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Item 7. Management’s Discussion and Analysis

2021-02-22 compared with 2020-02-24 · 452 added, 313 removed, 261 unchanged (75% of the section changed)

5 unchanged sentences

In 2020, we connected approximately 490,000 people with work and served approximately 99,000 clients.

We report our business as three reportable segments:

Our operations are managed as three business segments:

PeopleReady, PeopleManagement and PeopleScout.

Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K for additional details on our operating segments and reportable segments.

Our PeopleReady segment offers on-demand, industrial staffing;

PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services;

and PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions to a wide variety of industries.

Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our operating and reportable segments.

We experienced challenges in fiscal 2019, evidenced by a 5.2% revenue decline and a 4.1% decline in net income.

Some of the decline in revenue was expected and came from a small number of large clients that experienced issues within their businesses.

As the year unfolded, we saw a broader softening in revenue trends, similar to other industrial staffing providers, as clients pulled back in response to lower volumes.

While overall job data was positive for the United States, the contingent portion, which makes up approximately 2% of the workforce, experienced a pull back as businesses used contingent services more sparingly in light of economic uncertainty.

Fiscal 2019 highlights

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.

Beginning in March 2020 , jurisdictions across the countries we serve began implementing restrictions to protect public health as the impact of COVID-19 set in.

Many of our clients temporarily halted or reduced operations which had a significant impact on our revenue.

However, t hroughout the pandemic, our business has remained open and provided key services to essential businesses and other businesses as COVID-19 restrictions were lifted.

Nevertheless, the preventative measures and individual precautions taken to help curb the spread of COVID-19, and the resulting negative impact on the economy, continue to have an adverse impact on client demand for our services and our business results.

Our first priority continues to be the health and safety of our associates, employees, clients, suppliers and others with whom we partner in our business activities.

We implemented comprehensive measures across our businesses to keep our associates, employees 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.

In response to the rapidly changing market conditions as a result of COVID-19, commencing in April 202 0, w e took actions to reduce our operating expenses while preserving the key strengths of our business to ensure we were pre pared as business conditions improved.

Our cost management strategies are on track and continue to improve our operating results and preserve our liquidity.

At this time, we have ample liquidity to satisfy our cash needs.

However, the long-term impacts of the pandemic are difficult to predict.

Accordingly, we will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, financial condition, and liquidity.

We continue to monitor this 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, it is difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

For additional discussion on the uncertainties and business risks associated with COVID-19, refer to Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K.

On March 27, 2020, the United States (“U.S.”) government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments for a limited period.

Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll tax payments into the future.

Additionally, the Canadian government enacted the Canada Emergency Wage Subsidy and the Australian government enacted the JobKeeper subsidy to help employers offset a portion of their employee wages for a limited period of time.

For the year ended December 27, 2020, we recognized $9.9 million in government subsidies and delayed payments of $57.1 million for the employer portion of social security taxes.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Revenue from services

Total company revenue declined 22.1% to $1.8 billion for the year ended December 27, 2020, compared to the prior year.

This decline was primarily driven by less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty.

Revenue trends slowed over the course of the year as clients moderated contingent labor spend.

Declines were broad-based across multiple geographies and industries with manufacturing experiencing the most pressure.

PeopleReady, our largest segment, experienced a revenue decline of 3.2% , due primarily to less demand for our services and continued economic uncertainty.

PeopleManagement, our lowest margin segment, experienced a revenue decline of 11.8% .

In addition to less demand from existing clients, PeopleManagement experienced the impact of the loss of several key clients in the prior year.

PeopleScout, our highest margin segment, experienced revenue growth of 1.4% .

Our year-over-year PeopleScout trends are impacted by our acquisition on June 12, 2018 of TMP Holdings LTD (“TMP”).

The TMP acquisition contributed 9.9% growth to PeopleScout for the year ended December 29, 2019, compared to the prior year.

In addition to less demand from existing clients, PeopleScout continues to experience the impact of the loss of a large client after being acquired in the first quarter of 2019 and lower volume and margin on another large industrial client due to adverse business conditions .

The decline was due to a drop in client demand associated with government and societal actions taken to address COVID-19, which had severe adverse impacts on our operations and business results.

Many of our clients have been severely impacted by COVID-19, which has resulted in reduced demand for our services.

We saw steady improvements in our year-over-year revenue trends since the second quarter of 2020.

Revenue declined 39.0% in the second quarter, 25.5% in the third quarter and 12.3% in the fourth quarter.

These improvements were broad-based across most of the industries and geographies we serve.

PeopleReady, our largest segment, experienced a revenue decline of 25.4%, compared to the prior year.

PeopleReady’s clients have been severely impacted by COVID-19, which has resulted in reduced demand for our services.

The impact of COVID-19 on PeopleReady’s clients has moderated in the third and fourth quarters of 2020.

PeopleManagement, our lowest margin segment, experienced a revenue decline of 8.6%, compared to prior year.

PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site or driver relationships.

These types of client engagements are often more resilient in an economic downturn.

PeopleScout, our highest margin segment, experienced revenue decline of 36.6%, compared to the prior year.

PeopleScout has a large number of clients in the travel and leisure industries which continue to be disproportionately impacted by COVID-19 .

Total company gross profit as a percentage of revenue for the year ended December 27, 2020 was 23.9%, compared to 26.2% for the prior year.

The decrease was primarily due to client mix, partially offset by a decrease to workers’ compensation cost.

Our staffing businesses contributed approximately 140 basis points of the decline due to approximately 100 basis points from pressure on our bill and pay rates caused by higher pay rates to entice associates to take work assignments given COVID-19 health concerns and the availability of additional federal unemployment benefits.

As with prior recessions, our ability to pass through higher costs plus a markup in our bill rates was hampered due to a variety of economic factors negatively impacting our clients.

This decline was partially offset by a benefit of 30 basis points from a reduction in estimated costs to comply with the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the “ACA”), which were accrued in prior fiscal years.

Our PeopleScout business contributed approximately 90 basis points to the decline due to client mix and lower volume driven by the rapid revenue decline, which outpaced the reductions to our service delivery team, and severance of approximately 20 basis points.

Selling, general and administrative (“SG&A”) expense

Total company SG&A expense decreased by $108.0 million to $408.3 million, or 22.1% of revenue for the year ended December 27, 2020, compared to $516.2 million, or 21.8% of revenue for the prior year.

The decrease in SG&A expense is primarily due to cost control programs, while remaining committed to investing in customer acquisition and retention initiatives to drive growth, and our digital strategies to differentiate our services and grow market share.

The decrease in SG&A expense was primarily due to comprehensive actions we put in place beginning in April 2020 to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19.

These actions reduced SG&A expense by 20.9% for the year ended December 27, 2020, compared to the prior year.

We believe we have taken the right actions to reduce SG&A expense, while still investing in technology and preserving the key strengths of our business to ensure we are prepared as business conditions improve.

The decrease in SG&A expense benefited from $8.6 million of employee retention subsidies made available under the Canada Emergency Wage Subsidy and the Australian JobKeeper subsidy, as well as a U.S.

payroll tax credit in accordance with the provisions of the CARES Act.

These reductions were partially offset by a $2.8 million one-time discretionary bonus rewarding our employees for their efforts in 2020, and $8.9 million in workforce reduction costs recorded in the year ended December 27, 2020, compared to $3.3 million in workforce reduction costs recorded in the prior year.

Loss from operations

Total company loss from operations was $174.9 million for the year ended December 27, 2020, compared to income from operations of $66.2 million for the prior year.

The decrease in income from operations was primarily due to a goodwill and intangible asset impairment charge of $175.2 million in the first quarter of 2020 and the significant decline in client demand associated with government and societal actions taken to address COVID-19.

The significant drop in demand, increased price sensitivity, increased associate wages, and preventive measures taken to help curb the spread of COVID-19, had severe adverse impacts on our operations and business results.

The declines were partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income from operations

Total company income from operations was $66 million , or 2.8% of revenue for the year ended December 29, 2019 , compared to $74 million , or 3.0% of revenue for the prior year.

The decrease in gross profit from the decline in revenue was largely offset by the decrease in SG&A expense due to cost control programs.

Net income was $63 million , 2.7% of revenue or $1.61 per diluted share for the year ended December 29, 2019 , compared to $66 million , 2.6% of revenue or $1.63 per diluted share for the prior year.

