UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: ~~September~~March 29, ~~2019~~2020

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

Commission File Number: 001-14543

____________________________________

TrueBlue, Inc.

(Exact name of registrant as specified in its charter)

______________________________________



	Washington		91-1287341
	(State of incorporation)		(I.R.S. employer identification no.)

1015 A Street, Tacoma, Washington 98402

(Address of principal executive offices) (Zip Code)

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

______________________________________

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



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

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

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

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



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

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

As of ~~October 14, 2019,~~April 13, 2020, there were ~~38,955,288~~36,126,189 shares of the registrant’s common stock outstanding.

TrueBlue, Inc.

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated financial statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations and Comprehensive ~~Income~~Income (Loss)	4
	Consolidated Statements of Cash Flows	5
	Notes to consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	19
Item 3.	Quantitative and qualitative disclosures about market risk	3237
Item 4.	Controls and procedures	3237

PART II. OTHER INFORMATION
Item 1.	Legal proceedings	3339
Item 1A.	Risk factors	3339
Item 2.	Unregistered sales of equity securities and use of proceeds	3846
Item 3.	Defaults upon senior securities	3847
Item 4.	Mine safety disclosures	3847
Item 5.	Other information	3947
Item 6.	Index to exhibits	3947

	Signatures	4048

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PART I. FINANCIAL INFORMATION



Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

TRUEBLUE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands, except par value data)	September 29, 2019			December 30, 2018			March 29, 2020			December 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	23,557		$	46,988		$	265,260		$	37,608
Accounts receivable, net of allowance for doubtful accounts of $4,617 and $5,026	367,038			355,373
Accounts receivable, net of allowance for doubtful accounts of $6,379 and $4,288							292,988			342,303
Prepaid expenses, deposits and other current assets	26,836			22,141			24,987			30,717
Income tax receivable	8,559			5,325			10,169			11,105
Total current assets	425,990			429,827			593,404			421,733
Property and equipment, net	61,218			57,671			67,036			66,150
Restricted cash and investments	227,043			235,443			218,907			230,932
Deferred income taxes, net	3,469			4,388			26,665			3,228
Goodwill	235,646			237,287			93,290			237,498
Intangible assets, net	77,338			91,408			34,630			73,673
Operating lease right-of-use assets	36,794			—			39,234			41,082
Workers’ compensation claims receivable, net	46,393			44,915			44,572			44,624
Other assets, net	17,154			13,905			17,407			17,235
Total assets	$	1,131,045		$	1,114,844		$	1,135,145		$	1,136,155
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	54,467		$	62,045		$	39,291		$	68,406
Accrued wages and benefits	76,957			77,098			55,871			67,604
Current portion of workers’ compensation claims reserve	73,509			76,421			69,353			73,020
Operating lease current liabilities	14,161			—			14,554			14,358
Other current liabilities	7,385			9,962			7,980			7,418
Total current liabilities	226,479			225,526			187,049			230,806
Workers’ compensation claims reserve, less current portion	185,761			190,025			184,102			182,598
Long-term debt	43,800			80,000			293,500			37,100
Long-term deferred compensation liabilities	25,476			21,747			23,460			26,765
Operating lease long-term liabilities	24,896			—			26,744			28,849
Other long-term liabilities	3,968			6,107			4,348			4,064
Total liabilities	510,380			523,405			719,203			510,182

Commitments and contingencies (Note 6)
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; 38,932 and 40,054 shares issued and outstanding	1			1
Common stock, no par value, 100,000 shares authorized; 36,128 and 38,593 shares issued and outstanding							1			1
Accumulated other comprehensive loss	(15,673		)	(14,649		)	(19,863		)	(13,238		)
Retained earnings	636,337			606,087			435,804			639,210
Total shareholders’ equity	620,665			591,439			415,942			625,973
Total liabilities and shareholders’ equity	$	1,131,045		$	1,114,844		$	1,135,145		$	1,136,155

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands, except per share data)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019
Revenue from services	$	636,793		$	680,371		$	1,777,739		$	1,849,060		$	494,252		$	552,352
Cost of services	467,671			496,053			1,301,924			1,355,890			368,093			405,657
Gross profit	169,122			184,318			475,815			493,170			126,159			146,695
Selling, general and administrative expense	131,187			145,382			388,447			405,352			117,381			127,980
Depreciation and amortization	8,749			10,586			28,528			30,777			9,094			9,952
Income from operations	29,186			28,350			58,840			57,041
Goodwill and intangible asset impairment charge													175,189			—
Income (loss) from operations													(175,505		)	8,763
Interest expense	(715		)	(1,357		)	(2,097		)	(3,602		)	(543		)	(722		)
Interest and other income	1,186			1,017			3,948			4,498			806			1,275
Interest and other income (expense), net	471			(340		)	1,851			896			263			553
Income before tax expense	29,657			28,010			60,691			57,937
Income tax expense	2,981			3,630			6,333			7,070
Net income	$	26,676		$	24,380		$	54,358		$	50,867
Income (loss) before tax expense (benefit)													(175,242		)	9,316
Income tax expense (benefit)													(24,748		)	1,040
Net income (loss)													$	(150,494	)	$	8,276

Net income per common share:
Net income (loss) per common share:
Basic	$	0.69		$	0.61		$	1.39		$	1.27		$	(4.04	)	$	0.21
Diluted	$	0.68		$	0.61		$	1.38		$	1.26		$	(4.04	)	$	0.21

Weighted average shares outstanding:
Basic	38,741			39,743			39,090			40,138			37,255			39,366
Diluted	39,213			40,073			39,479			40,417			37,255			39,735

Other comprehensive income:
Other comprehensive income (loss):
Foreign currency translation adjustment	$	(1,657	)	$	(595	)	$	(1,024	)	$	(3,900	)	$	(6,625	)	$	1,326
Comprehensive income	$	25,019		$	23,785		$	53,334		$	46,967
Comprehensive income (loss)													$	(157,119	)	$	9,602

See accompanying notes to consolidated financial statements

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TRUEBLUE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Thirty-nine weeks ended						Thirteen weeks ended
(in thousands)	September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019
Cash flows from operating activities:
Net income	$	54,358		$	50,867
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	(150,494	)	$	8,276
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	28,528			30,777			9,094			9,952
Goodwill and intangible asset impairment charge							175,189			—
Provision for doubtful accounts	5,997			10,140			3,289			1,778
Stock-based compensation	8,119			9,552			1,508			3,606
Deferred income taxes	1,058			2,638			(23,432		)	3,209
Non-cash lease expense	11,087			—			3,763			3,565
Other operating activities	(1,701		)	526			5,375			(1,841		)
Changes in operating assets and liabilities:
Accounts receivable	(17,616		)	(17,960		)	45,407			26,558
Income tax receivable	(3,982		)	(5,389		)	435			(3,645		)
Other assets	(9,449		)	(12,110		)	5,958			(5,274		)
Accounts payable and other accrued expenses	(6,970		)	3,179			(28,443		)	(9,878		)
Accrued wages and benefits	(141		)	4,549			(11,733		)	(10,266		)
Workers’ compensation claims reserve	(7,176		)	(8,405		)	(2,163		)	(4,380		)
Operating lease liabilities	(11,297		)	—			(3,811		)	(3,414		)
Other liabilities	1,723			262			(2,334		)	3,268
Net cash provided by operating activities	52,538			68,626			27,608			21,514
Cash flows from investing activities:
Capital expenditures	(18,297		)	(10,313		)	(7,028		)	(5,862		)
Acquisition of business	—			(22,742		)
Divestiture of business	215			10,414
Purchases of restricted investments	(22,597		)	(11,747		)
Maturities of restricted investments	28,976			17,021
Net cash used in investing activities	(11,703		)	(17,367		)
Purchases of restricted available-for-sale investments							(1,149		)	(3,070		)
Sales of restricted available-for-sale investments							1,269			1,886
Maturities of restricted held-to-maturity investments							6,168			8,451
Net cash provided by (used in) investing activities							(740		)	1,405
Cash flows from financing activities:
Purchases and retirement of common stock	(31,316		)	(24,818		)	(52,348		)	(5,303		)
Net proceeds from employee stock purchase plans	1,023			1,146			323			380
Common stock repurchases for taxes upon vesting of restricted stock	(1,934		)	(2,539		)	(1,792		)	(1,438		)
Net change in revolving credit facility	(36,200		)	12,000
Payments on debt	—			(22,855		)
Net change in Revolving Credit Facility							256,400			(37,800		)
Other	(203		)	—			(508		)	(69		)
Net cash used in financing activities	(68,630		)	(37,066		)
Net cash provided by (used in) financing activities							202,075			(44,230		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	732			(583		)	(1,738		)	314
Net change in cash, cash equivalents and restricted cash	(27,063		)	13,610			227,205			(20,997		)
Cash, cash equivalents and restricted cash, beginning of period	102,450			73,831			92,371			102,450
Cash, cash equivalents and restricted cash, end of period	$	75,387		$	87,441		$	319,576		$	81,453
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid (received) during the period for:
Interest	$	1,767		$	3,395		$	394		$	667
Income taxes	9,230			9,832			(1,751		)	1,448
Operating lease liabilities	13,280			—			4,440			4,344
Non-cash transactions:
Property and equipment purchased but not yet paid	945			1,229			322			807
Divestiture non-cash consideration	—			971
Right-of-use assets obtained in exchange for new operating lease liabilities	10,825			—			2,422			4,698

See accompanying notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement preparation

The accompanying unaudited consolidated financial statements (“financial statements”) of TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us,” and “our”) are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The financial statements reflect all adjustments which, in the opinion of management, are necessary to fairly state the financial statements for the interim periods presented. We follow the same accounting policies for preparing both quarterly and annual financial statements.

These financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. The results of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 29, ~~2019,~~2020, are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

~~Reclassifications~~

~~Certain immaterial prior year amounts~~Going concern assessment and management's plans

Due to the adverse impacts of COVID-19 on our business operations, including anticipated future revenue and operating cash flow declines, we expect to fund operations over the next 12 months with funds borrowed on our revolving credit facility. However, if we continue to experience significant revenue declines, which is likely to occur, we would likely not meet one or more of our financial covenants under our revolving credit facility within the next 12 months. Our failure to comply with these covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. Refer to Note 6: Long-Term Debt for additional details of our revolving credit facility.

We are actively working with our banks to seek an amendment or waiver. In the event we are unsuccessful in these efforts with our banks, management plans to take further action to expand the current cost reduction programs, eliminate all nonessential capital expenditure projects, accelerate working capital improvement initiatives, and complete the sale of certain assets to provide supplemental liquidity. In the absence of an amendment or waiver of covenants related to the revolving credit facility we believe our plans, if executed, would result in adequate cash flows to support our ongoing operations.

Our financial statements have been ~~reclassified within current liabilities on our Consolidated Balance Sheets and Consolidated Statements of Cash Flows to conform to current year presentation.~~

~~Leases~~

We conduct our branch office operations from leased locations. We also lease office spaces for our centralized support functions, vehicles and equipment. Many leases require variable payments of property taxes, insurance, and common area maintenance, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed whenprepared under the obligation for those payments is incurred and are included in lease expense in selling, general and administrative (“SG&A”) expense on our Consolidated Statements of Operations and Comprehensive Income. The terms of our lease agreements generally range from three to five years, some containing options to renew or cancel. We determine if an arrangement meets the definition of a lease at inception, at which timeassumption that we ~~also perform an analysis to determine whether the lease qualifies as operating or financing.~~

Operating leases are included in operating lease right-of-use assets and operating lease current and long-term liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term, and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income.

Financing leases are included in property and equipment, net, other current liabilities, and other long-term liabilities on our Consolidated Balance Sheets. Lease expense for financing leases is recognized as depreciation of the right-of-use asset and interest expense.

Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted forwill continue as a ~~single lease component.~~

For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income. In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year.

~~Page - 6~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Internal-use software~~

We capitalize implementation costs incurred in a cloud computing arrangement that is a service contract. Capitalized implementation costs are recorded as a prepaid asset in other assets, net on our Consolidated Balance Sheets, with the related amortization recorded in SG&A expense. Software license fees incurred during the development period are expensed as incurred.

~~Goodwill and indefinite-lived intangible assets~~

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. We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our operating segments are PeopleReady, Centerline, Staff Management, SIMOS, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit. The fair value of each reporting unit is a weighted average of the income and market valuation approaches. The income approach applies a fair value methodology based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply a market approach, which identifies similar publicly traded companies and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

Based on our 2019 annual impairment test, the estimated fair value of our SIMOS reporting unit was in excess of its carrying value by approximately 10%. The current value of goodwill is $35 million. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client, we service multiple sites. The loss of a key client, loss of a significant number of key sites, or a downturn in the economy could give rise to an impairment. Should any one of these events occur, we may need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. We will continue to closely monitor the operational performance of this reporting unit. All other reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the thirty-nine weeks ended September 29, 2019. Based on our 2018 annual impairment test, all reporting units’ fair values were substantially in excess of their respective carrying values. Accordingly, there was no impairment loss recognized for the thirty-nine weeks ended September 30, 2018.

We performed our annual indefinite-lived intangible asset impairment test for 2019 and 2018, and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the thirty-nine weeks ended September 29, 2019 or September 30, 2018.going concern.

Recently adopted accounting standards

~~Intangibles-goodwill and other-internal-use software~~Credit losses

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Previously, we expensed the cost of internal development labor as incurred.

The new guidance now requires these costs be capitalized with the related amortization recorded in SG&A expense. In addition, capitalized development costs are required to be recorded as a prepaid asset rather than a fixed asset, and license fees incurred during the development period are expensed as incurred.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The standard is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We elected to early adopt this new standard prospectively as of the first day of our fiscal first quarter in 2019. There was no impact on our consolidated financial statements upon adoption.

~~Leases~~

In February 2016, the FASB issued guidance on lease accounting. The new guidance continues to classify leases as either finance or operating, but results in the lessee recognizing most operating leases on the balance sheet as right-of-use assets and lease liabilities. This guidance was effective for annual and interim periods beginning after December 15, 2018 (Q1 2019 for TrueBlue), with early adoption permitted. In July 2018, the FASB amended the standard to provide transition relief for comparative reporting, allowing companies to adopt the provisions of the new standard using a modified retrospective transition method on the adoption date, with a cumulative-effect adjustment to retained earnings recorded on the date of adoption. We have elected to adopt the standard using the transition relief provided in the July amendment. We have implemented internal controls and key system functionality to enable the preparation of financial information.

We have elected the three practical expedients allowed for implementation of the new standard, but have not utilized the hindsight practical expedient. Accordingly, we did not reassess: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; 3) initial direct costs for any existing leases. We have also elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each as a single lease component, for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

Adoption of the new standard resulted in the recording of operating right-of-use assets and lease liabilities of $39 million and $41 million, respectively, as of the first day of our fiscal first quarter of 2019. The difference between the right-of-use assets and lease liabilities relates to the deferred rent liability balance as of the end of fiscal 2018 associated with the leases capitalized. The deferred rent liability, which was the difference between the straight-line lease expense and cash paid, reduced the right-of-use asset upon adoption. Our accounting for finance leases remained substantially unchanged. The standard did not materially impact our Consolidated Statements of Operations and Comprehensive Income or our Consolidated Statements of Cash Flows.

~~Recently issued accounting pronouncements not yet adopted~~

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 credit 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 based on historical experience, current conditions, and forecasted information rather than the ~~current~~previous methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance ~~is effective for fiscal years~~was adopted at the beginning ~~after December 15, 2019 (Q1 2020 for TrueBlue) with early adoption permitted. Although~~of the first quarter of 2020. We were required to apply the new 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 ~~will depend on~~to opening retained earnings was immaterial to both the individual financial ~~instruments held at that time, we do not anticipate a significant impact on~~assets affected as well as in the aggregate.

The following policies have been updated to reflect our ~~financial statements based on the restricted held-to-maturity investments currently held, as described further in Note 4:~~ ~~Restricted Cash and Investments~~, and our historical experience of bad debt expense relating to trade accounts receivable. We plan to adopt this guidance on the effective date and are currently evaluating the impact on our accounting policies, processes, systems, and internal controls.

~~No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a significant impact on our financial statements and related disclosures.~~

~~NOTE 2: ACQUISITION~~

~~Effective June 12, 2018, the company acquired all~~adoption of the ~~outstanding equity interests~~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 allowance for credit loss of ~~TMP Holdings LTD (“TMP”), through its subsidiary PeopleScout, Inc. for a cash purchase price~~estimated losses resulting from the failure of ~~$22.7 million, net~~our clients to make required payments by applying an aging schedule to pools of ~~cash acquired~~assets with similar risk characteristics. Based on an analysis of ~~$7.0 million. TMP is a mid-sized recruitment process outsourcing (“RPO”) and employer branding service provider operating in~~ the ~~United Kingdom, which is the second largest RPO market in the world. This acquisition increases~~risk characteristics of our ~~ability to win multi-continent engagements by adding a physical presence in Europe, referenceable~~ clients and ~~employer branding capabilities.~~

We incurred acquisition and integration-related costs of $0.4 million and $1.2 million for the thirteen weeks ended September 29, 2019 and September 30, 2018, respectively, and $1.6 million and $1.7 million for the thirty-nine weeks ended September 29, 2019 and September 30, 2018, respectively, whichassociated receivables, we have concluded our pools are ~~included in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income and cash flows from operating activities on the Consolidated Statements of Cash Flows.~~as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~The following table reflects~~PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the ~~allocation~~daily nature of the ~~purchase price, net~~work we perform. This results in high turnover in accounts receivable and lower rates of ~~cash acquired,~~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.

PeopleScout has a smaller number of clients, and generally sends invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-site, with similar payment terms.

When specific clients are identified as no longer sharing the same risk profile as their current pool, they are removed from the pool and evaluated separately. The credit loss rates applied to ~~the fair value~~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 reviewed quarterly and represents our best estimate of the ~~assets acquired~~amount of expected credit losses. Each month, past due or delinquent balances are identified based upon a review of aged receivables performed by collections and ~~liabilities assumed:~~

(in thousands) Purchase price allocation
Cash purchase price, net of cash acquired $ 22,742

Accounts receivable 9,770
Prepaid expenses, deposits and other current assets 337
Property and equipment 435
Customer relationships 6,286
Trade names/trademarks 1,738
Total assets acquired 18,566

Accounts payable and other accrued expenses 9,139
Accrued wages and benefits 1,642
Income tax payable 205
Deferred income tax liability 1,444
Total liabilities assumed 12,430

Net identifiable assets acquired 6,136
Goodwill (1) 16,606
Total consideration allocated $ 22,742

~~(1) Goodwill represents~~operations. Past due balances are written off when it is probable the ~~expected synergies with our existing business,~~receivable will not be collected. Changes in the ~~acquired assembled workforce, potential new clients~~allowance for credit losses are recorded in selling, general and ~~future cash flows after~~administrative (“SG&A”) expense on the ~~acquisition of TMP, and is non-deductible for income tax purposes.~~

Intangible assets include identifiable intangible assets for customer relationships and trade names/trademarks. We estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach.

