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Item 7. Management’s Discussion and Analysis

2023-02-15 compared with 2022-02-16 · 197 added, 378 removed, 192 unchanged (75% of the section changed)

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MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to our financial statements.

BUSINESS OVERVIEW

TrueBlue, Inc.

(the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity.

In 2021, we connected approximately 615,000 people with work and served approximately 95,000 clients.

Our operations are managed as three business segments:

PeopleReady, PeopleManagement and PeopleScout.

Our PeopleReady segment offers on-demand, industrial staffing;

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

and our PeopleScout segment offers recruitment process outsourcing (“RPO”) and managed service provider (“MSP”) solutions.

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.

The COVID-19 pandemic

Beginning in early 2020, the coronavirus pandemic (“COVID-19”) has led to a series of significant economic disruptions globally.

Throughout the pandemic, our business has remained open and we have continued to provide key services to essential and nonessential businesses as COVID-19 restrictions have lifted.

Consistent with the global pandemic response, in our two largest markets, the United States of America (“U.S.”) and Canada, vaccinations continue to be a top public health policy priority and are being supported by governmental organizations.

As of January 31, 2022, approximately 64% of the U.S.

and 79% of the Canadian populations have been fully vaccinated.

While the vaccination programs have helped to reopen these markets, we continue to monitor the pandemic’s evolution closely.

Despite an uneven recovery in certain markets and industries, we are seeing growth in new client wins and higher existing client volumes, particularly in those markets and industries hit hardest by COVID-19.

In addition, our continued focus on efficiently managing costs while investing in digital strategies and sales resources has allowed us to accelerate our strategic priorities and emerge stronger as the economy recovers.

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.

Revenue from services

(the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help our clients improve productivity and grow their businesses.

Client demand for contingent workforce solutions and outsourced recruiting services is cyclical and dependent on the overall strength of the economy and labor market, as well as trends in workforce flexibility.

During periods of rising economic uncertainty, clients reduce their contingent labor in response to lower volumes and reduced appetite for expanding production or inventory, which reduces the demand for our services.

That environment also reduces demand for permanent placement recruiting, whether outsourced or in-house.

However, as the economy emerges from periods of uncertainty, contingent labor providers are uniquely positioned to respond quickly to increasing demand for labor and rapidly fill new or temporary positions, replace absent employees, and convert fixed labor costs to variable costs.

Similarly, companies often reduce their in-house recruiting teams during economic downturns, and turn to hybrid or fully outsourced recruiting models during periods of rapid re-hiring and high employee turnover.

In order to competitively differentiate our services in these highly fragmented industries, we are committed to executing our digital strategies, combined with a focus on improving operational efficiencies in order to gain market share.

We have implemented these core strategies for each of our business segments:

PeopleReady, PeopleScout and PeopleManagement.

For additional discussion on our business and strategy, refer to Business , found in Part I, Item 1 of this Annual Report on Form 10-K.

Fiscal 2022 highlights

Total company revenue grew 3.7% to $2.3 billion for the fiscal year ended December 25, 2022, compared to the prior year.

The increase was due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of COVID-19.

This increase is primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.

• PeopleReady, our largest segment by revenue, experienced revenue growth of 15.6% to $1.3 billion for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleReady has seen a steady recovery across most geographies and industries during the year, especially those industries that were hit the hardest by COVID-19, such as hospitality, retail, transportation, and manufacturing.

The growth in client demand for our services was partially offset by a shortage in the supply of workers that we believe has been temporarily impacted by both COVID-19 and the governmental responses to COVID-19, which have included stimulus checks, elevated federal unemployment benefits, accelerated payments of the child tax credit, and other direct payments to individuals.

As compared to our other segments, PeopleReady experienced the most pressure on the available supply of workers, primarily due to a lower average wage, the temporary nature of the positions, and the shorter notice period we receive to fill open positions.

However, as workers began to exit federal and state unemployment programs late in the fiscal third quarter, we saw gradual improvement in the supply of workers through the end of fiscal 2021.

• PeopleManagement, our second largest segment by revenue, experienced revenue growth of 9.0% to $639.7 million for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleManagement growth was due to significant new client wins, which contributed approximately $30 million of revenue for fiscal 2021.

However, the pace of revenue recovery was adversely impacted by worker supply and supply chain related production slowdowns in key industries, such as manufacturing and retail.

MANAGEMENT’S DISCUSSION AND ANALYSIS

• PeopleScout, our smallest segment by revenue but highest margin segment, experienced revenue growth of 64.3% to $263.0 million for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleScout has seen a strong recovery of volume from existing clients, especially those in industries that were hit hardest by COVID-19, such as travel and leisure, some of which are back to pre-pandemic hiring levels.

In addition, new client wins contributed approximately $28 million of revenue for fiscal 2021 within a variety of industries including retail, health care and transportation.

Overall growth was driven by increased demand for our services during the first half of the year, partially offset by a decrease in demand during the second half of the year as economic uncertainty grew.

Revenue at PeopleReady, our largest segment by revenue, remained relatively unchanged as growth from higher client bill rates and improved worker supply trends were offset by lower client demand due to economic uncertainty.

Revenue at PeopleScout, our smallest segment by revenue but largest by segment profit as a percentage of revenue, grew 20.8% driven by higher volumes at existing clients and project work for new clients who were utilizing our services to fulfill short-term hiring needs.

Revenue at PeopleManagement, our second largest segment by revenue, grew 3.8%, fueled by demand for commercial trucking services.

Total company gross profit as a percentage of revenue for the fiscal year ended December 25, 2022 improved 90 basis points to 26.7%, compared to 25.8% for the prior year.

Our PeopleReady and PeopleManagement business segments contributed approximately 90 basis points of improvement, primarily attributable to lower workers’ compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development.

Our PeopleScout business contributed the remaining 100 basis points of expansion from improved recruiter utilization on increasing volumes.

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

Total company SG&A expense increased by $56.0 million to $464.3 million, or 21.4% of revenue for the fiscal year ended December 26, 2021, compared to $408.3 million, or 22.1% of revenue for the prior year.

As volumes have recovered, variable and discretionary employee compensation levels have risen to reflect improved business performance.

However, f iscal 2021 benefited from the comprehensive actions we put in place during fiscal 2020 to reduce SG&A expense as a percentage of revenue in response to rapidly changing market conditions resulting from COVID-19.

We are better able to leverage our cost structure and run the company more efficiently today than we did prior to the pandemic, with SG&A expense as a percentage of revenue 40 basis points lower in fiscal 2021 as compared to fiscal 2019.