The net income decline was primarily driven by declining income from operations partially offset by lower interest expense due to a lower debt balance of $37 million at the end of 2019 compared to $80 million at the end of 2018 .

Net loss was $141.8 million, or $4.01 per diluted share for the year ended December 27, 2020, compared to net income of $63.1 million, or $1.61 per diluted share for the prior year.

The net loss includes an income tax benefit of $31.4 million, $23.3 million of which was due to the goodwill and intangible asset impairment, resulting in an effective tax rate of 18.1%, compared to 10.0% in the prior year.

Our effective tax rate was lower in the prior year as a result of the federal Work Opportunity Tax Credit (“WOTC”) reducing the tax expense, while increasing the tax benefit in 2020.

WOTC is designed to encourage employers to hire associates from certain targeted groups with higher than average unemployment rates.

Additional highlights

We believe we are taking the right steps with our disciplined cost management to address the continued economic uncertainty and slowed contingent labor spend while investing in strategic growth initiatives to produce long-term growth for shareholders.

We also believe we are in a strong financial position to fund working capital needs for growth opportunities.

As of December 29, 2019 , we had cash and cash equivalents of $38 million and $257 million available under our revolving credit agreement (“Revolving Credit Facility”) for total liquidity of $295 million .

We continue to return cash to shareholders through our share repurchase program.

We repurchased $39 million of common stock during the fiscal year ended December 29, 2019 , which leaves $119 million available under the existing authorizations.

We are focused on cash management as a top priority.

In response to the rapidly changing market conditions as a result of COVID-19 , we have taken swift actions to reduce operating costs and other cash outflows to preserve working capital.

Additionally, on March 16, 2020, we amended our credit agreement which extended the maturity of the revolving credit facility established thereunder (“Revolving Credit Facility”) to March 16, 2025.

On June 24, 2020, we further amended our revolving credit agreement, which modified terms of our financial covenants as well as certain other provisions.

Under the amended credit agreement, we have the option, subject to lender approval, to increase the Revolving Credit Facility to $450.0 million.

As of December 27, 2020, we had cash and cash equivalents of $62.5 million and no outstanding debt resulting in an unused credit facility.

We also returned excess capital to shareholders by repurchasing $52.4 million or 9.2% of our common stock.

These purchases were initiated prior to the medical community’s acknowledgment of the expected severity of the impact of COVID-19.

RESULTS OF OPERATIONS

The following table presents selected financial data for fiscal 2019 compared to fiscal 2018 for the total company:

(in thousands, except percentages and per share data)

The global economy and our business have been dramatically affected by the COVID-19 pandemic.

We continue to monitor its impact on all aspects of our business.

Throughout the pandemic, our businesses have remained open.

We provided key services to essential businesses and other businesses as COVID-19 restrictions were lifted .

However, the preventative measures and precautions taken to help curb the spread of COVID-19 and the resulting negative impact on the economy, continue to have a severe adverse impact on client demand for our services and our business results.

Our first priority, with regard to COVID-19, has been to ensure the health and safety of our associates, employees, clients, suppliers and others with whom we partner in our business activities to continue our operations in this unprecedented environment.

We formed a specialized task force tracking the most up-to-date developments and safety standards, and created an internal information hub with safety protocols, dashboards, FAQs, and daily reporting by location on the impact of COVID-19.

In addition to posting TrueBlue’s action plan on our external websites, we are actively sharing information on how companies and workers can protect themselves via ongoing emails, social outreach, webinars and other digital communications.

PeopleReady is fully leveraging our JobStack TM app to help companies and associates connect safely through a digital environment, and are rolling out a new virtual onboarding capability to minimize in-person branch visits.

PeopleScout is also leveraging our Affinix TM 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 and hand sanitizer for associates, disinfecting workplaces, encouraging social distancing, and providing infrared temperature checks.

We instruct our associates and employees to stay home if they are not feeling well or have been exposed to COVID-19.

Immediate notification and self-quarantine protocols are in place if an employee, associate or client’s employee is exposed to COVID-19, and our Field Safety Specialists closely evaluate any assignments related to clean-up of potentially infectious job sites.

To ensure business continuity and support for clients who need associates for essential services, we established a Centralized Branch Support Center and are ready to implement Regional Command Centers as needed to serve as backup for our 600+ branches.

Our branches follow strict sanitation and social distancing guidelines.

In addition, across the TrueBlue organization, we suspended all international travel and restricted nonessential domestic travel for our employees and are providing remote work capabilities for our Tacoma and Chicago support centers as well as other locations.

In response to the rapidly changing market conditions as a result of COVID-19, we have taken steps to reduce SG&A expense and other cash outflows.

For additional discussion on the uncertainties and business risks associated with COVID-19, refer to Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Total company results

The following table presents selected financial data:

(in thousands, except percentages and per share data) 2020 % of revenue 2019 % of revenue

Revenue from services $ 1,846,360 $ 2,368,779

Total revenue decline %

Gross profit 440,645 23.9 % 619,948 26.2 %

Selling, general and administrative expense 408,307 22.1 % 516,220 21.8 %

Depreciation and amortization 32,031 1.7 % 37,549 1.6 %

Income from operations

Interest and other income (expense), net

Income before tax expense

Income tax expense

Net income per diluted share

We report our business as three reportable segments described below and in Note 16:

Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K.

We do not have any off-balance sheet arrangements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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, and others.

PeopleReady helped approximately 138,000 clients in fiscal 2019 to be more productive by providing easy access to dependable, blue-collar contingent labor.

Through our PeopleReady service line, we connected approximately 317,000 people with work in fiscal 2019 .

We have a network of 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-site contingent staffing and workforce management solutions to larger multi-site manufacturing, distribution and fulfillment clients.

In comparison with PeopleReady, services are larger in scale, longer in duration, and dedicated service teams are located at the client’s facility.

Effective December 30, 2019 (first day of our 2020 fiscal year), we combined our two on-site contingent industrial workforce operating segments, Staff Management | SMX (“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 customers.

PeopleManagement also includes Centerline Drivers (“Centerline”), which specializes in dedicated and contingent commercial truck drivers to the transportation and distribution industries.

Effective March 12, 2018 , we divested the PlaneTechs, LLC (“PlaneTechs”) business from our PeopleManagement reportable segment.

PeopleScout provides recruitment process outsourcing of end-to-end talent acquisition services from candidate sourcing and engagement through the onboarding of employees.

Our solution is highly scalable and flexible, which allows for the outsourcing of all or a subset of skill categories across a series of recruitment, hiring and onboarding steps.

Our solution delivers improved talent quality and candidate experience, faster hiring, increased scalability, lower cost of recruitment, greater flexibility, and increased compliance.

Our clients outsource the recruitment process to PeopleScout in all major industries and jobs.

We leverage our proprietary technology platform (Affinix TM ) for sourcing, screening and delivering a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients.

Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days.

Our 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.

This acquisition increases our ability to win multi-continent engagements by adding a physical presence in Europe, referenceable clients and employer branding capabilities.

This acquisition expands and complements our PeopleScout services and has been integrated into this operating segment.

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

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Goodwill and intangible asset impairment charge 175,189 —

Income (loss) from operations (174,882) (9.5) % 66,179 2.8 %

Interest expense and other income, net 1,620 3,865

Income (loss) before tax expense (benefit) (173,262) 70,044

Income tax expense (benefit) (31,421) 6,971

Net income (loss) $ (141,841) (7.7) % $ 63,073 2.7 %

Net income (loss) per diluted share $ (4.01) $ 1.61

Revenue from services

Revenue from services by reportable segment was as follows:

(in thousands, except percentages)

Segment % of total

(in thousands, except percentages) 2020 Decline

% Segment % of total 2019 Segment % of total

Revenue from services:

PeopleReady $ 1,099,462 (25.4) % 59.5 % $ 1,474,062 62.2 %

PeopleManagement 586,822 (8.6) 31.8 642,233 27.1

PeopleScout 160,076 (36.6) 8.7 252,484 10.7

Total company $ 1,846,360 (22.1) % 100.0 % $ 2,368,779 100.0 %

The workforce solutions industry is dependent on the overall strength of the labor market.

Clients tend to use a contingent workforce to supplement their existing workforce and generally hire permanent employees when long-term demand is expected to increase.

As a consequence, our revenue from services tends to increase when the economy begins to grow.