~~The following table sets forth the components of identifiable intangible assets, their estimated fair values and useful lives as of June 12, 2018:~~

(in thousands, except for estimated useful lives, in years) Estimated fair value Estimated useful life in years
Customer relationships - other $ 2,809
3
Customer relationships - RPO 3,477
7
Trade names/trademarks 1,738
14
Total acquired identifiable intangible assets $ 8,024

~~The results of TMP’s operations and cash flows reported for 2018 on our~~ Consolidated Statements of Operations and Comprehensive Income ~~and Consolidated Statements of Cash Flows relate~~(Loss).

In response to the ~~period~~rapidly changing market conditions, we have taken all appropriate steps to assess the impact to our accounts receivable allowance for credit losses. Given the dynamic nature, it is difficult to estimate the economic impact caused by COVID–19 on this allowance. However, we believe the allowance for credit loss for accounts receivable as of March 29, 2020, is our best estimate of the amount of expected credit losses. Should actual results deviate from ~~June 12, 2018~~what we have currently estimated, our allowance for credit losses could change significantly.

The activity related to ~~September 30, 2018. Revenue from TMP included~~the allowance for credit losses for accounts receivable during the thirteen weeks ended March 29, 2020 was as follows:



(in thousands)
Beginning balance	$	4,288
Cumulative-effect adjustment (1)	524
Current period provision	2,660
Write-offs, net (2)	(1,093		)
Ending balance	$	6,379


(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.


(2)	Write-offs charged against the allowance are presented net of recoveries collected as the recoveries were immaterial for the thirteen weeks ended March 29, 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 issuer credit rating. We report the entire change in ~~our~~present value as credit loss expense (or reversal of credit loss expense) in cost of services on the Consolidated Statements of Operations and Comprehensive Income ~~was $17.9 million from the acquisition date to September 30, 2018, and $13.8 million and $40.7 million for the thirteen and thirty-nine weeks ended September 29, 2019, respectively.~~(Loss). The ~~acquisition of TMP was not material~~cumulative-effect adjustment to our ~~consolidated results~~held-to-maturity debt securities as a result of ~~operations~~adopting CECL as of the beginning of the first quarter of 2020 was immaterial, as was the allowance as of March 29, 2020.

Workers’ compensation claims reserves

We establish an allowance for credit loss for our insurance receivables using a probability of default and loss given default method, with the probability of default rate based on the third-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 ~~such, pro forma financial information~~a result of adopting CECL as of the beginning of the first quarter of 2020 was ~~not required.~~immaterial, as was the allowance as of March 29, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 have a significant impact on the company’s gross profit or SG&A expense.

Certain immaterial prior year amounts have also been reclassified within cash flows from investing activities on our Consolidated Statements of Cash Flows to conform to current year presentation.

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 3:2: FAIR VALUE MEASUREMENT

Assets measured at fair value on a recurring basis

Our assets measured at fair value on a recurring basis consisted of the following:


	September 29, 2019								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 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	$	23,557	$	23,557	$	—	$	—	$	265,260	$	265,260	$	—	$	—
Restricted cash and cash equivalents	51,830		51,830		—		—		54,316		54,316		—		—
Cash, cash equivalents and restricted cash (1)	$	75,387	$	75,387	$	—	$	—	$	319,576	$	319,576	$	—	$	—

Municipal debt securities	$	75,349	$	—	$	75,349	$	—	$	73,093	$	—	$	73,093	$	—
Corporate debt securities	72,477		—		72,477		—		70,136		—		70,136		—
Agency mortgage-backed securities	1,640		—		1,640		—		1,155		—		1,155		—
U.S. government and agency securities	1,062		—		1,062		—		1,068		—		1,068		—
Restricted investments classified as held-to-maturity	$	150,528	$	��	$	150,528	$	—	$	145,452	$	—	$	145,452	$	—

Deferred compensation mutual funds	$	27,859	$	27,859	$	—	$	—
Deferred compensation investments (2)									$	11,546	$	11,546	$	—	$	—


	December 30, 2018								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)		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	$	46,988	$	46,988	$	—	$	—	$	37,608	$	37,608	$	—	$	—
Restricted cash and cash equivalents	55,462		55,462		—		—		54,763		54,763		—		—
Cash, cash equivalents and restricted cash (1)	$	102,450	$	102,450	$	—	$	—	$	92,371	$	92,371	$	—	$	—

Municipal debt securities	$	76,690	$	—	$	76,690	$	—	$	74,236	$	—	$	74,236	$	—
Corporate debt securities	75,432		—		75,432		—		76,068		—		76,068		—
Agency mortgage-backed securities	2,531		—		2,531		—		1,376		—		1,376		—
U.S. government and agency securities	988		—		988		—		1,051		—		1,051		—
Restricted investments classified as held-to-maturity	$	155,641	$	—	$	155,641	$	—	$	152,731	$	—	$	152,731	$	—

Deferred compensation mutual funds	$	23,363	$	23,363	$	—	$	—
Deferred compensation investments (2)									$	13,670	$	13,670	$	—	$	—


(1)	Cash, cash equivalents and restricted cash consist of money market funds, deposits and investments with original maturities of three months or less.


(2)	Deferred compensation investments consist of mutual funds and money market funds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There were no material transfers between ~~Level~~level 1, ~~Level~~level 2 and ~~Level~~level 3 of the fair value hierarchy during the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019 nor September 30, 2018.~~2020 or March 31, 2019.

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 due to current market conditions. As a result of that test, we recognized an impairment charge of $175.2 million during the thirteen weeks ended March 29, 2020, 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	$	93,290	$	—	$	—	$	93,290	$	(140,489	)
Client relationships	$	27,108	—		—		27,108		(34,700		)
Total	$	120,398	$	—	$	—	$	120,398	$	(175,189	)

Goodwill and client relationship intangible assets with a total carrying value of $295.6 million were written down to their fair value of $120.4 million, resulting in an impairment charge of $175.2 million, which was recorded in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. Refer to Note 4: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies.

NOTE 4:3: RESTRICTED CASH AND INVESTMENTS

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


(in thousands)	September 29, 2019		December 30, 2018		March 29, 2020		December 29, 2019
Cash collateral held by insurance carriers	$	24,797	$	24,182	$	24,684	$	24,612
Cash and cash equivalents held in Trust	23,459		28,021		26,641		23,681
Investments held in Trust	147,354		156,618		142,761		149,373
Deferred compensation mutual funds	27,859		23,363
Deferred compensation investments					11,546		13,670
Company owned life insurance policies					10,284		13,126
Other restricted cash and cash equivalents	3,574		3,259		2,991		6,470
Total restricted cash and investments	$	227,043	$	235,443	$	218,907	$	230,932

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Held-to-maturity

Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).

The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, were as follows:

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September 29, 2019
(in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Municipal debt securities $ 73,358
$ 1,991
$ —
$ 75,349
Corporate debt securities 71,375
1,129
(27 ) 72,477
Agency mortgage-backed securities 1,622
21
(3 ) 1,640
U.S. government and agency securities 999
63
—
1,062
Total held-to-maturity investments $ 147,354
$ 3,204
$ (30 ) $ 150,528



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 30, 2018
(in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Municipal debt securities $ 76,750
$ 456
$ (516 ) $ 76,690
Corporate debt securities 76,310
30
(908 ) 75,432
Agency mortgage-backed securities 2,559
5
(33 ) 2,531
U.S. government and agency securities 999
—
(11 ) 988
Total held-to-maturity investments $ 156,618
$ 491
$ (1,468 ) $ 155,641



	March 29, 2020
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Municipal debt securities	$	71,124	$	1,969	$	—		$	73,093
Corporate debt securities	69,539		908		(311		)	70,136
Agency mortgage-backed securities	1,116		39		—			1,155
U.S. government and agency securities	1,000		68		—			1,068
Total held-to-maturity investments	$	142,779	$	2,984	$	(311	)	$	145,452



	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

The estimated fair value and gross unrealized losses of all investments classified as held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, were as follows:

September 29, 2019
Less than 12 months 12 months or more Total
(in thousands) Estimated fair value Unrealized losses Estimated fair value Unrealized losses Estimated fair value Unrealized losses
Municipal debt securities $ 1,692
$ —
$ —
$ —
$ 1,692
$ —
Corporate debt securities 8,609
(13 ) 7,802
(14 ) 16,411
(27 )
Agency mortgage-backed securities 293
(1 ) 308
(2 ) 601
(3 )
Total held-to-maturity investments $ 10,594
$ (14 ) $ 8,110
$ (16 ) $ 18,704
$ (30 )



	March 29, 2020
	Less than 12 months					12 months or more				Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses		Estimated fair value		Unrealized losses
Corporate debt securities	$	23,488	$	(311	)	$	—	$	—	$	23,488	$	(311	)
Total held-to-maturity investments	$	23,488	$	(311	)	$	—	$	—	$	23,488	$	(311	)

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	December 30, 2018															December 29, 2019
	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
Municipal debt securities	$	12,803	$	(74	)	$	22,638	$	(442	)	$	35,441	$	(516	)
Corporate debt securities	22,567		(277		)	44,463		(631		)	67,030		(908		)	$	15,920	$	(32	)	$	2,765	$	(2	)	$	18,685	$	(34	)
Agency mortgage-backed securities	385		—			1,375		(33		)	1,760		(33		)	—		—			276		(2		)	276		(2		)
U.S. government and agency securities	988		(11		)	—		—			988		(11		)
Total held-to-maturity investments	$	36,743	$	(362	)	$	68,476	$	(1,106	)	$	105,219	$	(1,468	)	$	15,920	$	(32	)	$	3,041	$	(4	)	$	18,961	$	(36	)

The total number of held-to-maturity securities in an unrealized loss position as of ~~September~~March 29, 2020 and December 29, 2019 were 16 and ~~December 30, 2018 were 19 and 93,~~17, respectively. The unrealized losses were the result of net interest rate ~~increases.~~increases over the maturity of the respective securities. Since the decline in estimated fair value is attributable to changes in interest rates and not credit quality, and the company has the intent and ability to hold these debt securities until recovery of amortized cost or until maturity, we do not consider these investments other than temporarily impaired.

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


	September 29, 2019				March 29, 2020
(in thousands)	Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	21,257	$	21,277	$	26,080	$	26,145
Due after one year through five years	86,044		87,712		88,541		90,049
Due after five years through ten years	40,053		41,539		28,158		29,258
Total held-to-maturity investments	$	147,354	$	150,528	$	142,779	$	145,452

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio.

Equity investments

We hold mutual funds and money market funds to support our deferred compensation liability. Unrealized gains and losses related to equity investments still held at ~~September~~March 29, 2020 and March 31, 2019, totaled a $2.9 million loss and ~~September 30, 2018, were $0.1~~a $2.4 million ~~unrealized losses, and $0.6 million unrealized gains,~~gain for the thirteen weeks then ended, respectively, and are included in SG&A expense on the Consolidated Statements of Operations and Comprehensive ~~Income. Unrealized gains related to equity investments still held at September 29, 2019 and September 30, 2018, were $3.1~~Income (Loss).

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		—			—			(3,719		)	(3,719		)

Balance at	March 29, 2020
Goodwill before impairment		106,304			81,092			141,462			328,858
Accumulated impairment loss		(46,210		)	(79,601		)	(109,757		)	(235,568		)
Goodwill, net		$	60,094		$	1,491		$	31,705		$	93,290

Intangible assets

Finite-lived intangible assets

The following table presents our purchased finite-lived intangible assets:



	March 29, 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)	$	98,181	$	(71,073	)	$	27,108	$	149,299	$	(83,317	)	$	65,982
Trade names/trademarks	1,939		(467		)	1,472		2,052		(441		)	1,611
Technologies	600		(550		)	50		600		(520		)	80
Total finite-lived intangible assets	$	100,720	$	(72,090	)	$	28,630	$	151,951	$	(84,278	)	$	67,673


(1)	Excludes assets that are fully amortized.


(2)	Balance at March 29, 2020 is net of impairment loss of $34.7 million recorded in the thirteen weeks endedMarch 29, 2020.

Amortization expense of our finite-lived intangible assets was $4.0 million and ~~$0.6~~$5.1 million for the ~~thirty-nine~~thirteen weeks ended March 29, 2020 and March 31, 2019, respectively.

Indefinite-lived intangible assets

We also held indefinite-lived trade names/trademarks of $6.0 million as of March 29, 2020 and December 29, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairments

Goodwill

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 the COVID-19 pandemic which created a sudden economic shock both globally and domestically. The response in the United States and Canada has generally been to require that the populous remain at home unless they are working in an “essential” role as defined by state governments. We are continuing to support our clients during this period of time, many of whom are essential businesses, but volumes have declined substantially. Most industries we serve have been impacted by a significant decrease in demand for their products and services, and as a result, demand for our services has decreased. We expect significant decreases to our revenues and corresponding operating results as we experience continued weakness in pricing and demand for our services during this severe economic downturn. While we expect to see demand recover in the future, our expectation is that 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 thirteen weeks ended ~~respectively.~~March 29, 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, leaving a remaining goodwill balance of $22.0 million and $9.7 million, respectively as of March 29, 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 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. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

thirteen weeks ended March 29, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively, leaving a remaining client relationship balance of $6.2 million and $8.5 million, respectively as of March 29, 2020. Considerable management judgment was necessary to determine key assumptions, including projected revenue of acquired clients and an appropriate discount rate of 12.0%. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired.

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.

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 for the thirteen weeks ended March 29, 2020.

NOTE 5: WORKERS’ COMPENSATION INSURANCE AND RESERVES

We provide workers’ compensation insurance for our ~~temporary~~contingent 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 ~~2.1% and~~ 2.0% at ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018, respectively.~~29, 2019. Payments made against self-insured claims are made over a weighted average period of approximately ~~4.5~~5 years as of ~~September~~March 29, ~~2019.~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

2020.

The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented:


(in thousands)	September 29, 2019		December 30, 2018		March 29, 2020		December 29, 2019
Undiscounted workers’ compensation reserve	$	277,395	$	284,625	$	272,179	$	274,934
Less discount on workers’ compensation reserve	18,125		18,179		18,724		19,316
Workers’ compensation reserve, net of discount	259,270		266,446		253,455		255,618
Less current portion	73,509		76,421		69,353		73,020
Long-term portion	$	185,761	$	190,025	$	184,102	$	182,598

Payments made against self-insured claims were ~~$47.3~~$14.6 million and ~~$50.7~~$15.3 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019~~2020 and ~~September 30, 2018,~~March 31, 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 ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, the weighted average rate was ~~2.7%~~2.2% and ~~2.9%~~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 1617 years. The discounted workers’ compensation reserve for excess claims was $45.6 million and $45.3 million, and the corresponding gross receivable for the insurance on excess claims was ~~$47.3~~$44.6 million and ~~$48.2~~$45.3 million as of ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, respectively.

Workers’ compensation ~~expense~~cost consists primarily of ~~$18.0~~changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $14.3 million and ~~$17.8~~$11.9 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended ~~September~~March 29, 2020 and March 31, 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: LONG-TERM DEBT

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 (the “Amendment,” the existing credit agreement as amended by the Amendment, the “Credit Agreement,” and the revolving credit facility established thereunder, the “Revolving Credit Facility”). The Amendment extended the maturity of the Revolving Credit Facility to March 16, 2025, and modified certain other terms.

The 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, and matures in five years. Included in the Credit Agreement is a $30.0 million sub-limit for Swingline loans and a $125.0 million sub-limit for letters of credit. At March 29, 2020, $293.5 million was drawn on the Revolving Credit Facility, which included a $10.0 million Swingline loan, and $6.2 million of standby letters of credit, leaving $0.3 million available under the Revolving Credit Facility for additional borrowings. At December 29, 2019, ~~and September 30, 2018, respectively. Workers’ compensation expense of $46.2 million and $52.2~~$37.1 million was ~~recorded~~drawn on the Revolving Credit Facility, which included a $17.1 million Swingline loan.

Under the terms of the Credit Agreement, we pay a variable rate of interest on funds borrowed under the revolving line of credit in ~~cost~~excess of ~~services~~the Swingline loans, based on the London Interbank Offered Rate (“LIBOR”) plus an applicable spread between 1.25% and 2.50%. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25% and 1.50%. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50%. The applicable spread is determined by the consolidated leverage ratio, as defined in the credit agreement. At March 29, 2020, the applicable spread on LIBOR was 1.25% and the weighted average index rate was 1.00%, resulting in a weighted average interest rate of 2.25%.

Under the terms of the Credit Agreement, 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. At March 29, 2020, the applicable spread on the base rate was 0.25% and the base rate was 3.25%, resulting in an interest rate of 3.50%.

A commitment fee between 0.250% and 0.375% 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 credit agreement. Letters of credit are priced at a margin between 1.00% and 2.25%, plus a fronting fee of 0.50%.

Obligations under the Credit Agreement 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 Credit Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants based on our ~~Consolidated Statements~~leverage and fixed charge coverage ratios, as defined in the Credit Agreement. The leverage coverage ratio is our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the Credit Agreement, and we are required to maintain a ratio of ~~Operations~~less than 3.0. The fixed charge coverage ratio is trailing twelve months bank-adjusted cash flow divided by cash interest expense which is required to be greater than 1.25. As of March 29, 2020, we were in compliance with all covenants related to the Revolving Credit Facility as our leverage coverage ratio was 2.7 and ~~Comprehensive Income~~our fixed charge coverage ratio was 40.8. If we continue to experience significant revenue declines, which is likely to occur, we would not meet one or more of our financial covenants under our Revolving Credit Facility within the next 12 months. Our failure to comply with these restrictive covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. Refer to Note 1: Summary of Significant Accounting Policies - Going concern assessment and management’s plans for ~~the thirty-nine weeks ended September 29, 2019 and September 30, 2018, respectively.~~additional details.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6:7: 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)	September 29, 2019		December 30, 2018		March 29, 2020		December 29, 2019
Cash collateral held by workers’ compensation insurance carriers	$	22,456	$	22,264	$	22,317	$	22,256
Cash and cash equivalents held in Trust	23,459		28,021		26,641		23,681
Investments held in Trust	147,354		156,618		142,761		149,373
Letters of credit (1)	6,677		6,691		6,202		6,202
Surety bonds (2)	22,462		21,881		20,731		20,731
Total collateral commitments	$	222,408	$	235,475	$	218,652	$	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 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 resolution of those proceedings is not expected to have a material effect on our results of operations or financial condition.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Operating leases~~

We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 14 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options are at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances.

