes in outlook reflecting changes to economic and industry conditions which lowered future expectations. In addition, it includes a $4.3 million trade name impairment charge in connection with the consolidation of our retail branch network under a common brand name.
On March 16, 2020, we amended our credit agreement and extended the term to March 16, 2025. On June 24, 2020, we entered into a second amendment, which modified terms of our financial covenants as well as certain other provisions of the year. Our business experiences seasonal fluctuations. DemandRevolving Credit Facility. While we would have been in compliance with our prior banking covenants on June 28, 2020, we felt it was prudent to amend the covenants to provide additional flexibility given the amount of economic uncertainty. At June 28, 2020, $45.0 million was drawn on the Revolving Credit Facility leaving $248.8 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant making $125 million available. We have an option to increase the total line of credit amount to $450.0 million, subject to bank approval. As of June 28, 2020, we had cash and cash equivalents of $92.1 million and total debt of $45.0 million.
Under the CARES Act, we are allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred during March 27, 2020 to December 31, 2020, for both our PeopleReady servicestemporary associates and permanent employees. As of June 28, 2020, we have deferred $15.7 million of employer payroll taxes. In addition, we are taking advantage of other deferred payment opportunities for federal, state, local and foreign taxes for which we qualify.
We have historically returned capital to shareholders through stock repurchases, however we do not plan on repurchasing additional shares until economic conditions improve.
We continue to monitor the rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities, and may take additional actions based on their recommendations. There may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, it is higher duringdifficult to estimate the second and third quartersimpacts of the year with demand peakingCOVID-19 on our financial condition, results of operations or cash flows in the third quarter. In addition, days sales outstanding increased duefuture. A protracted recession will have a material adverse impact on our future revenue growth as well as our overall profitability, funding working capital needs and complying with banking covenants that require us to revenue mix and slowed collections. Accounts receivable for the comparable prior year period declined primarily due to a decline in revenue and associated receivables from our former largest customer. The record fourth quarter of fiscal 2015 and seasonal de-leveraging that followed was in large part due to this customer who substantially insourced their 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. Revenues from our former largest customer declined by $140 million between the fourth quarter of fiscal 2015 and the third quarter of fiscal 2016. Revenues from our former largest customer declined by $22 million between the fourth quarter of fiscal 2016 and the third quarter of fiscal 2017.maintain certain financial conditions.
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LIQUIDITY
| Twenty-six weeks ended | ||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | ||||
| Net income (loss) | $ | (158,662 | ) | $ | 27,682 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 16,350 | 19,779 | ||||
| Goodwill and intangible asset impairment charge | 175,189 | — | ||||
| Provision for doubtful accounts | 5,923 | 3,761 | ||||
| Non-cash lease expense, net of changes in operating lease liabilities | (189 | ) | (23 | ) | ||
| Stock-based compensation | 4,345 | 5,260 | ||||
| Deferred income taxes | (27,049 | ) | 2,393 | |||
| Other operating activities | 2,669 | (2,072 | ) | |||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 111,803 | 16,162 | ||||
| Accounts payable and other accrued expenses | (22,197 | ) | (16,542 | ) | ||
| Accrued wages and benefits | 4,921 | (4,667 | ) | |||
| Income tax receivable | (7,291 | ) | (6,347 | ) | ||
| Other assets | 4,682 | (4,472 | ) | |||
| Workers’ compensation claims reserve | (5,668 | ) | (7,109 | ) | ||
| Other liabilities | (1,344 | ) | 3,174 | |||
| Net cash provided by operating activities | $ | 103,482 | $ | 36,979 | ||
Cash flows from operating activities
Net cash provided by operating activities was $103.5 million for the second quartertwenty-six weeks ended June 28, 2020, compared to $37.0 million for the prior year.
Net loss for the twenty-six weeks ended June 28, 2020 includes a goodwill and intangible asset impairment charge of 2017, we paid $23$175.2 million relating to the contingent consideration associated with our acquisition of SIMOS. The payment included $18($151.9 million after tax) related to the final purchase price fair value, which is reflected incompany’s acquisitions. The charge was a result of the adverse impact on expected future cash flows used in financing activities.related to the current state of the economy and the impact of COVID-19. The remaining balance of $4 million is recognized incharge does not impact the company’s current cash, flows used inliquidity, or banking covenants.
Changes to adjustments to reconcile net loss to net cash provided by operating activities for the twenty-six weeks ended June 28, 2020 were primarily due to:
Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million in the first quarter of 2020, and several intangible assets that were fully amortized in the second half of 2019, which resulted in a decline in amortization expense for the thirteen and twenty-six weeks ended June 28, 2020.
The provision for doubtful accounts increased primarily due to clients significantly impacted by COVID-19. Bad debt expense as a percent of revenue increased to 0.7% for the twenty-six weeks ended June 28, 2020, from 0.3% for the comparable period in the prior year.
Deferred tax assets increased primarily due to $23.3 million of discrete tax benefit resulting from goodwill and intangible asset impairments. Impairment losses related to reporting units where the net assets we acquired are deductible for tax purposes.