We were able to efficiently manage certain costs throughout fiscal 2021 based on fundamental changes in how we operate our business and le verage technology, while ensuring continued investment in sales resources and digital strategies as our business continues to recover.

Income from operations

Total company income from operations was $68.4 million, or 3.1% of revenue for the fiscal year ended December 26, 2021, compared to loss from operations of $174.9 million, or 9.5% of revenue for the prior year.

The loss from operations in 2020 was driven by a goodwill and intangible asset impairment charge of $175.2 million.

The increase in income from operations in 2021 was due to improving revenue trends led by recovering industry performance, including those disproportionately impacted by COVID-19, a series of new client wins, expanding gross margin, and efficiently managing our SG&A costs.

Net income was $61.6 million, or $1.74 per diluted share for the fiscal year ended December 26, 2021, compared to net loss of $141.8 million, or $4.01 per diluted share for the prior year.

Net income for fiscal 2021 includes income tax expense of $12.2 million resulting in an effective tax rate of 16.5%, compared to a benefit of $31.4 million resulting in an effective tax rate of 18.1% for the same period in the prior year.

The higher effective tax rate in the prior year was primarily due to the intangible asset impairment charge and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

Other differences between our statutory tax rate of 21% and our effective income tax rate result primarily from hiring credits, including the Work Opportunity Tax Credit (“WOTC”), and state income taxes.

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

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

Among other things, the CARES Act provided certain changes to tax laws, including the ability to carry back losses to obtain refunds related to prior year tax returns where the federal tax rate was 35%.

Additional highlights

This increase was primarily driven by the higher rates we bill our clients in our staffing businesses, which have increased ahead of the rates we pay our associates, and lower workers’ compensation costs.

Total company selling, general and administrative (“SG&A”) expense increased 7.8% to $500.7 million for the fiscal year ended December 25, 2022, compared to the prior year.

A portion of the increase in SG&A expense was to support revenue growth of 3.7%, with the remaining increase primarily related to costs incurred for investments in technology and the absence of benefits from government incentive programs related to the coronavirus pandemic (“COVID-19”) received in the prior year.

Revenue growth, along with an improvement in gross profit as a percentage of revenue, was offset by additional SG&A expense, which resulted in net income remaining relatively unchanged at $62.3 million for the fiscal year ended December 25, 2022, compared to the prior year.

As of December 25, 2022, we are in a strong financial position with cash and cash equivalents of $72.1 million, no outstanding debt, and $292.8 million available under our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $364.9 million.

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Depreciation and amortization 29,273 1.3 % 27,556 1.3 %

Goodwill and intangible asset impairment charge — — % 175,189 9.6 %

Income (loss) from operations 68,442 3.1 % (174,882) (9.5) %

Income from operations 72,185 3.2 % 68,442 3.1 %

Interest expense and other income, net 1,231 5,408

Income (loss) before tax expense (benefit) 73,850 (173,262)

Income tax expense (benefit) 12,216 (31,421)

Net income (loss) $ 61,634 2.8 % $ (141,841) (7.7) %

Net income (loss) per diluted share $ 1.74 $ (4.01)

Income before tax expense 73,416 73,850

Income tax expense 11,143 12,216

Net income $ 62,273 2.8 % $ 61,634 2.8 %

Net income per diluted share $ 1.86 $ 1.74

Revenue from services

We report our business as three reportable segments described in Note 14:

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

Revenue from services by reportable segment was as follows:

(in thousands, except percentages) 2022 Growth

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PeopleReady $ 1,272,852 0.2 % 56.5 % $ 1,270,928 58.5 %

PeopleManagement 639,741 9.0 29.4 586,822 31.8

PeopleScout 317,518 20.8 14.1 262,953 12.1

PeopleManagement 663,814 3.8 29.4 639,741 29.4

Total company $ 2,254,184 3.7 % 100.0 % $ 2,173,622 100.0 %

Our PeopleReady and PeopleManagement segments supply contingent workforce solutions to minimize our client’s cost and effort in hiring and managing permanent employees.

This allows for a rapid response to uncertain business conditions through the ability to replace absent employees, fill new positions, and convert fixed or permanent labor costs to variable costs.

Our PeopleScout segment transitions our clients’ internal candidate sourcing and hiring functions to PeopleScout on a permanent or project basis.

Human resource departments are faced with increasingly complex operational and regulatory requirements, increasing candidate expectations, an expanding talent technology landscape, and pressure to achieve efficiencies, which increase the need to migrate non-core functions to outsourced providers like PeopleScout.

PeopleScout can more effectively find and engage high-quality talent, leverage talent acquisition technology, and scale their talent acquisition function to keep pace with changing business needs.

As a result of the factors above, client demand for contingent workforce solutions and outsourced recruiting services are dependent on the overall strength of the economy and labor market, and trends in workforce flexibility.

Total company revenue grew to $2.2 billion for the fiscal year ended December 26, 2021, a 17.7% increase compared to the prior year.

The increase was primarily due to the recovery of client demand for our services, which experienced a significant drop in the prior year due to the negative impact of COVID-19.

This increase was primarily driven by improving volumes from existing clients, including clients in industries that were disproportionately impacted by COVID-19, as well as new client wins.

Total company revenue grew 3.7% to $2.3 billion for the fiscal year ended December 25, 2022, compared to the prior year.

Overall growth was driven by higher client bill rates and improved worker supply trends within our staffing businesses, which includes our PeopleReady and PeopleManagement segments, as well as increased demand for our services during the first half of the year.

This growth was partially offset by a decrease in demand for our services during the second half of the year as economic uncertainty grew.

PeopleReady revenue was relatively unchanged at $1.3 billion for the fiscal year ended December 25, 2022, compared to the prior year.

PeopleReady experienced improving client demand across most geographies during the first half of the year, and benefited from improvements in worker supply trends, job order fill rates, and client bill rates.

These improvements were offset by a decline in demand during the second half of the year, as some clients reduced volumes or paused the use of variable labor to supplement their core workforce as economic uncertainty grew.

We believe our revenue results have been supported by the use of our JobStack TM mobile app that digitally connects associates with work.

During fiscal 2022, PeopleReady associates completed approximately 3.4 million shifts that were dispatched via JobStack, which represented 64% of all completed shifts.

During fiscal 2021, 58% of completed shifts were dispatched via JobStack.

PeopleScout revenue grew 20.8% to $317.5 million for the fiscal year ended December 25, 2022, compared to the prior year.