~~Operating lease costs were comprised of the following:~~

Thirteen weeks ended Thirty-nine weeks ended
(in thousands) September 29, 2019
Operating lease costs $ 4,350
$ 12,985
Short-term lease costs 1,790
5,453
Other lease costs (1) 1,458
4,546
Total lease costs $ 7,598
$ 22,984


~~(1)~~	~~Other lease costs include immaterial variable lease costs and sublease income.~~

~~Other information related to our operating leases was as follows:~~



	~~September 29, 2019~~
~~Weighted average remaining lease term in years~~	~~3.5~~
~~Weighted average discount rate~~	~~5.0%~~

~~Future non-cancelable minimum lease payments under our operating lease commitments as of September 29, 2019, are as follows for each of the next five years and thereafter:~~

(in thousands)
Remainder of 2019 $ 4,219
2020 15,283
2021 11,195
2022 6,356
2023 4,123
2024 1,551
Thereafter 1,476
Total undiscounted future non-cancelable minimum lease payments (1) 44,203
Less: Imputed interest (2) 5,146
Present value of lease liabilities $ 39,057


~~(1)~~	~~Operating lease payments exclude approximately $1.9 million of legally binding minimum lease payments for leases signed but not yet commenced.~~


~~(2)~~	Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date).

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Future non-cancelable minimum lease payments under our operating lease commitments as of December 30, 2018 were as follows for each of the next five years and thereafter:~~

(in thousands)
2019 $ 8,337
2020 7,192
2021 4,990
2022 2,442
2023 1,324
Thereafter 699
Total future non-cancelable minimum lease payments $ 24,984

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7:8: SHAREHOLDERS’ EQUITY

Changes in the balance of each component of shareholders’ equity during the reporting periods were as follows:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019

Common stock shares
Beginning balance	40,058			40,595			40,054			41,098			38,593			40,054
Purchases and retirement of common stock	(1,115		)	(203		)	(1,505		)	(961		)	(2,930		)	(234		)
Issuances under equity plans, including tax benefits	(11		)	87			355			316			415			308
Stock-based compensation	—			(7		)	28			19			50			24
Ending balance	38,932			40,472			38,932			40,472			36,128			40,152

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

Retained earnings
Beginning balance	629,022			574,934			606,087			561,650			639,210			606,087
Net income	26,676			24,380			54,358			50,867
Net income (loss)													(150,494		)	8,276
Purchases and retirement of common stock (1)	(22,239		)	(5,752		)	(31,316		)	(24,818		)	(52,346		)	(5,303		)
Issuances under equity plans, including tax benefits	19			249			(911		)	(1,396		)	(1,471		)	(1,057		)
Stock-based compensation	2,859			3,572			8,119			9,555			1,507			3,606
Change in accounting standard cumulative-effect adjustment (2)	—			—			—			1,525			(602		)	—
Ending balance	636,337			597,383			636,337			597,383			435,804			611,609

Accumulated other comprehensive loss
Beginning balance, net of tax	(14,016		)	(11,634		)	(14,649		)	(6,804		)	(13,238		)	(14,649		)
Foreign currency translation adjustment	(1,657		)	(595		)	(1,024		)	(3,900		)	(6,625		)	1,326
Change in accounting standard cumulative-effect adjustment (2)	—			—			—			(1,525		)
Ending balance, net of tax	(15,673		)	(12,229		)	(15,673		)	(12,229		)	(19,863		)	(13,323		)

Total shareholders’ equity ending balance	$	620,665		$	585,155		$	620,665		$	585,155		$	415,942		$	598,287

(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.

(2)

As a result of our adoption of the accounting standard for equity investments issued by the FASB in January 2016, $1.5 million in unrealized gains, net of tax on equity securities previously classified as available-for-sale were reclassified from accumulated other comprehensive losscredit losses, we recognized a cumulative-effect adjustment to retained earnings as of $0.6 million in the ~~beginning~~first quarter of ~~fiscal 2018. There were no material reclassifications out of accumulated other comprehensive loss during the thirteen and thirty-nine weeks ended September 29, 2019.~~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 March 29, 2020, $66.7 million remains available for repurchase of common stock under the existing authorization.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, which represented 80% of the total shares we expect to receive based on the market price at the time of the initial delivery. This transaction was conducted prior to the medical community’s acknowledgment of the expected severity that COVID-19 would have on the United States.

The final number of shares delivered upon settlement of the agreement will be determined with reference to the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount, which will end no later than July 2, 2020. Under the terms of the ASR agreement, upon settlement, we will either receive additional shares from the financial institution or be 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. 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.


NOTE 8:9:	INCOME TAXES

Our income tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our quarterly tax provision and quarterly estimate of our annual effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Our effective tax rate for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019~~2020 was ~~10.4%~~14.1%. The difference between the statutory federal income tax rate of 21.0% and our effective income tax rate results primarily from a non-deductible goodwill and intangible asset impairment charge, the Coronavirus Aid, Relief and Economic Security Act, and the federal Work Opportunity Tax ~~Credit. This tax credit~~Credit (“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 21.0% and our effective tax rate of 14.1% result from state and foreign income taxes, certain non-deductible expenses, ~~tax-exempt~~tax exempt interest, and tax effects of stock-based compensation.


NOTE 9:10:	NET INCOME (LOSS) PER SHARE

Diluted common shares were calculated as follows:


	Thirteen weeks ended				Thirty-nine weeks ended				Thirteen weeks ended
(in thousands, except per share data)	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		March 29, 2020			March 31, 2019
Net income	$	26,676	$	24,380	$	54,358	$	50,867
Net income (loss)									$	(150,494	)	$	8,276

Weighted average number of common shares used in basic net income per common share	38,741		39,743		39,090		40,138
Weighted average number of common shares used in basic net income (loss) per common share									37,255			39,366
Dilutive effect of non-vested restricted stock	472		330		389		279		—			369
Weighted average number of common shares used in diluted net income per common share	39,213		40,073		39,479		40,417
Weighted average number of common shares used in diluted net income (loss) per common share									37,255			39,735

Net income per common share:
Net income (loss) per common share:
Basic	$	0.69	$	0.61	$	1.39	$	1.27	$	(4.04	)	$	0.21
Diluted	$	0.68	$	0.61	$	1.38	$	1.26	$	(4.04	)	$	0.21

Anti-dilutive shares	220		414		245		500		602			336

NOTE ~~10:~~11: SEGMENT INFORMATION

Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our operating segments ~~also referred to as service lines,~~ and reportable segments are described below:

Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, manufacturing and logistics, warehousing and distribution, retail, waste and recycling, energy, hospitality, general labor and others.

Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily ~~on-premise~~on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:


•	~~Staff Management \| SMX~~ ~~and~~ ~~SIMOS Insourcing Solutions~~On-site: ~~On–premise~~On-site management and recruitment for the contingent industrial workforce of manufacturing, warehouse, and distribution facilities; and


•	Centerline Drivers: Recruitment and management of ~~temporary~~contingent and dedicated commercial drivers to the transportation and distribution industries.

~~Effective March 12, 2018, we divested the PlaneTechs business within our PeopleManagement reportable segment.~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP:


•	PeopleScout: Outsourced recruitment of permanent employees on behalf of clients; and


•	PeopleScout MSP: Management of multiple ~~third party~~third-party staffing vendors on behalf of clients.

~~Effective June 12, 2018, we~~ acquired TMP through PeopleScout. Accordingly, the results associated with the acquisition are included in our PeopleScout operating segment. TMP is a mid-sized RPO and employer branding service provider operating in the United Kingdom which is the second largest RPO market in the world. This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.

We evaluate performance based on segment revenue and segment ~~profit.~~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.

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				Thirty-nine weeks ended				Thirteen weeks ended
(in thousands)	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		March 29, 2020		March 31, 2019
Revenue from services:
Contingent staffing
PeopleReady	$	413,132	$	428,665	$	1,109,261	$	1,122,960	$	299,294	$	326,868
PeopleManagement	159,315		181,199		470,889		543,930		141,614		158,044
Human resource outsourcing
PeopleScout	64,346		70,507		197,589		182,170		53,344		67,440
Total company	$	636,793	$	680,371	$	1,777,739	$	1,849,060	$	494,252	$	552,352

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

Thirteen weeks ended Thirty-nine weeks ended
(in thousands) September 29,
2019 September 30,
2018 September 29,
2019 September 30,
2018
Segment profit:
PeopleReady $ 30,878
$ 31,230
$ 64,143
$ 63,953
PeopleManagement 3,381
6,169
9,815
16,530
PeopleScout 10,774
12,478
32,424
35,703
45,033
49,877
106,382
116,186
Corporate unallocated (5,769 ) (6,469 ) (16,680 ) (20,001 )
Work Opportunity Tax Credit processing fees (240 ) (241 ) (720 ) (700 )
Acquisition/integration costs (362 ) (1,226 ) (1,612 ) (1,683 )
Other costs (727 ) (3,005 ) (2 ) (5,984 )
Depreciation and amortization (8,749 ) (10,586 ) (28,528 ) (30,777 )
Income from operations 29,186
28,350
58,840
57,041
Interest and other income (expense), net 471
(340 ) 1,851
896
Income before tax expense $ 29,657
$ 28,010
$ 60,691
$ 57,937

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit):



	Thirteen weeks ended
(in thousands)	March 29, 2020			March 31, 2019
Segment profit (loss):
PeopleReady	$	7,655		$	11,470
PeopleManagement	(314		)	2,306
PeopleScout	2,508			10,427
	9,849			24,203
Corporate unallocated	(5,209		)	(7,277		)
Work Opportunity Tax Credit processing fees	(135		)	(240		)
Acquisition/integration costs	—			(577		)
Goodwill and intangible asset impairment charge	(175,189		)	—
Other costs	4,273			2,606
Depreciation and amortization	(9,094		)	(9,952		)
Income (loss) from operations	(175,505		)	8,763
Interest and other income (expense), net	263			553
Income (loss) before tax expense (benefit)	$	(175,242	)	$	9,316

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

NOTE ~~11:~~12: SUBSEQUENT EVENT

On ~~October 16, 2019,~~April 6, 2020, in connection with our ~~Board~~plan to reduce costs as a result of ~~Directors authorized~~the economic impact caused by the response to COVID-19, we announced a ~~$100 million share repurchase program~~workforce reduction and notified approximately 645 employees of ~~our outstanding common stock.~~their termination and furloughed approximately 100 employees. We currently anticipate incurring severance-based charges of approximately $8 million. The ~~share repurchase program does not obligate us~~severance expense related to ~~acquire any particular amount~~the workforce reduction will be recognized in the second quarter of ~~common stock and does not have an expiration date.~~

We evaluated events and transactions occurring after the balance sheet date through the date the financial statements were issued, and identified no other events that were subject to recognition or disclosure.2020.



Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMMENT ON FORWARD LOOKING STATEMENTS

Certain statements in this Form 10-Q, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, the impact of and proposed actions in 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 December ~~30, 2018,~~29, 2019, and our financial statements and the accompanying notes to our financial statements.

~~We report our business as three distinct segments: PeopleReady, PeopleManagement and PeopleScout. See Note 10:~~ ~~Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details of our operating segments and reportable segments.~~

~~OVERVIEW~~

Global employment trends are reshaping and redefining traditional employment models, sourcing strategies and human resource capability requirements due to changing demographics, worker shortages, employee preferences, and employer workforce needs. In response, the staffing industry has accelerated its evolution from commercial staffing into specialized and outsourced staffing solutions. Client demand for staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services. This may create volatility based on overall economic conditions.

TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve growth and improve productivity. We connected approximately 730,000 people with work during fiscal 2018, and served approximately 151,000 clients in a wide variety of industries through our PeopleReady segment which offers industrial staffing services, our PeopleManagement segment which offers contingent and productivity-based on-site industrial staffing and driver staffing services, and our PeopleScout segment which offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) services.

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OVERVIEW

TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2019, we connected approximately 724,000 people with work

and served approximately 139,000 clients. We report our business as three reportable segments: PeopleReady, PeopleManagement and PeopleScout. See Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our operating segments and reportable segments. Our PeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and our PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries.

The global economy and our business specifically have been dramatically affected by COVID-19. COVID-19 was first identified in Wuhan, China in late 2019, and subsequently declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions 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 are likely to be affected by it. For that reason, it is difficult to predict the short-term and the long-term impact of the pandemic on our business at this time. Our first priority, with regard to the COVID-19 pandemic, is to do everything we can 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. A number of states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders required nonessential businesses to close. Our business remains open and we provide key services to essential businesses.

In response to these rapidly changing market conditions, we are taking all appropriate steps to reduce selling, general and administrative (“SG&A”) expense and other cash outflows. We have taken actions to reduce our operating expenses by approximately $95 million to $105 million in fiscal 2020 while preserving key strengths of our business, such as our branch footprint and technology innovation, to ensure we are prepared when business conditions improve. We entered fiscal 2020 from a position of strength given our balance sheet that included $37 million of debt and a comparableamount of cash. In March, we drew substantially all of the remaining availability on our $300 million revolving credit agreement (the “Credit Agreement,” and the revolving credit facility established thereunder, the “Revolving Credit Facility”) to further enhance our liquidity position and are taking steps to improve positive cash flow.

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 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.

First quarter of 2020 highlights

Revenue from services

Total company revenue declined ~~6.4%~~11% to ~~$637~~$494 million for the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to the same period in the prior year. Revenue declined 7% for the first two months of 2020 compared to the same period in the prior year due primarily ~~due~~ to less demand for our services ~~attributable~~as clients moderated contingent labor spend in response to lower volumes ~~within the businesses~~in light of our clients. PeopleReady, our largest segment, experienced a revenue decline of 3.6%. PeopleManagement, our lowest margin segment, experienced a revenue decline of 12.1%. PeopleScout, our highest margin segment, experienced a revenue decline of 8.7%. In addition to less demand from existing clients, as previously reported, PeopleManagment continues to experience the impact of the loss of several key clientscontinued economic uncertainty. Declines were broad-based across multiple geographies and industries. Revenue declined 16% in the prior year and PeopleScout continues to experience the impact of the loss of a client in the prior year after being acquired by a strategic buyer, as well as substantially reduced project based recruiting volumes at another large industrial client due to adverse business conditions.

~~Gross profit~~

~~Total company gross profit as a percentage of revenue for the thirteen weeks ended September 29, 2019 was 26.6%,~~March compared to ~~27.1% for~~ the same period in the prior ~~year. The decrease was primarily~~year due to ~~client mix~~a significant drop in demand associated with government and ~~an increase~~societal actions to address the COVID-19 threat. In particular, the outbreak and preventive measures taken to help curb the spread had severe adverse impacts on our operations and business results in ~~worker’s compensation expense~~.

~~Selling, general~~March. Many of the clients we serve have been severely impacted by COVID-19 and ~~administrative (“SG&A”) expense~~

~~Total company SG&A expense decreased by $14 million to $131 million representing 20.6% of~~have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Year-over-year weekly revenue ~~for the thirteen weeks ended September 29, 2019, compared to $145 million, or 21.4% of revenue for the same period~~trends rapidly decelerated in ~~the prior year. The decrease~~March culminating in ~~SG&A expense is primarily due to cost control programs, while continuing to invest~~a 32% decline in our ~~digital growth initiatives.~~

~~Income from operations~~

Total company income from operations grew to $29 million, or 4.6% of revenue, for the thirteen weeks ended September 29, 2019, compared to $28 million, or 4.2% of revenue for the same period in the prior year. The decrease in gross profit from thePeopleReady business and a 30% decline in ~~revenue was more than offset by~~our PeopleManagement business during the ~~decrease in SG&A expense due to cost control programs.~~

~~Net income~~

Net income was $27 million, or $0.68 per diluted share for the thirteen weeks ended September 29, 2019, compared to $24 million, or $0.61 per diluted share for the same period in the prior year. The net income growth was primarily driven by improved operating results and lower interest expense as we have reduced our total debt to $44 million at the endlast week of the ~~third quarter~~quarter. PeopleScout bills monthly and accordingly, weekly trends are not available. Revenues have also been impacted by higher levels of ~~2019 compared~~unemployment making it easier for businesses to ~~$108 million at~~find labor on their own. We expect these two factors to have a significant adverse impact on our future revenue as well as our overall profitability and liquidity for as long as the ~~end~~negative economic impacts of ~~the third quarter of 2018.~~

~~Additional highlights~~

~~We believe we~~COVID-19 are taking the right steps to expand our operating margin and produce long-term growth for shareholders. We also believe we are in a strong financial position to fund working capital needs for growth opportunities. As of September 29, 2019, we had cash and cash equivalents of $24 million and $250 million available under our revolving credit agreement (“Revolving Credit Facility”) for total liquidity of $274 million.

We continue to return cash to shareholders through our share repurchase program. We repurchased an additional $22 million of common stock during the thirteen weeks ended September 29, 2019. As of September 29, 2019, $27 million remains available for repurchase of common stock under the current authorization. Additionally, our Board of Directors authorized an additional $100 million of share repurchases on October 16, 2019.being

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experienced. Our business remains open and we provide key services to essential businesses such as health care, food processors, grocery stores, and government, which have experienced less pressure.

PeopleReady, our largest segment, experienced a revenue decline of 8%. PeopleManagement, our lowest margin segment, experienced a revenue decline of 10%. PeopleScout, our highest margin segment, experienced a revenue decline of 21%. In addition to less demand from existing clients, PeopleScout continues to experience the impact of the lower volume and margin from a large industrial client due to the client’s adverse business conditions in fiscal 2019.

Gross profit

Total company gross profit as a percentage of revenue for the thirteen weeks ended March 29, 2020 decreased by 110 basis points to 25.5%, compared to 26.6% for the same period in the prior year. Our PeopleScout business contributed approximately 100 basis points to the decline primarily due to continued impact of lower volume from a large, higher margin industrial client and the rapid revenue decline caused by the disruption of the COVID-19 pandemic which outpaced the reductions to our service delivery team.

Our staffing businesses contributed 50 basis points to the decline primarily due to a change in revenue mix associated with larger declines in our higher margin local accounts compared to our lower margin national accounts and energy-related businesses. This was largely 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

Total company SG&A expense decreased by $11 million to $117 million, or 23.7% of revenue for the thirteen weeks ended March 29, 2020, compared to $128 million, or 23.2% of revenue for the same period in the prior year. The decrease in SG&A expense is primarily due to cost control programs put in place in 2019 in response to softening revenue trends. Commencing in the latter half of March 2020, we also initiated comprehensive actions to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19 pandemic. We are taking all 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. We will continue to monitor and manage our SG&A expense in the current environment.