Conversely, our revenue declines when the economy begins to weaken and thus contingent staff positions are eliminated, permanent hiring is frozen and turnover replacement diminishes.

Total company revenue declined to $1.8 billion for the year ended December 27, 2020, a 22.1% decrease compared to the prior year.

The decline was due to a drop in client demand associated with government and societal actions taken to address COVID-19, which had severe adverse impacts on our operations and business results.

Many of our clients have been severely impacted by COVID-19, which has resulted in reduced demand for our services.

However, we saw steady improvement in our year-over-year revenue trends since the second quarter of 2020.

Revenue declined 39.0% in the second quarter, 25.5% in the third quarter and 12.3% in the fourth quarter.

These improvements were broad-based across most of the industries and geographies we serve.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We report our business as three reportable segments described below and in Note 15:

Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K.

PeopleReady revenue declined to $1.1 billion for the year ended December 27, 2020, a 25.4% decrease compared to the prior year.

The revenue decline was primarily due to less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty.

Revenue trends slowed over the course of the year as clients moderated contingent labor spend.

Declines were broad-based across multiple geographies and industries.

We believe the decline was partially offset by the strategic use of our industry-leading JobStack mobile application that digitally connects workers with jobs.

During fiscal 2019 , PeopleReady dispatched 4 million shifts via JobStack and achieved a digital fill rate of 48% .

The mobile application is used by 21,300 clients with 87% worker adoption, which is up 8.7% and 62.6% , respectively, compared to the prior year.

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.

The decline was due to a drop in client demand associated with government and societal actions taken to address the impact of COVID-19.

In particular, the outbreak and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our operations and business results.

Many of the clients we serve have been severely impacted by COVID-19, which has resulted in reduced demand for our services.

We experienced steady improvements in our year-over-year revenue trends since the second quarter of 2020, which declined 43.4%.

Revenue in the third quarter of 2020 declined 28.9%, and the fourth quarter of 2020 declined 18.5%.

These improvements were broad-based across most geographies and industries, driven primarily by the retail, manufacturing, services and transportation industries.

We believe the year-over-year decline was moderated by the use of our industry-leading JobStack mobile app that digitally connects associates with jobs.

During fiscal 2020, PeopleReady achieved a digital fill rate of 53.0%, compared to 48.0% in the prior year.

As of December 27, 2020, JobStack had more than 26,000 client users, an increase of 23.5% compared to the prior year.

We are focused on driving clients to become JobStack heavy users, which we define as clients with 50 or more touches on JobStack per month.

Heavy client users have consistently posted better year-over-year growth rates compared to other PeopleReady clients.

We more than doubled our heavy client user mix from 11.0% in 2019 to 24.0% in 2020.

Also during 2020, we introduced new digital onboarding features in JobStack that cut application time in half.

This has led to a significant increase in the ratio of associates put to work compared to all applicants.

JobStack is helping us safely connect people with work during this time of crisis.

PeopleManagement

PeopleManagement revenue declined to $586.8 million for the year ended December 27, 2020, an 8.6% decrease compared to the prior year.

The decline included 3.3% from the loss of Amazon’s Canadian business in the second half of 2018 when they insourced the recruitment and management of contingent labor for their warehouse fulfillment centers, 2.1% from the substantially reduced volumes and price reductions with a large existing retail client, and 1.1% from the divestiture of our PlaneTechs business in mid-March 2018.

The remaining decline of 5.3% was primarily due to slowing demand attributable to lower volumes within the business of our existing clients and continued economic uncertainty.

PeopleScout revenue grew to $252 million for the year ended December 29, 2019 , an 1.4% increase compared to the prior year.

The increase was due primarily to the acquisition of TMP during the second quarter of 2018, which represents a 9.9% increase in PeopleScout’s revenue for the year ended December 29, 2019 , compared to the prior year.

Revenue growth was constrained primarily due to the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client, which declined throughout the year due to adverse business conditions resulting in no order volume in the fourth quarter of 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Many of the clients we serve have been impacted by COVID-19 and have reduced their need for our services, which has resulted in lower revenue.

PeopleManagement has experienced improving revenue trends during the third and fourth quarters of 2020, compared to the second quarter of 2020, primarily driven by the fact that PeopleManagement supplies an outsourced workforce that involves multi-year, multi-million dollar on-site or driver relationships.

These types of client engagements are often more resilient in an economic downturn.

Year-over-year, revenue declined 22.7% in the second quarter of 2020, declined 7.6% in the third quarter of 2020, and grew 4.6% in the fourth quarter of 2020.

These improvements were broad-based across most of the geographies and industries we serve.

PeopleScout revenue declined to $160.1 million for the year ended December 27, 2020, a 36.6% decrease compared to the prior year.

The revenue decline was primarily due to less demand from existing clients resulting from the economic disruption caused by the impact of COVID-19.

PeopleScout clients in the travel and leisure industries were especially impacted.

These clients, which represented approximately 29% of the client mix for the year ended December 29, 2019, were disproportionately impacted and experienced a 61.0% decrease in revenue compared to prior year.

Year-over-year, revenue declined 52.7% in the second quarter of 2020, 47.6% in the third quarter of 2020, and 23.8% in the fourth quarter of 2020.

Gross profit was as follows:

(in thousands, except percentages) 2020 2019

Gross profit $ 440,645 $ 619,948

Percentage of revenue 23.9 % 26.2 %

Gross profit as a percentage of revenue declined to 26.4% for the year ended December 29, 2019 , compared to 26.6% for the prior year.

The decline was primarily due to client mix, which was partially offset by lower workers’ compensation costs.

The lower workers’ compensation costs of 0.2% was from additional insurance coverage in our staffing business associated with former workers’ compensation carriers that are in liquidation.

This was due to improvements in their balance sheets which allowed these carriers to cover a larger proportion of outstanding claims.

Improvements to the gross margin of our staffing businesses were more than offset by declines to the PeopleScout gross margin primarily due to the lower margins associated with the acquired TMP business due to the pass-through nature of recruitment media purchases made on behalf of certain clients, the loss of one large client after being acquired by a strategic buyer in the prior year and substantially reduced project-based recruiting volumes at another large client due to adverse business conditions.

We continue to manage the rising cost of claims by reducing workplace accidents.

Continued favorable adjustments to our workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.

For additional discussion on the adjustments to our workers’ compensation liability, see the “Workers’ compensation insurance, collateral and claims reserves” section within Liquidity and Capital Resources.

Gross profit as a percentage of revenue declined 230 basis points to 23.9% for the year ended December 27, 2020, compared to 26.2% for the prior year.

MANAGEMENT’S DISCUSSION AND ANALYSIS

• Our staffing businesses contributed approximately 140 basis points of the decline due to approximately 100 basis points from pressure on our bill and pay rates caused by higher pay rates to entice associates to take work assignments given COVID-19 health concerns and the availability of additional federal unemployment benefits.

As with prior recessions, our ability to pass through higher costs plus a markup in our bill rates was hampered due to a variety of economic factors negatively impacting our clients’ businesses.

This decline was partially offset by a benefit of 30 basis points from a reduction in estimated costs to comply with the ACA, which were accrued in prior fiscal years.

• Our PeopleScout business contributed approximately 90 basis points to the decline due to client mix and lower volume due to the rapid revenue decline, which outpaced the reductions to our service delivery team, and severance of approximately 20 basis points.

We continue to actively manage workers’ compensation cost by improving the safety of our associates with our safety programs, and actively controlling the cost of health care.

We had favorable adjustments to our prior year workers’ compensation self-insurance reserves of $19.2 million or 1.0% of revenue for the year ended December 27, 2020, compared to $21.7 million, or 0.9% of revenue for the prior year.

Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.

For additional discussion regarding our workers’ compensation liability, see the “Workers’ compensation insurance, collateral and claims reserves” section within Liquidity and Capital Resources.

Selling, general and administrative expense

4 unchanged sentences

Total company SG&A expense decreased by $108.0 million to $408.3 million, or 22.1% of revenue for the year ended December 27, 2020, compared to $516.2 million, or 21.8% of revenue for the prior year.

The decrease in SG&A expense was primarily due to cost control programs, while remaining committed to investing in customer acquisition and retention initiatives to drive growth and our digital strategies to differentiate our services and grow market share.

These actions reduced SG&A expense by 20.9% for the year ended December 27, 2020, compared to the prior year.

