TrueBlue, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of TrueBlue, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of TrueBlue, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and December 25, 2022, the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and December 25, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Workers’ Compensation Claims Reserves - Refer to Notes 1 and 6 to the Financial Statements Critical Audit Matter Description The Company bears the financial responsibility for a significant portion of expected losses under its workers’ compensation program and records reserves for workers’ compensation claims based on estimates of the future cost of claims and related expenses, which are discounted to their estimated net present value. The determination of the undiscounted reserve requires significant estimates and assumptions related to the future cost of claims and related expenses for claims that have been reported but not settled, as well as those that have been incurred but not reported. The undiscounted workers’ compensation reserve was $214.6 million as of December 31, 2023. Given the fact that changes in actuarial assumptions could have a significant impact on the reserve, auditing management judgments regarding the workers’ compensation reserve, including estimates of the future cost of claims and related expenses, involved a high degree of auditor judgment, including the need to involve our actuarial specialists. Page - 40 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the workers’ compensation reserve included the following, among others: • We tested the effectiveness of controls over workers’ compensation, including those over payments and related expenses, claims data provided to the actuary, and review of actuarial results. • We evaluated the methods and assumptions used by management to estimate the workers’ compensation reserve by: ◦ Making selections of the underlying claims data that serves as the basis for the actuarial analysis, including claims payments and related expenses, to evaluate whether the inputs to the actuarial estimate were reasonable; and ◦ Comparing management’s prior-year assumptions of expected future cost of claims and related expenses to actuals incurred during the current year to identify potential bias in the determination of the workers’ compensation reserve. • With the assistance of our actuarial specialists, we developed independent estimates of the workers’ compensation reserve and compared our estimates to the Company’s recorded workers’ compensation reserve. Goodwill - PeopleScout MSP Reporting Unit - Refer to Notes 1, 2, and 5 to the Financial Statements Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches, except for the PeopleScout MSP reporting unit (“MSP”) which relied only on the income approach. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows, which requires management to make significant judgments related to the estimation of future revenue and profitability, and determination of the risk-adjusted weighted average cost of capital (“discount rate”). Changes in these assumptions could have a significant impact on either the fair value of MSP and the related amount of the goodwill impairment charge. The goodwill balance was $84.1 million as of December 31, 2023, of which $0.8 million was allocated to MSP. A goodwill impairment charge of $8.9 million was recorded within MSP during the year ended December 31, 2023. The MSP goodwill impairment recorded during the year ended December 31, 2023 was due to management’s revised internal revenue projections. These projections were updated based on management’s current macroeconomic outlook and industry analysis, which indicates that MSP will underperform due to a strategic lack of investment in technology within an increasingly competitive market. We identified goodwill for the MSP reporting unit as a critical audit matter because of the significant judgments made by management to estimate the fair value of MSP. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and profitability. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the discount rate and forecasts of future revenue and profitability used by management to estimate the fair value of MSP included the following, among others: • We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of MSP, such as controls related to management’s selection of the discount rate and forecasts of future revenues and profitability. • We evaluated management’s ability to accurately forecast future revenues and profitability by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s revenue and profitability forecasts by comparing the forecasts to: ◦ Historical revenues and profitability. ◦ Internal communications to management and the Board of Directors, including related to strategic decisions that could impact MSP’s future revenues. Page - 41 Table of Contents ◦ Industry reports containing analyses of expected trends and the competitive environment in the industry in which MSP operates. • With the assistance of our fair value specialists, we evaluated the reasonableness of (1) valuation methodology and (2) the discount rate by: ◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. ◦ Developing an independent estimate of the discount rate and comparing that estimate to the discount rate selected by management. /s/ Deloitte & Touche, LLP Seattle, Washington February 21, 2024 We have served as the Company’s auditor since 2009. Page - 42 Table of Contents TRUEBLUE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share count data) December 31, 2023 December 25, 2022 ASSETS Current assets: Cash and cash equivalents $ 61,885 $ 72,054 Accounts receivable, net of allowance of $ 2,005 and $ 3,212 252,538 314,275 Prepaid expenses and other current assets 28,894 32,530 Income tax receivable 11,676 11,353 Total current assets 354,993 430,212 Property and equipment, net 104,906 95,823 Restricted cash and investments 192,985 213,734 Deferred income taxes, net 35,465 25,842 Goodwill 84,114 93,784 Intangible assets, net 10,525 16,205 Operating lease right-of-use assets, net 49,819 50,823 Workers’ compensation claims receivable, net 53,841 75,185 Other assets, net 12,735 17,800 Total assets $ 899,383 $ 1,019,408 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and other accrued expenses $ 56,401 $ 76,644 Accrued wages and benefits 80,120 92,237 Income tax payable 439 1,137 Current portion of workers’ compensation claims reserve 44,866 50,005 Current operating lease liabilities 11,902 11,963 Other current liabilities 10,371 10,889 Total current liabilities 204,099 242,875 Workers’ compensation claims reserve, less current portion 151,649 201,005 Long-term deferred compensation liabilities 35,205 26,213 Long-term operating lease liabilities 49,434 50,601 Other long-term liabilities 1,123 2,399 Total liabilities 441,510 523,093 Commitments and contingencies (Note 8) Shareholders’ equity: Preferred stock, $ 0.131 par value, 20,000,000 shares authorized; No shares issued and outstanding — — Common stock, no par value, 100,000,000 shares authorized; 31,245,732 and 32,729,689 shares issued and outstanding 1 1 Accumulated other comprehensive loss ( 20,712 ) ( 20,018 ) Retained earnings 478,584 516,332 Total shareholders’ equity 457,873 496,315 Total liabilities and shareholders’ equity $ 899,383 $ 1,019,408 See accompanying notes to consolidated financial statements Page - 43 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) 2023 2022 2021 Revenue from services $ 1,906,243 $ 2,254,184 $ 2,173,622 Cost of services 1,400,184 1,652,040 1,613,302 Gross profit 506,059 602,144 560,320 Selling, general and administrative expense 494,603 500,686 464,322 Depreciation and amortization 25,821 29,273 27,556 Goodwill and intangible asset impairment charge 9,485 — — Income (loss) from operations ( 23,850 ) 72,185 68,442 Interest and other income (expense), net 3,205 1,231 5,408 Income (loss) before tax expense (benefit) ( 20,645 ) 73,416 73,850 Income tax expense (benefit) ( 6,472 ) 11,143 12,216 Net income (loss) $ ( 14,173 ) $ 62,273 $ 61,634 Net income (loss) per common share: Basic $ ( 0.45 ) $ 1.89 $ 1.77 Diluted $ ( 0.45 ) $ 1.86 $ 1.74 Weighted average shares outstanding: Basic 31,317 32,889 34,798 Diluted 31,317 33,447 35,434 Other comprehensive income (loss): Foreign currency translation adjustment $ ( 694 ) $ ( 4,271 ) $ ( 919 ) Total other comprehensive income (loss), net of tax ( 694 ) ( 4,271 ) ( 919 ) Comprehensive income (loss) $ ( 14,867 ) $ 58,002 $ 60,715 See accompanying notes to consolidated financial statements Page - 44 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common stock Accumulated other comprehensive loss Total shareholders ’ equity (in thousands) Shares Amount Retained earnings Balances, December 27, 2020 35,493 $ 1 $ 452,017 $ ( 14,828 ) $ 437,190 Net income — — 61,634 — 61,634 Foreign currency translation adjustment — — — ( 919 ) ( 919 ) Purchases and retirement of common stock ( 620 ) — ( 16,678 ) — ( 16,678 ) Issuances under equity plans, including tax benefits ( 12 ) — ( 2,103 ) — ( 2,103 ) Stock-based compensation — — 13,943 — 13,943 Balances, December 26, 2021 34,861 1 508,813 ( 15,747 ) 493,067 Net income — — 62,273 — 62,273 Foreign currency translation adjustment — — — ( 4,271 ) ( 4,271 ) Purchases and retirement of common stock ( 2,234 ) — ( 60,939 ) — ( 60,939 ) Issuances under equity plans, including tax benefits 103 — ( 3,502 ) — ( 3,502 ) Stock-based compensation — — 9,687 — 9,687 Balances, December 25, 2022 32,730 1 516,332 ( 20,018 ) 496,315 Net loss — — ( 14,173 ) — ( 14,173 ) Foreign currency translation adjustment — — — ( 694 ) ( 694 ) Purchases and retirement of common stock ( 1,877 ) — ( 34,178 ) — ( 34,178 ) Issuances under equity plans, including tax benefits 393 — ( 3,304 ) — ( 3,304 ) Stock-based compensation — — 13,907 — 13,907 Balances, December 31, 2023 31,246 $ 1 $ 478,584 $ ( 20,712 ) $ 457,873 See accompanying notes to consolidated financial statements Page - 45 Table of Contents TRUEBLUE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2023 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 14,173 ) $ 62,273 $ 61,634 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 25,821 29,273 27,556 Goodwill and intangible asset impairment charge 9,485 — — Provision for credit losses 4,972 4,462 6,493 Stock-based compensation 13,907 9,687 13,943 Deferred income taxes ( 9,902 ) 3,933 752 Non-cash lease expense 12,591 12,920 14,446 Other operating activities ( 3,831 ) 7,862 ( 1,968 ) Changes in operating assets and liabilities Accounts receivable 56,761 34,765 ( 81,616 ) Income taxes receivable and payable ( 1,317 ) ( 2,665 ) 1,602 Operating lease right-of-use asset — 118 8,080 Other assets 31,366 ( 16,142 ) ( 13,715 ) Accounts payable and other accrued expenses ( 19,210 ) ( 1,501 ) 16,425 Other accrued wages and benefits ( 12,113 ) ( 7,938 ) 34,581 Deferred employer payroll taxes — — ( 57,065 ) Workers’ compensation claims reserve ( 54,495 ) ( 5,184 ) 701 Operating lease liabilities ( 12,796 ) ( 13,052 ) ( 13,457 ) Other liabilities 7,688 1,692 2,048 Net cash provided by operating activities 34,754 120,503 20,440 Cash flows from investing activities: Capital expenditures ( 31,276 ) ( 30,626 ) ( 35,006 ) Payments for company-owned life insurance ( 2,347 ) — ( 4,000 ) Proceeds from company-owned life insurance 1,662 — 832 Purchases of restricted available-for-sale investments — — ( 43 ) Sales of restricted available-for-sale