Loss from operations

Total company loss from operations was $176 million for the thirteen weeks ended March 29, 2020, compared to income from operations of $9 million for the same period in the prior year. The loss for the first quarter of 2020 consisted almost entirely of a goodwill and intangible asset impairment charge of $175 million related to our acquisitions. The charge is a result of the adverse impact on expected future cash flows related to the current state of the economy. The charge does not impact our current cash, liquidity or banking covenants. In addition, we experienced a decrease in income from operations compared to the same period in the prior year due to the decline in revenue and gross profit, partially offset by the decrease in SG&A expense due to cost control programs.

Net loss

Net loss was $150 million, or $4.04 per diluted share for the thirteen weeks ended March 29, 2020, compared to net income of $8 million, or $0.21 per diluted share for the same period in the prior year. The net loss for the first quarter of 2020 included a goodwill and intangible asset impairment charge of $175 million ($152 million after tax or $4.08 per diluted share). The remaining $6 million decline was almost entirely driven by declining income from operations as a result of lower revenue and gross profit partially offset by a decline in SG&A expense due to cost control programs.

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. We entered fiscal 2020 from a position of strength with a balance sheet that included $37 million of debt and a comparable amount of cash. On March 16, 2020, we extended the maturity of the Revolving Credit Facility to March 16, 2025, and under the Credit Agreement we have the option, subject to lender approval, to increase the Revolving Credit Facility to $450 million. In March, we drew substantially all of the remaining availability on our $300 million Revolving Credit Facility to further enhance our liquidity position. As of March 29, 2020, we had cash and cash equivalents of $265 million and total debt of $294 million.

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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. A protracted recession will have a material adverse impact on our future revenue as well as our overall profitability, ability to fund working capital needs and comply with banking covenants.

RESULTS OF OPERATIONS

Total company results

The following table presents selected financial data:


	Thirteen weeks ended										Thirty-nine weeks ended										Thirteen weeks ended
(in thousands, except percentages and per share data)	September 29, 2019			% of revenue		September 30, 2018			% of revenue		September 29, 2019			% of revenue		September 30, 2018			% of revenue		March 29, 2020			% of revenue		March 31, 2019			% of revenue
Revenue from services	$	636,793				$	680,371				$	1,777,739				$	1,849,060				$	494,252				$	552,352
Total revenue growth (decline) %	(6.4		)%			3.0		%			(3.9		)%			0.5		%			(10.5		)%			(0.4		)%

Gross profit	$	169,122		26.6	%	$	184,318		27.1	%	$	475,815		26.8	%	$	493,170		26.7	%	$	126,159		25.5	%	$	146,695		26.6	%
Selling, general and administrative expense	131,187			20.6	%	145,382			21.4	%	388,447			21.9	%	405,352			21.9	%	117,381			23.7	%	127,980			23.2	%
Depreciation and amortization	8,749			1.4	%	10,586			1.6	%	28,528			1.6	%	30,777			1.7	%	9,094			1.8	%	9,952			1.8	%
Income from operations	29,186			4.6	%	28,350			4.2	%	58,840			3.3	%	57,041			3.1	%
Goodwill and intangible asset impairment charge																					175,189					—
Income (loss) from operations																					(175,505		)	(35.5	)%	8,763			1.6	%
Interest and other income (expense), net	471					(340		)			1,851					896					263					553
Income before tax expense	29,657					28,010					60,691					57,937
Income tax expense	2,981					3,630					6,333					7,070
Net income	$	26,676		4.2	%	$	24,380		3.6	%	$	54,358		3.1	%	$	50,867		2.8	%
Income (loss) before tax expense (benefit)																					(175,242		)			9,316
Income tax expense (benefit)																					(24,748		)			1,040
Net income (loss)																					$	(150,494	)	(30.4	)%	$	8,276		1.5	%

Net income per diluted share	$	0.68				$	0.61				$	1.38				$	1.26
Net income (loss) per diluted share																					$	(4.04	)			$	0.21

We report our business as three ~~distinct segments: PeopleReady, PeopleManagement~~reportable segments described below and ~~PeopleScout. See~~in Note ~~10:~~11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form ~~10-Q, for additional details on our service lines and reportable segments.~~10-Q.

•

PeopleReady provides 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, ~~general labor,~~ and others. As of December ~~30, 2018,~~29, 2019, we had a network of ~~620~~614 branches across all 50 states, Canada and Puerto Rico. Complementing our branch network is our mobile application, JobStack^TM, 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-premise~~on-site contingent staffing and workforce management solutions to larger multi-site manufacturing, distribution and ~~distribution~~fulfillment clients. ~~We use distinct brands to market~~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 ~~PeopleManagement~~2020 fiscal year), we combined our two on-site contingent industrial workforce ~~solutions and operate as~~operating segments, Staff Management | SMX ~~(“Staff Management”),~~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 and productivity-based industrial staffing solutions serving the same industries and similar clients. PeopleManagement also includes Centerline Drivers (“Centerline”). Staff Management specializes in recruitment and on-premise management of a facility’s contingent industrial workforce. SIMOS specializes in recruitment and on-premise management of warehouse/distribution operations to meet the growing demand for e-commerce and scalable supply chain solutions. Centerline, which specializes in dedicated and ~~temporary~~contingent commercial truck drivers to the transportation and distribution industries.

•

PeopleScout provides recruitment process outsourcing ~~(“RPO”) to improve~~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 ~~new~~ proprietary ~~candidate applicant tracking system Affinix~~technology platform (Affinix^TM, along with dedicated service delivery teams to work as an integrated partner with our clients in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees. The solution is highly scalable and flexible, allowing for outsourcing of all or a subset of skill categories across a series of recruitment processes and onboarding steps. Affinix~~is PeopleScout’s proprietary talent acquisition technology~~) for sourcing, screening and delivering a permanent workforce, bringing together talent acquisition technology into a single, integrated platform. 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.

~~Our PeopleScout segment also includes a managed service provider business, which provides clients with improved quality and spend management of their contingent labor vendors.~~

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Our thirty-nine weeks ended year-over-year trends are impacted by our acquisition on June 12, 2018 of TMP, a mid-sized RPO and employer branding services provider operating in the United Kingdom, which is the second largest RPO market in the world. We believe this acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities. The acquired operations expand and complement our PeopleScout services and are in the process of being fully integrated into this service line.

~~Revenue from services~~

~~Revenue from services by reportable segment was as follows:~~

Thirteen weeks ended
(in thousands, except percentages) September 29,
2019 Growth (decline) % Segment % of total September 30,
2018 Segment % of total
Revenue from services:
PeopleReady $ 413,132
(3.6 )% 64.9 % $ 428,665
63.0 %
PeopleManagement 159,315
(12.1 ) 25.0
181,199
26.6
PeopleScout 64,346
(8.7 ) 10.1
70,507
10.4
Total company $ 636,793
(6.4 )% 100.0 % $ 680,371
100.0 %

Thirty-nine weeks ended
(in thousands, except percentages) September 29,
2019 Growth (decline) % Segment % of total September 30,
2018 Segment % of total
Revenue from services:
PeopleReady $ 1,109,261
(1.2 )% 62.4 % $ 1,122,960
60.7 %
PeopleManagement 470,889
(13.4 ) 26.5
543,930
29.4
PeopleScout 197,589
8.5
11.1
182,170
9.9
Total company $ 1,777,739
(3.9 )% 100.0 % $ 1,849,060
100.0 %

~~PeopleReady~~

PeopleReady revenue declined to $413 million for the thirteen weeks ended September 29, 2019, a 3.6% decrease compared to the same period in the prior year, primarily due to slowing demand across most geographies and industries which is attributable to lower volumes within the businesses of our clients.

PeopleReady revenue declined to $1.1 billion for the thirty-nine weeks ended September 29, 2019, a 1.2% decrease compared to the same period in the prior year. Revenue growth in the first quarter of 2019 was more than offset by broad based declines across most industries and geographies during the second and third quarter of 2019. PeopleReady experienced slowing of demand primarily attributable to lower volumes within the businesses of our clients. We believe the decline was partially offset by the strategic use of our technology. Our industry-leading JobStack mobile application that connects workers with jobs is leading our business into a digital future. During the quarter, PeopleReady dispatched 1 million shifts via JobStack and achieved a digital fill rate of 40%. The mobile application is used by 19,000 clients with 87% worker adoption.

Wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets. We have increased bill rates for the higher wages, payroll burdens and our traditional mark-ups. While we believe our pricing strategy is the right long-term decision, these actions can have an impact on our revenue trends in the near term.

~~PeopleManagement~~

~~PeopleManagement~~revenue declined to $159 million for the thirteen weeks ended September 29, 2019, a 12.1% decrease compared to the same period in the prior year. The decline included 3.2% due to the loss of Amazon’s Canadian business in the second half of fiscal 2018 when they insourced the recruitment and management of contingent labor for their warehouse fulfillment centers and 1.8% due to lower volume and price reductions with an existing retail client. The remaining decline of 7.1% was primarily due to slowing demand attributable to lower volumes within the business of our existing clients.

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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.

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
(in thousands, except percentages)	March 29, 2020		Growth (decline) %		Segment % of total		March 31, 2019		Segment % of total
Revenue from services:
PeopleReady	$	299,294	(8.4	)%	60.5	%	$	326,868	59.2	%
PeopleManagement	141,614		(10.4	)	28.7		158,044		28.6
PeopleScout	53,344		(20.9	)	10.8		67,440		12.2
Total company	$	494,252	(10.5	)%	100.0	%	$	552,352	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.

~~PeopleManagement~~The global economy and our business have been dramatically affected by the COVID-19 pandemic. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns. There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it. Our first priority with regard to the COVID-19 pandemic is to do everything we can 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. A number of states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders required nonessential businesses to close. Our business remains open and we provide key services to essential businesses.

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 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 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 have a material adverse impact on our future revenue as well as our overall profitability. 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.

PeopleReady

PeopleReady revenue declined to ~~$471~~$299.3 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019, a 13.4%~~2020, an 8.4% decrease compared to the same period in the prior year. ~~The decline included 4.4% due~~Revenue declined 5.1% for the first two months of 2020 compared to the ~~loss of Amazon’s Canadian business, 2.7%~~same period in the prior year due primarily to ~~substantially reduced volumes and price reductions with a large existing retail client, and 1.5% due to the divestiture of~~less demand for our ~~PlaneTechs business~~services as clients moderated contingent labor spend in ~~mid-March 2018. The remaining decline of 4.8% was primarily due to slowing demand attributable~~response to lower volumes ~~within~~in light of continued economic uncertainty. Declines were broad-based across multiple geographies and industries. Revenue declined 13.7% for March 2020 compared to the ~~business~~same period in the prior year due to a significant drop in demand from our clients associated with actions to address the COVID-19 threat. Weekly revenue declines accelerated in the back half of ~~our existing clients.~~

~~PeopleScout~~

~~PeopleScoutrevenue declined to $64 million~~March with declines of 19.9% and 32.3% for the ~~thirteen~~last two weeks ~~ended September 29, 2019, an 8.7% decrease~~of the quarter, respectively, compared to the same period in the prior year. ~~The decline included 7.3% due to substantially~~Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced ~~project based recruiting volumes at a large client due to adverse business conditions and 1.9% due to the loss of a client that was acquired by a strategic buyer in the prior year.~~

PeopleScout revenue grew to $198 million for the thirty-nine weeks ended September 29, 2019, an 8.5% increase compared to the same period in the prior year. The increase is due primarily to the acquisition of TMP during the second quarter of 2018, which represents a 13.5% increase in PeopleScout’s revenue for the thirty-nine weeks ended September 29, 2019, compared to the same period in the prior year. Revenue growth was constrained primarily due to the loss of one client after being acquired by a strategic buyer in the prior year and substantially reduced project based recruiting volumes at another large industrial client due to adverse business conditions. Market interest in our RPO services remains strong and has been accentuated by our new talent acquisition technology, Affinix.

~~Gross profit~~

~~Gross profit was as follows:~~

Thirteen weeks ended Thirty-nine weeks ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Gross profit $ 169,122
$ 184,318
$ 475,815
$ 493,170
Percentage of revenue 26.6 % 27.1 % 26.8 % 26.7 %

Total company gross profit as a percentage of revenue for the thirteen weeks ended September 29, 2019 was 26.6%, compared to 27.1% for the same period in the prior year. The decrease was primarily due to client mix and an increase in worker’s compensation expense at PeopleReady.

Total company gross profit as a percentage of revenue for the thirty-nine weeks ended September 29, 2019 was relatively flat at 26.8%, compared to 26.7% for the same period in the prior year. Gross margin improved due to lower workers compensation costs of 0.2% from additional insurance coverage in our staffing business associated with former workers’ compensation carriers that are in liquidation. Due to improvements in their ~~balance sheets, these carriers are now covering a larger proportion of outstanding claims. Improvements to the gross margin~~use of our staffing ~~businesses were partially offset by declines~~services, which has resulted in lower than expected revenue. We expect these two factors to ~~the PeopleScout gross margin due to lower margins with the acquired TMP business as~~have a ~~result of the pass-through nature of recruitment media purchases made on behalf of certain clients.~~

~~We continue to manage the rising cost of claims by reducing workplace accidents. Continued favorable adjustments to our workers’ compensation liabilities are dependent~~significant adverse impact on our ~~ability~~future revenue as well as our overall profitability and liquidity for as long as the negative economic impacts of COVID-19 are being experienced. Our business remains open and we provide key services to ~~continue to lower accident rates~~essential businesses such as health care, food processors, grocery, and ~~claim costs.~~

~~Selling, general and administrative expense~~

~~SG&A expense was as follows:~~

Thirteen weeks ended Thirty-nine weeks ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Selling, general and administrative expense $ 131,187
$ 145,382
$ 388,447
$ 405,352
Percentage of revenue 20.6 % 21.4 % 21.9 % 21.9 %

Total company SG&A expense decreased by $14 million to $131 million, or 20.6% of revenue for the thirteen weeks ended September 29, 2019, compared to $145 million, or 21.4% of revenue for the same period in the prior year. The decrease in SG&A expense is primarily due to cost control programs, while continuing to invest in our digital growth initiatives.

government, which have experienced less pressure.

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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 first quarter of 2020, PeopleReady dispatched approximately 1 million shifts via JobStack and achieved a digital fill rate of 51% compared to 47% in the same period in the prior year. JobStack has an 89% worker adoption rate and was used by 23,500 clients in the first quarter of 2020, or an increase of over 50% compared to the same period in the prior year. The digital fill rate and client adoption increased 2.3% and 10.3%, respectively, during the first quarter of 2020 compared to the fourth quarter of 2019. JobStack is helping us safely connect people with work during this time of crisis.

PeopleManagement

PeopleManagementrevenue declined to $141.6 million for the thirteen weeks ended March 29, 2020, a 10.4% decrease compared to the same period in the prior year. Revenue declined 8.1% for the first two months of 2020 compared to the same period in the prior year due primarily to less demand for our services as clients moderated contingent labor spend in response to lower volumes in light of continued economic uncertainty. Declines were broad-based across multiple industries. Revenue declined 14.1% for March 2020 compared to the same period in the prior year due to a significant drop in demand from our clients associated with actions to address the COVID-19 threat. Weekly revenue declines accelerated in the back half of March with declines of 15.1% and 29.6% for the last two weeks of the quarter respectively 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. We expect these two factors 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. Our business remains open and we provide key services to essential businesses such as health care, food processors, and grocery stores, which have experienced less pressure.

PeopleScout

PeopleScoutrevenue declined to $53.3 million for the thirteen weeks ended March 29, 2020, a 20.9% decrease compared to the same period in the prior year. Revenue declined 16.6% for the first two months of 2020 compared to the same period in the prior year due primarily to the impact of the 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 fourth quarter of 2019. Revenue declined 27.9% for March 2020 compared to the same period in the prior year due to less demand from existing clients resulting from the economic disruption caused by the COVID-19 pandemic. Our clients in the hospitality and airline industries were hit especially hard.

Gross profit

Gross profit was as follows:



	Thirteen weeks ended
(in thousands, except percentages)	March 29, 2020			March 31, 2019
Gross profit	$	126,159		$	146,695
Percentage of revenue	25.5		%	26.6		%

Gross profit as a percentage of revenue declined to 25.5%, or 110 basis points for the thirteen weeks ended March 29, 2020, compared to 26.6% for the same period in the prior year. Our PeopleScout business contributed approximately 100 basis points to the decline primarily due to 60 basis points associated with substantially reduced project-based recruiting volumes from a large, higher margin industrial client which declined throughout 2019 due to the client’s adverse business conditions and 40 basis points associated with the rapid revenue decline caused by the disruption of the COVID-19 pandemic which outpaced our reductions to our service delivery team.

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Selling, general and administrative expense

SG&A expense was as follows:



	Thirteen weeks ended
(in thousands, except percentages)	March 29, 2020			March 31, 2019
Selling, general and administrative expense	$	117,381		$	127,980
Percentage of revenue	23.7		%	23.2		%

Total company SG&A expense decreased by ~~$17~~$10.6 million to ~~$388~~$117.4 million, or ~~21.9%~~23.7% of revenue for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$405~~$128.0 million, or ~~21.9%~~23.2% of revenue for the same period in the prior year. The decrease in SG&A expense ~~decreased~~was primarily due to ~~the impact of~~ cost control programs ~~$2 million~~put in ~~costs eliminated with~~place in fiscal 2019 in response to softening revenue trends. Commencing in the ~~PlaneTechs divestiture and accelerated stock compensation~~latter half of March 2020, we also initiated comprehensive actions to dramatically reduce costs in response to rapidly changing market conditions due to the ~~prior year associated with~~COVID-19 pandemic. We are taking all appropriate steps to reduce SG&A expense while preserving the ~~CEO transition~~key strengths of ~~$2 million. This decrease was partially offset by $3 million of net operating costs added by~~our business to ensure we are prepared for the ~~acquisition of TMP~~time when business conditions improve. We will continue to monitor and ~~continuing investment~~manage our SG&A expense in ~~our digital growth initiatives.~~the current environment.

Depreciation and amortization

Depreciation and amortization was as follows:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands, except percentages)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018			March 29, 2020			March 31, 2019
Depreciation and amortization	$	8,749		$	10,586		$	28,528		$	30,777		$	9,094		$	9,952
Percentage of revenue	1.4		%	1.6		%	1.6		%	1.7		%	1.8		%	1.8		%

Depreciation and amortization decreased primarily due to several intangible assets ~~that were~~which became fully amortized in the second quarter of 2019, which resulted in a decline in amortization expense for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 29, ~~2019.~~2020.