The decrease in SG&A expense benefited from $8.6 million in employee retention subsidies made available under the Canada Emergency Wage Subsidy and Australian JobKeeper subsidy, as well as a U.S.

payroll tax credit in accordance with the provisions of the CARES Act.

Depreciation and amortization

3 unchanged sentences

Percentage of revenue 1.7 % 1.6 %

Depreciation and amortization decreased primarily due to several intangible assets which became fully amortized in the second quarter of 2019, which resulted in a decline in amortization expense for the year ended December 29, 2019 .

Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets of $34.7 million in the first quarter of 2020 and several intangible assets that were fully amortized in the second half of 2019, which resulted in a decline in amortization expense for the year ended December 27, 2020.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Goodwill and intangible asset impairment charge

A summary of the goodwill and intangible asset impairment charge for the year ended December 27, 2020 by reportable segment is as follows:

(in thousands) PeopleManagement PeopleScout Total company

Goodwill $ 45,901 $ 94,588 $ 140,489

Client relationships 9,700 25,000 34,700

Total $ 55,601 $ 119,588 $ 175,189

We 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 that was further impacted in March 2020 by COVID-19, which created a sudden global economic shock.

Most industries we serve were impacted by a significant decrease in demand for their products and services and, as a result, we experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19.

We experienced significant decreases to our revenue and corresponding operating results due to weakness in pricing and demand for our services during the severe economic downturn.

While demand is expected to recover in the future, the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the availability and efficacy of the COVID-19 vaccines.

As a result of our interim impairment test in the first quarter of 2020, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment charge of $140.5 million.

The total goodwill carrying value of $45.9 million for PeopleManagement On-Site reporting unit was fully impaired.

The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was $92.2 million and $2.4 million, respectively.

The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $23.6 million and $9.7 million, respectively, as of December 27, 2020.

With the decrease in demand for our services due to the economic impact caused by 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 in the first quarter of 2020.

The remaining client relationship intangible asset balances related to assets impaired for PeopleScout RPO and PeopleManagement On-Site were $5.1 million and $7.2 million, respectively, as of December 27, 2020.

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

(in thousands, except percentages) 2020 2019

Income tax expense

Income tax expense (benefit) $ (31,421) $ 6,971

Effective income tax rate 18.1 % 10.0 %

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For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our effective tax rate for the year ended December 27, 2020 was 18.1% compared to 10.0% for the prior year.

A significant driver of fluctuations in our effective income tax rate is the Work Opportunity Tax Credit (“WOTC”).

WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve month period up to worker maximums by targeted category.

Significant fluctuations in our effective rate are primarily due to the non-deductible goodwill and intangible asset impairment charge, the CARES Act and WOTC.

Other differences between the statutory federal income tax rate result from state and foreign income taxes, certain other non-deductible and non-taxable items, tax exempt interest, and the tax effects of stock-based compensation.

Changes to our effective tax rate are as follows:

(in thousands, except percentages) 2020 % 2019 %

Income tax expense (benefit) based on statutory rate $ (36,385) 21.0 % $ 14,709 21.0 %

Increase (decrease) resulting from:

State income taxes, net of federal benefit (6,631) 3.8 3,666 5.3

Job and other tax credits, net (7,719) 4.5 (13,627) (19.4)

Benefit from the CARES Act (2,939) 1.7 — —

Non-deductible goodwill impairment charge 21,849 (12.6) — —

Non-deductible and non-taxable items 124 (0.1) 1,559 2.2

Foreign taxes (977) 0.5 282 0.4

Other, net 1,257 (0.7) 382 0.5

Total tax expense (benefit) $ (31,421) 18.1 % $ 6,971 10.0 %

The non-cash goodwill and intangible asset impairment charge of $175.2 million, recorded in the first quarter of 2020, includes $84.7 million (tax effect of $21.8 million) related to reporting units from stock acquisitions and accordingly are not deductible for tax purposes.

The remaining impairment charge of $90.5 million (tax effect of $23.3 million) is related to reporting units from asset acquisitions and accordingly is deductible for tax purposes.

On March 27, 2020, the CARES Act was enacted in the U.S.

The CARES Act is an emergency economic aid package to help mitigate the impact of COVID-19.

Among other things, the CARES Act provides certain changes to tax laws, including the ability to carry back current year losses to obtain refunds related to prior year tax returns with a higher federal tax rate of 35%.

WOTC is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates.

WOTC is generally calculated as a percentage of wages over a twelve-month period up to worker maximums by targeted groups.

Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year.

However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted categories;

2) the targeted categories are subject to different incentive credit rates and limitations;

However, the estimate is subject to variation because 1) a small percentage of our associates qualify for one or more of the many targeted groups;

2) the targeted groups are subject to different incentive credit rates and limitations;

3) credits fluctuate depending on economic conditions and qualified worker retention periods;

and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates.

We recognize additional prior year job credits if credits in excess of original estimates have been certified by government offices.

WOTC was extended through December 31, 2020 as a result of the Further Consolidated Appropriations Act of 2020 (H.R.

Approval from Congress will be required to extend WOTC beyond December 31, 2020.

Changes to our effective tax rate as a result of WOTC and other job tax credits were as follows:

Effective income tax rate without adjustments below

WOTC job credits estimate from current year wages

WOTC additional job credits from prior year wages

Other job tax credits

Effective income tax rate

We adjust prior year hiring credits if it becomes clear that our estimates need revision.

Congress extended the WOTC program through December 31, 2025 as a result of the Consolidated Appropriations Act of 2021.

Income Taxes, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional information.

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Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment.

Segment profit excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other adjustments not considered to be ongoing.

Segment profit excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other adjustments not considered to be ongoing.

Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our reportable segments, as well as a reconciliation of segment profit to income before tax expense.

Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income in the Consolidated Statements of Operations and Comprehensive Income 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.

Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and may not be comparable to similarly titled measures of other companies.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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Percentage of revenue 3.9 % 5.6 %

PeopleReady segment profit declined to $82 million , or 5.6% of revenue for the year ended December 29, 2019 , compared to $86 million , or 5.7% of revenue for the prior year.

The decline was primarily due to less demand for our services attributable to lower volumes within the businesses of our clients and continued economic uncertainty.

Revenue trends slowed over the course of the year as clients moderated contingent labor spend.

Declines were broad based across multiple geographies and industries.

The decline in revenue was largely offset by our cost control programs which have reduced our SG&A expense in line with our plans.

PeopleReady segment profit declined $38.9 million for the year ended December 27, 2020, compared to the prior year.

The revenue decline was primarily due to the decrease in client demand associated with government and societal actions taken to address COVID-19.

The decline in demand, as well as increased price sensitivity, increased associate wages, and preventive measures taken to help curb the spread of COVID-19 had severe adverse impacts on our segment profit and our segment profit as a percent of revenue.

The decline in segment profit was partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.

We believe our revenue decline was partially offset by the use of our industry-leading JobStack mobile app that digitally connects associates with jobs.

JobStack is helping us safely connect people with work during this time of crisis.

PeopleManagement segment performance was as follows:

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Percentage of revenue 2.0 % 2.0 %

PeopleManagement segment profit decreased to $13 million , or 2.0% of revenue for the year ended December 29, 2019 , compared to $22 million , or 3.0% of revenue for 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 experienced lower volumes due to our clients experiencing slowing demand in their businesses.

Due to the decline in revenue, we put in place cost control measures and have reduced SG&A expense in line with our plans.

PeopleManagement segment profit declined $0.9 million for the year ended December 27, 2020, compared to the prior year.

The revenue decline was primarily due to the decrease in demand from our clients associated with government and societal actions taken to address COVID-19.

The decline in demand, as well as increased price sensitivity, higher pay rates necessary to attract employees given the availability of federal unemployment benefits, and preventive measures taken to help curb the spread of COVID-19 had adverse impacts on our segment profit.

The decline in segment profit was partially offset by the decisive and comprehensive cuts to SG&A expense in line with management’s plans to preserve the key strengths of our business.

PeopleScout segment performance was as follows:

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Percentage of revenue 2.8 % 15.0 %

PeopleScout segment profit decreased to $38 million , or 15.0% of revenue for the year ended December 29, 2019 , compared to $47 million , or 19.0% of revenue for the prior year.

The decline in segment profit and profit margin was primarily driven by the acquisition of TMP and client mix.