Other operating activities increased primarily due to $1.7 million in unrealized losses on deferred compensation assets due to overall declines in global equity investments for the twenty-six weeks ended June 28, 2020, as compared to a $3.2 million gain for the same period in the prior year as equity markets strengthened.
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Changes to operating assets and liabilities for the twenty-six weeks ended June 28, 2020 were primarily due to:
Cash provided by accounts receivable of $111.8 million was due to lower revenue from a decline in demand for our services and a seasonal revenue decline from the fourth quarter of 2019, resulting in a significant decrease in Other assetsaccounts receivable. This decrease was partially offset by an increase in our days sales outstanding of 4.1 days during the twenty-six weeks ended June 28, 2020, caused by a mix of clients with longer payment terms and liabilities.payment delays from certain clients that have been severely impacted by COVID-19.
Cash used for accounts payable and accrued expenses of $22.2 million was due to cost control programs, seasonal patterns and timing of payments. The primary driver for the reduction to accounts payable and accrued expenses was the swift action to reduce our operating cost structure in response to the economic impact of COVID-19. The decline was also due to seasonal patterns. Our business experiences seasonal fluctuations for contingent staffing services. Additionally, the beginning accounts payable and accrued expense balance was higher than normal and the ending balance lower than normal due to timing of payments.
Accrued wages and benefits includes $15.7 million of employer payroll tax payments that were deferred as of June 28, 2020, as allowed under the CARES Act. This was partially offset by a reduction to accrued wages and benefits due to our swift actions to reduce our operating cost structure in response to the economic impact of COVID-19.
Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services declines, as is the case in the current and prior year. Additionally, our worker safety programs have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in each period. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.
Cash flows from investing activities
| Thirty-nine weeks ended | Twenty-six weeks ended | |||||||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | June 28, 2020 | June 30, 2019 | ||||||||
| Capital expenditures | $ | (16,303 | ) | $ | (17,766 | ) | $ | (11,641 | ) | $ | (11,064 | ) |
| Acquisition of business, net of cash acquired | — | (71,863 | ) | |||||||||
| Change in restricted cash and investments | (12,350 | ) | (22,935 | ) | ||||||||
| Purchases and sales of restricted investments | 5,574 | 8,370 | ||||||||||
| Net cash used in investing activities | $ | (28,653 | ) | $ | (112,564 | ) | $ | (6,067 | ) | $ | (2,694 | ) |
Net cash used in investing activities was $29$6.1 million for the thirty-ninetwenty-six weeks ended October 1, 2017,June 28, 2020, compared to $113net cash used of $2.7 million for the same period in the prior year.
Restricted cash and investments consistsconsist primarily of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs. The changedecrease in the incremental cash used in investing activities was primarily due to a decrease inlower collateral requirements paid tofrom our workers’ compensation insurance providers, due to a decline in contingent labor services, as well as the timing of collateral payments.
| Thirty-nine weeks ended | ||||||
| (in thousands) | October 1, 2017 | September 23, 2016 | ||||
| Purchases and retirement of common stock | $ | (29,371 | ) | $ | — | |
| Net proceeds from stock option exercises and employee stock purchase plans | 1,179 | 1,183 | ||||
| Common stock repurchases for taxes upon vesting of restricted stock | (2,956 | ) | (2,692 | ) | ||
| Net change in Revolving Credit Facility | (1,099 | ) | (104,586 | ) | ||
| Payments on debt and other liabilities | (1,700 | ) | (1,700 | ) | ||
| Payment of contingent consideration at acquisition date fair value | (18,300 | ) | — | |||
| Other | — | 20 | ||||
| Net cash used in financing activities | $ | (52,247 | ) | $ | (107,775 | ) |
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Cash flows from financing activities
| Twenty-six weeks ended | ||||||
| (in thousands) | June 28, 2020 | June 30, 2019 | ||||
| Purchases and retirement of common stock | $ | (52,346 | ) | $ | (9,077 | ) |
| Net proceeds from employee stock purchase plans | 536 | 700 | ||||
| Common stock repurchases for taxes upon vesting of restricted stock | (1,956 | ) | (1,631 | ) | ||
| Net change in Revolving Credit Facility | 7,900 | (55,300 | ) | |||
| Other | (1,344 | ) | (119 | ) | ||
| Net cash used in financing activities | $ | (47,210 | ) | $ | (65,427 | ) |
Net cash used in financing activities was $47.2 million for the twenty-six weeks ended June 28, 2020, compared to net cash used of $65.4 million for the same period in the prior year.