Goodwill and intangible asset impairment charge

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

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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, which was further impacted in March 2020 by the COVID-19 pandemic. The response in the United States and Canada has generally been to require that the populous remain at home unless they are working in an “essential” role as defined by state governments. We are continuing to support our clients during this period of time, many of whom are essential businesses, but volumes have declined substantially. Most industries we serve have been impacted by a significant decrease in demand for their products and services, and as a result, demand for our services has decreased. We expect significant decreases to our revenues and corresponding operating results as we experience continued weakness in pricing and demand for our services during this severe economic downturn. While we expect to see demand recover in the future, our expectation is that 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, 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 the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 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, leaving a remaining goodwill balance of $22.0 million and $9.7 million, respectively as of March 29, 2020. In the event that the declining revenue and operating results continue in the future, the remaining balances may become impaired. Our assessment of goodwill impairment indicated that as of March 29, 2020, the fair value of the PeopleReady and Centerline reporting units exceeded their carrying values and therefore goodwill was not impaired. 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.

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 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, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively, leaving a remaining client relationship balance of $6.2 million and $8.5 million, respectively as of March 29, 2020.

Income taxes

The income tax expense and the effective income tax rate were as follows:

Thirteen weeks ended Thirty-nine weeks ended
(in thousands, except percentages) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Income tax expense $ 2,981
$ 3,630
$ 6,333
$ 7,070
Effective income tax rate 10.1 % 13.0 % 10.4 % 12.2 %

Our effective tax rate for the thirty-nine weeks ended September 29, 2019 and September 30, 2018 was 10.4% and 12.2%, respectively. For the thirty-nine weeks ended September 29, 2019, we recognized $1.3 million of discrete tax benefits from prior year hiring credits.



	Thirteen weeks ended
(in thousands, except percentages)	March 29, 2020			March 31, 2019
Income tax expense (benefit)	$	(24,748	)	$	1,040
Effective income tax rate	14.1		%	11.2		%

Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction, tax credits, government audit developments, changes in 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. 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.

~~A significant driver~~Our effective tax rate for the thirteen weeks ended March 29, 2020 was 14.1%. The difference between the statutory federal income tax rate of ~~fluctuations in~~21.0% and our effective income tax rate isresults primarily from a non-deductible goodwill and intangible asset impairment charge, the Coronavirus Aid, Relief and Economic Security Act, and the federal Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage ~~hiring of~~employers to hire workers from certain ~~disadvantaged~~ targeted ~~categories,~~groups with higher than average unemployment rates. Other differences between the statutory federal income tax rate of 21.0% and ~~is generally calculated as a percentage~~our effective tax rate of wages over a twelve month period up to worker maximums by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4)14.1% result from state and ~~federal offices can delay their credit certification processing~~foreign income taxes, certain non-deductible expenses, tax exempt interest, and ~~have inconsistent certification rates. We recognize additional prior year hiring credits if credits in excess~~tax effects of original estimates have been certified by government offices. WOTC was restored through December 31, 2019, as a result of the Protecting Americans from Tax Hikes Act of 2015. Approval from Congress will be required to extend WOTC beyond December 31, 2019.stock-based compensation.

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~~Changes to our effective tax rate as a result of hiring credits were as follows:~~

Thirteen weeks ended Thirty-nine weeks ended
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Effective income tax rate without adjustments below 26.3 % 28.0 % 27.3 % 27.7 %
Hiring credits estimate from current year wages
(14.8 ) (14.0 ) (14.8 ) (14.0 )
Additional hiring credits from prior year wages (1.4 ) (1.0 ) (2.1 ) (1.5 )
Effective income tax rate 10.1 % 13.0 % 10.4 % 12.2 %

Segment performance

We evaluate performance based on segment revenue and segment ~~profit.~~profit (loss). Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible 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. See Note ~~10:~~11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details ofon our reportable segments, as well as a reconciliation of segment profit to income (loss) before tax ~~expense.~~expense (benefit).

Segment profit (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.

PeopleReady segment performance was as follows:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands, except for percentages)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
(in thousands, except percentages)													March 29, 2020			March 31, 2019
Revenue from services	$	413,132		$	428,665		$	1,109,261		$	1,122,960		$	299,294		$	326,868
Segment profit	30,878			31,230			64,143			63,953			7,655			11,470
Percentage of revenue	7.5		%	7.3		%	5.8		%	5.7		%	2.6		%	3.5		%

PeopleReady segment profit ~~remained relatively flat at $31~~declined to $7.7 million, or ~~7.5%~~2.6% of revenue for the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$31~~$11.5 million, or ~~7.3%~~3.5% of revenue for the same period in the prior year. ~~Revenue~~The decline was primarily due to ~~a slowing~~less demand for our services, ~~which is attributable to lower volumes within~~pricing pressure and increased contingent worker wages. The revenue decline for the ~~businesses~~first two months of our clients. With the decline in revenue, we put in place additional cost control measures and have reduced SG&A costs in line with our plans. The increase in segment profit as a percent of sales is largely due to our cost control programs outpacing the decline in revenue.

~~For the thirty-nine weeks ended September 29, 2019, PeopleReady segment profit remained relatively flat at $64 million, or 5.8% of revenue,~~2020 compared to ~~$64 million, or 5.7% of revenue for~~ the same period in the prior ~~year. Revenue growth~~year was primarily driven by less demand for our services as clients moderated contingent labor spend in response to lower volumes in light of continued economic uncertainty. In March, we saw a significant drop in demand from our clients associated with actions to address the COVID-19 threat. 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. We believe the declines were partially offset by the strategic use of our industry-leading JobStack mobile application that digitally connects workers with jobs. JobStack is helping us safely connect people with work during ~~the first quarter~~this time of ~~2019~~crisis.

The decline in revenue was largely offset by revenue declines during the second and third quarters of 2019. Through disciplined pricing, we have passed through the increased costs of our contingent worker wages in a tightening labor market. Additionally, our cost control programs which have reduced our SG&A ~~costs~~expense in line with our plans.

PeopleManagement segment performance was as follows:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands, except for percentages)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
(in thousands, except percentages)													March 29, 2020			March 31, 2019
Revenue from services	$	159,315		$	181,199		$	470,889		$	543,930		$	141,614		$	158,044
Segment profit	3,381			6,169			9,815			16,530
Segment profit (loss)													(314		)	2,306
Percentage of revenue	2.1		%	3.4		%	2.1		%	3.0		%	(0.2		)%	1.5		%

PeopleManagement ~~segment profit~~ decreased to $3a segment loss of $0.3 million ~~or 2.1% of revenue~~ for the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to $6a segment profit of $2.3 million ~~or 3.4% of revenue~~ for the same period in the prior year. The decline ~~in revenue and related segment profit~~ was primarily due to less demand for our services, pricing pressure and increased contingent worker wages. The revenue decline for the ~~loss~~first two months of ~~Amazon’s Canadian business~~2020 compared to the same period in the ~~second half~~prior year was primarily driven by less demand for our services as clients moderated contingent labor spend in response to lower volumes in light of ~~fiscal 2018~~continued economic uncertainty. In March, we saw a significant drop in demand from our clients associated with actions to address the COVID-19 threat. Many of the clients we serve have been severely impacted by COVID-19 and ~~volume~~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. Due to the decline in revenue, we put in place cost control measures and ~~price reductions~~have reduced SG&A expense in line with our plans.

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at another industrial workforce client. Additionally, PeopleManagement has been experiencing a slowing of demand attributable to lower volumes within the businesses of our clients. With the decline in revenue, we put in place additional cost control measures and have reduced SG&A costs in line with our plans while investing in targeted growth initiatives.

For the thirty-nine weeks ended September 29, 2019, PeopleManagement segment profit decreased to $10 million, or 2.1% of revenue, compared to $17 million, or 3.0% of revenue for the same period in the prior year. The decline in revenue and related segment profit was primarily due to the loss of Amazon’s Canadian business in the second half of fiscal 2018 and volume and price reductions at another large industrial workforce client. Additionally, PeopleManagement has been experiencing a slowing of demand attributable to lower volumes within the businesses of our clients. With the decline in revenue, we put in place cost control measures and have reduced SG&A costs in line with our plans.

PeopleScout segment performance was as follows:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended
(in thousands, except for percentages)	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
(in thousands, except percentages)													March 29, 2020			March 31, 2019
Revenue from services	$	64,346		$	70,507		$	197,589		$	182,170		$	53,344		$	67,440
Segment profit	10,774			12,478			32,424			35,703			2,508			10,427
Percentage of revenue	16.7		%	17.7		%	16.4		%	19.6		%	4.7		%	15.5		%

PeopleScout segment profit decreased to ~~$11~~$2.5 million, or ~~16.7%~~4.7% of revenue for the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$12~~$10.4 million, or ~~17.7%~~15.5% of revenue for the same period in the prior year. The decline in segment profit and profit margin iswas primarily driven by ~~the acquisition of TMP and~~ client mix, which is partially offset by continued efficiency gains in sourcing and recruiting activities. TMP margins are lower than those of PeopleScout due to the pass through nature of media-related purchases on behalf of certain clients.mix. Client mix margins were impacted by substantially reduced ~~project based~~project-based recruiting volumes at a large industrial client due to adverse business ~~conditions and loss of another higher margin client which was acquired by a strategic buyer in late 2018.~~

~~For~~conditions. Due to the thirty-nine weeks ended September 29, 2019, PeopleScout segment profit decreased to $32 million, or 16.4% of revenue, compared to $36 million, or 19.6% of revenue for the same period in the prior year. The decline in segment profit, we put in place cost control measures and ~~profit margin is primarily driven~~have reduced SG&A expense. In March, we saw a significant drop in demand from our clients associated with the economic disruption caused by the ~~lower margins~~COVID-19 pandemic. Many of ~~TMP, substantially~~the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced ~~project based recruiting volumes at a large industrial client due~~their need for our services. Accordingly, we took further actions to ~~adverse business conditions~~reduce the cost of our service delivery which lagged the rapid revenue decline caused by the disruption of the COVID-19 pandemic and the loss of another higher margin client which was acquired by a strategic buyer in late 2018. The declines are partially offset by continued efficiency gains in sourcing and recruiting activities and cost control programs.negatively impacted our segment profit.

FUTURE OUTLOOK

The global economy and our business have been dramatically affected by the COVID-19 pandemic. There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it. For that reason, it is difficult to predict the short-term and the long-term impact of the pandemic on our business at this time.

TrueBlue has implemented comprehensive measures across our brands to keep our associates 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 have created a specialized COVID-19 Task Force tracking the most up-to-date developments and safety standards, and have created an internal information hub with COVID-19 safety protocols, dashboards, FAQs, and daily reporting by location on COVID-19 impact. In addition to sharing TrueBlue’s COVID-19 Action Plan on our external website, 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 JobStack app to help companies and workers connect safely through a digital environment, and are testing and rolling out a new virtual onboarding capability. We are also leveraging our Affinix 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 sanitizers, workplace disinfecting, social distancing, and temperature checks as required. We instruct all of our workers to stay home if they are not feeling well or have been exposed to COVID-19. We have immediate notification and self-quarantine protocols in place if a staff member, associate or client’s employee is diagnosed with or exposed to COVID-19, and we have field safety specialists closely evaluate any assignments related to clean up of potentially infectious job sites. To ensure business continuity for clients who need workers for essential services, we set up 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 have suspended all international travel and restricted non-essential domestic travel for our employees and are providing remote work capabilities for our Tacoma and Chicago headquarters and other locations.

A number of states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders required nonessential businesses to close. Our business remains open and we provide key services to essential businesses. Given the rapidly changing economic environment, we have limited visibility into future demand for our services. However, we believe there is value in providing highlights of our expectations for future financial performance. The following highlights represent our expectations regarding operating trends for fiscal 2019. These expectations are subject to revision as our business changes with the overall economy.

~~We expect additional~~anticipate continued pressure on our revenue, ~~trends in~~profitability and cash flows as follows:

The workforce solutions business is dependent on the fourth quarter of 2019 due primarily to widespread lower same-client demand as clients continue to experience weaker volumes within their own businesses across most geographies and industries. PeopleReady, our largest segment, experienced year-over-year revenue declines in the third quarter of 2019 and experienced additional revenue pressure in October. PeopleScout, our highest margin segment, passed the one year anniversaryoverall strength of the ~~TMP acquisition in June 2019. PeopleScout will experience further pressure due~~labor market. Our revenue from services decreases quickly when the economy begins to ~~the continued impact of the loss of a key client that was acquired by a strategic buyer~~weaken and ~~substantially reduced recruiting project volumes at another large industrial client due to adverse business conditions. PeopleManagement, our lowest margin segment,~~thus contingent staff positions are eliminated, permanent hiring is ~~experiencing less demand from existing clients~~frozen, and will continue to experience the impact of the loss of several key clients in the prior year who largely insourced services previously outsourced to PeopleManagement. Similar to PeopleReady, PeopleManagement experienced additional revenue pressure from same client demand declines.

turnover replacement diminishes. We believe ~~there is a changing pace of underlying economic activity in some of~~our business will decline as the industries we serve. Our belief is based on our same client revenue trends and the softening demand for our PeopleReady services. Given the project-based nature of PeopleReady’s business, we believe it is often an early indicator of changing demand patterns. We remain focused on client expansion and retention, disciplined cost management and investing in our digital strategies,United States gross domestic product (“GDP”) continues to ~~differentiate our service offerings.~~decline.

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Our revenue has historically fluctuated along with changes in GDP. Our analysis suggests that revenue would be down approximately 9% if GDP was flat and would decrease by seven percentage points for every additional point of year-over-year GDP decline. For example, if the year-over-year decline for GDP was 5% for a particular quarter, this would imply a decline in our revenue by approximately 44%.

We anticipate continued gross margin headwinds in fiscal 2020 primarily due to client pricing pressure, lower volume and client mix. PeopleScout revenue headwinds resulting from the loss of one large client after being acquired by a strategic buyer in the prior year will anniversary in the second quarter and substantially reduced project-based recruiting volumes at another industrial large client due to adverse business conditions will anniversary in the fourth quarter. Additionally, volume declines for our PeopleScout business will have a negative impact on gross margins due to the fixed nature of certain cost of service delivery.


•	We have taken appropriate steps and swift action to reduce our operating cost structure and other cash outflows to preserve capital to fund working capital needs.

We expect our days sales outstanding (“DSO”) to increase due to our mix of business with a higher proportion of national clients with longer payment terms and payment delays caused primarily by local and regional clients that have been more severely impacted by COVID-19. During the recession of fiscal 2008 and 2009 our DSO increased 5 days and bad debt expense as a percent of revenue increased to 1.05% for fiscal 2009 compared to 0.69% for the comparable prior year.

In response to these rapidly changing market conditions, we are taking the following steps out of an abundance of caution to increase our cash position and preserve financial flexibility:

We entered fiscal 2020 from a position of strength with a balance sheet that included $37 million of debt and a comparable amount of cash. On March 16, 2020, we amended our Credit Agreement and extended the term to March 16, 2025. In March 2020, we drew substantially all of the remaining availability on our $300 million Revolving Credit Facility to further enhance our liquidity position. We have an option to increase the amount to $450 million, subject to bank approval. As of March 29, 2020, we had cash and cash equivalents of $265 million and total debt of $294 million.


•	We have taken appropriate steps and swift action to reduce our operating cost structure and other cash outflows to preserve capital to fund working capital needs. We plan to reduce our operating expenses by approximately $95 million to $105 million for fiscal 2020. We expect to take a charge of approximately $8 million for employee termination and benefit costs in the second quarter of 2020.

We will reduce planned cash capital expenditures of $32 million by approximately $10 million to preserve operating capital and focus investment efforts. We remain committed to technological innovation to transform our business for a digital future. We continue to make investments in online and mobile applications to improve access to workers and candidates, as well as improve the speed and ease of connecting our clients and workers for our staffing businesses, and candidates for our recruitment process outsourcing business. We expect these investments will increase the competitive differentiation of our services over the long-term, improve the efficiency of our service delivery, and reduce our PeopleReady dependence on local branches to find contingent workers and connect them with work. Examples include our JobStack mobile application in our PeopleReady business and our Affinix talent acquisition technology in our PeopleScout business.

We have suspended share repurchases until economic conditions improve.

In addition to these actions, we continue to actively pursue further options to increase financial flexibility. While there is no immediate need to raise capital at the present time, we intend to evaluate accessing the financial markets and will look to raise capital, when and if the we deem it prudent, to further strengthen our balance sheet.

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 difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. 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 maintain certain financial conditions, which we may fail to meet if we have insufficient funds to repay these loans and/or there is a material decrease in our profitability. Our failure to comply with these restrictive covenants would result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their due date. We are actively working with our banks with whom we have long standing relationships to seek an amendment or waiver of the covenants that we are likely to be unable to comply with.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY



	Thirteen weeks ended
(in thousands)	March 29, 2020			March 31, 2019
Net income (loss)	$	(150,494	)	$	8,276
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	9,094			9,952
Goodwill and intangible asset impairment charge	175,189			—
Provision for doubtful accounts	3,289			1,778
Non-cash lease expense, net of changes in operating lease liabilities	(48		)	151
Stock-based compensation	1,508			3,606
Deferred income taxes	(23,432		)	3,209
Other operating activities	5,375			(1,841		)
Changes in operating assets and liabilities:
Accounts receivable	45,407			26,558
Accounts payable and other accrued expenses	(28,443		)	(9,878		)
Income tax receivable	435			(3,645		)
Change in all other assets	5,958			(5,274		)
Workers’ compensation claims reserve	(2,163		)	(4,380		)
Change in all other liabilities	(14,067		)	(6,998		)
Net cash provided by operating activities	$	27,608		$	21,514

Cash flows from operating activities

Net cash provided by operating activities was $27.6 million for the thirteen weeks ended March 29, 2020, compared to $21.5 million for the prior year.

Net loss for the thirteen weeks ended March 29, 2020 includes a goodwill and intangible asset impairment charge of $175.2 million ($151.9 million after tax) related to the company’s acquisitions. The charge is a result of the adverse impact on expected future cash flows related to the current state of the economy. The charge does not impact the company’s current cash, liquidity, or banking covenants.

Changes to adjustments to reconcile net loss to net cash provided by operating activities for the thirteen weeks ended March 29, 2020 were primarily due to:

Our 2020 forecast has sharply declined in response to the economic downturn due to the COVID-19 pandemic. The decline in revenue and the corresponding decline in operating results as well as expected continued weakness in demand for our services is expected to continue during this severe economic downturn. As a result, 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 the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. With the decrease in demand for our services due to the economic impact caused by the response to 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, which was included in goodwill and intangible asset impairment charge on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020.