TMP margins are lower than those of PeopleScout due to the pass-through nature of media-related purchases on behalf of certain clients.

Client mix margins were impacted by substantially reduced project-based recruiting volumes at a large industrial client due to adverse business conditions and the loss of another higher margin client which was acquired by a strategic buyer in late 2018.

Due to the decline in segment profit, we put in place cost control measures and have reduced SG&A expense in line with our plans.

PeopleScout segment profit declined $33.3 million for the year ended December 27, 2020, compared to the prior year.

The decline in segment profit was primarily due to a decline in demand from our clients associated with government and societal actions taken to address COVID-19.

PeopleScout clients in the travel and leisure industries were especially impacted.

Due to the decline in revenue, we took actions to reduce the cost of our service delivery which lagged the rapid revenue decline caused by the disruption of COVID-19 and negatively impacted our segment profit and our segment profit as a percent of revenue.

The decline in segment profit was partially offset by our cost reduction programs, which have reduced SG&A expense in line with our plans.

FISCAL 2019 AS COMPARED TO FISCAL 2018

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FUTURE OUTLOOK

We have limited visibility into future demand for our services.

However, we believe there is value in providing highlights of our expectations for future financial performance.

The following highlights represent our expectations regarding operating trends for fiscal 2020 .

These expectations are subject to revision as our business changes with the overall economy.

We expect additional pressure on our revenue trends in 2020 due primarily to a widespread decline in 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 2019 and experienced growing revenue pressure as the year progressed.

Similar to PeopleReady, PeopleManagement, our lowest margin segment, experienced less demand from existing clients and continued economic uncertainty.

PeopleScout, our highest margin segment, passed the one-year anniversary of the TMP acquisition in June 2019.

PeopleScout will experience further pressure due to the continued impact of the loss of a key client that was acquired by a strategic buyer which will anniversary in the first quarter of 2020 and substantially reduced project-based recruiting volumes at another large industrial client due to adverse business conditions which will anniversary in the third quarter of 2020.

We expect continued challenges in the industrial markets we serve, but we are encouraged by recent improvements in the demand trend for PeopleReady services.

We believe there is a changing pace of underlying economic activity in some of 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 to differentiate our service offerings.

We are 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 contingent workers and connect them with work.

Examples include our new JobStack mobile application in the PeopleReady business and our Affinix talent acquisition technology in our PeopleScout business.

PeopleReady’s JobStack app has filled more than six million shifts since its inception and is currently filling a job every nine seconds.

PeopleScout’s Affinix is helping clients improve time to fill, candidate flow and candidate satisfaction.

We believe our digital strategies provide further opportunity to differentiate our services, capture additional market share and deliver industry-leading growth.

The global economy and our business have been dramatically affected by COVID-19.

To date, COVID-19 has surfaced all around the world and resulted in country-level quarantines, global travel restrictions and broad-based economic slowdowns.

There are no reliable estimates of how long the pandemic will last, how people will be affected by it, or how rapidly people are vaccinated.

For that reason, it is difficult to predict the short- and long-term impacts of the pandemic on our business at this time.

Due to the uncertainty surrounding COVID-19 and its impact on the business environment, we have limited visibility into our financial condition, results of operations and cash flows in the future.

However, we are providing the following future outlook for fiscal 2021.

Operating outlook

• We anticipate gross margin to decline between 290 and 250 basis points in the first quarter of 2021, compared to the same period in the prior year.

This decline includes a 130 basis point benefit we received in the first quarter of 2020 (30 basis points annualized) from a reduction in estimated health care benefits costs, which was accrued in prior fiscal years.

The remaining decline is primarily due to bill and pay rate pressures.

For fiscal 2021, we anticipate gross margin to decline between 50 and 10 basis points, compared to the same period in the prior year.

This is primarily due to bill and pay rate pressure which we expect to moderate over the course of 2021 and the reduction in estimated health care benefits costs previously mentioned, partially offset by improving PeopleScout volumes.

• In April 2020, we took steps to reduce our operating cost structure and other cash outflows to preserve cash to fund working capital needs.

We expect these actions will have the effect of reducing our operating expenses by $13 million to $17 million in the first quarter of 2021, compared to the same period in the prior year, while preserving the key strengths of our business to ensure we are prepared when business conditions improve.

As the demand environment begins to improve, we will slowly and thoughtfully bring back spending that is critical for the long-term health and sustainability of our business.

• We expect an effective income tax rate for full year 2021, before job tax credits, of 23% to 27%.

We expect job tax credits of $8 million to $10 million.

Our effective tax rate can be more or less volatile based on the amount of pre-tax income.

For example, the impact of tax credits and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Liquidity outlook

• Capital expenditures for the first quarter of 2021 will be approximately $16 million.

This includes $8 million of build out costs planned for our Chicago support center, of which $6 million will be reimbursed by our landlord and reflected in our operating cash flows.

Capital expenditures for fiscal 2021 are expected to be between $37 million and $41 million.

This includes $10 million of build out costs planned for our Chicago support center, of which $7 million will be reimbursed by our landlord and reflected in our operating cash flows.

We remain committed to technological innovation to transform our business for a digital future.

We continue to make investments in online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting our clients and associates for our staffing businesses, and candidates for our RPO business.

We expect these investments will increase the competitive differentiation of our services over the long-term, improve the efficiency of our service delivery, and reduce PeopleReady’s dependence on local branches to find associates and connect them with work.

Examples include PeopleReady’s JobStack mobile app and PeopleScout’s Affinix talent acquisition technology.

• We expect our Revolving Credit Facility and strong financial position to provide ample liquidity.

At December 27, 2020, we had cash and cash equivalents of $63 million and no outstanding balance drawn on our Revolving Credit Facility, resulting in $161 million available for future borrowings based on our most restrictive covenant.

We have an option to increase the total line of credit amount from $300 million to $450 million, subject to bank approval.

• During fiscal 2020, we generated a cash flow benefit from delayed payroll tax payments under the CARES Act of $57 million.

We plan to take advantage of favorable net operating loss carryback provisions in the CARES Act by repaying this benefit in the third quarter of 2021.

• We had a significant reduction in our accounts receivable balance of $57 million for fiscal 2020 primarily due to lower revenue caused from a decline in demand for our services from COVID-19, as well as a 7% decrease in days sales outstanding due to focused collection efforts.

These efforts resulted in a substantial source of cash in 2020, but will become a cash use as revenue recovers in future periods and we fund increasing accounts receivable.

MANAGEMENT’S DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities

Our cash flows from operating activities for fiscal 2019 as compared to fiscal 2018 were as follows:

(in thousands) 2020 2019

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ (141,841) $ 63,073

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 32,031 37,549

Goodwill and intangible asset impairment charge 175,189 —

Provision for doubtful accounts 6,300 7,661

Non-cash lease expense, net of changes in operating lease liabilities

Stock-based compensation 9,113 9,769

Deferred income taxes (26,791) 1,263

Non-cash lease expense, net of changes in operating lease liabilities 633 (355)

Other operating activities (686) (1,589)

Changes in operating assets and liabilities, net of amounts acquired and divested:

Changes in operating assets and liabilities, net of amounts divested:

Accounts receivable 57,146 5,450

Income tax receivable (1,122) (6,480)

Change in all other assets

Accounts payable and other accrued expenses (6,561) 6,921

Accrued wages and benefits 55,053 (9,494)

Workers’ compensation claims reserve (125) (10,828)

Change in all other liabilities

Other assets and liabilities (5,808) (9,409)

Net cash provided by operating activities $ 152,531 $ 93,531

Net cash provided by operating activities was $94 million for the year ended December 29, 2019 , compared to $126 million for the prior year.

Net cash provided by operating activities is primarily due to net income of $63 million for the year ended December 29, 2019 compared to $66 million for the prior year.

Changes to adjustments to reconcile net income to net cash provided by operating activities for fiscal 2019 were primarily due to:

Depreciation and amortization decreased primarily due to certain fixed assets and intangible assets becoming fully depreciated during the prior year.

Additionally, a greater portion of our investment funds are being directed toward non-capitalized third-party cloud-based solutions.

Provision for doubtful accounts decreased primarily due to the overall reduction in revenue during fiscal 2019.

Additionally, 2019 benefited from the recovery of receivables which had been reserved for in 2018 when a customer filed for bankruptcy protection.