During the twenty-six weeks ended June 28, 2020, we repurchased $40.0 million of our common stock under an accelerated share repurchase program and $12.4 million of our common stock in the open market, including commissions, for a total of $52.4 million of common stock. These transactions were initiated prior to the medical community’s acknowledgment of the expected severity of the impact COVID-19 would have on the United States. The total number of shares purchased in the open market during the twenty-six weeks ended June 28, 2020 was 779,068. On February 28, 2020, as part of the existing share repurchase plan, we entered into an accelerated share repurchase agreement with a third-party financial institution to repurchase $40.0 million of our common stock. See Note 8: Shareholders’ Equity, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on the accelerated share repurchase agreement. On July 2, 2020, we settled our ASR agreement resulting in the receipt of 626,948 additional shares from the third-party financial institution. The total number of shares delivered under the ASR agreement was 2,777,486 with a volume weighted average price over the term of the ASR agreement of $14.40. As of June 28, 2020, $66.7 million remains available for repurchase of common stock under existing authorizations. The second amendment to our revolving credit facility agreement prohibits us from repurchasing shares until July 1, 2021.
In June 2020, we amended our credit agreement. See Note 6: Long-Term Debt, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our Revolving Credit Facility. The net change in theour Revolving Credit Facility in the prior year iswas primarily due to repayments.
CAPITAL RESOURCES
Revolving credit facility
Obligations under the Revolving Credit Facility is subjectare guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The Second Amendment suspended testing of certain covenants through June 27, 2021 (second quarter of 2021).
The following financial covenants, as defined in the Second Amendment, are in effect:
Asset Coverage Ratio of greater than 1.00, defined as the ratio of 60% of accounts receivable to certain borrowing limits. Specifically, we are limited tothe difference of total debt outstanding and unrestricted cash in excess of $50 million. As of June 28, 2020, our asset coverage ratio was 14.7.
Liquidity greater than $150 million, defined as the sum of 90%unrestricted cash and availability under the aggregate revolving commitments. As of June 28, 2020, our eligible billed accounts receivable, plus 85%liquidity was $340.8 million.
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The following financial covenant, as defined in the Second Amendment, will be in effect starting the first quarter of 2021:
EBITDA, as defined in the amended credit agreement, greater than $12 million for the trailing three quarters ending Q1 2021 and greater than $15 million for the trailing four quarters ending Q2 2021.
See Note 6: Long-Term Debt, to our eligible unbilled accounts receivable limited to 15%consolidated financial statements found in Item 1 of allthis Quarterly Report on Form 10-Q, for additional details on our eligible receivables, plus the value of our Tacoma headquarters office building.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. The additional amount available to borrow at October 1, 2017 was $118 million. We are currently in compliance with all covenants related to the Revolving Credit Facility.
Restricted cash and investments
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 our workers’ compensation obligation. We have agreements with certain financial institutions that allow us to restrict cash and cash equivalents and investments for the purpose of providing collateral instruments to our insurance carriers to satisfy workers’ compensation claims. At October 1, 2017,June 28, 2020, we had restricted cash and investments totaling $244$217.8 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon ("Trust"(“Trust”). See Note 3: Restricted Cash and Investments, to our Consolidated Financial Statementsconsolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for details ofon our restricted cash and investments.
We established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers’ compensation claims, third to diversify the investment portfolio, and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments 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 at time of purchase are:
| S&P | 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 temporarycontingent and permanent employees. The majority of our current workers’ compensation insurance policies cover claims for a particular event above a $2$2.0 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/orand 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.
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Our total collateral commitments were made up of the following components for the fiscal period end dates presented:
| (in thousands) | October 1, 2017 | January 1, 2017 | June 28, 2020 | December 29, 2019 | ||||||||
| Cash collateral held by workers’ compensation insurance carriers | $ | 28,343 | $ | 28,066 | $ | 21,902 | $ | 22,256 | ||||
| Cash and cash equivalents held in Trust | 30,666 | 32,841 | 21,922 | 23,681 | ||||||||
| Investments held in Trust | 163,270 | 146,517 | 143,731 | 149,373 | ||||||||
| Letters of credit (1) | 7,748 | 7,982 | 6,202 | 6,202 | ||||||||
| Surety bonds (2) | 19,524 | 20,440 | 20,731 | 20,731 | ||||||||
| Total collateral commitments | $ | 249,551 | $ | 235,846 | $ | 214,488 | $ | 222,243 | ||||
| (1) | We have agreements with certain financial institutions to issue letters of credit as collateral. |
| (2) | Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which 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) | October 1, 2017 | January 1, 2017 | June 28, 2020 | December 29, 2019 | ||||||||
| Total workers’ compensation reserve | $ | 279,335 | $ | 277,351 | $ | 249,950 | $ | 255,618 | ||||
| Add back discount on workers’ compensation reserve (1) | 16,634 | 14,818 | 18,178 | 19,316 | ||||||||
| Less excess claims reserve (2) | (50,655 | ) | (52,930 | ) | (47,601 | ) | (45,253 | ) | ||||
| Reimbursable payments to insurance provider (3) | 14,736 | 10,193 | 4,117 | 8,121 | ||||||||
| Less portion of workers’ compensation not requiring collateral (4) | (10,499 | ) | (13,586 | ) | ||||||||
| Other (4) | (10,156 | ) | (15,559 | ) | ||||||||
| Total collateral commitments | $ | 249,551 | $ | 235,846 | $ | 214,488 | $ | 222,243 | ||||