Provision for doubtful accounts increased primarily due to clients significantly impacted by COVID-19. Bad debt expense as a percent of revenue increased to 0.6% for the thirteen weeks ended March 29, 2020, from 0.2% for the comparable period in the prior year.

The increase in other operating activities is primarily due to $4.8 million in unrealized losses on deferred compensation assets due to sharp declines in global equity investments for the thirteen weeks ended March 29, 2020, as compared to a $2.5 million gain in the same period in the prior year as equity markets strengthened.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Deferred tax assets increased primarily due to the $23.3 million of discrete tax benefit from non-deductible goodwill and intangible asset impairments.

Changes to operating assets and liabilities for the thirteen weeks ended March 29, 2020 were primarily due to:

Cash provided by accounts receivable of $45.4 million is due to normal seasonal deleveraging that occurs in our fiscal first quarter, which was further eventuated by the decline in revenue. This decrease was partially offset by an increase in our days sales outstanding of 0.9 days caused by mix of clients with longer cash collection cycle and payment delays primarily due to certain clients that have been severely impacted by COVID-19.

Cash used for accounts payable and accrued expenses of $28.4 million is 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. Demand is lower during the first quarter, due in part to limitations to outside work during the winter months and slowdown in manufacturing and logistics after the holiday season and accordingly accounts payable and accrued expense decline. 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.

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



	Thirteen weeks ended
(in thousands)	March 29, 2020			March 31, 2019
Capital expenditures	$	(7,028	)	$	(5,862	)
Purchases and sales of restricted investments	6,288			7,267
Net cash provided by (used in) investing activities	$	(740	)	$	1,405

Net cash used in investing activities was $0.7 million for the thirteen weeks ended March 29, 2020, compared to net cash provided of $1.4 million for the same period in the prior year.

Capital expenditures increased primarily due to increased investment in software technology. We remain committed to technological innovation to transform our business for a digital future that makes it easier for our clients to do business with us and easier to connect people to work. We continue making investments in online and mobile applications to improve access to workers and candidates, as well as improve the speed and ease of connecting our clients and workers for our staffing businesses, and candidates for our recruitment process outsourcing business. We expect these investments will increase the competitive differentiation of our services over the long-term, improve the efficiency of our service delivery, and reduce our PeopleReady dependence on local branches to find ~~temporary~~contingent workers and connect them with work. Examples include our ~~new~~ JobStack mobile application in ~~the~~our PeopleReady business and our Affinix talent acquisition technology in our PeopleScout business.

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~LIQUIDITY~~Cash flows from financing activities

Thirty-nine weeks ended
(in thousands) September 29,
2019 September 30,
2018
Net income $ 54,358
$ 50,867
Adjustments to reconcile net income to net cash provided by operating activities
(1,820 ) 17,759
Net cash provided by operating activities $ 52,538
$ 68,626

Net cash used in investing activities $ (11,703 ) $ (17,367 )

Net cash used in financing activities $ (68,630 ) $ (37,066 )

~~Cash flows from operating activities~~



	Thirteen weeks ended
(in thousands)	March 29, 2020			March 31, 2019
Purchases and retirement of common stock	$	(52,348	)	$	(5,303	)
Net proceeds from employee stock purchase plans	323			380
Common stock repurchases for taxes upon vesting of restricted stock	(1,792		)	(1,438		)
Net change in Revolving Credit Facility	256,400			(37,800		)
Other	(508		)	(69		)
Net cash provided by (used in) financing activities	$	202,075		$	(44,230	)

Net cash provided by ~~operating~~financing activities was ~~$53~~$202.1 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$69~~net cash used of $44.2 million for the same period in the prior year. Net cash provided by operating activities is primarily due to net income of $54 million for the thirty-nine weeks ended September 29, 2019 and $51 million for the thirty-nine weeks ended September 30, 2018. Net cash used for accounts receivable remained largely unchanged from the prior year. However, accounts payable and accrued expenses decreased for the thirty-nine weeks ended September 29, 2019 compared to the same period in the prior year due primarily to timing of payments to facilitate the transition to our new enterprise resource planning system at the beginning of 2019 and timing of payments related to our workers compensation insurance program. Additionally, our cost control programs in response to slowing demand for our services further reduced accounts payable and accrued wages and benefits.

~~Cash flows from investing activities~~

Net cash used in investing activities was $12 million for the thirty-nine weeks ended September 29, 2019, primarily due to increased investment in software technology, consistent with our overall digital strategy.

Net cash used in investing activities was $17 million for the thirty-nine weeks ended September 30, 2018, primarily due to an acquisition which was partially offset by a divestiture. Effective June 12, 2018, the company acquired all of the outstanding equity interests of TMP, through its subsidiary PeopleScout for a cash purchase price of $23 million, net of cash acquired of $7 million. See Note 2: ~~Acquisition~~, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on the purchase of TMP. Effective March 12, 2018, the company divested substantially all the assets and certain liabilities of its PlaneTechs business for a purchase price of $11 million, of which $10 million was received in cash during the thirty-nine weeks ended September 30, 2018.

~~Cash flows from financing activities~~

Net cash used in financing activities was $69 million for the thirty-nine weeks ended September 29, 2019, compared to $37 million for the same period in the prior year. Net cash used in financing activities was primarily due to increased net repayments on our Revolving Credit Facility of $36 million for the thirty-nine weeks ended September 29, 2019 as compared to net draws of $12 million for the comparable period in the prior year. The draws on the Revolving Credit Facility enabled the pre-payment of the outstanding balance of our existing long-term debt of $22 million with Synovus Bank on June 25, 2018. Additionally, we repurchased $31 million of common stock during the thirty-nine weeks ended September 29, 2019 as compared to $25 million for the same period in the prior year. As of September 29, 2019, $27 million remains available for repurchase of common stock under the current authorization.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Net cash provided by financing activities in the current quarter was due to our draw down on the Revolving Credit Facility. 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. Net cash used in financing activities in the prior-year quarter was primarily due to net repayments on our Revolving Credit Facility.

During the thirteen weeks ended March 29, 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 for a total of $52.4 million of common stock. These transactions were conducted prior to the medical community’s acknowledgment of the expected severity that COVID-19 would have on the United States. 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. As of March 29, 2020, $66.7 million remains available for repurchase of common stock under existing authorizations. We do not plan to make additional repurchases until economic conditions improve.

CAPITAL RESOURCES

Revolving credit facility

On ~~July 13, 2018,~~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 (the “Amendment,” the existing credit agreement as amended by the Amendment, the “Credit Agreement,” and the revolving credit facility established thereunder, the “Revolving Credit Facility”). The ~~agreement provides for a revolving line~~Amendment extended the maturity of ~~credit of up~~the Revolving Credit Facility to ~~$300 million with an option, subject~~March 16, 2025, and modified certain other terms. Subject to lender approval, we have the ability to increase our Revolving Credit Facility up to $450.0 million.

Our Revolving Credit Facility contains financial covenants based on our leverage and fixed charge coverage ratios, as defined in the ~~amount~~Credit Agreement. The leverage coverage ratio is our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the Credit Agreement, and we are required to ~~$450 million,~~maintain a ratio of less than 3.0. The fixed charge coverage ratio is trailing twelve months bank-adjusted cash flow divided by cash interest expense which is required to be greater than 1.25. As of March 29, 2020, we were in compliance with all covenants related to the Revolving Credit Facility as our leverage coverage ratio was 2.7 and ~~matures~~our fixed charge coverage ratio was 40.8. However, events resulting from the economic effects of COVID-19 may negatively impact our ability to comply with these covenants in ~~five years.~~the future, which has led us to actively work with our lenders to seek an amendment or waiver, and if unsuccessful could limit our access to or require accelerated repayment of our existing Revolving Credit Facility, or require us to pursue alternative financing. We believe it is likely that we will not meet one or more financial covenants within the next twelve months if we are not able to obtain accommodations from our lenders.

In the event we are unsuccessful in these efforts with our banks, management plans to take further action to expand the current cost reduction programs, eliminate all nonessential capital expenditure projects, accelerate working capital improvement initiatives, and complete the sale of certain assets to provide supplemental liquidity. In the absence of an amendment or waiver of covenants related to the revolving credit facility we believe our plans, if executed, would result in adequate cash flows to support our ongoing operations.

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.

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 ~~September~~March 29, ~~2019,~~2020, we had restricted cash and investments totaling ~~$227~~$218.9 million. The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”). See Note 4:3: Restricted Cash and Investments, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for details ofon our restricted cash and investments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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	Moody’s	Fitch
Short-term rating	A-1/SP-1	P-1/MIG-1	F-1
Long-term rating	A	A2	A

Workers’ compensation insurance, collateral and claims reserves

Workers’ compensation insurance

We provide workers’ compensation insurance for our ~~temporary~~contingent 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 PeopleReady in Ohio where we have a self-insured policy). Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.

Workers’ compensation collateral

Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit, and/or surety bonds. On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. Such amounts can increase or decrease independent of our assessments and reserves. We generally anticipate that our collateral commitments will continue to grow as we grow our business. We pay our premiums and deposit our collateral in installments. The majority of the restricted cash and investments collateralizing our self-insured workers’ compensation policies are held in the Trust.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Our total collateral commitments were made up of the following components for the fiscal period end dates presented:


(in thousands)	September 29, 2019		December 30, 2018		March 29, 2020		December 29, 2019
Cash collateral held by workers’ compensation insurance carriers	$	22,456	$	22,264	$	22,317	$	22,256
Cash and cash equivalents held in Trust	23,459		28,021		26,641		23,681
Investments held in Trust	147,354		156,618		142,761		149,373
Letters of credit (1)	6,677		6,691		6,202		6,202
Surety bonds (2)	22,462		21,881		20,731		20,731
Total collateral commitments	$	222,408	$	235,475	$	218,652	$	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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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)	September 29, 2019			December 30, 2018			March 29, 2020			December 29, 2019
Total workers’ compensation reserve	$	259,270		$	266,446		$	253,455		$	255,618
Add back discount on workers’ compensation reserve (1)	18,125			18,179			18,724			19,316
Less excess claims reserve (2)	(47,278		)	(48,229		)	(45,643		)	(45,253		)
Reimbursable payments to insurance provider (3)	4,318			7,866			4,701			8,121
Other (4)	(12,027		)	(8,787		)	(12,585		)	(15,559		)
Total collateral commitments	$	222,408		$	235,475		$	218,652		$	222,243


(1)	Our workers’ compensation reserves are discounted to their estimated net present value while our collateral commitments are based on the gross, undiscounted reserve.


(2)	Excess claims reserve includes the estimated obligation for claims above our deductible limits. These are the responsibility of the insurance carriers against which there are no collateral requirements.


(3)	This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust. When claims are paid by our carrier, the amount is removed from the workers’ compensation reserve but not removed from collateral until reimbursed to the carrier.


(4)	Represents the difference between the self-insured reserves and collateral commitments.

Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. We discount our workers’ compensation liability as we believe the estimated future cash outflows are readily determinable.

Our workers’ compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported. Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.

Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:

changes in medical and time loss (“indemnity”) costs;

changes in mix between medical only and indemnity claims;

regulatory and legislative developments impacting benefits and settlement requirements;

type and location of work performed;

the impact of safety initiatives; and

positive or adverse development of claims.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Our workers’ compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S. Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims. At ~~September~~March 29, ~~2019,~~2020, the weighted average discount rate was ~~2.1%~~2.0%. The claim payments are made over an estimated weighted average period of approximately ~~4.5~~5 years.

Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. At ~~September~~March 29, ~~2019,~~2020, the weighted average rate was ~~2.7%~~2.2%. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 1617 years. The discounted workers’ compensation reserve for excess claims was $45.6 million and $45.3 million, and the corresponding gross receivable for the insurance on excess claims ~~were $47~~was $44.6 million and ~~$48~~$45.3 million as of ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, respectively.

We continue to actively manage workers’ compensation ~~expense~~cost through the safety of our ~~temporary~~contingent workers with our safety programs, and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the current and prior periods. Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. We expect diminishing favorable adjustments to our workers’ compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Future outlook

We ~~believe~~are focused on capital preservation as a top priority. In response to the rapidly changing market conditions, we ~~are taking the right steps~~have taken swift action to ~~expand our~~reduce operating ~~margin~~costs and ~~produce long-term growth for shareholders. We also believe we are in a strong financial position~~other cash outflows to preserve capital to fund working capital ~~needs for growth opportunities.~~needs. We entered fiscal 2020 from a position of strength with a balance sheet that included $37.0 million of debt and a comparable amount of cash. On March 16, 2020, we extended the maturity of the Revolving Credit Facility to March 16, 2025, and under the Credit Agreement we have the option, subject to lender approval, to increase the Revolving Credit Facility to $450.0 million. In March 2020, we drew substantially all of the remaining availability on our $300.0 million Revolving Credit Facility to further enhance our liquidity position. As of ~~September~~March 29, ~~2019,~~2020, we had cash and cash equivalents of ~~$24~~$265.3 million and ~~$250 million available under~~total debt of $293.5 million.

Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our ~~Revolving Credit Facility~~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 surety bonds. We continue to have risk that these collateral requirements may be increased by our insurers due to market dynamics as a result of COVID-19.

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 temporary associates and permanent employees. These deferred amounts are then repaid 50% by December 31, 2021 and the remaining 50% by December 31, 2022. We estimate the total ~~liquidity~~deferral of ~~$274~~cash payment will be approximately $50 million. In addition, we are taking advantage of other deferred payment opportunities for federal, state, local, and foreign taxes, for which we qualify.

We ~~continue~~continued to return cash to shareholders through our share repurchase program. ~~During~~In February 2020, as part of the ~~thirty-nine~~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, and we also repurchased $12.4 million in the open market. These transactions were conducted prior to the medical community’s acknowledgment of the expected severity that COVID-19 would have on the United States. For the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, we repurchased ~~$31~~a total of $52.4 million of our common stock. As of ~~September~~March 29, ~~2019, $27~~2020, $66.7 million remains available for repurchase of common stock under existing authorizations. We do not plan to make additional repurchases until economic conditions improve.

If the ~~current authorization. Additionally, our Board~~business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of ~~Directors authorized an~~liquidity. These sources may include raising additional ~~$100 million~~debt at less favorable terms or a secondary equity offering at a time of ~~share repurchases on October 16, 2019.~~

~~We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the foreseeable future.~~depressed equity valuations.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q, outside of the ordinary course of business, to the contractual obligations specified in the table of contractual obligations found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019.

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES

Our critical accounting estimates are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations; Summary of Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. The following has been updated to reflect the results of our ~~annual goodwill and indefinite-lived intangible asset~~ impairment analyses.

Goodwill and indefinite-lived intangible assets

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and 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, legal factors, operating performance indicators, competition, client engagement, or sale or disposition of a significant portion of a reporting unit. We monitor the existence of potential impairment indicators throughout the fiscal year. A significant change in the business climate during the first quarter of 2020 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Goodwill

We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. ~~Our~~As of March 29, 2020, our operating segments are PeopleReady, PeopleManagement Centerline ~~Staff Management, SIMOS,~~Drivers, PeopleManagement On-Site, PeopleScout, and PeopleScout MSP. The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill.

During the first quarter of 2020 we experienced a significant decline in our stock price. 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, which was further impacted in March 2020 by the COVID-19 pandemic. The response in the United States (“U.S.”) and Canada has generally been to require that the populous remain at home unless they are working in an “essential” role as defined by state governments. We are continuing to support our clients during this period of time, many of whom are essential businesses, but volumes have declined substantially. Most industries we serve have been impacted by a significant decrease in demand for their products and services, and as a result, demand for our services has decreased. We expect significant decreases to our revenues and corresponding operating results as we experience continued weakness in pricing and demand for our services during this severe economic downturn. While we expect to see demand recover in the future, our expectation is that the rate of recovery will vary by geography and industry depending on the impact of 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 ~~operational~~operating and macroeconomic changes on each reporting unit. The fair value of each reporting unit iswas estimated using a ~~weighted average~~combination of a discounted cash flow methodology and the ~~income and~~ market valuation ~~approaches. The income~~ approach ~~applies a fair value methodology based on discounted cash flows.~~using publicly traded company multiples in similar businesses. This analysis requires significant ~~estimates and~~ judgments, including estimation of future cash flows, which is dependent on ~~internal~~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. ~~Our~~The weighted average cost of capital ~~for~~used in our ~~most recent~~ annual impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 11.5% to ~~12.5%.~~ 12.0% and our control premium was approximately 12%, which management has determined to be reasonable.

We ~~also apply a market approach, which identifies similar publicly traded companies~~have carefully considered the economic impact of COVID-19, together with the estimated decreases to our revenues and ~~develops a correlation, referred to as a multiple, to apply to the~~corresponding operating results ofas we experience continued weakness in pricing and demand for our services during the ~~reporting units. The primary market multiples to which we compare~~current economic downturn. Our estimates are ~~revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in~~based on our ~~most recent annual impairment test. These combined fair values are reconciled~~experience with changes to our ~~aggregate market value of~~business in response to fluctuations in the U.S. gross domestic product and prior recessions, as well as our ~~shares of common stock outstanding on the date of valuation, resulting in a reasonable control premium of 15.2%.~~experience with plans and actions to adjust and adapt to recessions. We base fair value estimates on assumptions we believe to be reasonable but that are ~~unpredictable~~difficult to predict. Given the uncertain nature of the economic impact of COVID-19, and ~~inherently uncertain. Actual future results may differ from those estimates. We consider a reporting unit’s fair value to be substantially in excess~~the recovery pattern of the broader economy and its ~~carrying value at a 20% premium or greater.~~

~~Based~~impact on our ~~2019 annual impairment test, the estimated fair value of~~business, actual results could differ significantly from our SIMOS reporting unit was in excess of its carrying value by approximately 10%. The current value of goodwill is $35 million. There are two key clients that individually account for more than 10% of revenue for the SIMOS reporting unit. For each client we service multiple sites.estimates. The loss of a key client, loss of a significant number of key sites, a significant further decline to the economy, or a ~~downturn in the economy~~protracted recession could give rise to an additional impairment. Should any one of these events occur, we ~~may~~will need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.