Stock-based compensation decreased primarily due to $4 million of accelerated stock compensation costs associated with the CEO transition in fiscal 2018.

Changes to operating assets and liabilities, net of amounts acquired and divested for fiscal 2019 were primarily due to:

The decrease in accounts receivable in fiscal 2019 was primarily due to the decline in revenue due to less demand for our services attributable to lower volumes within the businesses of our clients.

This was partially offset by higher days sales outstanding due to continued economic uncertainty and longer payment terms.

The increase in income tax receivable in fiscal 2019 was primarily due to delays in foreign jurisdiction processing of refunds and higher than expected WOTC benefits.

Change in all other assets decreased primarily due to unrealized gains on deferred compensation assets as both equity and bond markets strengthened into fiscal 2019, verses unrealized losses in fiscal 2018 after a sharp decline in equity markets in the fourth quarter of 2018.

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 operating activities

Net cash provided by operating activities increased to $152.5 million for the year ended December 27, 2020, compared to $93.5 million for the prior year.

Changes to adjustments to reconcile net income (loss) to net cash provided by operating activities were primarily due to:

• Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of $34.7 million in the first quarter of 2020, and several intangible assets that became fully amortized in 2019.

• Net loss for the year ended December 27, 2020 includes a non-cash goodwill and intangible asset impairment charge of $175.2 million ($151.9 million after tax).

The charge was a result of the adverse impact on expected future cash flows related to the current state of the economy and the impact of COVID-19.

The charge does not impact the company’s current cash, liquidity, or banking covenants.

• Deferred tax assets increased primarily due to $23.3 million of discrete tax benefit resulting from goodwill and intangible asset impairment charges.

Impairment charges related to goodwill and intangible assets acquired in an asset acquisition are deductible for tax purposes.

Changes to operating assets and liabilities were primarily due to:

• Cash provided by accounts receivable of $57.1 million was due to lower revenue from a decline in demand for our services, as well as a 7% decrease in days sales outstanding due to focused collection efforts.

• Cash used for accounts payable and accrued expenses of $6.6 million was primarily due to cost control programs, a decline in customer rebates and timing of payments.

The cost control programs were implemented in response to the economic impact of COVID-19.

Customer rebates have declined significantly due to clients not meeting rebate volume thresholds as a result of the impact of COVID-19 on their businesses.

• Cash provided by accrued wages and benefits of $55.1 million was primarily due to delayed payments for the employer portion of social security taxes incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees, which is allowed under the CARES Act.

We plan to pay the deferred amount by September 15, 2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS

• Generally, our workers’ compensation claims reserve for estimated claims decreases as contingent labor services decline, as is the case in the current and prior year.

Our worker safety programs have had a positive impact and have created favorable adjustments to our workers’ compensation liabilities recorded in prior periods.

Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to lower accident rates and claim costs.

Cash flows from investing activities

Our cash flows from investing activities for fiscal 2019 as compared to fiscal 2018 were as follows:

(in thousands) 2020 2019

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Acquisition of business, net of divestiture of business — 215

Purchases and sales of restricted investments

Purchases and sales of restricted investments, net (7,345) 6,273

Net cash used in investing activities $ (34,411) $ (21,631)

Net cash used in investing activities was $34.4 million for the year ended December 27, 2020, compared to $21.6 million for the prior year.

Capital expenditures increased in fiscal 2019 primarily due to investments in a cost savings initiative to upgrade our telephone system to voice over internet protocol, an expansion of our India shared services center, a computer hardware upgrade cycle, and further investment in software technology to support our digital strategy.

Net cash used in investing activities in fiscal 2018 was impacted by the acquisition of the outstanding equity interests of TMP for a cash purchase price of $23 million , net of cash acquired of $7 million .

The acquisition was partially offset by the divestiture of all the assets and certain liabilities of our PlaneTechs business for a sales price of $11 million .

Acquisition and Divestiture , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the purchase of TMP and divestiture of PlaneTechs.

Restricted investments consist primarily of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs.

The decrease in the cash provided by the selling of securities was primarily due to lower collateral requirements from our workers’ compensation insurance providers, as well as the timing of collateral payments.

Capital expenditures are primarily due to our continued 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 apps to improve access to associates and candidates, as well as improve the speed and ease of connecting our clients and associates for our staffing businesses, and candidates for our RPO business.

Examples include PeopleReady’s JobStack mobile app and PeopleScout’s Affinix talent acquisition technology.

Restricted investments consist of collateral that has been provided or pledged to insurance carriers and state workers’ compensation programs, as well as collateral to support the deferred compensation plan.

Lower collateral requirements from our workers’ compensation insurance providers were more than offset by an acceleration of collateral funding required by our primary insurance provider for the year ended December 27, 2020.

Cash flows from financing activities

Our cash flows from financing activities for fiscal 2019 as compared to fiscal 2018 were as follows:

(in thousands) 2020 2019

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Net change in revolving credit facility (37,100) (42,900)

Payments on debt

Other (1,540) (296)

Net cash used in financing activities $ (92,502) $ (82,915)

Net cash used in financing activities was $92.5 million for the year ended December 27, 2020, compared to $82.9 million for the prior year.

During fiscal 2019, we repurchased $39 million of common stock as compared to $35 million for the prior year.

As of December 29, 2019 , $119 million remains available for repurchase of common stock under existing authorizations.

During fiscal 2019, we increased net repayments on our Revolving Credit Facility of $43 million as compared to $16 million for the comparable period in the prior year.

Draws on the Revolving Credit Facility during fiscal 2018 enabled the pre-payment of the outstanding balance of our existing long-term debt of $22 million with Synovus Bank on June 25, 2018.

During the year ended December 27, 2020, we repurchased $40.0 million of our common stock under an accelerated share repurchase program and $12.4 million of our common stock in the open market, including commissions, for a total of $52.4 million, or 9.2% of our common stock under existing authorizations.

These purchases were initiated prior to the medical community’s acknowledgment of the expected severity of the impact of COVID-19.

As of December 27, 2020, $66.7 million remains available for repurchase under existing authorizations.

We have historically returned capital to shareholders through share repurchases.

Share repurchases are an important part of our capital allocation priorities, however, the second amendment to our credit agreement (the “Second Amendment”) prohibits us from repurchasing shares until July 1, 2021.

Shareholders’ Equity , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our share repurchase program.

FISCAL 2019 AS COMPARED TO FISCAL 2018

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Revolving credit facilit y

On March 16, 2020, we entered into a first amendment to our credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A., PNC Bank, N.A., KeyBank, N.A.

and HSBC Bank USA, N.A.

dated as of July 13, 2018, which extended the maturity of the Revolving Credit Facility to March 16, 2025 and modified certain other terms.

On June 24, 2020, we entered into the Second Amendment, which modified terms of our financial covenants as well as certain other provisions of the Revolving Credit Facility.

On January 28, 2021, we entered into a third amendment (the “Third Amendment”), which clarified the definition of the Asset Coverage Ratio financial covenant of the Revolving Credit Facility.

The Third Amendment was effective as of December 27, 2020 (refer to Note 16:

Subsequent Event, to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details of the Third Amendment).

Subject to lender approval, we have the ability to increase our Revolving Credit Facility from $300.0 million up to $450.0 million.

Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S.

domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S.

domestic subsidiaries.

The amended credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants.

Long-term Debt , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for 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 December 29, 2019 , we had restricted cash and investments totaling $231 million .

The majority of our collateral obligations are held in a trust at the Bank of New York Mellon (“Trust”).

Restricted Cash and Investments , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our restricted cash and investments.

We established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers’ compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns.

Trust investments must meet minimum acceptable quality standards.

The primary investments include U.S.

Treasury securities, U.S.

agency debentures, U.S.

agency mortgages, corporate securities and municipal securities.

For those investments rated by nationally recognized statistical rating organizations the minimum ratings at time of purchase are:

Short-term rating

Long-term rating

Workers’ compensation insurance, collateral and claims reserves

Workers’ compensation insurance, collateral and reserves

Workers’ compensation insurance

We provide workers’ compensation insurance for our contingent and permanent employees.

We provide workers’ compensation insurance for our associates 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 and accordingly, we are substantially self-insured.

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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

Workers’ compensation collateral and restricted cash and investments

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.

The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit, and surety bonds.

On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation.