investments — — 7,333 Purchases of restricted held-to-maturity investments ( 34,110 ) ( 18,031 ) ( 9,411 ) Maturities of restricted held-to-maturity investments 33,749 27,712 23,935 Other — — 140 Net cash used in investing activities ( 32,322 ) ( 20,945 ) ( 16,220 ) Cash flows from financing activities: Purchases and retirement of common stock ( 34,178 ) ( 60,939 ) ( 16,678 ) Net proceeds from employee stock purchase plans 856 980 1,135 Common stock repurchases for taxes upon vesting of restricted stock ( 4,161 ) ( 4,480 ) ( 3,238 ) Other ( 100 ) ( 253 ) ( 345 ) Net cash used in financing activities ( 37,583 ) ( 64,692 ) ( 19,126 ) Change in cash, cash equivalents and restricted cash reclassified to assets held-for-sale ( 300 ) — — Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 874 ) ( 2,420 ) ( 521 ) Net change in cash, cash equivalents and restricted cash ( 36,325 ) 32,446 ( 15,427 ) Cash, cash equivalents and restricted cash, beginning of period 135,631 103,185 118,612 Cash, cash equivalents and restricted cash, end of period $ 99,306 $ 135,631 $ 103,185 Supplemental disclosure of cash flow information: Cash paid (received) during the period for: Interest $ 1,031 $ 1,123 $ 1,425 Income taxes $ 5,171 $ 9,980 $ 9,773 Operating lease liabilities $ 15,799 $ 15,964 $ 16,590 Non-cash transactions: Property and equipment purchased but not yet paid $ 3,404 $ 4,502 $ 3,949 Right-of-use assets obtained in exchange for new operating lease liabilities $ 12,526 $ 9,637 $ 11,878 See accompanying notes to consolidated financial statements Page - 46 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business 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. We serve clients in a wide variety of industries through our PeopleReady segment which offers general, industrial and skilled trade contingent staffing, our PeopleManagement segment which offers contingent, on-site industrial staffing and commercial driver services, and our PeopleScout segment which offers recruitment process outsourcing (“RPO”), managed service provider (“MSP”) and talent advisory solutions. Basis of presentation The consolidated financial statements (“financial statements”) include the accounts of TrueBlue and all of its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Fiscal period end The financial statements are presented on a 52/53-week fiscal year-end basis, with the last day of the fiscal year ending on the Sunday closest to the last day of December. In fiscal years consisting of 53 weeks, the final quarter consists of 14 weeks, while in fiscal years consisting of 52 weeks, all quarters consist of 13 weeks. Our 2023 fiscal year contained 53 weeks, with the 53rd week falling in the fiscal fourth quarter, while our 2022 and 2021 fiscal years contained 52 weeks. Use of estimates Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates in our financial statements include, but are not limited to, acquisition method of accounting, allowance for credit losses, estimates for asset and goodwill impairments, stock-based awards, assumptions underlying self-insurance reserves, contingent legal, regulatory and government incentive liabilities, and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment. Revenue recognition We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Consolidated revenues are presented net of intercompany eliminations. Additionally, consolidated revenues are recognized net of any discounts, allowances and sales incentives, including rebates. Revenues are recognized over time using an output measure, as the control of the promised services is transferred to the client, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they are filling the contingent staffing needs of our clients, or include termination clauses that allow either party to cancel within a short notice period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of sales, use or other transaction taxes collected from clients and remitted to taxing authorities. Payment terms vary by client and the services offered, however we do not extend payment terms beyond one year. Substantially all of our contracts include payment terms of 90 days or less. We primarily record revenue on a gross basis as a principal on the Consolidated Statements of Operations and Comprehensive Income (Loss) based upon the following key factors: • We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client. • We demonstrate control over the services provided to our clients. • We establish our billing rates. Page - 47 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contingent staffing We recognize revenue for our PeopleReady and PeopleManagement contingent staffing services over time as services are performed in an amount that reflects the consideration we expect to be entitled to collect in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We incur immaterial costs to obtain our contingent staffing contracts. We have concluded that the amortization period for these costs would be less than one year and have elected to use the practical expedient to expense these costs as incurred. Also, we incur immaterial costs to fulfill some contingent staffing contracts, which are expensed as incurred. Human resource outsourcing We primarily recognize revenue for our PeopleScout outsourced recruitment of permanent employees over time in an amount that reflects the consideration we expect to be entitled to in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. We recognize revenue using an output method, generally based on the number of hires made during each month multiplied by the agreed-upon rate per hire. We incur immaterial costs to obtain our outsourced recruitment of permanent employee contracts. We have concluded that the amortization period for these costs would be less than one year and have elected to use the practical expedient to expense these costs as incurred. Also, we incur immaterial costs to fulfill these contracts, which are expensed as incurred. Unsatisfied performance obligations As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at an amount for which we have the right to invoice for services performed. Cost of services Cost of services refers to costs directly associated with the earning of revenue and primarily includes wages, payroll taxes, benefits, and workers’ compensation expenses for our associates and employees involved with the delivery of our services. These costs differ fundamentally from selling, general and administrative ("SG&A") expenses in that they arise specifically from the action of providing services to clients, whereas SG&A costs are incurred regardless of whether or not we provide service to our clients. Advertising costs Advertising costs consist primarily of print, digital and other promotional activities. We expense advertisements as of the first date the advertisements take place. Advertising expenses included in SG&A were $ 9.2 million, $ 12.5 million and $ 9.7 million in fiscal 2023, 2022 and 2021, respectively. Cash, cash equivalents and marketable securities We consider all highly liquid instruments purchased with an original maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities greater than three months are classified as marketable securities. We do not buy and hold securities principally for the purpose of selling them in the near future. Our investment policy is focused on the preservation of capital, liquidity and return. From time to time, we may sell certain securities but the objective is not to generate profits on short-term differences in price. We manage our cash equivalents and marketable securities as a single portfolio of highly liquid securities. We have not experienced any losses related to these balances, and we believe credit risk to be minimal. Accounts receivable and allowance for credit losses Accounts receivable are recorded at the invoiced amount. We establish an estimate for the allowance for credit losses resulting from the failure of our clients to make required payments by applying an aging schedule to pools of assets with similar risk characteristics. Based on an analysis of the risk characteristics of our clients and associated receivables, we have concluded our pools are as follows: • PeopleReady and Centerline Drivers (“Centerline”) have a large, diverse set of clients, generally with frequent, low dollar invoices due to the daily nature of the work we perform. This results in high turnover in accounts receivable. • PeopleManagement On-Site has a smaller number of clients, and follows a contractual billing schedule. The invoice amounts are higher than that of PeopleReady and Centerline, with longer payment terms. Page - 48 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • 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 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). Restricted cash and investments Cash and investments pledged as collateral and restricted for use in workers’ compensation insurance programs are included as restricted cash and investments on our Consolidated Balance Sheets. Our investments consist of highly rated investment grade debt securities, which at the time of purchase, were rated A1/P1 or higher for short-term securities and A or higher for long-term securities, by nationally recognized rating organizations. We have the positive intent and ability to hold our restricted investments until maturity in accordance with our investment policy and, accordingly, all of our restricted investments are classified as held-to-maturity. In the event that an investment is downgraded below our investment policy criteria, it may be replaced with a new security. We establish an allowance for credit loss for our held-to-maturity debt securities using a discounted cash flow method including a probability of default rate based on the issuer’s credit rating. We have an agreement with American International Group, Inc. and the Bank of New York Mellon Corporation creating a trust (“Trust”), which holds the majority of our collateral obligations under existing workers’ compensation insurance policies. Placing the collateral in the Trust allows us to manage the investment of the assets and provides greater protection of those assets. Fair value of financial instruments and investments Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For assets and liabilities recorded or disclosed at fair value on a recurring basis, we determine fair value based on the following: • Level 1: Inputs are valued using quoted market prices in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices in active markets for identical assets and liabilities are used. • Level 3: Assets and liabilities with unobservable inputs. The carrying value of our cash and cash equivalents and restricted cash approximates fair value because of the short-term maturity of those instruments. We hold money market funds to support our workers’ compensation program, which are carried at fair value based on quoted market prices in active markets for identical assets. There are inherent limitations when estimating the fair value of financial instruments, and the fair values reported are not necessarily indicative of the amounts that would be realized in current market transactions. The carrying value of our accounts receivable, accounts payable and other accrued expenses, and accrued wages and benefits approximates fair value due to their short-term nature. We hold company-owned life insurance policies that fund our deferred compensation liability. Company-owned life insurance policies are carried at cash surrender value, which approximates fair value. We hold certain restricted investments to collateralize our workers’ compensation programs, which are classified as held-to-maturity and carried at amortized cost on our Consolidated Balance Sheets. We determine the fair value of these restricted investments based on comparisons to similar financial instruments or financial models based on observable inputs to arrive at consensus pricing. Annual and interim impairment tests may subject our reporting units with goodwill and other intangible assets to nonrecurring fair value measurement. We typically determine the fair value of these items using internal estimates and assumptions that market participants would use in pricing the asset. Page - 49 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment Property and equipment are recorded at cost. We compute depreciation using the straight-line method over the estimated useful lives of the assets as follows: Years Buildings 40 Software 3 - 8 Computers, furniture and equipment 3 - 10 Leasehold improvements are amortized over the shorter of the related non-cancelable lease term or their estimated useful lives. Non-capital expenditures associated with opening new locations are expensed as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss, net of proceeds, is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss). Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Costs associated with the acquisition or development of software for internal use, including internal and external labor costs, are capitalized and amortized over the expected useful life of the software, from three to eight years . Capitalization of costs begins when the preliminary project stage is complete, when management authorizes and commits to funding the project, and it is probable the project will be completed for the intended use. Capitalization of costs ends when the project is substantially complete and ready for its intended use. A subsequent addition, modification or upgrade to internal-use software is capitalized to the extent that it enhances the software’s functionality or extends its useful life. Software maintenance and training costs are expensed in the period incurred. Leases We conduct our PeopleReady branch operations primarily from leased locations. We also lease office spaces for our other operations, centralized support functions, office equipment, and machinery for use at client sites. Many leases require variable payments for common area maintenance, sales tax, and repairs and maintenance, and insurance coverage, in addition to base rent. The variable portion of these lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, along with any non-lease components of a contract, are expensed when the obligation for those payments is incurred and are included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as operating or financing. The terms of our lease agreements generally range from three to five years , with some as high as 15 years and many containing options to renew. Under the majority of our leases, we have the right to terminate the lease with 90 days’ notice. Operating leases are included in operating lease right-of-use assets, net and current and long-term operating lease liabilities on our Consolidated Balance Sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in our leases, we use our incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what we would be required to pay for a collateralized loan over a similar term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. For leases with an initial non-cancelable lease term of less than one year and no option to purchase, we have elected not to recognize the lease on our Consolidated Balance Sheets and instead recognize rent payments on a straight-line basis over the lease term within SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, for those leases where the right to cancel the lease is available to both TrueBlue (as the lessee) and the lessor, the lease term is the initial non-cancelable period plus the notice period, which is typically 90 days, and not greater than one year. Page - 50 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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. Goodwill We test for goodwill impairment at the reporting unit level. We consider our operating segments to be our reporting units for goodwill impairment testing. Our 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. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the goodwill. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20 % premium or greater. We performed our annual impairment test for goodwill as of the first day of our fiscal second quarter of 2023. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements. Indefinite-lived intangible assets 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 asset is greater than its carrying amount, the quantitative impairment test is unnecessary. The quantitative impairment test, if necessary, utilizes the relief from royalty method to determine the fair value of each of our trade names. If the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value. We performed our annual impairment test for indefinite-lived intangible assets as of the first day of our fiscal second quarter of 2023. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements. Page - 51 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other long-lived assets We have finite-lived intangible assets related to acquired company customers, trade names/trademarks, and technology, as well as purchased trade names/trademarks. We capitalize implementation costs incurred in a cloud computing arrangement that is a service contract. Capitalized implementation costs are recorded in both prepaid expenses and other current assets, and in other assets, net on our Consolidated Balance Sheets, depending on the timing of future amortization. The related amortization expense is recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) on a straight-line basis over the fixed, non-cancelable term of the associated arrangement plus any reasonably certain renewal periods. License fees incurred during the development period are expensed as incurred. Other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Other long-lived assets include property and equipment, lease right-of-use assets, finite-lived intangible assets and capitalized implementation costs for cloud computing arrangements that are service contracts. There were no material other long-lived asset impairment charges recorded during the fiscal year ended December 31, 2023. Workers’ compensation claims reserves We maintain reserves for workers’ compensation claims using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. These reserves, which reflect potential liabilities to be paid in future periods based on estimated payment patterns, are discounted to estimated net present value using discount rates based on average returns of “risk-free” United States of America (“U.S.”) Treasury instruments available during the year in which the liability was incurred, which are evaluated on a quarterly basis. We evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Changes in reserve estimates are reflected in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss) in the period when the changes are made. Our workers’ compensation reserves include estimated expenses related to claims above our self-insured limits (“excess claims”) and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. We also establish an allowance for credit loss for our insurance receivables using a probability of default and losses expected upon default method, with the probability of default rate based on the third-party insurance carrier’s credit rating. Changes in the allowance for credit losses are recorded in cost of services on the Consolidated Statements of Operations and Comprehensive Income (Loss). Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things: • changes in medical and time loss (“indemnity”) costs; • changes in mix between medical only and indemnity claims; • regulatory and legislative developments impacting benefits and settlement requirements; • type and location of work performed; • impact of safety initiatives; and • positive or adverse development of claims. Legal contingency reserves and regulatory liabilities We are subject to compliance audits by federal, state, local and international authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. In addition, we are subject to legal proceedings in the ordinary course of our operations. We establish accruals for contingent legal and regulatory liabilities when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. We evaluate our reserve regularly throughout the year and make adjustments as needed. If the actual outcome of these matters is different than expected, an adjustment is charged or credited to expense in the period the outcome occurs or the estimate changes. Income taxes and related valuation allowance We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax Page - 52 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS laws are not anticipated. We recognize deferred tax assets to the extent we believe it is more likely than not the asset will be realized. We consider available positive and negative evidence when making such determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted, and results of recent operations. When appropriate, we record a valuation allowance against deferred tax assets to reduce deferred tax assets to the amount that is more likely than not to be realized. Our liability for unrecognized tax benefits is recorded in other long-term liabilities on our Consolidated Balance Sheets. We recognize interest and penalties related to unrecognized tax benefits within income tax expense (benefit) on the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties are included within other long-term liabilities on the Consolidated Balance Sheets. A significant driver of fluctuations in our effective income tax rate is the federal Work Opportunity Tax Credit (“WOTC”). WOTC is designed to encourage hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve month period up to worker maximum by targeted category. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because: 1) a small percentage of our associates qualify for one or more of the many targeted categories; 2) the targeted categories are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize an adjustment to prior year hiring credits if credits certified by government offices differ from original estimates. The WOTC program has been approved through the end of 2025. Deferred compensation plan We offer a non-qualified defined contribution plan (the “Plan”) to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The Plan allows participants to direct their account based on the investment options determined by TrueBlue and offers discretionary matching contributions. The current portion of the deferred compensation liability is included in accrued wages and benefits on our Consolidated Balance Sheets. The total deferred compensation liability is funded through company-owned life insurance policies recorded in restricted cash and investments on our Consolidated Balance Sheets. The carrying value of company-owned life insurance policies is based on the cash surrender value of the policies, which approximates fair value. Changes in the cash surrender value, premiums incurred, and proceeds received relating to the company-owned life insurance policies are recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). Prior to fiscal 2022, we also held mutual funds and money market funds to support the deferred compensation liability, which were measured at fair value, with unrealized gains and losses recognized in SG&A expense, while realized gains and losses were recorded in interest and other income (expense), net on our Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 26, 2021, all of the mutual funds and money market funds had been converted into company-owned life insurance policies. Stock-based compensation Compensation expense for restricted stock-based awards is generally recognized on a straight-line basis over the vesting period, based on our stock’s fair market value on the grant date. For restricted stock-based awards with non-market performance conditions, compensation expense is recognized over each vesting period based on assessment of the likelihood of meeting these conditions. Compensation expense for our employee stock purchase plan (“ESPP”) is based on the estimated fair value on the date of grant, using the Black-Scholes valuation model, and is recognized on a straight-line basis over the offering period, which is over a calendar month. We recognize forfeitures as they occur. In the event that there are changes to an employee’s requisite service period based on terms existing in the original award agreement, any unrecognized compensation expense is recognized prospectively over the updated remaining requisite service period. In the case that terms of an existing stock award agreement are modified, the sum of any unrecognized compensation expense as of the modification date and the modification charge will be expensed on a straight-line basis over the new requisite service period. The modification charge is the incremental amount of the fair value of the award before the modification and the fair value after the modification. Foreign currency Our financial statements are reported in U.S. dollars. Assets and liabilities of foreign subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Page - 53 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Translation adjustments resulting from this process are included, net of tax, in accumulated other comprehensive loss on our Consolidated Statements of Operations and Comprehensive Income (Loss), when applicable. Revenue and expense transactions denominated in a currency other than our functional currency are converted to our functional currency using the exchange rate on the transaction date. Gains or losses resulting from these transactions are included in interest and other income (expense), net on our Consolidated Statements of Operations and Comprehensive Income (Loss). Purchases and retirement of our common stock We purchase our common stock under a program authorized by our Board of Directors (“Board”). Under applicable Washington State law, shares purchased are not displayed separately as treasury stock on the Consolidated Balance Sheets and are treated as authorized but unissued shares. It is our accounting policy to first record these purchases and the related excise tax as a reduction to our common stock account. Once the common stock account has been reduced to a nominal balance, remaining purchases are recorded as a reduction to our retained earnings. Furthermore, activity in our common stock account related to stock-based compensation is also recorded to retained earnings until such time as the reduction to retained earnings due to stock repurchases has been recovered. Net income (loss) per share Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and potential common shares outstanding during the period. Potential common shares include the dilutive effects of vested and non-vested restricted stock, performance share units, and shares issued under the ESPP, except where their inclusion would be anti-dilutive. Anti-dilutive shares primarily include non-vested restricted stock and performance share units for which the sum of the assumed proceeds, including unrecognized compensation expense, exceeds the average stock price during the periods presented. Segments Our operating segments are based on the organizational structure for which financial results are regularly reviewed by our chief operating decision-maker, our Chief Executive Officer, to determine resource allocation and assess performance. We evaluate performance based on segment revenue and segment profit. Segment revenue is net of intercompany eliminations. Segment profit includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit excludes goodwill and intangible asset impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest expense, other income and expense, income taxes, and other costs and benefits not considered to be ongoing. Government assistance There is limited U.S. GAAP accounting guidance for for-profit business entities that receive government assistance that is not in the form of a loan, an income tax credit or revenue from a contract with a client. We are permitted to utilize other accounting standards, and have elected to analogize to International Financial Reporting Standards (“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance. Following IAS 20, we recognize government assistance on a systematic basis over the periods in which we recognize the related costs for which the grant is intended to compensate, but only when there is reasonable assurance we will comply with all conditions attached to the grant and there is reasonable assurance the assistance will be received. We have interpreted “reasonable assurance” to mean “probable,” as defined in loss contingencies guidance in U.S. GAAP. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), which among other things, provided payroll tax credits to eligible employers to address the negative economic impacts of the coronavirus pandemic (“COVID-19”) outbreak. Also during fiscal 2020, the Canadian and Australian governments enacted subsidy programs to help employers offset a portion of wage and rent expenses for a limited period. During fiscal 2021, Canadian subsidies reduced operating expenses by $ 3.9 million on our Consolidated Statement of Operations and Comprehensive Income (Loss). Based on the reasonable assurance criteria, we have deferred recognition of certain benefits of $ 27.6 million and $ 21.8 million as of December 31, 2023 and December 25, 2022, respectively until recognition becomes probable, and we have included these amounts in accrued wages and benefits on our Consolidated Balance Sheets. Page - 54 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, under the CARES Act, we were allowed to delay payments for the employer portion of social security taxes (6.2% of taxable wages) incurred between March 27, 2020 and December 31, 2020, for both our temporary associates and permanent employees. Deferred employer payroll taxes of $ 59.9 million were paid in full on September 15, 2021. Business combinations We account for our business acquisitions using the acquisition method of accounting. The fair value of the net assets acquired and the results of the acquired business are included in the financial statements from the acquisition date forward. We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and results of operations during the reporting period. Estimates are used in accounting for, among other things, the fair value of acquired net operating assets, property and equipment, intangible assets, useful lives of property and equipment, and amortizable lives for acquired intangible assets. Any excess of the purchase consideration over the identified fair value of the assets and liabilities acquired is recognized as goodwill. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. We estimate the fair value of acquired assets and liabilities as of the date of the acquisition based on information available at that time. The initial valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change between the preliminary allocation and the final allocation. All acquisition-related costs are expensed as incurred and recorded in SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Additionally, we recognize liabilities for anticipated restructuring costs that will be necessary due to the elimination of excess capacity, redundant assets or unnecessary functions, and record them as SG&A expense on the Consolidated Statements of Operations and Comprehensive Income (Loss). Recently issued accounting pronouncements not yet adopted Segments In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires disclosure of incremental segment information on an interim and annual basis, primarily regarding significant segment expenses and information used to assess segment performance. This ASU is effective for fiscal years beginning after December 15, 2023 (2024 for TrueBlue), and interim periods beginning after December 15, 2024 (Q1 2025 for TrueBlue). Retrospective application is required for all periods presented. We are currently evaluating the impact of this ASU on our required disclosures. Income Taxes In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures,” which requires enhancements and further transparency to certain income tax disclosures, primarily to the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 (2025 for TrueBlue), on a prospective basis with retrospective application permitted. We are currently evaluating the impact of this ASU on our required disclosures. There are no other new accounting pronouncements, issued or effective during the fiscal year, that are expected to have a significant impact on our financial statements and related disclosures. Page - 55 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: FAIR VALUE MEASUREMENT Assets measured at fair value on a recurring basis Our assets measured at fair value on a recurring basis consisted of the following: December 31, 2023 (in thousands) Total fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Cash and cash equivalents $ 61,885 $ 61,885 $ — $ — Restricted cash and cash equivalents 37,421 37,421 — — Cash, cash equivalents and restricted cash (1) $ 99,306 $ 99,306 $ — $ — Municipal debt securities $ 31,804 $ — $ 31,804 $ — Corporate debt securities 74,912 — 74,912 — Agency mortgage-backed securities 13,235 — 13,235 — U.S. government and agency securities 962 — 962 — Restricted investments classified as held-to-maturity (2) $ 120,913 $ — $ 120,913 $ — December 25, 2022 (in thousands) Total fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Cash and cash equivalents $ 72,054 $ 72,054 $ — $ — Restricted cash and cash equivalents 63,577 63,577 — — Cash, cash equivalents and restricted cash (1) $ 135,631 $ 135,631 $ — $ — Municipal debt securities $ 42,431 $ — $ 42,431 $ — Corporate debt securities 76,097 — 76,097 — Agency mortgage-backed securities 48 — 48 — U.S. government and agency securities 949 — 949 — Restricted investments classified as held-to-maturity (2) $ 119,525 $ — $ 119,525 $ — (1) Cash, cash equivalents and restricted cash include money market funds and deposits. (2) Refer to Note 3: Restricted Cash and Investments for additional details on our held-to-maturity debt securities. Assets measured at fair value on a nonrecurring basis In addition to assets that are recorded at fair value on a recurring basis, annual and interim impairment tests may subject our reporting units with goodwill and other intangible assets to nonrecurring fair value measurement. We performed our annual impairment tests for goodwill and indefinite-lived intangible assets as of the first day of our fiscal second quarter of 2023. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charges, valuation methodologies, and inputs used in the fair value measurements. For our 2023 annual goodwill impairment test, the fair value of each reporting unit was estimated using a weighting of the income and market approaches, except for PeopleScout MSP, which relied only on the income approach. The various inputs to these fair value models are considered Level 3. As a result of the test, goodwill with a carrying value of $ 9.7 million associated with the PeopleScout MSP reporting unit was impaired, and an impairment charge of $ 8.9 million was recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. For our 2023 annual indefinite-lived intangible asset impairment test, the fair value of our trade names/trademarks were estimated utilizing the relief from royalty method. The various inputs to this fair value model are considered Level 3. As a result of the test, one of our trade names/trademarks with a carrying value of $ 3.9 million was written down to its fair value, and an impairment charge of $ 0.6 million was recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. Page - 56 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS There were no goodwill or intangible asset impairment charges recorded during fiscal 2022 or 2021. Refer to Note 5: Goodwill and Intangible Assets for additional details on the impairment charge and valuation methodologies. NOTE 3: RESTRICTED CASH AND INVESTMENTS The following is a summary of the carrying value of our restricted cash and investments: (in thousands) December 31, 2023 December 25, 2022 Cash collateral held by insurance carriers $ 23,598 $ 29,567 Cash and cash equivalents held in Trust 12,703 30,857 Investments held in Trust 122,659 123,678 Company-owned life insurance policies 32,905 26,479 Other restricted cash and cash equivalents 1,120 3,153 Total restricted cash and investments $ 192,985 $ 213,734 Held-to-maturity Restricted cash and investments include collateral that has been provided or pledged to insurance carriers for workers’ compensation and state workers’ compensation programs. Our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation. The collateral typically takes the form of cash and cash equivalents and highly rated investment grade securities, primarily in debt and asset-backed securities. The majority of our collateral obligations are held in a Trust. The amortized cost and estimated fair value of our held-to-maturity investments held in Trust, aggregated by investment category as of December 31, 2023 and December 25, 2022, were as follows: December 31, 2023 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Municipal debt securities $ 32,042 $ 4 $ ( 242 ) $ 31,804 Corporate debt securities 76,578 333 ( 1,999 ) 74,912 Agency mortgage-backed securities 13,039 196 — 13,235 U.S. government and agency securities 1,000 — ( 38 ) 962 Total held-to-maturity investments $ 122,659 $ 533 $ ( 2,279 ) $ 120,913 December 25, 2022 (in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value Municipal debt securities $ 42,892 $ 2 $ ( 463 ) $ 42,431 Corporate debt securities 79,736 4 ( 3,643 ) 76,097 Agency mortgage-backed securities 50 — ( 2 ) 48 U.S. government and agency securities 1,000 — ( 51 ) 949 Total held-to-maturity investments $ 123,678 $ 6 $ ( 4,159 ) $ 119,525 The amortized cost and fair value by contractual maturity of our held-to-maturity investments are as follows: December 31, 2023 (in thousands) Amortized cost Fair value Due in one year or less $ 27,414 $ 27,118 Due after one year through five years 82,847 81,146 Due after five years through ten years 5,818 5,922 Due after ten years 6,580 6,727 Total held-to-maturity investments $ 122,659 $ 120,913 Page - 57 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Actual maturities may differ from contractual maturities because the issuers of certain debt securities have the right to call or prepay their obligations without penalty. We have no significant concentrations of counterparties in our held-to-maturity investment portfolio. Deferred compensation investments and company-owned life insurance policies We hold company-owned life insurance policies to support our deferred compensation liability. During 2021, we also held mutual funds and money market funds, which were converted into company-owned life insurance policies by the end of fiscal 2021. During the fiscal year ended December 31, 2023, we received proceeds from company-owned life insurance policies of $ 1.7 million, of which $ 1.4 million was in excess of the cash surrender value of the related policies and recognized in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). The unrealized gains and losses related to investments still held at December 31, 2023, December 25, 2022 and December 26, 2021, included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows: (in thousands) 2023 2022 2021 Unrealized gains (losses) $ 4,383 $ ( 5,841 ) $ 1,061 NOTE 4: SUPPLEMENTAL BALANCE SHEET INFORMATION Accounts receivable allowance for credit losses (in thousands) 2023 2022 2021 Beginning balance $ 3,212 $ 6,687 $ 2,921 Current period provision 4,972 4,462 6,493 Write-offs ( 6,184 ) ( 7,917 ) ( 2,713 ) Foreign currency translation 5 ( 20 ) ( 14 ) Ending balance $ 2,005 $ 3,212 $ 6,687 Prepaid expenses and other current assets (in thousands) December 31, 2023 December 25, 2022 Prepaid software agreements $ 8,435 $ 9,994 Other prepaid expenses 9,355 9,455 Assets held-for-sale 4,845 — Other current assets 6,259 13,081 Prepaid expenses and other current assets $ 28,894 $ 32,530 Other current liabilities (in thousands) December 31, 2023 December 25, 2022 Contract liabilities $ 1,844 $ 3,812 Liabilities held-for-sale 1,998 — Other current liabilities 6,529 7,077 Other current liabilities $ 10,371 $ 10,889 Page - 58 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment (in thousands) December 31, 2023 December 25, 2022 Buildings and land $ 46,818 $ 49,359 Software 201,235 150,198 Computers, furniture and equipment 38,706 48,670 Construction in progress 2,670 31,958 Gross property and equipment 289,429 280,185 Less accumulated depreciation ( 184,523 ) ( 184,362 ) Property and equipment, net $ 104,906 $ 95,823 Capitalized software costs, net of accumulated depreciation, were $ 73.3 million and $ 28.1 million as of December 31, 2023 and December 25, 2022, respectively, excluding amounts in construction in progress. Construction in progress consists primarily of purchased and internally-developed software. Depreciation expense of property and equipment totaled $ 20.6 million, $ 23.5 million and $ 20.9 million for the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. Assets and liabilities held-for-sale During fiscal 2023, as part of our strategic initiative to simplify our organizational structure and sharpen our focus on core operations, management, with approval from the Board, began actively marketing Labour Ready Temporary Services, Ltd. (“LRTS”). LRTS is a wholly-owned subsidiary of the company, and provides contingent staffing solutions to clients in Canada under the PeopleReady brand. The operational results of LRTS are included as part of our PeopleReady operating segment and reportable segment for all years presented. LRTS is not an individually significant component of the company. As of December 31, 2023, all criteria for classifying this entity as held-for-sale were met, and did not result in recognition of a loss on our Consolidated Statements of Operations and Comprehensive Income (Loss) for fiscal 2023. The assets and liabilities classified as held-for-sale as of December 31, 2023 are presented within other current assets and other current liabilities, respectively, on our Consolidated Balance Sheets. The following represents the carrying amounts of the major classes of assets and liabilities included as part of the disposal group classified as held-for-sale: (in thousands) December 31, 2023 Current assets held-for-sale: Cash and cash equivalents $ 300 Accounts receivable, net 1,919 Prepaid expenses and other current assets 80 Income tax receivable 201 Property and equipment, net 156 Deferred income taxes, net 23 Goodwill (1) 1,020 Operating lease right-of-use assets, net 1,146 Total current assets held-for-sale $ 4,845 Current liabilities held-for-sale: Accounts payable and other accrued expenses $ 289 Accrued wages and benefits 427 Operating lease liabilities 1,180 Other current liabilities 102 Total current liabilities held-for-sale $ 1,998 (1) Goodwill was allocated based on the relative fair value of LRTS to the total PeopleReady reporting unit prior to being reclassified as held-for-sale. Page - 59 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The expected divestiture of our PeopleReady operations in Canada does not represent a strategic shift, nor do we expect it to have a major effect on the company’s operations and financial results and, therefore will not be reported as discontinued operations in our Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income (Loss). A sale is expected to be finalized during the fiscal first quarter of 2024. Subsequent event On February 20, 2024, the company entered into a definitive share purchase agreement to sell LRTS to Vertical Staffing Resources. The transaction is expected to close during the fiscal first quarter of 2024, subject to customary closing conditions. NOTE 5: GOODWILL AND INTANGIBLE ASSETS Goodwill The following table reflects changes in the carrying amount of goodwill during the period by reportable segments: (in thousands) PeopleReady PeopleScout PeopleManagement Total company Balance at December 26, 2021 Goodwill before impairment $ 106,304 $ 142,710 $ 81,092 $ 330,106 Accumulated impairment charge ( 46,210 ) ( 109,757 ) ( 79,601 ) ( 235,568 ) Goodwill, net 60,094 32,953 1,491 94,538 Foreign currency translation — ( 754 ) — ( 754 ) Balance at December 25, 2022 Goodwill before impairment 106,304 141,956 81,092 329,352 Accumulated impairment charge ( 46,210 ) ( 109,757 ) ( 79,601 ) ( 235,568 ) Goodwill, net 60,094 32,199 1,491 93,784 Goodwill reclassified as held-for-sale (1) ( 1,020 ) — — ( 1,020 ) Impairment charge — ( 8,885 ) — ( 8,885 ) Foreign currency translation — 235 — 235 Balance at December 31, 2023 Goodwill before impairment 105,284 142,191 81,092 328,567 Accumulated impairment charge ( 46,210 ) ( 118,642 ) ( 79,601 ) ( 244,453 ) Goodwill, net $ 59,074 $ 23,549 $ 1,491 $ 84,114 (1) Refer to Note 4: Supplemental Balance Sheet Information for further discussion. We performed our annual impairment test as of the first day of our fiscal second quarter of 2023, for our reporting segments with remaining goodwill: PeopleReady; PeopleManagement Centerline; PeopleScout RPO; and PeopleScout MSP. The fair value of each reporting unit was estimated using a weighting of the income and market valuation approaches. The income approach applied a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internally-developed forecasts of revenue and profitability, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. The weighted average cost of capital used in our most recent impairment test ranged from 13.0 % to 13.5 %. We also applied a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare are revenue and earnings before interest, taxes, depreciation, and amortization. The income and market approaches were equally weighted in our most recent annual impairment test, except for PeopleScout MSP which relied only on the income approach. The combined fair values for all reporting units were then reconciled to our aggregate market value of our shares of common stock on the date of valuation, while considering a reasonable control premium. We consider a reporting unit’s fair value to be substantially in excess of its carrying value at a 20% premium or greater. Based on our most recent impairment test, all of our reporting units’ fair values were substantially in excess of their respective carrying values, except for PeopleScout MSP. Page - 60 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of our 2023 annual impairment test, we concluded that the carrying amount of the PeopleScout MSP reporting unit exceeded its fair value and we recorded a non-cash goodwill impairment charge of $ 8.9 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The PeopleScout MSP goodwill impairment was related to our revised internal revenue projections, which anticipated the current year declining trends would continue into future periods. These projections were updated based on our then-current outlook and recent industry analysis, which indicated that our business would underperform due to a strategic lack of investment in technology within an increasingly competitive market. The remaining goodwill balance for the PeopleScout MSP reporting unit was $ 0.8 million as of December 31, 2023. Additionally, following performance of the annual impairment test, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred. Accordingly, no further impairment loss was recognized during the fiscal year ended December 31, 2023. Intangible assets Finite-lived intangible assets The following table presents our purchased finite-lived intangible assets: December 31, 2023 December 25, 2022 (in thousands) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount Finite-lived intangible assets (1): Customer relationships $ 94,270 $ ( 90,149 ) $ 4,121 $ 94,134 $ ( 84,994 ) $ 9,140 Trade names/trademarks 1,653 ( 649 ) 1,004 1,569 ( 504 ) 1,065 Total finite-lived intangible assets $ 95,923 $ ( 90,798 ) $ 5,125 $ 95,703 $ ( 85,498 ) $ 10,205 (1) Excludes assets that are fully amortized. Amortization expense of our finite-lived intangible assets was $ 5.2 million, $ 5.7 million and $ 6.7 million for the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. The following table provides the estimated future amortization of finite-lived intangible assets as of December 31, 2023: (in thousands) 2024 $ 4,049 2025 309 2026 118 2027 118 2028 118 Thereafter 413 Total future amortization $ 5,125 We did not identify any events or conditions that make it more likely than not that an impairment of our finite-lived intangible assets may have occurred for the fiscal year ended December 31, 2023. Indefinite-lived intangible assets We held indefinite-lived trade names/trademarks of $ 5.4 million and $ 6.0 million as of December 31, 2023 and December 25, 2022, respectively, related to businesses within our PeopleScout and PeopleManagement segments. As a result of our 2023 annual impairment test, we concluded that the carrying amount of a trade name/trademark related to the PeopleManagement segment exceeded its estimated fair value and recorded a non-cash impairment charge of $ 0.6 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2023. The charge was primarily the result of an increase in the discount rate, as well as lower projected revenues given our then-current outlook. The remaining balance for this trade name/trademark was $ 3.3 million as of December 31, 2023. Page - 61 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additionally, following performance of the annual impairment test, we did not identify any additional events or conditions that make it more likely than not that an additional impairment may have occurred. Accordingly, no further impairment loss was recognized during the fiscal year ended December 31, 2023. There were no goodwill or intangible asset impairment charges recorded during fiscal 2022 or 2021. NOTE 6: WORKERS' COMPENSATION INSURANCE AND RESERVES 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 our $ 5.0 million deductible limit, on a “per occurrence” basis. This results in our being substantially self-insured. Our workers’ compensation reserve for claims below the deductible limit is discounted to its estimated net present value. The discount rates used to estimate net present value are based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred and the weighted average duration of the payments against the self-insured claims. Payments made against self-insured claims are made over a weighted average period of approximately 5.5 years as of December 31, 2023. The weighted average discount rate was 2.4 % and 2.0 % at December 31, 2023 and December 25, 2022, respectively. The following table presents a reconciliation of the undiscounted workers’ compensation reserve to the discounted workers’ compensation reserve for the periods presented: (in thousands) December 31, 2023 December 25, 2022 Undiscounted workers’ compensation reserve $ 214,611 $ 270,468 Less discount on workers’ compensation reserve 18,096 19,458 Workers’ compensation reserve, net of discount 196,515 251,010 Less current portion 44,866 50,005 Long-term portion $ 151,649 $ 201,005 Payments made against self-insured claims were $ 45.0 million, $ 39.4 million and $ 41.9 million for the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. Our workers’ compensation reserve includes estimated expenses related to claims above our self-insured limits (“excess claims”), and we record a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred and the weighted average duration of the payments against the excess claims. The claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 18 years. The rates used to discount excess claims incurred during the fiscal years ended December 31, 2023 and December 25, 2022 were 4.1 % and 3.0 %, respectively. The discounted workers’ compensation reserve for excess claims were $ 54.9 million and $ 76.7 million, as of December 31, 2023 and December 25, 2022, respectively. The discounted receivables from insurance companies, net of valuation allowance, were $ 53.8 million and $ 75.2 million as of December 31, 2023 and December 25, 2022, respectively. Page - 62 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below presents the estimated future payout of our discounted workers’ compensation claims reserve for the next five years and thereafter as of December 31, 2023: (in thousands) 2024 $ 44,866 2025 23,494 2026 13,764 2027 9,193 2028 6,705 Thereafter 43,566 Sub-total 141,588 Excess claims (1) 54,927 Total $ 196,515 (1) Estimated expenses related to claims above our self-insured limits for which we have a corresponding receivable for the insurance coverage based on contractual policy agreements. Workers’ compensation cost consists primarily of changes in self-insurance reserves net of changes in discount, monopolistic jurisdictions’ premiums, insurance premiums and other miscellaneous expenses. Workers’ compensation cost of $ 20.1 million, $ 29.8 million and $ 39.8 million was recorded in cost of services on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. NOTE 7: LONG-TERM DEBT We have a revolving 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., which provides for a revolving line of credit of up to $ 300.0 million, and matures on March 16, 2025 (“Revolving Credit Facility”). We have an option to increase the amount to $ 450.0 million, subject to lender approval. Included in the Revolving Credit Facility is a $ 30.0 million sub-limit for “Swingline” loans and a $ 125.0 million sub-limit for letters of credit. At December 31, 2023, $ 6.2 million was utilized by outstanding standby letters of credit, leaving $ 293.8 million unused under the Revolving Credit Facility, which is constrained by our most restrictive covenant making $ 85.9 million available for additional borrowing. At December 25, 2022, $ 7.2 million was utilized by outstanding standby letters of credit. Under the terms of the Revolving Credit Facility, we pay a variable rate of interest on funds borrowed under the revolving line of credit in excess of the Swingline loans, based on the Secured Overnight Financing Rate (“SOFR”), plus an adjustment of 0.10 %, plus an applicable spread between 1.25 % and 3.50 %. Alternatively, at our option, we may pay interest based on a base rate plus an applicable spread between 0.25 % and 1.50 %. The base rate is the greater of the prime rate (as announced by Bank of America), or the federal funds rate plus 0.50 %. The applicable spread is determined by the consolidated leverage ratio, as defined under the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, we are required to pay a variable rate of interest on funds borrowed under the Swingline loan based on the base rate plus applicable spread between 0.25 % and 1.50 %, as described above. A commitment fee between 0.25 % and 0.50 % is applied against the Revolving Credit Facility’s unused borrowing capacity, with the specific rate determined by the consolidated leverage ratio, as defined in the second amendment to our credit agreement. Letters of credit are priced at a margin between 1.00 % and 3.25 %, plus a fronting fee of 0.50 %. Obligations under the Revolving Credit Facility are guaranteed by TrueBlue and material U.S. domestic subsidiaries, and are secured by substantially all of the assets of TrueBlue and material U.S. domestic subsidiaries. The second amendment to our credit agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including, among others, financial covenants. The following financial covenants, as defined in the second amendment to our credit agreement, were in effect as of December 31, 2023: • Consolidated leverage ratio less than 3.00 , defined as our funded indebtedness divided by trailing twelve months consolidated EBITDA, as defined in the second amendment to our credit agreement. As of December 31, 2023, our consolidated leverage ratio was 0.20 . Page - 63 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Consolidated fixed charge coverage ratio greater than 1.25 , defined as the trailing twelve months bank-adjusted cash flow divided by cash interest expense. As of December 31, 2023, our consolidated fixed charge coverage ratio was 15.16 . As of December 31, 2023, and throughout fiscal 2023, we were in compliance with all effective covenants related to the Revolving Credit Facility. Subsequent event On February 9, 2024, we entered into an amended and restated revolving credit agreement with Bank of America, N.A., PNC Bank, N.A., HSBC Bank USA, N.A., Wells Fargo Bank, N.A., and Key Bank, N.A. dated as of February 9, 2024 (the “2024 Revolving Credit Facility”). The 2024 Revolving Credit Facility provides for a revolving line of credit of up to $ 255.0 million, and matures on February 9, 2029. We have an option to increase the amount to $ 405.0 million, subject to lender approval. Included in the 2024 Revolving Credit Facility is a $ 25.0 million sub-limit for “Swingline” loans and a $ 25.0 million sub-limit for letters of credit. NOTE 8: COMMITMENTS AND CONTINGENCIES Workers’ compensation commitments We have provided our insurance carriers and certain states with commitments