Revenue growth was stimulated by historically high client employee turnover rates during the first half of the year, creating increased demand at existing clients and project work for new clients who utilized our services to fulfill short-term hiring needs.

During the second half of the year, many clients reduced hiring as a result of uncertainty in the economic environment.

MANAGEMENT’S DISCUSSION AND ANALYSIS

PeopleReady revenue grew to $1.3 billion for the fiscal year ended December 26, 2021, a 15.6% increase compared to the prior year.

However, as workers began to exit federal and state unemployment programs late in the fiscal third quarter, we saw gradual improvement in the supply of workers through the end of fiscal 2021.

We believe our revenue results have benefited from the use of our industry-leading JobStack TM mobile app that digitally connects associates with jobs.

During fiscal 2021, PeopleReady dispatched approximately 3.4 million shifts via JobStack and achieved a digital fill rate of 58%, an improvement from a 53% fill rate in the prior year.

PeopleManagement

PeopleManagement revenue grew to $639.7 million for the fiscal year ended December 26, 2021, a 9.0% increase compared to the prior year.

PeopleManagement growth was due to significant new client wins, which contributed approximately $30 million of revenue for fiscal 2021.

However, the pace of revenue recovery was adversely impacted by worker supply and supply chain related production slowdowns in key industries, such as manufacturing and retail.

PeopleScout revenue grew to $263.0 million for the fiscal year ended December 26, 2021, a 64.3% increase compared to the prior year.

In addition, new client wins contributed approximately $28 million of revenue for fiscal 2021 within a variety of industries including retail, health care and transportation.

Gross profit was as follows:

PeopleManagement revenue grew 3.8% to $663.8 million for the fiscal year ended December 25, 2022, compared to the prior year.

PeopleManagement’s revenue growth was driven by demand for commercial driving services, as well as existing client growth despite challenges in the global supply chain during the first half of the year.

(in thousands, except percentages) 2022 2021

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Gross profit as a percentage of revenue expanded 90 basis points to 26.7% for the fiscal year ended December 25, 2022, compared to 25.8% for the prior year.

Our staffing businesses contributed approximately 90 basis points of expansion, primarily attributable to lower workers’ compensation expense as a result of a reduction to prior year reserves associated with favorable patterns in claim development.

Our PeopleScout business contributed approximately 100 basis points of expansion from improved recruiter utilization on increasing volumes.

Our staffing businesses contributed 100 basis points of expansion, of which 60 basis points were attributable to higher client bill rates, which have increased ahead of associate pay rates.

An additional 50 basis points were attributable to lower workers’ compensation costs from a combination of favorable development on prior year reserves and fewer workplace injuries.

This expansion was partially offset by a contraction of 10 basis points, due to an unfavorable revenue shift toward our lower margin staffing businesses.

Our PeopleScout business contributed the remaining 10 basis points of contraction due to unfavorable changes in client mix.

Selling, general and administrative expense

SG&A expense was as follows:

(in thousands, except percentages) 2022 2021

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Percentage of revenue 22.2 % 21.4 %

As volumes have recovered, variable and discretionary employee compensation levels have risen to reflect improved business performance.

We are better able to leverage our cost structure and run the company more efficiently today than we did prior to the pandemic, with SG&A expense as a percentage of

MANAGEMENT’S DISCUSSION AND ANALYSIS

revenue 40 basis points lower in fiscal 2021 as compared to fiscal 2019.

Total company SG&A expense increased by $36.4 million or 7.8% for the fiscal year ended December 25, 2022, compared to the prior year.

Employee compensation and other variable costs incurred to support revenue growth of 3.7%, represented approximately $21 million of the increase.

SG&A expense in the current year included $7.9 million of expense related to investments to upgrade our PeopleReady technology platform to better support our digital strategy, while the prior year included $1.3 million.

Also included in the current year were $4.2 million in accelerated costs related to exiting non-critical software contracts .

These increases were partially offset by the reversal of $3.3 million in accrued compensation costs related to the resignation of our former Chief Executive Officer.

In the prior year, SG&A expense included benefits of $3.9 million for Canadian subsidies we received related to COVID-19 relief and a realized gain of $2.9 million related to the final conversion of available-for-sale investments to company-owned life insurance policies to fund our deferred compensation plan.

Depreciation and amortization

Depreciation and amortization was as follows:

(in thousands, except percentages) 2022 2021

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Percentage of revenue 1.3 % 1.3 %

Depreciation and amortization decreased primarily due to the impairment to our acquired client relationships intangible assets of $34.7 million during the fiscal first quarter of 2020, as discussed below, as well as assets that were fully amortized or depreciated during fiscal 2021.

Goodwill and intangible asset impairment charges

No impairment charge was recorded for the fiscal year ended December 26, 2021.

A summary of the goodwill and intangible asset impairment charges for the fiscal year ended December 27, 2020 by reportable segment are 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

As a result of the decrease in demand for our services primarily due to the economic impact caused by COVID-19, we lowered our future expectations, which was the primary trigger of an impairment of our goodwill and acquired client relationships intangible assets recorded during the fiscal year ended December 27, 2020.

As a result of our interim impairment test in the fiscal first quarter of 2020, 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 loss of $140.5 million.

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

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

The impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units was $34.7 million.

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

Depreciation and amortization increased primarily due to certain assets placed into service during fiscal 2022 and 2021, partially offset by other assets becoming fully amortized during those years.

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

(in thousands, except percentages) 2022 2021

Income tax expense (benefit) $ 12,216 $ (31,421)

Income tax expense $ 11,143 $ 12,216

Effective income tax rate 15.2 % 16.5 %

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Additionally, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our effective tax rate for the fiscal year ended December 26, 2021 was 16.5% compared to 18.1% for the prior year.

The higher effective tax rate in the prior year was primarily due to the intangible asset impairment charge and the CARES Act.

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

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

The items creating differences between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:

(in thousands, except percentages) 2022 % 2021 %

Income tax expense (benefit) based on statutory rate $ 15,508 21.0 % $ (36,385) 21.0 %

Income tax expense based on statutory rate $ 15,417 21.0 % $ 15,508 21.0 %

Increase (decrease) resulting from:

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CARES Act (1) — — (468) (0.6)

Non-deductible goodwill impairment charge (1) — — 21,849 (12.6)

Uncertain tax positions (1,336) (1.8) (391) (0.5)

Non-deductible and non-taxable items 1,377 1.9 589 0.8

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Other, net (66) (0.1) 801 1.0

Total tax expense (benefit) $ 12,216 16.5 % $ (31,421) 18.1 %

(1) The non-deductible goodwill and intangible asset impairment charge relates to an impairment of the carrying amounts of goodwill and other intangible assets of $175.2 million in the fiscal first quarter of 2020.