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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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The majority of the restricted cash and investments collateralizing our self-insured workers’ compensation policies are held in a trust at the Bank of New York Mellon (“Trust”).

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

(in thousands)

December 29, 2019

(in thousands) December 27, 2020 December 29,

Cash collateral held by workers’ compensation insurance carriers $ 22,253 $ 22,256

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Total collateral commitments $ 230,621 $ 222,243

We have agreements with certain financial institutions to issue letters of credit as collateral.

(1) 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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.

At December 27, 2020, we had restricted cash and investments totaling $240.5 million.

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.

The majority of our collateral obligations are held in a Trust.

Restricted Cash and Investments , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our restricted cash and investments.

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 reserve

The following table provides a reconciliation of our collateral commitments to our workers’ compensation reserve as of the fiscal period end dates presented:

(in thousands)

December 29, 2019

(in thousands) December 27, 2020 December 29, 2019

Total workers’ compensation reserve $ 255,493 $ 255,618

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Reimbursable payments to insurance provider (3) 6,373 8,121

Other (4) 4,765 (15,559)

Total collateral commitments $ 230,621 $ 222,243

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• type and location of work performed;

MANAGEMENT’S DISCUSSION AND ANALYSIS

• the impact of safety initiatives;

positive or adverse development of claims.

• positive or adverse development of claims, which considers the potential impact of COVID-19.

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.

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The discounted workers’ compensation reserve for excess claims was $54.0 million and $45.3 million as of December 27, 2020 and December 29, 2019, respectively.

The discounted receivables from insurance companies, net of valuation allowance, were $45 million as of December 29, 2019 and December 30, 2018 .

The discounted receivables from insurance companies, net of valuation allowance, were $52.9 million and $44.6 million as of December 27, 2020 and December 29, 2019, respectively.

The following table provides an analysis of changes in our workers’ compensation claims reserves:

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Long-term portion $ 189,486 $ 182,598

Payments made against self-insured claims are made over a weighted average period of approximately 5 years at December 29, 2019 .

Changes in reserve estimates are reflected in cost of services on the Consolidated Statement of Operations and Comprehensive Income in the period when the changes are made.

(1) The discount is amortized over the estimated weighted average life.

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We have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation.

We continue to actively manage workers’ compensation cost through the safety of our 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 continue to actively manage workers’ compensation cost through the safety of our associates with our safety programs and actively control costs with our network of service providers.

These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in prior periods.

Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims.

We expect diminishing favorable adjustments to our workers’ compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes.

Future outlook

We believe we are in a strong financial position to fund working capital needs for growth opportunities.

As of December 29, 2019 , we had cash and cash equivalents of $38 million and $257 million available under our Revolving Credit Facility for total liquidity of $295 million .

We are focused on cash management as a top priority.

In response to the rapidly changing market conditions due to COVID-19, we have reduced operating costs and other cash outflows to preserve capital to fund working capital needs.

Our Revolving Credit Facility 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.

On March 16, 2020, we extended the maturity of the Revolving Credit Facility to March 16, 2025.

Although we were in compliance with our covenants, we felt it was prudent to negotiate more favorable covenants given the level of economic uncertainty.

On June 24, 2020, we further amended our revolving credit agreement, which included modifications to our financial covenants.

As of December 27, 2020, we are in a strong financial position with cash and cash equivalents of $62.5 million, no debt outstanding and total liquidity of $160.9 million under the most restrictive covenants of our Revolving Credit Facility.

We expect approximately $16 million of capital expenditures in the first quarter of 2021 and $37 million to $41 million in fiscal 2021.

These capital expenditures include build-out costs for our Chicago support center of approximately $8 million in the first

MANAGEMENT’S DISCUSSION AND ANALYSIS

We continue to return cash to shareholders through our share repurchase program.

During the year ended December 29, 2019 , we repurchased $39 million of common stock.

As of December 29, 2019 , $119 million remains available for repurchase of common stock under existing authorizations.

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

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table provides a summary of our contractual obligations as of the end of fiscal 2019 .

We expect to fund these commitments with existing cash and cash equivalents, restricted cash and investments, and cash flows from operations.

Payments due by period

(in thousands)

Contractual obligations

Less than 1 year

More than 5 years

Long-term debt obligations, including interest and fees (1):

Workers’ compensation claims (2)

Deferred compensation (3)

Operating leases (4)

Purchase obligations (5)

Total contractual cash obligations

Interest and fees are calculated based on the rates in effect at December 29, 2019 .

Our Revolving Credit Facility expires in 2023.

For additional information, see Note 8:

Long-term Debt to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Excludes estimated expenses related to claims above our self-insured limits, for which we have a corresponding receivable based on the contractual policy agreements we have with insurance carriers.

For additional information, see Note 7:

Workers’ Compensation Insurance and Reserves to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Represents scheduled distributions based on the elections of plan participants.

Additional payments may be made if plan participants terminate, retire, or schedule additional distributions during the periods presented.

For additional information, see Note 12:

Defined Contribution Plans to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Excludes all payments related to branch leases with short-term cancellation provisions, typically within 90 days.

Operating lease payments exclude approximately $37 million of legally binding minimum lease payments for leases signed but not yet commenced.

For additional information, see Note 9:

Commitments and Contingencies to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Purchase obligations include agreements to purchase goods and services that are enforceable, legally binding and specify all significant terms.

Purchase obligations do not include agreements that are cancelable without significant penalty.

Liability for unrecognized tax benefits has been excluded from the table above, as the timing and/or amounts of any cash payment is uncertain.

For additional information, see Note 13:

Income Taxes, to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

quarter of 2021 and $10 million in fiscal 2021, of which approximately $6 million and $7 million, respectively, will be reimbursed by our landlord.

These reimbursements will be reflected in our operating cash flows.

The CARES Act included employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 outbreak.

Under the Act, we were allowed to delay payments for our portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our associates and permanent employees.

We anticipate the deferred amount of $57.1 million will be paid by September 15, 2021.

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 our loss history and market dynamics, including from the impact of COVID-19.

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 16 years.

Commitments and Contingencies , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our operating lease contractual commitments.

We have purchase obligation agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms.

Commitments and Contingencies , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our purchase obligations.

We believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the next 12 months.

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES

Management’s discussion and analysis of financial condition and results of operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Management’s discussion and analysis of financial condition and results of operations discusses our financial statements, which have been prepared in accordance with U.S.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

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Management believes that the following accounting estimates are the most critical to understand and evaluate our reported financial results, and they require management’s most subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Considerations related to COVID-19

We have considered COVID-19 related impacts to our estimates, as appropriate, within our financial statements and there may be changes to those estimates in future periods.

However, we believe that the accounting estimates used are appropriate after considering the increased uncertainties surrounding the severity and duration of COVID-19.

Such estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.

Workers’ compensation reserve

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Our workers’ compensation reserves include estimated expenses related to excess claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies.

We discount the reserve and its corresponding receivable to their estimated net present values using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims.

We discount the reserve and its corresponding receivable to their estimated net present values using the risk-free rates associated

MANAGEMENT’S DISCUSSION AND ANALYSIS

with the actuarially determined weighted average lives of our excess claims.

When appropriate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.

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In the event that we are not able to further reduce our accident rates, the positive impacts to our reserve balance will diminish.

Allowance for doubtful accounts

We establish an allowance for doubtful accounts for estimated probable losses resulting from the failure of our clients to make required payments.

The allowance for doubtful accounts is determined based on historical write-off experience, expectations of future write-offs, and current economic data, and represents our best estimate of the amount of probable credit losses.

The allowance for doubtful accounts is reviewed quarterly and past due balances are written-off when it is likely the receivable will not be collected.

If the financial condition of our clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Accounts receivable allowance for credit losses

We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics.

Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows:

• PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform.

This results in high turnover in accounts receivable and lower rates of 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 each aging category by pool are based on current collection efforts, historical collection trends, write-off experience, client credit risk, current economic data and forecasted information.

The allowance for credit loss is reviewed monthly and represents our best estimate of the 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 operations.

Past due balances are written off when it is probable the receivable will not be collected.

Changes in the allowance for credit losses are recorded in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Business combinations

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We consider our operating segments to be our reporting units for goodwill impairment testing.

As of December 29, 2019, 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.