in the form and amounts listed below: (in thousands) December 31, 2023 December 25, 2022 Cash collateral held by workers’ compensation insurance carriers $ 17,737 $ 23,716 Cash and cash equivalents held in Trust 12,703 30,857 Investments held in Trust 122,659 123,678 Letters of credit (1) 6,077 6,077 Surety bonds (2) 20,725 20,806 Total collateral commitments $ 179,901 $ 205,134 (1) We have agreements with certain financial institutions to issue letters of credit as collateral. (2) Our surety bonds are issued by independent insurance companies on our behalf and bear annual fees based on a percentage of the bond, which are determined by each independent surety carrier. These fees do not exceed 2.0 % of the bond amount, subject to a minimum charge. The terms of these bonds are subject to review and renewal every one to four years and most bonds can be canceled by the sureties with as little as 60 days’ notice. Operating leases We have contractual commitments in the form of operating leases related to office space, vehicles and equipment. Our leases have remaining terms of up to 13 years. Most leases include one or more options to renew, which can extend the lease term up to 10 years. The exercise of lease renewal options is at our sole discretion. Typically, at the commencement of a lease, we are not reasonably certain we will exercise renewal options, and accordingly they are not considered in determining the initial lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We rent or sublease real estate to third parties in limited circumstances. Operating lease costs were comprised of the following: (in thousands) 2023 2022 Operating lease costs $ 14,710 $ 14,994 Short-term lease costs (1) 6,915 7,487 Other lease costs, net (2) 3,748 4,501 Total lease costs $ 25,373 $ 26,982 (1) Excludes expenses related to leases with a lease term of less than one month. (2) Other lease costs include variable lease costs, net of rental and sublease income. Page - 64 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other information related to our operating leases was as follows: December 31, 2023 December 25, 2022 Weighted average remaining lease term in years 7.6 8.3 Weighted average discount rate 4.9 % 4.9 % Future non-cancelable minimum lease payments under our operating lease commitments as of December 31, 2023, are as follows for each of the next five years and thereafter: (in thousands) 2024 $ 14,961 2025 12,465 2026 9,639 2027 7,558 2028 5,882 Thereafter 24,589 Total undiscounted future non-cancelable minimum lease payments (1) 75,094 Less: Imputed interest (2) 12,578 Less: Present value of operating lease liabilities held-for-sale 1,180 Present value of lease liabilities $ 61,336 (1) Operating lease payments exclude approximately $ 0.2 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of the new lease standard) or lease inception (for those leases entered into after the adoption date). Purchase obligations Purchase obligations include agreements to purchase goods and services in the ordinary course of business that are enforceable, legally binding and specify all significant terms. Purchase obligations do not include agreements that are cancellable without significant penalty. We had $ 37.4 million of purchase obligations as of December 31, 2023, of which $ 17.7 million are expected to be paid in 2024, $ 16.1 million in 2025, and the remaining $ 3.6 million in 2026. Legal contingencies and developments We are involved in various proceedings arising in the normal course of conducting business. We believe the liabilities included in our financial statements reflect the probable loss that can be reasonably estimated and are immaterial. We also believe that the aggregate range of reasonably possible losses for the Company's exposure in excess of the amount accrued is expected to be immaterial to the Company. It remains possible that despite our current belief, material differences in actual outcomes or changes in management's evaluation or predictions could arise that could have a material effect on the Company's financial condition, results of operations or cash flows. NOTE 9: SHAREHOLDERS' EQUITY Common stock Shares of common stock outstanding include shares of unvested restricted stock. Unvested restricted stock included in reportable shares outstanding was 0.1 million and 0.2 million shares as of December 31, 2023 and December 25, 2022, respectively. On October 16, 2019, our Board authorized a $ 100.0 million addition to our share repurchase program for our outstanding common stock (“2019 authorization”). On January 31, 2022, our Board authorized a $ 100.0 million addition to our share repurchase program for our outstanding common stock (“2022 authorization”). The share repurchase program does not obligate us to acquire any particular amount of common stock and does not have an expiration date. We may choose to purchase shares in the open market, from individual holders, through an accelerated share repurchase agreement or otherwise. Page - 65 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the 2019 authorization, we repurchased shares during fiscal 2021 using $ 16.7 million, and during fiscal 2022 using the remaining $ 50.0 million. The 2019 authorization was fully utilized as of April 2022. Under the 2019 authorization, we repurchased and retired a total of 4.7 million shares of our common stock over three fiscal years, at an average share price of $ 21.09 . Under the 2022 authorization we repurchased shares using $ 33.9 million during fiscal 2023 and $ 11.0 million during fiscal 2022. The details of shares repurchased in the open market as part of the authorizations described above are as follows: Shares repurchased (in thousands) Year ended Authorization Amount authorized (in millions) Remaining available (in millions) 2023 2022 2021 2019 Authorization $ 100.0 $ — — 1,800 620 2022 Authorization $ 100.0 $ 55.1 1,877 434 — 1,877 2,234 620 Preferred stock We have authorized 20.0 million shares of blank check preferred stock. The blank check preferred stock is issuable in one or more series, each with such designations, preferences, rights, qualifications, limitations and restrictions as our Board may determine and set forth in supplemental resolutions at the time of issuance, without further shareholder action. The initial series of blank check preferred stock authorized by the Board was designated as Series A Preferred Stock. We had no outstanding shares of preferred stock in any of the years presented. NOTE 10: STOCK-BASED COMPENSATION We record stock-based compensation expense for restricted stock awards, restricted stock units, performance share units (collectively, “stock-based awards”), and shares purchased under an employee stock purchase plan (“ESPP”). Our 2016 Omnibus Incentive Plan (“Incentive Plan”), effective May 11, 2016, applies to directors, officers, employees and consultants of the Company and permits the granting of nonqualified and incentive stock options, restricted stock awards, performance share units, restricted stock units and stock appreciation rights. At the time of adoption, there were 1.5 million shares available for issuance. Effective May 9, 2018, an additional 1.8 million shares were authorized under the Incentive Plan. Additionally, effective May 11, 2023, an additional 0.7 million shares were authorized under the Incentive Plan. Stock-based awards Under the Incentive Plan, stock-based awards are granted to the Board, executive officers and key employees. Stock-based awards granted to executive officers and key employees generally vest annually over three or four years . Restricted stock units granted to members of our Board vest in the fourth quarter of the same fiscal year in which the shares are granted. Receipt of the vested shares may be deferred until after a director leaves the Board. Compensation expense related to these grants is calculated based on the grant-date fair value. We recognize compensation expense on a straight-line basis over the vesting period, net of forfeitures. Performance share units are only granted to certain executive officers. Vesting of performance share units is contingent upon the achievement of return on equity, profitability, or individual performance goals at the end of each performance period, which is generally three years . Each performance share unit is equivalent to one share of common stock. Compensation expense for these grants is calculated based on the grant-date market value of our stock and is recognized ratably over the performance period only for the performance share units expected to vest. Our estimate of the performance units expected to vest is reviewed and adjusted as appropriate each quarter. Page - 66 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-based award activity for the fiscal year ended December 31, 2023, was as follows: (shares in thousands) Shares Weighted-average grant-date fair value Non-vested at beginning of period 1,436 $ 21.93 Granted 1,137 $ 17.77 Vested ( 761 ) $ 20.70 Forfeited ( 236 ) $ 19.59 Non-vested at the end of the period 1,576 $ 19.88 The following table summarizes the weighted-average grant-date fair value per share for stock-based awards granted: 2023 2022 2021 Weighted-average grant-date fair value $ 17.77 $ 25.51 $ 20.21 As of December 31, 2023, total estimated unrecognized stock-based compensation expense was $ 14.2 million. We expect to recognize this expense over a weighted average remaining period of 1.7 years. The total fair value of stock-based awards that vested during fiscal 2023, 2022 and 2021 was $ 12.2 million, $ 13.9 million and $ 20.6 million, respectively. Employee Stock Purchase Plan At the time of adoption in 2010, there was 1.0 million shares of common stock authorized for purchase under our ESPP. Effective May 11, 2023, an additional 1.0 million shares of common stock were authorized for purchase under our ESPP. The plan allows eligible employees to contribute up to 10 % of their earnings toward the monthly purchase of the company’s common stock. The employee’s purchase price is 85 % of the lesser of the company’s common stock price on either the first day or the last day of each calendar month. We consider our ESPP to be a component of stock-based compensation and accordingly we recognize compensation expense over the requisite service period for stock purchases made under the plan. The requisite service period begins on the enrollment date and ends on the purchase date, the duration of which is one month . The following table summarizes transactions under our ESPP: (shares in thousands) 2023 2022 2021 Shares issued 63 52 44 Average price per share $ 13.58 $ 18.85 $ 19.77 Stock-based compensation expense Total stock-based compensation expense for fiscal 2023, 2022 and 2021, which is included in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss), was $ 13.9 million, $ 9.7 million and $ 13.9 million, respectively. The related tax benefit was $ 2.9 million, $ 2.0 million and $ 2.9 million for fiscal 2023, 2022 and 2021, respectively. NOTE 11: DEFINED CONTRIBUTION PLANS We offer both qualified and non-qualified defined contribution plans to eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation. The plans offer discretionary matching contributions. The liability for the non-qualified plan was $ 41.0 million and $ 31.3 million as of December 31, 2023 and December 25, 2022, respectively, of which $ 5.8 million and $ 5.1 million have been included in accrued wages and benefits on our