Of the total goodwill impairment loss, $84.7 million (tax-effect $21.8 million) related to reporting units from stock acquisitions and accordingly were not deductible for tax purposes.

The remaining goodwill and intangible impairment loss of $90.5 million (tax-effect $23.3 million) related to reporting units from asset acquisitions and accordingly were deductible for tax purposes.

WOTC, our primary hiring tax credit, is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates.

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

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

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

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

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

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

We recognize an adjustment to prior year hiring credits if credits certified by government offices differ from original estimates.

The WOTC program has been approved through the end of 2025.

The CARES Act was enacted in the U.S.

Total tax expense $ 11,143 15.2 % $ 12,216 16.5 %

(1) The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") enacted in the U.S.

on March 27, 2020.

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

Among other things, the CARES Act provided 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%.

Our effective tax rate for the fiscal year ended December 25, 2022 was 15.2% compared to 16.5% for the prior year.

The lower effective tax rate in the current year was primarily due to changes in uncertain tax positions.

Other differences between the statutory federal income tax rate of 21.0% and our effective tax rate include benefits of hiring tax credits, partially offset by state and foreign income taxes, and certain non-deductible market losses related to company-owned life insurance policies.

Summary of Significant Accounting Policies and Note 12:

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

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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 (loss) before tax expense (benefit).

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.

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 (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

PeopleReady segment performance was as follows:

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Percentage of revenue 6.9 % 6.5 %

PeopleReady segment profit grew $39.2 million for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleReady segment profit and related margin benefited from lower workers’ compensation expense as a result of a reduction to prior year reserves largely associated with favorable patterns in claim development, higher bill rates compared to pay rates, and disciplined cost management.

PeopleManagement segment performance was as follows:

PeopleReady segment profit grew 6.5% or $5.3 million and improved as a percentage of revenue for the fiscal year ended December 25, 2022, compared to the prior year.

PeopleReady segment profit benefited from higher client bill rates, which have increased ahead of associate pay rates, lower workers’ compensation costs from a combination of favorable development on prior year reserves and fewer workplace injuries, partially offset by investments we made to attract and retain employees.

MANAGEMENT’S DISCUSSION AND ANALYSIS

PeopleScout segment performance was as follows:

(in thousands, except percentages) 2022 2021

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Percentage of revenue 14.1 % 13.8 %

PeopleManagement segment profit grew $1.5 million for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleManagement segment profit and related margin benefited from higher bill rates compared to pay rates as well as a revenue mix shift to higher margin clients.

PeopleScout segment performance was as follows:

PeopleScout segment profit grew 23.8% or $8.6 million and improved as a percentage of revenue for the fiscal year ended December 25, 2022, compared to the prior year.

Historically high client employee turnover rates at existing clients during the first half of the year drove higher volumes and operating leverage due to improved recruiter utilization, but was offset by operational deleveraging as volumes and revenue declined towards the end of the year.

PeopleManagement segment performance was as follows:

(in thousands, except percentages) 2022 2021

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Percentage of revenue 2.4 % 2.1 %

PeopleScout segment profit grew $31.6 million for the fiscal year ended December 26, 2021, compared to the prior year.

PeopleScout segment profit and related margin benefited from operating leverage driven by increased utilization of recruiting staff as volumes recovered with existing clients, especially those in industries hit the hardest by COVID-19, such as travel and leisure, as well as new client wins.

PeopleManagement segment profit grew 19.8% or $2.6 million and improved as a percentage of revenue for the fiscal year ended December 25, 2022, compared to the prior year.

Segment profit growth was due to favorable business mix towards commercial driving services, favorable client mix within our On-Site operating segment toward our higher margin, productivity-based (cost-per-unit) pricing option, and lower recruiting and candidate marketing costs as the labor market improved.

FISCAL 2021 AS COMPARED TO FISCAL 2020

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FUTURE OUTLOOK

The following highlights represent our operating outlook for the fiscal first quarter and full year of fiscal 2022.

The following highlights represent our operating outlook.

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

• We are not providing customary revenue guidance for the fiscal first quarter of 2022.

However, our historical first quarter revenue has averaged about 15% lower than our fourth quarter revenue as the first quarter is historically our quarter with the lowest volume.

• We anticipate gross margin expansion to be between 140 and 180 basis points for the fiscal first quarter of 2022, compared to the same period in prior year, driven by segment revenue mix and higher bill rates compared to pay rates within our contingent staffing businesses.

We anticipate gross margin contraction to be between 70 and 10 basis points for fiscal 2022 compared to fiscal 2021, primarily due to expected increases in workers’ compensation expense due to the reserve reduction experienced in 2021.

Operating outlook

• We expect revenue for the fiscal first quarter of 2023 to decline between 18% and 13% as compared to the same period in the prior year, due to the continuation of lower demand for our services as we experienced during the last half of fiscal 2022.

Higher revenue in the first quarter of 2022 within our PeopleReady segment was driven by a high volume of retail project work and above average results in our existing client base as businesses found themselves in desperate need of labor during the peak of the post-COVID recovery.

The absence of this demand surge during the fiscal first quarter of 2023 is expected to account for approximately 7% of the total company revenue decline compared to the prior year.

• We anticipate gross margin expansion to be between 70 and 110 basis points for the fiscal first quarter of 2023, compared to the same period in prior year, driven by lower workers’ compensation costs and continued favorable spreads between client bill rates and associate pay rates within our contingent staffing businesses.

We anticipate gross margin to hold relatively steady for fiscal 2023, between a contraction of 30 and an expansion of 30 basis points.

• For the fiscal first quarter of 2023, we anticipate SG&A expense to be between $120 million and $124 million.

We will continue to exercise disciplined cost management while making investments in sales resources and digital strategies to drive profitable revenue growth.

We are in the early stages of redesigning our PeopleReady technology platform to better support our digital strategy, which we expect will cost approximately $10 million in fiscal 2022, of which $3 million is expected in the fiscal first quarter.

For fiscal 2023, we anticipate SG&A expense to be between $499 million and $505 million.

We will continue to make investments in sales resources and innovative technology to drive profitable revenue growth.

• We expect basic weighted average shares outstanding to be approximately 33 million for the fiscal first quarter of 2023.