~~A discount rate~~As a result of ~~12.5% was used in calculating the fair value of this reporting unit. In the event~~our accelerated impairment test, we concluded that the ~~discount rate increases by approximately 1 percentage point,~~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 the ~~forecasted revenue growth rate declines by approximately 3 percentage points, or gross margin as a percentage~~Consolidated Statements of ~~revenue declines by approximately 1 percentage point,~~Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. The total goodwill carrying value of ~~the~~$45.9 million for PeopleManagement On-site reporting unit ~~would exceed its fair value.~~was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively, leaving a remaining goodwill balance of $22.0 million and $9.7 million, respectively as of March 29, 2020. Should ~~any one of these events occur,~~actual results decline further or longer than we have currently estimated, the remaining goodwill balances may ~~need to record an impairment loss to goodwill for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.~~be further impaired. We will continue to closely monitor the operational performance of ~~this~~these reporting ~~unit.~~

~~All other reporting units’~~units as it relates to goodwill impairment. Based on our interim goodwill impairment test, the fair values of our PeopleReady and PeopleManagement Centerline Drivers reporting units were ~~substantially~~ in excess of their ~~respective~~ carrying values. Accordingly, there was no impairment loss recognized for the thirty-nine weeks ended September 29, 2019. Based on our 2018 annual impairment test, all reporting units’ fair values were substantially in excessvalue by approximately 60% and 195%, respectively.

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Table of ~~their respective carrying values. Accordingly, there was no impairment loss recognized for the thirty-nine weeks ended September 30, 2018.~~Contents



MANAGEMENT’S DISCUSSION AND ANALYSIS

Indefinite-lived intangible assets

We performed an interim impairment test as of the last day of our ~~annual~~first fiscal quarter for 2020 of our indefinite-lived intangible ~~asset impairment test for 2019 and 2018,~~assets and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names. Accordingly, no impairment loss was recognized for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 29, ~~2019~~2020.

Finite-lived intangible assets and other long-lived assets

We review intangible assets that have finite useful lives and other long-lived assets whenever an event or ~~September 30, 2018.~~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. 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.

With the estimated decrease in demand for our services due to the economic impact of 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, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks ended March 29, 2020. The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was $25.0 million and $9.7 million, respectively, leaving a remaining client relationship balance of $6.2 million and $8.5 million, respectively as of March 29, 2020. Considerable management judgment was necessary to determine key assumptions, including estimated revenue of acquired clients and an appropriate discount rate of 12.0%. Should actual results decline further or longer than we have currently estimated, the remaining intangible asset balances may become further impaired.

NEW ACCOUNTING STANDARDS

See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q.

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Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our quantitative and qualitative disclosures about market risk are discussed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019.



Item 4.	CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

During the fiscal ~~third~~first quarter of ~~2019,~~2020, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of ~~September~~March 29, ~~2019.~~

During fiscal 2018, we prepared for implementation of an enterprise resource planning (“ERP”) system, culminating with our transition to the new ERP system on December 31, 2018. The new ERP system was designed and implemented, in part, to enhance the overall system of internal controls over financial reporting through further automation and integration of business processes. In connection with implementation, we modified the design and documentation of certain internal control processes and procedures, as necessary, to accommodate related changes to our accounting procedures and business processes. Transition to this system also included significant testing efforts prior to system implementation, including training of employees who will be using the system and updating of operational processes and procedures impacted by the implementation.2020.

~~With the exception~~

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Table of ~~the ERP system implementation described above, there~~Contents

There were no ~~other~~ changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

The certifications required by Rule 13a-14 of the Exchange Act are filed as exhibits 31.1 and 31.2, respectively, to this Quarterly Report on Form 10-Q.

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PART II. OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

See Note 6:7: Commitments and Contingencies, to our consolidated financial statements found in Part I, Item 1 of this Quarterly Report on Form 10-Q.



Item 1A.	RISK FACTORS

Investing in our securities involves risk. The following risk factors and all other information set forth in this Quarterly Report on Form 10-Q should be considered in evaluating our future prospects. If any of the events described below occur, our business, financial condition, results of operations, liquidity, or access to the capital markets could be materially and adversely affected.

COVID-19, the governmental reaction to COVID-19, and the resulting adverse economic conditions have negatively impacted our business and will have an even greater material adverse impact on our business, financial condition, liquidity, and results of operations.

The COVID-19 outbreak has been categorized as a pandemic by the World Health Organization. The negative impact on the global economy of the COVID-19 pandemic and related governmental responses have been wide ranging and multi-faceted. These impacts have caused historically steep and rapid declines in economic activity in the markets where we operate, disruptions in global supply chains, travel restrictions, sharp downturns and price volatility in equities markets, and concern that credit markets and companies will not remain liquid.

COVID-19 has caused significant negative impacts on our operations and stock price. Our revenues declined substantially in the second half of March because of the COVID-19 pandemic and will continue to decline while the current economic conditions continue. The operations of our clients have been severely disrupted, and could further decline, thereby increasing the likelihood that our clients continue to delay or cancel current contracts, reduce orders for our services in the future, have difficulty paying for services provided, or cease operations altogether. The rapid increase in unemployment has made it easier for clients to find new staff, reducing the demand for our services. In response to these adverse conditions we have taken steps to reduce our expenses and cash outflows. These reductions in expenses, including lay-offs, could fail to achieve the intended savings or alternatively reduce our ability to take advantage of opportunities in the future if economic conditions improve. Further deteriorations in economic conditions, as a result of the COVID-19 pandemic or otherwise, will lead to a prolonged decline in demand for our services and negatively impact our business.

Our indebtedness has increased due to our need to increase our draw under our revolving credit agreement (“Revolving Credit Facility”) which may be required to fund operations during this period of reduced revenue. Our Revolving Credit Facility requires that we maintain certain financial and other covenants. Events resulting from the effects of COVID-19 will likely cause a failure to comply with these covenants within the next twelve months. We are actively working with our banks to seek an amendment or waiver. In the event we are unsuccessful in these efforts with our banks, management plans to take further action to expand the current cost reduction programs, eliminate all nonessential capital expenditure projects, accelerate working capital improvement initiatives, and complete the sale of certain assets to provide supplemental liquidity. We have no assurance that any such waiver or alternative financing, if required, could be obtained at terms acceptable to us, or at all, including as a result of the effects of COVID-19 on financial markets at such time or that managements plans to take further action will be successfully implemented.

The extent to which COVID-19 ultimately adversely impacts our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects. While this matter has, and we expect it to continue to, negatively impact our results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact is difficult to estimate at this time. In addition, we cannot assure you that actions we take to reduce costs or otherwise change our operations will address the issues we face with clients, employees or our results of operations.

Demand for our workforce solutions is significantly affected by fluctuations in general economic conditions.

The demand for workforce solutions is highly dependent upon the state of the economy and ~~upon~~ the workforce needs of our clients, which creates uncertainty and volatility. National and global economic activity is slowed by many factors, including rising interest rates, political and legislative changes, epidemics, other significant health concerns, and global trade uncertainties. As economic activity slows, companies tend to reduce their use of ~~temporary~~contingent workers and ~~reduce their~~ recruitment of new employees. For example, we have recently experienced significantly reduced demand from our clients due to the COVID-19 pandemic. Significant declines in demand

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from any region or industry in which we have a major presence, ~~reduces~~or the ~~demand for~~financial health of our ~~services and thereby~~clients, significantly decreases our revenues and profits. Deterioration in economic conditions or the financial or credit markets could also have an adverse impact on our clients’ financial health or their ability to pay for services we have already provided.

It is difficult for us to forecast future demand for our services due to the inherent uncertainty in forecasting the direction and strength of economic cycles and the project nature of our staffing assignments. The uncertainty can be exacerbated by volatile economic conditions, which has caused and may continue to cause clients to reduce or defer projects for which they utilize our services. The negative impact to our business ~~sometimes occurs~~can occur before, during or after a decline in economic activity is seen in the broader economy. When it is difficult for us to accurately forecast future demand, we may not be able to determine the optimal level of personnel and investment necessary to profitably ~~take advantage of growth opportunities.~~

~~We may be unable to attract sufficient qualified candidates to meet the needs of our clients.~~

We compete to meet our clients’ needs for workforce solutions and, therefore, we must continually attract qualified candidates to fill positions. Attracting qualified candidates depends on factors such as desirability of the assignment, location, and the associated wages and other benefits. We have experienced shortages of qualified candidates and we may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase. If we are unable to pass those costs through to our clients, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our temporary workers. If we are subject to unreasonable collective bargaining agreements or work disruptions,manage our business ~~could be adversely affected.~~in light of opportunities and risks we face.

We may not achieve the intended effects of our business strategy which could negatively impact our results.

Our business strategy focuses on driving growth in our PeopleReady, PeopleManagement and PeopleScout business lines by investing in innovative technology, acquisitions and initiatives which drive organic growth. Our investments and acquisitions may not achieve our desired returns and the results of our initiatives may not be as expected or may be impacted by matters outside of our control. If we are unsuccessful in executing any of these strategies, we may not achieve our goal of revenue and profitability growth, which could negatively impact financial results.

Our workforce solutions are subject to extensive government regulation and the imposition of additional regulations, which could materially harm our future earnings.

Our workforce solutions are subject to extensive government regulation. The cost to comply, and any inability to comply with government regulation, could have a material adverse effect on our business and financial results. Increases or changes in government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.

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Our temporary staffing services employ ~~temporary~~contingent workers. The wage rates we pay to ~~temporary~~contingent workers are based on many factors including government-mandated minimum wage requirements, payroll-related taxes and benefits. If we are not able to increase the fees charged to clients to absorb any increased costs related to these factors, our results of operations and financial condition could be adversely affected.

We offer our ~~temporary~~contingent workers in the United States government-mandated health insurance in compliance with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”). Because the requirements, regulations, and interpretations of the ACA may change, the ultimate financial effect of the ACA is not yet known, and changes in its requirements and interpretations could increase or change our costs. In addition, because of the uncertainty surrounding a potential repeal or replacement of the ACA, we cannot predict with any certainty the likely impact of the ACA’s repeal or the adoption of any other health care reform legislation on our financial condition or operating results. Whether or not there is a change in health care legislation in the United States ~~there is likely to be significant disruption to the health care market in the future, and~~ the costs of our health care expenditures may increase. If we are unable to comply with changes to the ACA, or any future health care legislation in the United States, or sufficiently raise the rates we charge our clients to cover any additional costs, such noncompliance or increases in costs could materially harm our business.

We may ~~incur~~experience employment related claims, commercial indemnification claims and ~~costs~~other legal proceedings that could materially harm our business.

We are in the business of employing people in the workplaces of our clients. We incur a risk of liability for claims ~~for~~relating to personal injury, wage and hour violations, immigration, discrimination, harassment and other liabilities arising from the actions of our clients and/or ~~temporary~~contingent workers. Some or all of these claims may give rise to negative publicity, investigations, litigation ~~settlements,~~ or ~~investigations.~~settlements. We may incur costs ~~charges~~ or other material adverse impacts on our financial statements for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.

We may have liability to our clients for the action or inactions of our employees, that may cause harm to our clients or third parties. In some cases, we must indemnify our clients for certain acts of our contingent workers or arising from our contingent workers presence on the client’s job site and certain clients have negotiated broad indemnification provisions. We may also incur fines, penalties, and losses that are not covered by insurance or negative publicity with respect to these matters.

We maintain insurance with respect to some potential claims and costs with deductibles. We cannot be certain that our insurance will be available, or if available, will be in sufficient amount or scope to cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our business. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable ~~terms,~~terms. Should the final judgments or ~~at all, or that~~settlements exceed our insurance ~~providers~~coverage, they could have a material effect on our business. Our ability to obtain insurance, its coverage levels, deductibles and premiums, are all dependent on market factors, our loss history,

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and insurance providers’ assessments of our overall risk profile. Further, we cannot be certain our current and former insurance carriers will be able to pay claims we make under such policies.

We are dependent on obtaining workers’ compensation and other insurance coverage at commercially reasonable terms. Unexpected changes in claim trends on our workers’ compensation may negatively impact our financial condition.

Our temporary staffing services employ workers for which we provide workers’ compensation insurance. Our workers’ compensation insurance policies are renewed annually. The majority of our insurance policies are with AIG. Our insurance carriers require us to collateralize a significant portion of our workers’ compensation obligation. The majority of collateral is held in trust by a third-party for the payment of these claims. The loss or decline in value of the collateral could require us to seek additional sources of capital to pay our workers’ compensation claims. ~~We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms.~~ As our business grows or if our financial results deteriorate, the amount of collateral required will likely increase and the timing of providing collateral could be accelerated. Resources to meet these requirements may not be available. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms. The loss of our workers’ compensation insurance coverage would prevent us from operating as a staffing services business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies.

We self-insure, or otherwise bear financial responsibility for, a significant portion of expected losses under our workers’ compensation program. ~~Unexpected~~We have experienced unexpected changes in claim trends, including the severity and frequency of claims, changes in state laws regarding benefit levels and allowable claims, actuarial estimates, orand medical cost inflation, and may experience such changes in the future which could result in costs that are significantly different than initially ~~reported.~~anticipated or reported and could cause us to record different reserves in our financial statements. There is a risk that we will not be able to increase the fees charged to our clients in a timely manner and in a sufficient amount to cover increased costs as a result of any changes in claims-related liabilities.

We actively manage the safety of our ~~temporary~~contingent workers ~~with~~through our safety programs and actively control costs with our network of workers’ compensation related service providers. These activities have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods. The benefit of these adjustments ~~are~~is likely to decline and there can be no assurance that we will be able to continue to reduce accident rates and control costs to produce these results in the future.

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Some clients require extensive insurance coverage and request insurance endorsements that are not available under standard policies. There can be no assurance that we will be able to negotiate acceptable compromises with clients or negotiate appropriate changes in our insurance contracts. An inability to meet client insurance requirements may adversely affect our ability to take on new clients or continue providing services to existing clients.

We operate in a highly competitive industry and may be unable to retain clients or market share.

Our industry is highly competitive and rapidly innovating, with low barriers to entry. We compete in global, national, regional and local markets with full-service and specialized temporary staffing companies as well as business process outsourcing companies that also offer our services. Our competitors offer a variety of flexible workforce solutions. Therefore, there is no assurance that we will be able to retain clients or market share in the future, nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or maintain our current profit margins.

Advances in technology may disrupt the labor and recruiting ~~markets.~~markets and we must constantly improve our technology to meet the expectations of clients, candidates and employees.

The increased use of internet-based and mobile technology is attracting additional technology-oriented companies and resources to the staffing industry. Our candidates and clients increasingly demand technological innovation to improve the access to and delivery of our services. Our clients increasingly rely on automation, artificial intelligence, machine learning and other new technologies to reduce their dependence on labor needs, which may reduce demand for our services and impact our operations. We face extensive pressure for lower prices and new service offerings and must continue to invest in and implement new technology and industry developments in order to remain relevant to our clients and candidates. As a result of this increasing dependence upon technology, we must timely and effectively identify, develop, or license technology from third parties, and integrate such enhanced or expanded technologies into the solutions that we provide. In addition, our business relies on a variety of technologies, including those that support recruiting, hiring, paying, order management, billing, collecting, contingent worker data analytics and client data analytics. If we ~~are unable~~do not sufficiently invest in and implement new technology, or evolve our business at sufficient speed and scale, our business results of operations may decline materially. Acquiring technological expertise and developing new technologies for our business may require us to ~~do so,~~incur significant expenses and costs. For some solutions, we depend on key vendors and partners to provide technology and support. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be negatively affected.

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Our business and operations have undergone, and will continue to undergo, significant change as we seek to improve our operational and support effectiveness, which if not managed could have an adverse outcome on our business and results of operations.

We have significantly changed our operations and internal processes in recent periods, and we will continue making similar changes, in order to improve our operational effectiveness. These efforts strain our systems, management, administrative, operations and financial infrastructure. For example, we are currently combining some of our operating segments. We believe these efforts are important to our long-term success. Managing and cascading these changes throughout the company will continue to require the further attention of our management team and refinement to our operational, financial and management controls, reporting systems and procedures. These activities will require ongoing expenditures and allocation of valuable management and employee resources. If we fail to manage these changes effectively, our costs and expenses may increase more than we expect and our business, financial condition and results of operations may ~~decline materially.~~be harmed.

We are at risk of damage to our brands and reputation, which is important to our success.

Our ability to attract and retain clients, ~~temporary~~contingent workers, candidates, and employees is affected by external perceptions of our brands and reputation. Negative perceptions or publicity could damage our reputation with current or perspective clients and employees. Negative perceptions or publicity regarding our vendors, clients, or business partners may adversely affect our brand and reputation. We may not be successful in detecting, preventing, or negating all changes in or impacts ~~upon~~on our reputation. If any factor, including poor performance or negative publicity, whether or not true, hurts our reputation, we may experience negative repercussions which could harm our business.

The expansion of social media platforms creates new risks and challenges that could cause damage to our brand and reputation.

The use of social media platforms, including social media websites and other forms of internet-based communications, has rapidly increased allowing individuals access to a broad audience of consumers and other interested parties. For example, unfavorable comments about a work site could make recruiting or hiring at that site more challenging. The inappropriate or unauthorized use of such platforms by our clients or employees could violate privacy laws, cause damage to our brand, or lead to litigation which could harm our business.

Our level of debt and restrictions in our credit agreement could negatively affect our operations and limit our liquidity and our ability to react to changes in the economy.

~~Extensions~~We have nearly drawn the total $300 million capacity of ~~credit under our credit agreement (“~~the company’s Revolving Credit ~~Facility”) are limited.~~Facility. Our Revolving Credit Facility contains restrictive covenants that require us to maintain certain financial ~~conditions.~~conditions, which we may fail to meet if there is a material decrease in our profitability, including as a result of the COVID-19 pandemic. Our failure to comply with these restrictive covenants could result in an event of default, which, if not cured or waived, ~~could result in our being required~~would require us to repay these borrowings before their due date. We may not have sufficient funds on hand to repay these loans, and if we are forced to refinance these borrowings on less favorable terms, or are unable to refinance at all, our results of operations and financial condition could be materially adversely affected by increased costs and rates. If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity.

Our principal sources of liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. We must have sufficient sources of liquidity to meet our working capital requirements, fund our workers’ compensation collateral requirements, service our outstanding indebtedness, and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities.

~~In the event that~~As our debt levels increase, it could have significant consequences for the operation of our business ~~including:~~including requiring us to dedicate a significant portion of our cash flow from operations to servicing our debt rather than using it for our operations; limiting our ability to obtain additional debt financing for future working capital, capital expenditures, or other corporate purposes; limiting our ability to take advantage of significant business opportunities, such as ~~acquisition opportunities;~~acquisitions; limiting our ability to react to changes in market or industry conditions; and putting us at a disadvantage compared to competitors with less debt.

The loss of, or continued reduction or substantial decline in revenue from larger clients could have a material adverse effect on our revenues, profitability and liquidity.

We experience revenue concentration with large clients. Generally, our contracts do not contain guarantees of minimum duration, revenue levels, or ~~profitability and our~~profitability. Our clients may terminate their contracts or materially reduce their requested levels of service at any time. Although we have no clients that represents over 10% of our consolidated revenue, there are clients that exceed 10% of revenues within some of our operating segments. The deterioration of the financial condition of a large client could have a material

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adverse effect on our business, financial condition, and results of operations. In addition, a significant change to the business, staffing or recruiting model of these clients, for example a decision to insource our services, has had and could again have a material adverse effect on our business, financial condition, and results of operations. The loss of, or reduced demand for our services from larger clients, has had, and in the future could have, a material adverse effect on our business, financial condition, and results of operations. ~~In addition, client~~Client concentration exposes us to concentrated credit risk, as a significant portion of our accounts receivable may be from a small number of clients. As the impact of COVID-19 increases for our clients, their ability to pay for our services may decline. If we are unable to collect our receivables, or are required to take additional reserves, our results and cash flows will be adversely affected.

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Failure of our information technology systems could adversely affect our operating results.

The efficient operation of our business and applications and services we provide is dependent on ~~our information technology systems.~~reliable technology. We rely on our information technology systems to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and provide services to clients. We rely heavily on proprietary and third-party information technology systems, mobile device technology ~~and related services,~~data centers, cloud-based environments and other technology. We take various precautions and have enhanced controls around these systems, but information technology ~~which may not yield~~systems are susceptible to damage, disruptions, or shutdowns due to failures during the ~~intended results. Our systems may experience problems with functionality and associated delays.~~process of upgrading or replacing software, databases, power outages, hardware failures, computer viruses, malicious attacks, telecommunication failures, user errors or catastrophic events. The failure of technology and our applications and services, and our information systems to perform as anticipated could disrupt our business and ~~could~~ result in decreased revenue and increased overhead costs, causing our business and results of operations to suffer materially.

~~Our information technology systems may need~~Cybersecurity vulnerabilities and incidents could lead to ~~be updated or replaced.~~

We occasionally implement, modify, retire and change our systems. These changes to our information technology systems may be disruptive, take longer than desired, be more expensive than anticipated, be distracting to management, or fail, causing our business and results of operations to suffer materially.

~~The~~the improper disclosure of ~~or access to,~~information about our ~~confidential and/or proprietary information, or a failure to adequately protect this information, could materially harm our business.~~clients, candidates and employees.

Our business requires the use, processing, and storage of confidential information about applicants, candidates, ~~temporary~~contingent workers, other employees and clients. We ~~experience cyberattacks,~~use information technology and other computer resources to carry out operational and support activities and maintain our business records. We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.

Our systems and networks are vulnerable to computer viruses, malware, hackers and other security issues, including physical and electronic break-ins, disruptions from unauthorized access and tampering, social engineering ~~schemes~~attacks, impersonation of authorized users, and ~~other means~~coordinated denial-of-services attacks. We have experienced cybersecurity incidents and attacks which have not had a material impact on our business or results of ~~unauthorized access to our systems.~~operations, however, there is no assurance that such impacts will not be material in the future. The security controls over sensitive or confidential information and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Continued investments in cybersecurity will increase our costs and a failure to prevent access to our systems could lead to penalties, litigation, and damage to our reputation. Perceptions that we do not adequately protect the privacy of information could harm our relationship with clients and employees.

Data security, data privacy and data protection laws and other technology regulations increase our costs.

Laws and regulations related to privacy and data protection are evolving and generally becoming more stringent. We may fail to implement practices and procedures that comply with increasing international and domestic privacy regulations, such as the General Data Protection Regulations or the California Consumer Privacy Act. Several additional U.S. states have issued cybersecurity regulations that outline a variety of required security measures for protection of data. These regulations are designed to protect client, candidate, contingent worker, and employee data and require that we meet stringent requirements regarding the handling of personal data, including the use, protection and transfer of personal data. As these laws continue to change, we may be required to make changes to our services, solutions or products to meet the new legal requirements. Changes in these laws may increase our costs to comply as well as our potential costs through higher potential penalties for non-compliance. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.

~~A data breach, or improper~~Improper disclosure of, or access to our clients’ information could materially harm our business.

Our ~~temporary~~contingent workers and employees may have access to or exposure to confidential information about applicants, candidates, ~~temporary~~contingent workers, other employees and clients. The security controls over sensitive or confidential information and other practices we, our clients and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. Failure to protect the integrity and security of such confidential and/or proprietary information could expose us to regulatory fines, litigation, contractual liability, damage to our reputation and increased compliance costs.

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Failure to protect our intellectual property could harm our business, and we face the risk that our services or products may infringe upon the intellectual property rights of others.

We have invested in developing specialized technology and intellectual property, proprietary systems, processes and methodologies that we believe provide us a competitive advantage in serving clients. We cannot guarantee that trade secrets, trademark, and copyright law protections are adequate to deter misappropriation of our intellectual property, which is an important part of our business. We may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our rights. We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm our reputation, result in financial liability and prevent us from offering some services or products to clients.

We may be unable to attract sufficient qualified contingent workers and candidates to meet the needs of our clients.

We compete to meet our clients’ needs for workforce solutions, therefore, we must continually attract qualified contingent workers and candidates to fill positions. Attracting qualified workers and candidates depends on factors such as desirability of the assignment, location, the associated wages and other benefits. Prior to the COVID-19 pandemic, unemployment in the United States was low, making it challenging to find sufficient eligible workers and candidates to meet our clients’ orders. The economic slowdown resulting from COVID–19 has increased unemployment substantially, but we cannot predict its continued effect on employment rates. We have experienced shortages of qualified workers and candidates and may experience such shortages in the future. Further, if there is a shortage, the cost to employ or recruit these individuals could increase and our ability to generate revenue would be harmed if we could not fill positions. If we are unable to pass those costs through to our clients, it could materially and adversely affect our business. Organized labor periodically engages in efforts to represent various groups of our contingent workers. If we are subject to unreasonable collective bargaining agreements or work disruptions, our business could be adversely affected.

Our facilities, operations and information technology systems are vulnerable to damage and interruption.

Our primary computer systems, headquarters, support facilities and operations are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, employee errors, security breaches, natural disasters and catastrophic events. Failure of our systems or damage to our facilities may cause significant interruption to our business, and require significant additional capital and management resources to resolve, causing material harm to our business.

Acquisitions ~~and new business initiatives~~ may have an adverse effect on our business.

We ~~expect to~~may continue making acquisitions ~~adjusting the composition of our business lines, and entering into new business initiatives as~~a part of our business strategy. This strategy may be impeded, however, and we may not achieve our long-term growth goals if we cannot identify suitable acquisition candidates or ~~new business initiatives, or~~ if acquisition candidates are not available under acceptable terms. We may have difficulty integrating acquired companies into our operating, financial planning, and financial reporting systems and may not effectively manage acquired companies to achieve expected growth.

Future acquisitions could result in incurring additional debt and contingent liabilities, an increase in interest expense, amortization expense, and charges related to integration costs. Additional indebtedness could also include covenants or other restrictions that would impede our ability to manage our operations. We may also issue equity securities to pay for an acquisition, which could result in dilution to our shareholders. Any acquisitions we announce could be viewed negatively by investors, which may adversely affect the price of our common stock. Acquisitions can also result in the addition of goodwill and intangible assets to our financial statements ~~which~~and we ~~regularly review for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We~~ may be required to record a significant charge in our financial statements during the period in which we determine an impairment of our acquired goodwill and intangible assets has occurred, which would negatively impact our financial results.

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New business initiatives and changes in the composition of our business mix can be distracting to our management and disruptive to our operations, causing our business and results of operations to suffer materially. We may have difficulty managing growth or integrating acquired companies into our operating, financial planning, and financial reporting systems. Acquisitions and new business initiatives, including initiatives outside of our workforce solutions business, in new markets, or new geographies, could involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on investment, experiencing difficulty in implementing initiatives or integrating acquired operations, or diverting management’s attention from our other businesses. The potential loss of key executives, employees, clients, suppliers, vendors, and other business partners of businesses we acquire may adversely impact the value of the assets, operations, or business we acquire. These events could cause material harm to our business, operating results or financial condition.

New business initiatives may have an adverse effect on our business.

We expect to continue adjusting the composition of our business lines and entering into new business initiatives as part of our business strategy. New business initiatives, strategic business partners or changes in the composition of our business mix can be distracting to our management and disruptive to our operations, causing our business and results of operations to suffer materially. New business initiatives, including initiatives outside of our workforce solutions business, in new markets, or new geographies, could involve significant unanticipated challenges and risks including not advancing our business strategy, not realizing our anticipated return on investment, experiencing difficulty in implementing initiatives, or diverting management’s attention from our other businesses. These events could cause material harm to our business, operating results or financial condition.

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Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.

Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our clients. We believe our competitive advantage is providing unique solutions for each client, which requires us to have trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service, technology and administrative personnel. The turnover rate in the employment services industry is high, and qualified individuals ~~of the requisite caliber and number needed to fill these positions~~ may be ~~in short supply.~~difficult to attract and hire. Our inability to recruit, train and motivate a sufficient number of qualified individuals may delay or affect the speed and quality of our strategy execution and planned growth. Delayed expansion, significant increases in employee turnover rates, or significant increases in labor costs could have a material adverse effect on our business, financial condition and results of operations. While we are generally able to keep our branches and offices open, as a key support service for essential business, we must keep our staff healthy for our branches and offices to remain open. Failure to keep our staff healthy and our branches and offices open would harm our results of operations

We may have additional tax liabilities that exceed our estimates.

We are subject to federal taxes, a multitude of state and local taxes in the United States, and taxes in foreign jurisdictions. We face continued uncertainty surrounding the 2017 Tax Cuts and Jobs Act and any reduction or change in tax credits which we utilize, such as the Work Opportunity Tax Credit. In the ordinary course of our business, there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax provisions and accruals. The results of an audit or litigation with tax authorities could materially harm our business. Changes in interpretation of existing laws and regulations by a taxing authority could result in penalties and increased costs in the future. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements or may change their laws, which could increase our worldwide effective tax rate and harm our financial position and results of operations.

The price of our common stock may fluctuate significantly, which may result in losses for investors.

The market price for our common stock may be subject to significant volatility. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include, but are not limited to, changes in general economic conditions, including those caused by the COVID-19 pandemic; announcement of new services or acquisitions by us or our competitors; changes in financial estimates or other statements by securities analysts; changes in industry trends or conditions; regulatory developments and any major change in our board or management. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated to the operating performance of listed companies. These broad market and industry factors may impact the price of our common stock, regardless of our operating performance.

We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term shareholder value.

Our Board of Directors has authorized a share repurchase program. Under the program, we are authorized to repurchase shares of common stock for a set aggregate purchase ~~price.~~price, and we may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase program or otherwise. Although the Board of Directors has authorized a share repurchase program, the share repurchase program does not obligate the company to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of the repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of the company’s common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of a share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that these share repurchases will enhance shareholder value because the market price of our common stock may decline below the level at which we repurchased shares of stock. Although our share repurchase program is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting.

If our management is unable to certify the effectiveness of our internal controls, including those over our third-party vendors, or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal controls over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and

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a loss of public confidence. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause our stock price to fall.

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Outsourcing certain aspects of our business could result in disruption and increased costs.

We have outsourced certain aspects of our business to third-party vendors. These relationships subject us to risks including disruptions in our business and increased costs. For example, we license software from third parties, much of which is central to our systems and our business. The licenses are generally terminable if we breach our obligations under the license agreements. If any of these relationships were terminated, or if any of these parties were to cease doing business or supporting the applications we currently utilize, we may be forced to spend significant time and money to replace the licensed software. In addition, we have engaged third parties to host and manage certain aspects of our data center, information and technology infrastructure, mobile applications, and electronic pay solutions, to provide certain back office support activities, and to support business process outsourcing for our clients. We are subject to the risks associated with the vendors’ inability to provide these services in a manner that meets our needs. If the cost of these services is more than expected, if we or the vendors fail to adequately protect our data and information is lost, or if our ability to deliver our services is interrupted, then our business and results of operations may be negatively impacted.

We face risks in operating internationally.

A portion of our business operations and support functions are located outside of the United States. These international operations are subject to a number of risks, including the effects of the COVID-19 pandemic and governmental action, such as travel restrictions and “stay at home” orders, political and economic conditions in those foreign countries, foreign currency fluctuations, the burden of complying with various foreign laws and technical standards, unpredictable changes in foreign regulations, U.S. legal requirements governing U.S. companies operating in foreign countries, legal and cultural differences in the conduct of business, potential adverse tax consequences and difficulty in staffing and managing international operations. We recently acquired operations in the United Kingdom, which could be negatively impacted as clients in the United Kingdom encounter uncertainties related to the United Kingdom’s ~~potential~~ exit from the European Union. We could also be exposed to fines and penalties under U.S. or foreign laws, for instance, the Foreign Corrupt Practices Act, prohibiting improper payments to governmental officials and others for the purpose of obtaining or retaining business. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot be sure that our employees, contractors or agents will not violate such policies. Any such violations could materially damage our reputation, brands, business and operating results. Further, changes in U.S. laws and policies governing foreign investment and use of foreign operations or workers, and any negative sentiments towards the United States resulting from such changes, could adversely affect our operations.



Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below includes repurchases of our common stock pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs during the thirteen weeks ended ~~September~~March 29, ~~2019.~~2020. Shares repurchased under our share repurchase program were conducted prior to the medical community’s acknowledgment of the expected severity that COVID-19 would have on the United States.

Period
Total number
of shares
purchased (1)
Weighted
average price
paid per
share (2)
Total number of shares
purchased as part of
publicly announced plans
or programs (3)
Maximum number of shares (or
approximate dollar value) that
may yet be purchased under
plans or programs at period
end (4)
07/01/2019 through 07/28/2019 3,862

$21.72
—
$48.8 million
07/29/2019 through 08/25/2019 1,706

$19.72
578,314
$37.3 million
08/26/2019 through 09/29/2019 9,194

$20.23
525,923
$26.7 million
Total 14,762

$20.56
1,104,237



Period	Total number of shares purchased (1)	Weighted average price paid per share (2)		Total number of shares purchased as part of publicly announced plans or programs (3)	Maximum number of shares (or approximate dollar value) that may yet be purchased under plans or programs at period end (4)
12/30/2019 through 01/26/2020	4,193		$23.99	—	$119.0 million
01/27/2020 through 02/23/2020	95,217		$17.19	306,256	$113.9 million
02/24/2020 through 03/29/2020	3,533		$15.49	2,623,350	$66.7 million
Total	102,943		$17.41	2,929,606


(1)	During the thirteen weeks ended ~~September~~March 29, ~~2019,~~2020, we purchased ~~14,762~~102,943 shares in order to satisfy employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired pursuant to ~~any~~our publicly announced ~~purchase plan or~~share repurchase program.


(2)	Weighted average price paid per share does not include any adjustments for commissions.


(3)	The weighted average price per share for shares repurchased under the share repurchase program during the period was ~~$19.95.~~$15.16.

(4)

On ~~September 15, 2017,~~October 16, 2019, our Board of Directors authorized a ~~$100~~$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.~~dates. As of ~~September~~March 29, ~~2019, $26.7~~2020, $66.7 million remains available for repurchase under the ~~current~~existing authorization.

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Accelerated 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, which represented 80% of the total shares we expect to receive based on the market price at the time of the initial delivery. The final number of shares delivered upon settlement of the agreement will be determined with reference to the volume weighted average price of our shares over the term of the ASR agreement, less the agreed-upon discount, which will end no later than July 2, 2020.



Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.



Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

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Item 5.	OTHER INFORMATION

None.



Item 6.	INDEX TO EXHIBITS



			Incorporated by reference
Exhibit number	Exhibit description	Filed herewith	Form	File no.	Date of first filing

3.1	Amended and Restated Articles of Incorporation.		8-K	001-14543	05/12/2016

3.2	Amended and Restated Bylaws.		10-Q	001-14543	10/30/2017

10.1	First Amendment to Credit Agreement, dated as of March 16, 2020, by and among Bank of America, N.A., Wells Bank, HSBC and TrueBlue, Inc.		8-K	001-14543	03/17/2020

31.1	Certification of A. Patrick Beharelle, Chief Executive Officer of TrueBlue, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X

31.2	Certification of Derrek L. Gafford, Chief Financial Officer of TrueBlue, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X

32.1	Certification of A. Patrick Beharelle, Chief Executive Officer of TrueBlue, Inc. and Derrek L. Gafford, Chief Financial Officer of TrueBlue, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X

101	The following financial statements from the Company’s 10-Q, formatted as Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Cash Flows, and (iv) Notes to consolidated financial statements.	X

104	Cover page interactive data file - The cover page from this Quarterly Report on Form 10-Q is formatted as Inline XBRL	X

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	TrueBlue, Inc.

	/s/ A. Patrick Beharelle	~~10/28/2019~~5/4/2020
	Signature	Date
By:	A. Patrick Beharelle, Director, President and Chief Executive Officer

	/s/ Derrek L. Gafford	~~10/28/2019~~5/4/2020
	Signature	Date
By:	Derrek L. Gafford, Chief Financial Officer and Executive Vice President

	/s/ Norman H. Frey	~~10/28/2019~~5/4/2020
	Signature	Date
By:	Norman H. Frey, Chief Accounting Officer and Senior Vice President

Page - 4048



(in thousands)	Purchase price allocation
Cash purchase price, net of cash acquired	$	22,742

Accounts receivable	9,770
Prepaid expenses, deposits and other current assets	337
Property and equipment	435
Customer relationships	6,286
Trade names/trademarks	1,738
Total assets acquired	18,566

Accounts payable and other accrued expenses	9,139
Accrued wages and benefits	1,642
Income tax payable	205
Deferred income tax liability	1,444
Total liabilities assumed	12,430

Net identifiable assets acquired	6,136
Goodwill (1)	16,606
Total consideration allocated	$	22,742



(in thousands, except for estimated useful lives, in years)	Estimated fair value		Estimated useful life in years
Customer relationships - other	$	2,809	3
Customer relationships - RPO	3,477		7
Trade names/trademarks	1,738		14
Total acquired identifiable intangible assets	$	8,024



(in thousands)
Remainder of 2019	$	4,219
2020	15,283
2021	11,195
2022	6,356
2023	4,123
2024	1,551
Thereafter	1,476
Total undiscounted future non-cancelable minimum lease payments (1)	44,203
Less: Imputed interest (2)	5,146
Present value of lease liabilities	$	39,057



(in thousands)
2019	$	8,337
2020	7,192
2021	4,990
2022	2,442
2023	1,324
Thereafter	699
Total future non-cancelable minimum lease payments	$	24,984