Consolidated Balance Sheets. The net expense related to our qualified and non-qualified deferred compensation plans totaled $ 4.1 million, $ 5.1 million and $ 6.5 million for fiscal 2023, 2022 and 2021, respectively, and is recorded in SG&A expense on our Consolidated Statements of Operations and Comprehensive Income (Loss). The net expense includes changes in cash surrender value of the company-owned life insurance policies held to support the deferred compensation liability, premiums incurred for and proceeds received from company-owned life insurance, unrealized gains (losses) on deferred compensation liabilities, as well as our discretionary matching contributions. Refer to Note 3: Restricted Cash and Investments for additional details on deferred compensation assets. Page - 67 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12: INCOME TAXES The provision for income taxes is comprised of the following: (in thousands) 2023 2022 2021 Current taxes: Federal $ 329 $ 1,360 $ 4,925 State 582 1,397 4,067 Foreign 2,817 4,635 2,393 Total current taxes 3,728 7,392 11,385 Deferred taxes: Federal ( 8,109 ) 3,434 617 State ( 1,383 ) 345 88 Foreign ( 708 ) ( 28 ) 126 Total deferred taxes ( 10,200 ) 3,751 831 Provision for income taxes $ ( 6,472 ) $ 11,143 $ 12,216 The items accounting for the difference between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows: (in thousands, except percentages) 2023 % 2022 % 2021 % Income tax expense (benefit) based on statutory rate $ ( 4,335 ) 21.0 % $ 15,417 21.0 % $ 15,508 21.0 % Increase (decrease) resulting from: State income taxes, net of federal benefit ( 1,384 ) 6.7 3,008 4.1 3,548 4.8 Hiring tax credits, net ( 4,997 ) 24.2 ( 7,911 ) ( 10.8 ) ( 7,582 ) ( 10.3 ) CARES Act — — — — ( 468 ) ( 0.6 ) Uncertain tax positions ( 206 ) 1.0 ( 1,336 ) ( 1.8 ) ( 391 ) ( 0.5 ) Non-deductible goodwill impairment charge 2,287 ( 11.1 ) — — — — Non-deductible and non-taxable items 1,178 ( 5.7 ) 1,377 1.9 589 0.8 Foreign taxes 587 ( 2.9 ) 654 0.9 211 0.3 Other, net 398 ( 1.9 ) ( 66 ) ( 0.1 ) 801 1.0 Total income tax expense (benefit) $ ( 6,472 ) 31.3 % $ 11,143 15.2 % $ 12,216 16.5 % Our effective tax rate for fiscal 2023 was 31.3 %. The difference between the statutory federal income tax rate of 21.0 % and our effective income tax rate results primarily from tax benefits from hiring tax credits and state income taxes, partially offset by the non-deductible goodwill impairment charge and other non-deductible and non-taxable items. Of the total goodwill and intangible asset impairment charge of $ 9.5 million recorded during fiscal 2023, $ 8.9 million (tax effect of $ 2.3 million) related to goodwill from a stock acquisition, and accordingly was not deductible for tax purposes. U.S. and foreign components of income (loss) before tax expense (benefit) was as follows: (in thousands) 2023 2022 2021 U.S. $ ( 27,773 ) $ 56,964 $ 61,433 Foreign 7,128 16,452 12,417 Income (loss) before tax expense (benefit) $ ( 20,645 ) $ 73,416 $ 73,850 Page - 68 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of deferred tax assets and liabilities were as follows: (in thousands) December 31, 2023 December 25, 2022 Deferred tax assets: Allowance for credit losses $ 590 $ 869 Accounts payable and other accrued expenses 11,242 9,641 Net operating loss carryforwards 7,535 1,243 Tax credit carryforwards 16,030 9,801 Accrued wages and benefits 7,311 8,877 Deferred compensation 12,356 8,641 Lease liabilities 17,378 16,025 Other 371 368 Total 72,813 55,465 Valuation allowance ( 834 ) ( 2,152 ) Total deferred tax asset, net of valuation allowance 71,979 53,313 Deferred tax liabilities: Prepaid expenses, deposits and other current assets ( 655 ) ( 583 ) Lease right-of-use assets ( 14,052 ) ( 12,909 ) Depreciation and amortization ( 21,958 ) ( 14,100 ) Workers’ compensation ( 192 ) ( 347 ) Total deferred tax liabilities ( 36,857 ) ( 27,939 ) Deferred income taxes, net $ 35,122 $ 25,374 Since deferred tax assets and liabilities attributable to different jurisdictions cannot be offset, a deferred tax liability of $ 0.3 million is included in other long-term liabilities on our Consolidated Balance Sheets as of December 31, 2023. 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 31, 2023 and December 25, 2022. Changes to deferred taxes related to foreign currency translation were immaterial for fiscal 2023, 2022 and 2021. The following table summarizes our credit carryforwards and NOLs along with their respective valuation allowance as of December 31, 2023: (in thousands) Carryover tax benefit Valuation allowance Expected benefit Year expiration begins Year-end tax attributes: Federal WOTCs $ 16,030 $ — $ 16,030 2039 State NOLs 2,808 ( 834 ) 1,974 Various Federal NOLs 4,727 — 4,727 Indefinite Foreign alternative minimum tax credits 287 — 287 2033 Total $ 23,852 $ ( 834 ) $ 23,018 The activity related to the income tax valuation allowance was as follows: (in thousands) 2023 2022 2021 Beginning balance $ 2,152 $ 2,368 $ 3,072 Charged to expense ( 58 ) ( 216 ) 26 Release of allowance ( 1,260 ) — ( 730 ) Ending balance $ 834 $ 2,152 $ 2,368 Page - 69 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity related to our unrecognized tax benefits: (in thousands) 2023 2022 2021 Beginning balance $ 830 $ 1,881 $ 1,930 Increases for tax positions related to the current year 124 53 188 Decreases for tax positions related to prior years — — ( 52 ) Reductions due to lapsed statute of limitations ( 362 ) ( 1,104 ) ( 185 ) Ending balance $ 592 $ 830 $ 1,881 As of December 31, 2023, our liability for unrecognized tax benefits was $ 0.6 million. If recognized, $ 0.5 million would impact our effective tax rate. We do not believe the amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the fiscal year ended December 31, 2023. In general, the tax years 2020 through 2022 remain open to examination by the major taxing jurisdictions where we conduct business. Interest and penalties accrued related to the unrecognized tax benefits noted above were immaterial as of December 31, 2023. NOTE 13: NET INCOME (LOSS) PER SHARE Diluted common shares were calculated as follows: (in thousands, except per share data) 2023 2022 2021 Net income (loss) $ ( 14,173 ) $ 62,273 $ 61,634 Weighted average number of common shares used in basic net income (loss) per common share 31,317 32,889 34,798 Dilutive effect of non-vested stock-based awards — 558 636 Weighted average number of common shares used in diluted net income (loss) per common share 31,317 33,447 35,434 Net income (loss) per common share: Basic $ ( 0.45 ) $ 1.89 $ 1.77 Diluted $ ( 0.45 ) $ 1.86 $ 1.74 Anti-dilutive shares 1,343 394 36 As we reported a loss for the fiscal year ended December 31, 2023, all potentially dilutive securities were antidilutive and accordingly, basic net loss per share and diluted net loss per share were equal. NOTE 14: SEGMENT INFORMATION Segment information Our operating segments and reportable segments are described below: Our PeopleReady reportable segment provides blue-collar, contingent staffing through the PeopleReady operating segment. PeopleReady provides on-demand and skilled labor in a broad range of industries that include construction, transportation, manufacturing, retail, hospitality and renewable energy. Our PeopleScout reportable segment provides high-volume, permanent employee recruitment process outsourcing, employer branding services and management of outsourced labor service providers through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP: • PeopleScout RPO : Outsourced recruitment of permanent employees on behalf of clients and employer branding services; and • PeopleScout MSP : Management of multiple third-party staffing vendors on behalf of clients. Page - 70 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our PeopleManagement reportable segment provides contingent labor and outsourced industrial workforce solutions, primarily on-site at the client’s facility, through the following operating segments, which we have aggregated into one reportable segment in accordance with U.S. GAAP: • PeopleManagement On-Site : On-site management and recruitment for the contingent industrial workforce of manufacturing, warehousing and distribution facilities; and • PeopleManagement Centerline : Recruitment and management of contingent and dedicated commercial drivers to the transportation and distribution industries. The following table presents our revenue disaggregated by major source and segment and a reconciliation of segment revenue from services to total company revenue: (in thousands) 2023 2022 2021 Revenue from services: Contingent staffing PeopleReady $ 1,096,318 $ 1,272,852 $ 1,270,928 PeopleManagement 580,591 663,814 639,741 Human resource outsourcing PeopleScout 229,334 317,518 262,953 Total company $ 1,906,243 $ 2,254,184 $ 2,173,622 The following table presents a reconciliation of segment profit to income (loss) before tax expense (benefit): (in thousands) 2023 2022 2021 Segment profit: PeopleReady $ 26,606 $ 87,743 $ 82,398 PeopleManagement 6,963 15,811 13,196 PeopleScout 26,922 44,771 36,163 Total segment profit 60,491 148,325 131,757 Corporate unallocated ( 31,507 ) ( 31,326 ) ( 27,937 ) Third-party processing fees for hiring tax credits ( 253 ) ( 594 ) ( 734 ) Amortization of software as a service assets ( 4,117 ) ( 2,985 ) ( 2,709 ) Goodwill and intangible asset impairment charge ( 9,485 ) — — Gain on deferred compensation assets — — ( 2,897 ) PeopleReady technology upgrade costs ( 1,342 ) ( 7,935 ) ( 1,300 ) Executive leadership transition costs ( 5,788 ) 1,422 ( 232 ) COVID-19 government assistance, net ( 525 ) — 4,222 Other benefits (costs) ( 5,503 ) ( 5,449 ) ( 4,172 ) Depreciation and amortization ( 25,821 ) ( 29,273 ) ( 27,556 ) Income (loss) from operations ( 23,850 ) 72,185 68,442 Interest and other income (expense), net 3,205 1,231 5,408 Income (loss) before tax expense (benefit) $ ( 20,645 ) $ 73,416 $ 73,850 Asset information by reportable segment is not presented since we do not manage our segments on a balance sheet basis. Domestic and international revenue Our international operations are primarily in Canada, the United Kingdom, and Australia. Revenue by region was as follows: (in thousands, except percentages) 2023 % 2022 % 2021 % United States $ 1,750,427 91.8 % $ 2,073,596 92.0 % $ 2,017,529 92.8 % International operations 155,816 8.2 180,588 8.0 156,093 7.2 Total revenue from services $ 1,906,243 100.0 % $ 2,254,184 100.0 % $ 2,173,622 100.0 % Page - 71 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentrations of client risk No single client represented more than 10.0% of total company revenue for fiscal 2023, 2022 or 2021. Client concentration for our reportable segments was as follows: • No single client represented 10.0% or more of our PeopleReady reportable segment revenue for fiscal 2023, 2022, or 2021. • One client represented 11.8 %, 13.1 % and 10.9 % of our PeopleScout reportable segment revenue for fiscal 2023, 2022 and 2021, respectively. • One client represented 12.3 % and 10.6 % of our PeopleManagement reportable segment revenue for fiscal 2023 and 2022, respectively. No single client represented 10.0% or more of our PeopleManagement reportable segment revenue for fiscal 2021. Property and equipment located in international operations was approximately 3.5 % and 4.6 % of total property and equipment, net as of December 31, 2023 and December 25, 2022, respectively. Page - 72 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.