This expectation does not include the impact of potential share repurchases.

• We expect our effective income tax rate for fiscal 2023 to be between 10% and 14%.

• We expect our capital expenditures and spending for software as a service assets for the fiscal first quarter of 2022 to be approximately $11 million, and to be between $43 million and $48 million for fiscal 2022.

• Fiscal 2023 will include a 53rd week, which we expect will add between $22 million and $27 million in revenue, but is not expected to contribute significant net income due to it falling during a low point between the Christmas and New Year holidays.

Liquidity outlook

• Capital expenditures and spending for software as a service assets for the fiscal first quarter of 2023 are expected to be approximately $11 million, and between $36 million and $40 million for fiscal 2023.

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

We continue to make investments in our online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting them with our clients.

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

We continue to make investments in online and mobile apps to improve access to associates and candidates, as well as improve the speed and ease of connecting them with our clients.

We expect these investments will increase the competitive differentiation of our services over the long term and improve the efficiency of our service delivery.

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

• We believe the additional government spending on infrastructure projects, as proposed by the current administration, may generate additional demand for industrial staffing businesses during fiscal 2022, especially within the construction, energy and transportation industries.

MANAGEMENT’S DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

(in thousands) 2021 2020

Net income (loss) $ 61,634 $ (141,841)

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

Depreciation and amortization 27,556 32,031

Goodwill and intangible asset impairment charge — 175,189

Provision for credit losses 6,493 6,300

Stock-based compensation 13,943 9,113

Deferred income taxes 752 (26,791)

Non-cash lease expense, net of changes in operating lease liabilities 989 633

Other operating activities (1,968) (686)

Changes in operating assets and liabilities:

Accounts receivable (81,616) 57,146

Income tax receivable 1,602 (1,122)

Operating lease right-of-use asset 8,080 —

Accounts payable and other accrued expenses 16,425 (6,561)

Other accrued wages and benefits 34,581 (2,012)

Deferred employer payroll taxes (57,065) 57,065

Workers’ compensation claims reserve 701 (125)

Other assets and liabilities (11,667) (5,808)

Net cash provided by operating activities $ 20,440 $ 152,531

Cash flows from operating activities

Net cash provided by operating activities decreased to $20.4 million for the fiscal year ended December 26, 2021, compared to $152.5 million for the prior year.

Adjustments to reconcile net income to net cash provided by operating activities for the fiscal year ended December 26, 2021 changed from the prior year primarily due to:

• Decrease in depreciation and amortization due to the impairment to amortizable intangible assets of $34.7 million during the fiscal first quarter of 2020, as well as assets that were fully amortized or depreciated during fiscal 2021.

• Increase in stock-based compensation expense primarily due to performance-based awards tied to company performance, which has improved during the fiscal year ended December 26, 2021.

• Increase in deferred income tax expense relative to the prior year benefit primarily due to a $23.3 million discrete tax benefit resulting from goodwill and intangible asset impairment charges in the fiscal first quarter of 2020.

• Decrease in other operating activities primarily related to realized gains upon sale of equity securities held supporting our deferred compensation liability in order to reinvest in company-owned life insurance policies.

Changes to operating assets and liabilities for the fiscal year ended December 26, 2021 and select changes for the fiscal year ended December 27, 2020, contributed in the following ways to net cash provided by operating activities:

• Cash used by accounts receivable of $81.6 million was primarily due to increased revenue driven by the recovery of client demand for our services, as well as an increase in our days sales outstanding of 3.6 days compared to the fiscal year ended December 27, 2020.

The increase in days sales outstanding was primarily due to a higher percentage of receivables with longer payment terms.

Cash provided by accounts receivable of $57.1 million for the fiscal year ended December 27, 2020 was primarily due to lower revenue from a decline in demand for our services, as well as a decrease in days sales outstanding of 3.7 days compared to the fiscal year ended December 29, 2019 due to focused collection efforts.

• Cash provided by operating lease right-of-use asset of $8.1 million represents reimbursable costs we incurred for the build-out of our Chicago support center, that were collected from our landlord during the fiscal year ended December 26, 2021.

There were no similar amounts collected in the prior year.

MANAGEMENT’S DISCUSSION AND ANALYSIS

• Cash provided by accounts payable and other accrued expenses of $16.4 million was primarily due to higher costs required to support revenue growth, timing of these payments, as well as the return of accrued customer rebates as volumes exceeded minimum thresholds.

Cash used for accounts payable and other accrued expenses of $6.6 million for the fiscal year ended December 27, 2020 was primarily due to cost control programs, a decline in accrued customer rebates and timing of payments.

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

Accrued customer rebates 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 other accrued wages and benefits of $34.6 million was primarily due to higher accrued wages and benefits consistent with our business recovery as well as timing of payroll tax payments.

• The CARES Act allowed for the deferral of the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees.

Cash used by deferred employer payroll taxes of $57.1 million for the fiscal year ended December 26, 2021 was primarily due to the full repayment as of September 15, 2021.

Cash provided by the deferral of employer payroll taxes was $57.1 million for the fiscal year ended December 27, 2020.

Cash flows from investing activities

(in thousands) 2021 2020

Capital expenditures $ (35,006) $ (27,066)

Purchases and sales of restricted investments, net 18,786 (7,345)

Net cash used in investing activities $ (16,220) $ (34,411)

Net cash used in investing activities was $16.2 million for the fiscal year ended December 26, 2021, compared to $34.4 million for the prior year.

Capital expenditures for the fiscal year ended December 26, 2021 include build-out costs for our Chicago support center of $8.6 million, as well as 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 our JobStack mobile app in our PeopleReady business and our Affinix talent acquisition technology in our PeopleScout business.

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.

Cash provided by net purchases and sales of restricted investments increased $26.1 million during the fiscal year ended December 26, 2021, as compared to the prior year, primarily due to reduced levels of and changes in the timing of collateral contributions as required by our insurance carriers.

Cash flows from financing activities

(in thousands) 2021 2020

Purchases and retirement of common stock $ (16,678) $ (52,346)

Net proceeds from employee stock purchase plans 1,135 922

Common stock repurchases for taxes upon vesting of restricted stock (3,238) (2,438)

Net change in revolving credit facility — (37,100)

Other (345) (1,540)

Net cash used in financing activities $ (19,126) $ (92,502)

Net cash used in financing activities of $19.1 million for the fiscal year ended December 26, 2021, was primarily due to the repurchase of $16.7 million of our common stock in the open market under existing authorizations.