As of December 27, 2020, our operating segments were PeopleReady, PeopleManagement Centerline, PeopleManagement On-Site, PeopleScout RPO, and PeopleScout MSP.

Testing for impairment 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.

These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation.

If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment charge in an amount equal to the excess, not to exceed the carrying value of the goodwill.

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.

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.

The fair value of each reporting unit is estimated using a combination of a discounted cash flow methodology and the market valuation approach using publicly traded company multiples in similar businesses.

The discounted cash flow methodology required 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 would 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 market approach 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 are equally weighted.

These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation.

We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater.

Annual impairment test

Based on our 2019 annual impairment test, the estimated fair value of all our reporting units were substantially in excess of their carrying value, except our SIMOS reporting unit, which was in excess of its carrying value by approximately 10% .

The current carrying value of goodwill for this reporting unit 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 significant 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.

A discount rate of 12.5% was used in calculating the fair value of this reporting unit.

In the event that the discount rate increases by approximately 1 percentage point, the forecasted revenue growth rate declines by approximately 3 percentage points, or gross margin as a percentage of revenue declines by approximately 1 percentage point, the carrying value of the reporting unit would have exceeded its fair value.

Our weighted average cost of capital for all our reporting units ranged from 11.5% to 12.5%, and our control premium was 15.2%, which management has determined to be reasonable.

Interim impairment test

Effective December 30, 2019 (the first day of fiscal 2020), our SIMOS and Staff Management | SMX reporting units were combined into one reporting unit (On-site) due to common customers and contingent workers, similar nature of services and economic characteristics.

Therefore, we tested the SIMOS reporting unit for impairment prior to the combination due to its sensitivity to impairment as of our annual impairment test, as explained above.

Our SMX reporting unit’s fair value was substantially in excess of its carrying as of the annual impairment test, or approximately 48% , and there were no indicators of impairment during the interim period.

Therefore, no interim impairment test was performed.

Based on the interim impairment test of our SIMOS reporting unit, the estimated fair value was in excess of its carrying value by approximately 7% .

A discount rate of 12.0% was used in calculating the fair value of this reporting unit.

If the discount rate was approximately 1 percentage point higher, the forecasted

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.

This was further impacted in March 2020 by COVID-19, which created a sudden global economic shock.

We experienced a significant drop in client demand associated with government and societal actions taken to address COVID-19.

We expected significant decreases to our revenue and corresponding operating results to continue due to weakness in pricing and demand for our services during this severe economic downturn.

While demand was expected to recover in the future, the rate of recovery was expected to vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections would decline to a contained level.

Accordingly, we performed an interim impairment test of our goodwill on the last day of our fiscal first quarter (March 29, 2020).

The weighted average cost of capital used in our interim impairment test ranged from 11.5% to 12.0%.

Our control premium was approximately 12%, which management has determined to be reasonable.

We carefully considered the economic impact of COVID-19, together with the estimated decreases to our revenue and corresponding operating results as we continued to experience weakness in pricing and demand for our services during the economic downturn.

Our estimates were based on our experience with prior recessions, as well as our experience with plans and actions to adjust and adapt to recessions.

Given the uncertain nature of the economic impact of COVID-19, and the recovery pattern of the broader economy and its impact on our business, actual results could differ significantly from our estimates.

As a result of our interim impairment test, we concluded that the carrying amounts of goodwill for our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment charge of $140.5 million, which was included in goodwill and intangible asset impairment charge on the

MANAGEMENT’S DISCUSSION AND ANALYSIS

revenue growth rate was approximately 5 percentage points lower, or gross margin as a percentage of revenue was approximately 1 percentage point lower, the carrying value of the reporting unit would have exceeded its fair value.

Based on the results of our annual and interim impairment tests, there was no impairment loss recognized for the year ended December 29, 2019 .

Consolidated Statements of Operations and Comprehensive Income (Loss).

The goodwill carrying value of $45.9 million for our 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.

Based on our interim goodwill impairment test, the fair values of our PeopleReady and PeopleManagement Centerline reporting units were substantially in excess of their carrying value at approximately 60% and 195%, respectively.

Annual impairment test

Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual goodwill impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our reporting units was less than the carrying value.

We considered the current and expected future economic and market conditions surrounding COVID-19 and concluded that it was not more likely than not that the goodwill associated with our reporting units were impaired as of the first day of our fiscal second quarter.

Therefore, a quantitative assessment was not performed as of March 30, 2020.

Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020.

The remaining goodwill balances for PeopleScout RPO and PeopleScout MSP were $23.6 million and $9.7 million, respectively, as of December 27, 2020.

The loss of a key client, a significant further decline to the economy, or a delayed recovery in key industries we serve, including travel and leisure, could give rise to an additional impairment.

Should any one of these events occur, we would need to record an impairment charge 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 our reporting units as it relates to goodwill impairment.

Based on our 2019 and 2018 annual impairment tests, all reporting units’ fair values were substantially in excess of their respective carrying values.

Accordingly, there was no impairment loss recognized for the years ended December 30, 2018 or December 31, 2017 .

Accordingly, there was no impairment charge recognized for the years ended December 29, 2019 or December 30, 2018.

Indefinite-lived intangible assets

We have indefinite-lived intangible assets related to our Staff Management and PeopleScout trade names.

We have indefinite-lived intangible assets related to our Staff Management | SMX 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.

If the carrying value exceeds the fair value, we recognize an impairment charge in an amount equal to the excess, not to exceed the carrying value.

Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates.

We performed our annual indefinite-lived intangible asset impairment test for 2019 , 2018 and 2017 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 years ended December 29, 2019 , December 30, 2018 or December 31, 2017 .

Interim impairment test

We performed an interim impairment test as of the last day of our fiscal first quarter for 2020 (March 29, 2020) and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names.

Accordingly, no impairment charge was recognized.

Annual impairment test

Given the proximity of our interim impairment measurement date (last day of our fiscal first quarter - March 29, 2020) to our annual indefinite-lived trade names impairment measurement date (first day of our fiscal second quarter - March 30, 2020), we performed a qualitative assessment to determine whether it was more likely than not that the fair value of any of our indefinite-lived trade names was less than the carrying value.

We concluded that it was not more likely than not that the indefinite-lived intangible assets associated with our Staff Management | SMX and PeopleScout trade names were impaired as of the first day of our fiscal second quarter.

Therefore, a quantitative assessment was not performed as of March 30, 2020.

Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020.

Based on our our 2019 and 2018 annual indefinite-lived intangible asset impairment tests, the estimated fair values exceeded their carrying values.

Accordingly, no impairment charge was recognized for the years ended December 29, 2019 or December 30, 2018.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Finite-lived intangible assets and other long-lived assets

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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.

No impairment loss was recognized for the years ended December 29, 2019 , December 30, 2018 or December 31, 2017 .

An impairment charge 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 charge is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.

Interim impairment test

With the estimated decrease in demand for our services due to the economic impact of COVID-19, we lowered our future expectations, which was the primary trigger of an impairment test as of the last day of our fiscal first quarter for certain of our acquired client relationships intangible assets.

As a result of this impairment test, we recorded a non-cash impairment charge for our PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets 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 year ended December 27, 2020.

The impairment charge for PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets was $25.0 million and $9.7 million, respectively.

Considerable management judgment was necessary to determine key assumptions, including estimated revenue of acquired clients and an appropriate discount rate of 12.0%.

Additionally, we did not identify any events or conditions that make it more likely than not that an impairment may have occurred during the period from March 30, 2020 to December 27, 2020.

Should actual results decline further or longer than we have currently estimated, the remaining intangible asset balances may become further impaired.

We will continue to closely monitor the revenue generated from acquired clients as it relates to client relationship asset impairment.

No impairment charge was recognized for the years ended December 29, 2019 or December 30, 2018.

Estimated contingent legal and regulatory liabilities

From time to time we are subject to compliance audits by federal, state and local authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety.

From time to time we are subject to compliance audits by federal, state, local and foreign authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety.

We are also subject to legal proceedings in the ordinary course of our operations.

We have established reserves for contingent legal and regulatory liabilities.

We record a liability when our management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated.

We record a liability when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated.

To the extent that an insurance company or other third party is legally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement.

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In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results.

MANAGEMENT’S DISCUSSION AND ANALYSIS

NEW ACCOUNTING STANDARDS

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What changed 10-K

Item 7. Management’s Discussion and Analysis