As of December 26, 2021, $50.0 million remains available for repurchase under existing authorizations.

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.

We believe we have a strong financial position and sufficient sources of funding to meet our short and long term obligations.

As of December 25, 2022, we had $72.1 million in cash and cash equivalents.

We also had $292.8 million available under our $300 million Revolving Credit Facility, as $7.2 million was utilized by outstanding standby letters of credit.

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

Cash generated through our core operations is our primary source of liquidity.

Our principal ongoing cash needs are to finance working capital, fund capital expenditures, repay outstanding Revolving Credit Facility balances, and execute share repurchases.

We manage working capital through timely collection of accounts receivable, which we achieve through focused collection efforts and tightly monitoring trends in days sales outstanding.

While client payment terms are generally 90 days or less, we pay our associates weekly, so additional financing through the use of our Revolving Credit Facility is sometimes necessary to support revenue growth.

We also manage working capital through efficient cost management and strategically timing payments of accounts payable.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Net cash used in financing activities of $92.5 million for the fiscal year ended December 27, 2020, was primarily due to the repurchase of $40.0 million of our common stock under an accelerated share repurchase agreement and $12.4 million of our common stock in the open market for a total of $52.4 million of common stock.

In addition, cash of $37.1 million was used to pay down our Revolving Credit Facility.

FISCAL 2020 AS COMPARED TO FISCAL 2019

Management’s Discussion and Analysis of Financial Condition and Results of Operations , found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 27, 2020 for discussion of fiscal 2020 compared to fiscal 2019.

CAPITAL RESOURCES

Revolving credit facility

Under our Revolving Credit Facility, which matures on March 16, 2025, we have the ability to increase our Revolving Credit Facility from $300.0 million up to $450.0 million, subject to bank approval.

The following financial covenants were in effect starting the fiscal third quarter of 2021 and thereafter:

• Consolidated leverage ratio less than 4.00 for the third and fourth quarter of 2021 and less than 3.00 thereafter, defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the second amendment to our credit agreement.

As of December 26, 2021, our consolidated leverage ratio was 0.05.

• Consolidated fixed charge coverage ratio greater than 1.25, defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense.

As of December 26, 2021, our consolidated fixed charge coverage ratio was 67.88.

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 second amendment to our credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including the financial covenants listed above.

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.

Workers’ compensation insurance, collateral and reserves

Workers’ compensation insurance

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.

For workers’ compensation claims originating in Washington, North Dakota, Ohio, Wyoming, Canada and Puerto Rico (our “monopolistic jurisdictions”), we pay workers’ compensation insurance premiums and obtain full coverage under government-administered programs (with the exception of PeopleReady in Ohio where we have a self-insured policy).

Accordingly, because we are not the primary obligor, our financial statements do not reflect the liability for workers’ compensation claims in these monopolistic jurisdictions.

Workers’ compensation collateral 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 surety bonds.

We continue to make investments in online and mobile apps to increase the competitive differentiation of our services over the long term and improve the efficiency of our service delivery model.

In addition, we continue to transition our back-office technology from on-premise software platforms to cloud-based software solutions, to increase automation and the efficiency of running our business.

Outside of ongoing cash needed to support core operations, our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent.

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

Such amounts can increase or decrease independent of our assessments and reserves.

We continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics.

We generally anticipate that our collateral commitments will continue to grow as we grow our business.

We pay our premiums and deposit our collateral in installments.

The 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”).

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

(in thousands) December 26, 2021 December 27,

Cash collateral held by workers’ compensation insurance carriers $ 23,056 $ 22,253

Cash and cash equivalents held in Trust 21,590 29,410

Investments held in Trust 135,419 152,247

Letters of credit (1) 6,160 6,095

Surety bonds (2) 21,969 20,616

Total collateral commitments $ 208,194 $ 230,621

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

(2) Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which is determined by each independent surety carrier.

These fees do not exceed 2.0% of the bond amount, subject to a minimum charge.

The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice.

Total collateral commitments decreased $22.4 million during the fiscal year ended December 26, 2021 primarily due to reduced levels of and changes in the timing of collateral contributions as required by our insurance carriers.

At December 26, 2021, we had restricted cash and investments totaling $221.0 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.

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.

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.

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.

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

Restricted cash and investments supporting our self-insured workers’ compensation obligation are held in a trust at the Bank of New York Mellon (“Trust”), and are used to pay workers’ compensation claims as they are filed.

Workers' Compensation Insurance and Reserves , and Note 3:

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 workers’ compensation program as well as the restricted cash and investments held in Trust.

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

Trust investments must meet minimum acceptable quality standards.

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Long-term rating A A2 A

MANAGEMENT’S DISCUSSION AND ANALYSIS

Workers’ compensation reserve

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

(in thousands) December 26, 2021 December 27, 2020

Total workers’ compensation reserve $ 256,194 $ 255,493

Add back discount on workers’ compensation reserve (1) 16,806 18,009

Less excess claims reserve (2) (62,684) (54,019)

Reimbursable payments to insurance provider (3) 2,984 6,373

Other (4) (5,106) 4,765

Total collateral commitments $ 208,194 $ 230,621

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

(2) Excess claims reserve includes the estimated obligation for claims above our deductible limits.

These are the responsibility of the insurance carriers against which there are no collateral requirements.

(3) This amount is included in restricted cash and represents a timing difference between claim payments made by our insurance carrier and the reimbursement from cash held in the Trust.

When claims are paid by our carrier, the amount is removed from the workers’ compensation reserve but not removed from collateral until reimbursed to the carrier.

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

Our workers’ compensation reserve is established using estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value.

We discount our workers’ compensation liability as we believe the estimated future cash outflows are readily determinable.

Our workers’ compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled, as well as those that have been incurred but not reported.

Reserves are estimated for claims incurred in the current year, as well as claims incurred during prior years.

Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment.

Factors considered in establishing and adjusting these reserves include, among other things:

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

• changes in mix between medical only and indemnity claims;

• regulatory and legislative developments impacting benefits and settlement requirements;

• type and location of work performed;

• the impact of safety initiatives;

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

Our workers’ compensation claims reserve for claims below the deductible limit is discounted to their estimated net present value using discount rates based on returns of “risk-free” U.S.

Treasury instruments with maturities comparable to the weighted average lives of our workers’ compensation claims.

At December 26, 2021, the weighted average discount rate was 1.6%.

The claim payments are made over an estimated weighted average period of approximately 5.5 years.

Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”), and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers.

We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S.

Treasury instruments available during the year in which the liability was incurred.

The rates used to discount excess claims incurred during the fiscal years ended December 26, 2021 and December 27, 2020 were 1.8% and 1.3%, respectively.

The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 17 years.

The discounted workers’ compensation reserve for excess claims were $62.7 million and $54.0 million, as of December 26, 2021 and December 27, 2020, respectively.

The discounted receivables from insurance companies, net of valuation allowance, were $61.4 million and $52.9 million as of December 26, 2021 and December 27, 2020, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

(in thousands) 2021 2020

Beginning balance $ 255,493 $ 255,618

Self-insurance reserve expenses related to current year, net 56,979 61,264

Payments related to current year claims (9,533) (12,594)

Payments related to claims from prior years (32,350) (40,236)

Changes to prior years’ self-insurance reserve, net (24,342) (19,205)

Amortization of prior years’ discount (1) 1,283 1,880

Net change in excess claims reserve (2) 8,664 8,766

Ending balance 256,194 255,493

Less current portion 61,596 66,007

Long-term portion $ 194,598 $ 189,486

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

In addition, any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in cost of services on the Consolidated Statement of Operations and Comprehensive Income (Loss) in the period when the changes in estimates are made.

(2) Changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims.

Certain workers’ compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date.

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

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

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

Total collateral commitments decreased $3.1 million during the fiscal year ended December 25, 2022 primarily due to lower collateral requirements from our insurance carriers and the use of collateral to satisfy workers’ compensation claims.

Commitments and Contingencies , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our workers’ compensation commitments.

We continue to actively manage workers’ compensation cost by focusing on improving our associates’ safety programs, and actively control costs with our network of service providers.

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

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

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

FUTURE OUTLOOK

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

At December 26, 2021, we had no debt outstanding on our Revolving Credit Facility leaving $294 million unused under the Revolving Credit Facility as $6 million was utilized by outstanding standby letters of credit.

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

As of December 26, 2021, $50 million remains available for repurchase of common stock under existing authorizations.

On January 31, 2022, our Board of Directors authorized a $100 million addition to our share repurchase program for our outstanding common stock.

For further information, see Note 15:

Subsequent Events, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

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

Commitments and Contingencies and Note 11:

Defined Contribution Plans , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our contractual obligations.

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

Restricted cash and investments also includes collateral to support our non-qualified deferred compensation plan in the form of company-owned life insurance policies.

Our non-qualified deferred compensation plan is managed by a third-party service provider, and the investments backing the company-owned life insurance policies align with the amount and timing of payments based on employee elections.

A summary of our cash flows for each period are as follows:

Fifty-two weeks ended

(in thousands) Dec 25, 2022 Dec 26, 2021

Net cash provided by operating activities $ 120,503 $ 20,440

Net cash used in investing activities (20,945) (16,220)

Net cash used in financing activities (64,692) (19,126)

Effect of exchange rate changes on cash, cash equivalents and restricted cash (2,420) (521)

Net change in cash, cash equivalents and restricted cash $ 32,446 $ (15,427)

MANAGEMENT’S DISCUSSION AND ANALYSIS

Cash flows from operating activities

Cash provided by operating activities consists of net income adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.

As client demand for our services declines, as was the case during the second half of fiscal 2022 as economic uncertainty rose, the result is a deleveraging of accounts receivable and accounts payable.

Accrued wages and benefits can fluctuate based on whether the period end requires the accrual of one or two weeks of payroll, the amount and timing of bonus payments, and timing of payroll tax payments.

Net cash provided by accounts receivable collections through deleveraging during fiscal year ended December 25, 2022 was the primary driver in the increase in net cash provided by operating activities.

This was partially offset by net cash used for payments on accounts payable and accrued expenses, as well as net cash used for payments of accrued wages and benefits primarily due to the timing and amount of annual bonus payments to employees and COVID-19 government assistance.

For the fiscal year ended December 26, 2021, higher revenue during the peak of the post-COVID recovery, as well as an increase in our days sales outstanding of 3.6 days compared to the prior year-end, resulted in net cash used by accounts receivable.

During the same period, net cash was used to repay deferred employer payroll taxes as allowed by the CARES Act.

Cash flows from investing activities

Investing cash flows consist of capital expenditures and purchases, sales and maturities of restricted investments, which are managed in line with our workers’ compensation collateral funding requirements and timing of claim payments.

Net cash used in investing activities increased during the fiscal year ended December 25, 2022, as compared to the fiscal year ended December 26, 2021, as the prior year included a net cash inflow of $4.1 million related to the final conversion of available-for-sale investments to company-owned life insurance policies to fund our deferred compensation plan.

Cash flows from financing activities

Financing cash flows consist primarily of repurchases of common stock as part of our publicly announced share repurchase program, amounts to satisfy employee tax withholding obligations upon the vesting of restricted stock, the net change in our Revolving Credit Facility, and proceeds from the sale of common stock through our employee stock purchase plans.

Net cash used in financing activities during the fiscal year ended December 25, 2022 was primarily due to the repurchase of $60.9 million of our common stock in the open market.

During the fiscal year ended December 26, 2021, we repurchased $16.7 million of our common stock in the open market.

As of December 25, 2022, $89.0 million remains available for repurchase under existing authorizations.

FISCAL 2021 AS COMPARED TO FISCAL 2020

Management’s Discussion and Analysis of Financial Condition and Results of Operations , found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 26, 2021 for discussion of fiscal 2021 compared to fiscal 2020.

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES

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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.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Workers’ compensation reserve

We maintain reserves for workers’ compensation claims, including the excess claims portion above our insurance deductible, using actuarial estimates of the future cost of claims and related expenses.

We maintain reserves for workers’ compensation claims, including the estimated expenses related to claims above our self-insured limits (“excess claims”), using actuarial estimates of the future cost of claims and related expenses.

These estimates include claims that have been reported but not settled and claims that have been incurred but not reported.

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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.

Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment.

Factors considered in establishing and adjusting these reserves include, among other things:

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

• changes in mix between medical only and indemnity claims;

• regulatory and legislative developments impacting benefits and settlement requirements;

• type and location of work performed;

• impact of safety initiatives;

• positive or adverse development of claims.

Accounts receivable allowance for credit losses

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• 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.

This results in high turnover in accounts receivable.

• PeopleManagement On-Site has a smaller number of clients and follows a contractual billing schedule.

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Invoice amounts are generally higher for PeopleScout than for PeopleManagement On-Site, with similar payment terms.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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.

The allowance for credit loss is reviewed and represents our best estimate of the amount of expected credit losses.

Past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations.

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

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

Business combinations

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Goodwill and indefinite-lived intangible assets

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, and whenever events or circumstances make it more likely than not that an impairment may have occurred.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, client engagement, or sale or disposition of a significant portion of a reporting unit.

We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, or whenever events or circumstances make it more likely than not that an impairment may have occurred.

These events or circumstances could include a significant change in general economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, client engagement, changes in the carrying amount of net assets, sale or disposition of a significant portion of a reporting unit, or a sustained decrease in share price.

We monitor the existence of potential impairment indicators throughout the fiscal year.

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

Our operating segments are PeopleReady, PeopleManagement Centerline, PeopleManagement On-Site, PeopleScout RPO and PeopleScout MSP.

The impairment test involves comparing the fair value of each reporting unit to its carrying value, including goodwill.

Our operating segments with remaining goodwill are PeopleReady, PeopleManagement Centerline, PeopleScout RPO and PeopleScout MSP.

When evaluating goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount.

Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance.

If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary.

The quantitative impairment test, if necessary, involves comparing the fair value of each reporting unit to its carrying value, including goodwill.

Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit.

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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.

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

Determining the fair value of a reporting unit when performing a quantitative impairment test involves the use of significant estimates and assumptions to evaluate the impact of operational and macroeconomic changes on each reporting unit.

We estimate the fair value of each reporting unit using a weighted average of the income and market valuation approaches.

The income approach applies a fair value methodology based on discounted cash flows.

The income approach applies a fair value methodology to each reporting unit based on discounted cash flows.

This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested.

Our weighted average cost of capital for our most recent annual impairment test ranged from 11.0% to 12.0%.

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.

We also apply a market approach, which compares TrueBlue, Inc.

to comparable publicly traded companies

MANAGEMENT’S DISCUSSION AND ANALYSIS

primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization.

The income and market approaches were equally weighted in our most recent annual impairment test.

These combined fair values are reconciled to our aggregate market value of our shares of common stock outstanding on the date of valuation, resulting in a control premium of 23.2% in our most recent annual impairment test.

and develops a correlation, referred to as a multiple, to apply to the operating results of the reporting units.

The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization.

We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

Actual future results may differ from those estimates.

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

Based on our 2021 annual impairment test performed as of March 29, 2021, all reporting units’ fair values were substantially in excess of their respective carrying values.

We confirm the reasonableness of the valuation conclusions by comparing the indicated values of all the reporting units to the overall company value indicated by the stock price and outstanding shares as of the valuation date, or market capitalization.

We performed our annual goodwill impairment test as of the first day of our fiscal second quarter of 2022.

Based on our assessment of qualitative factors, we concluded it was more likely than not that the fair value of each reporting unit exceeded its carrying value, and the goodwill associated with each reporting unit was not impaired.

As such, it was not necessary to perform a quantitative impairment analysis.

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 28, 2022 to December 25, 2022.

Accordingly, there was no goodwill impairment charge recorded during fiscal 2021.

During fiscal 2020, we recorded an impairment charge of $140.5 million with respect to our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units.

Accordingly, no impairment loss was recognized during fiscal 2022.

There was no goodwill impairment charge recorded during fiscal 2021.

During fiscal 2020, we recorded an impairment charge of $140.5 million with respect to our PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units.

Goodwill and Intangible Assets , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the 2020 goodwill impairments.

Indefinite-lived intangible assets

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.

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

We evaluate our indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter, or whenever events or circumstances make it more likely than not that an impairment may have occurred.

These events or circumstances could include significant change in general economic conditions, deterioration in industry environment, changes in cost factors, declining operating performance indicators, legal factors, competition, client engagement, or sale or disposition of a significant portion of the business.

We monitor the existence of potential impairment indicators throughout the fiscal year.

When evaluating indefinite-lived intangible assets for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of the indefinite-lived intangible is less than its carrying amount.

Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance.

If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the indefinite-lived intangible is greater than its carrying amount, the quantitative impairment test is unnecessary.

The quantitative impairment test, if necessary, utilizes the relief from royalty method to determine the fair value of each of our trade names.

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

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

We performed our annual indefinite-lived intangible asset impairment test as of March 29, 2021, and determined that the estimated fair values exceeded the carrying amounts for our indefinite-lived trade names.

We performed our annual impairment test as of the first day of our fiscal second quarter of 2022.

Based on our assessment of qualitative factors, we concluded it was more likely than not that the fair value of our indefinite-lived intangible assets exceeded their carrying value and were not impaired.

As such, it was not necessary to perform a quantitative impairment analysis.

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 28, 2022 to December 25, 2022.

Accordingly, no impairment charge was recorded during fiscal 2021.

Accordingly, no impairment loss was recognized during fiscal 2022.

No impairment charge was recorded during fiscal 2021 or 2020.

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We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.

Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies.

Important factors that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies.

We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate.

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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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

No impairment charge was recorded during fiscal 2022 or 2021.

During fiscal 2020, we recorded a non-cash impairment charge for our PeopleScout RPO and PeopleManagement On-Site client relationship intangible assets of $34.7 million.

Goodwill and Intangible Assets , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the 2020 intangible asset impairments.

Estimated contingent legal and regulatory liabilities

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 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.

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If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the period in which the estimate changes.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income taxes and related valuation allowances

We account for income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns.

We measure these expected future tax consequences based upon the provisions of tax law as currently enacted;

We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns.

These expected future tax consequences are measured based on provisions of tax law as currently enacted;

the effects of future changes in tax laws are not anticipated.

Future tax law changes, such as changes to federal and state corporate tax rates and the mix of states and their taxable income, could have a material impact on our financial condition or results of operations.

When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized.

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

We recognize deferred tax assets to the extent we believe it is more likely than not the asset will be realized.

We consider available positive and negative evidence when making such determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted, and results of recent operations.

When appropriate, we record a valuation allowance against deferred tax assets to reduce deferred tax assets to the amount that is more likely than not to be realized.

Based on our deferred tax asset realizability analysis, we have determined that a valuation allowance is appropriate for certain tax credits and net operating losses (“NOLs”) that we expect will not be utilized within the permitted carryforward periods as of December 25, 2022 and December 26, 2021.

Income Taxes , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our current valuation allowance.

NEW ACCOUNTING STANDARDS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis