Item 7. Management’s Discussion and Analysis
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our accompanying consolidated financial statements (“financial statements”) with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to our financial statements.
BUSINESS OVERVIEW
TrueBlue, Inc. (the “company,” “TrueBlue,” “we,” “us” and “our”) is a leading provider of specialized workforce solutions that help our clients improve productivity and grow their businesses. Client demand for contingent workforce solutions and outsourced recruiting services is cyclical and dependent on the overall strength of the economy and labor market, as well as trends in workforce flexibility. During periods of rising economic uncertainty, clients reduce their contingent labor in response to lower volumes and reduced appetite for expanding production or inventory, which reduces the demand for our services. That environment also reduces demand for permanent placement recruiting, whether outsourced or in-house. However, as the economy emerges from periods of uncertainty, contingent labor providers are uniquely positioned to respond quickly to increasing demand for labor and rapidly fill new or temporary positions, replace absent employees, and convert fixed labor costs to variable costs. Similarly, companies turn to hybrid or fully outsourced recruiting models during periods of rapid re-hiring and high employee turnover. Our business strategy is focused on growth in each of our business segments by accelerating our digital transformation, expanding in attractive end markets and simplifying our organizational structure, which will enable us to capture market share, deliver more sustainable growth, and enhance our long-term profitability. We have implemented these core strategies for each of our business segments: PeopleReady, PeopleScout and PeopleManagement. For additional discussion on our business and strategy, refer to Business , found in Part I, Item 1 of this Annual Report on Form 10-K.
Fiscal 2024 highlights
Our 2024 and 2022 fiscal years contained 52 weeks, while our 2023 fiscal year contained 53 weeks, with the 53rd week falling in the fiscal fourth quarter.
Total company revenue declined 17.8% to $1.6 billion for the fiscal year ended December 29, 2024, compared to the prior year. Demand for temporary labor and permanent hiring continues to be suppressed, as clients remained hesitant to make staffing decisions due to uncertainty around future workforce needs and utilized their existing workforce to reduce operating costs. The additional week in fiscal 2023 contributed $20.3 million in revenue.
Total company gross profit as a percentage of revenue for the fiscal year ended December 29, 2024 contracted 60 basis points to 25.9%, compared to the prior year. Changes in revenue mix towards our lower margin staffing businesses and pricing pressures were partially offset by lower workers’ compensation costs and recognition of certain COVID-19 government subsidies.
Total company selling, general and administrative (“SG&A”) expense decreased 16.9% to $410.9 million for the fiscal year ended December 29, 2024, compared to the prior year. SG&A expense decreased as a result of continued operational cost management actions in response to the decline in demand for our services, and simplification of our organizational structure in line with our strategic plan. The additional week in fiscal 2023 contributed $6.6 million of expense.
We recorded a goodwill and intangible asset impairment charge of $59.7 million during the fiscal year ended December 29, 2024, primarily related to our PeopleReady reporting unit. This significant non-cash impairment charge, combined with U.S. and foreign pre-tax losses beginning in 2023 and continuing into 2024, resulted in our conclusion to record a valuation allowance against our U.S. federal, state, and certain foreign deferred tax assets, which increased our income tax expense by $63.7 million.
The items described above contributed to our net loss of $125.7 million for the fiscal year ended December 29, 2024, compared to net loss of $14.2 million in the prior year.
As of December 29, 2024, we had cash and cash equivalents of $22.5 million and $118.5 million available under the most restrictive covenant of our revolving credit agreement (“Revolving Credit Facility”), for total liquidity of $141.1 million. As of December 29, 2024, $7.6 million was drawn on the Revolving Credit Facility as a Swingline loan.
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RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data:
(in thousands, except percentages and per share data) 2024 % of revenue 2023 % of revenue
Revenue from services $ 1,567,393 $ 1,906,243
Gross profit 406,393 25.9 % 506,059 26.5 %
Selling, general and administrative expense 410,870 26.2 494,603 25.9
Depreciation and amortization 28,624 1.8 25,821 1.4
Goodwill and intangible asset impairment charge 59,674 3.8 9,485 0.5
Income (loss) from operations
(92,775) (5.9) % (23,850) (1.3) %
Interest and other income (expense), net 4,251 3,205
Income (loss) before tax expense (benefit)
(88,524) (20,645)
Income tax expense (benefit)
37,224 (6,472)
Net income (loss)
$ (125,748) (8.0) % $ (14,173) (0.7) %
Net income (loss) per diluted share
$ (4.17) $ (0.45)
Revenue from services
(in thousands, except percentages) 2024 Growth
% Segment % of total 2023 Segment % of total
Revenue from services:
PeopleReady $ 868,549 (20.8) % 55.4 % $ 1,096,318 57.5 %
PeopleScout 156,643 (31.7) % 10.0 229,334 12.0
PeopleManagement 542,201 (6.6) % 34.6 580,591 30.5
Total company $ 1,567,393 (17.8) % 100.0 % $ 1,906,243 100.0 %
Total company revenue declined 17.8% to $1.6 billion for the fiscal year ended December 29, 2024, compared to the prior year. Demand for temporary labor and permanent hiring continues to be suppressed, as clients remained hesitant to make staffing decisions due to uncertainty around future workforce needs and utilized their existing workforce to reduce operating costs. The additional week in fiscal 2023 contributed $20.3 million in revenue.
PeopleReady
PeopleReady revenue declined 20.8% to $0.9 billion for the fiscal year ended December 29, 2024, compared to the prior year. Revenue declined as a result of continued labor market uncertainty, leading our clients to reduce their dependence on contingent labor to supplement their core workforce. The decline in demand has impacted clients across most industries and geographies. The additional week in fiscal 2023 contributed $11.9 million in revenue.
PeopleScout
PeopleScout revenue declined 31.7% to $156.6 million for the fiscal year ended December 29, 2024, compared to the prior year. Revenue declined as clients are experiencing less employee turnover, and labor market conditions are leading to uncertainty around future workforce needs. This has resulted in clients reducing hiring volumes, sourcing candidates with internal resources, and initiating hiring freezes to control costs. Revenue was also negatively impacted by the loss of a large hospitality client during the year, due to their decision to insource hiring for high-volume roles. The additional week in fiscal 2023 contributed $0.8 million in revenue. Despite the challenging market dynamics, new business wins during fiscal 2024 outperformed fiscal 2023, which we expect to contribute to future revenue growth.
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PeopleManagement
PeopleManagement revenue declined 6.6% to $542.2 million for the fiscal year ended December 29, 2024, compared to the prior year. Revenue declined as clients in our on-site businesses continued to be hesitant to make significant changes to their workforce strategies after taking steps to reduce their dependence on variable labor, primarily within the retail industry. These declines were partially offset by growth within our commercial driving business. The additional week in fiscal 2023 contributed $7.6 million in revenue. Despite the challenging market dynamics, new business wins during fiscal 2024 outperformed fiscal 2023, which we expect to contribute to future revenue growth.
Gross profit
(in thousands, except percentages) 2024 2023
Gross profit $ 406,393 $ 506,059
Percentage of revenue 25.9 % 26.5 %
Gross profit as a percentage of revenue contracted 60 basis points to 25.9% for the fiscal year ended December 29, 2024, compared to 26.5% for the prior year. Changes in revenue mix resulted in a contraction of 90 basis points, driven in part by revenue shifts toward our lower margin staffing businesses. Our staffing businesses contributed an additional 10 basis points of contraction as a result of pricing pressure typical of a low demand environment. These contractions were partially offset by 20 basis points of expansion from lower workers’ compensation costs driven by favorable development of prior year reserves, as well as 20 basis points of expansion from recognition of certain COVID-19 government subsidies in the current year.
Selling, general and administrative expense
(in thousands, except percentages) 2024 2023
Selling, general and administrative expense $ 410,870 $ 494,603
Percentage of revenue 26.2 % 25.9 %
Total company SG&A expense decreased by $83.7 million or 16.9% for the fiscal year ended December 29, 2024, compared to the prior year. We have continued to execute operational cost management actions in response to the decline in demand for our services, and simplify our organizational structure in line with our strategic plan. SG&A expense in the current year included a benefit, net of related fees, of $6.8 million for recognition of certain COVID-19 government subsidies, offset by $6.4 million of accelerated third-party licensing fees associated with the previous version of our JobStack app. SG&A expense in the prior year included $5.8 million of accelerated compensation costs related to transitions in our executive leadership, as well as an additional week which added $6.6 million of expense.
Depreciation and amortization
(in thousands, except percentages) 2024 2023
Depreciation and amortization (exclusive of depreciation included in cost of services)
$ 28,624 $ 25,821
Percentage of revenue 1.8 % 1.4 %
Depreciation and amortization increased due to assets placed into service at the end of fiscal 2023, primarily related to PeopleReady technology.
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Goodwill and intangible asset impairment charge
A summary of the goodwill and intangible asset impairment charges for the fiscal year ended December 29, 2024, by reportable segment, is as follows:
(in thousands) PeopleReady PeopleScout PeopleManagement Total company
Goodwill $ 59,074 $ — $ — $ 59,074
Trade names/trademark — — 600 600
Total $ 59,074 $ — $ 600 $ 59,674
Goodwill
We performed an interim impairment test as of the last day of fiscal May 2024 following the determination by management that a triggering event had occurred. As a result of this impairment test, we concluded that the carrying amount of our PeopleReady reporting unit exceeded its fair value and we recorded a non-cash goodwill impairment charge of $59.1 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 29, 2024. As a result of this impairment charge, the goodwill carrying value of $59.1 million for PeopleReady was fully impaired. The goodwill impairment was primarily driven by recent performance of the PeopleReady reporting unit and the temporary industrial staffing industry since our annual impairment testing date, as well as a delay in the projected timing of recovery. No further impairment charges were recognized during the fiscal year ended December 29, 2024. See Note 6: Goodwill and Intangible Assets , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details.
Indefinite-lived intangible assets
We performed an impairment test during our fiscal second quarter of 2024. As a result of this impairment test, we concluded that a trade name/trademark related to our PeopleManagement segment exceeded its estimated fair value and we 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 29, 2024. The charge was primarily driven by recent revenue performance of the related business given a decline in demand and overall economic uncertainty. No further impairment charges were recognized during the fiscal year ended December 29, 2024. The remaining balance for this trade name/trademark was $2.7 million as of December 29, 2024.
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Income taxes
Our tax provision and our effective tax rate are subject to variation due to several factors, including variability in our pre-tax and taxable income or loss by jurisdiction, tax credits, government audit developments, changes in laws, regulations and administrative practices, valuation allowances recorded on deferred tax assets, and relative changes in expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. For example, the impact of discrete items, tax credits, and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.
The items creating differences between income taxes computed at the statutory federal income tax rate and income taxes reported on the Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows:
(in thousands, except percentages) 2024 % 2023 %
Income tax expense (benefit) based on statutory rate
$ (18,590) 21.0 % $ (4,335) 21.0 %
Increase (decrease) resulting from:
State income taxes, net of federal benefit 591 (0.7) (1,384) 6.7
Hiring tax credits, net (4,123) 4.7 (4,997) 24.2
Valuation allowance
56,792 (64.1) — —
Uncertain tax positions (99) 0.1 (206) 1.0
Non-deductible goodwill impairment charge
— — 2,287 (11.1)
Non-deductible and non-taxable items
664 (0.8) 1,178 (5.7)
Foreign taxes 446 (0.5) 587 (2.9)
Other, net 1,543 (1.7) 398 (1.9)
Total income tax expense (benefit)
$ 37,224 (42.0) % $ (6,472) 31.3 %
Significant fluctuations in our effective tax rate for the fiscal year ended December 29, 2024 were primarily due to changes in the valuation allowance against our U.S. federal, state and certain foreign deferred tax assets, as well as tax benefits from hiring credits. Based on our deferred tax asset realizability assessments performed during the fiscal year ended December 29, 2024, we recorded additional valuation allowances against U.S. federal, state and certain foreign deferred tax assets. Our conclusion was driven by U.S. and foreign pre-tax losses beginning in 2023 and continuing into 2024, combined with the significant non-cash goodwill impairment charge of $59.1 million recorded during the fiscal year ended December 29, 2024.
The federal Work Opportunity Tax Credit (“WOTC”), our primary hiring tax credit, is designed to encourage employers to hire workers from certain targeted groups with higher than average unemployment rates. WOTC is generally calculated as a percentage of wages over a twelve-month period up to worker maximums by targeted groups. Based on historical results and business trends, we estimate the amount of WOTC we expect to earn related to wages of the current year. However, the estimate is subject to variation because 1) a small percentage of our workers qualify for one or more of the many targeted groups; 2) the targeted groups are subject to different incentive credit rates and limitations; 3) credits fluctuate depending on economic conditions and qualified worker retention periods; and 4) state and federal offices can delay their credit certification processing and have inconsistent certification rates. We recognize an adjustment to prior year hiring tax credits if credits certified by government offices differ from original estimates. The U.S. Congress has approved the WOTC program through the end of 2025.
See Note 1: Summary of Significant Accounting Policies and Note 13: Income Taxes , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional information.
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Segment performance
We evaluate segment performance based on segment revenue and segment profit. 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 and other income (expense), income taxes, and other costs and benefits not considered to be ongoing. See Note 15: Segment Information , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our reportable segments, including a reconciliation of segment profit to income (loss) before tax expense (benefit).
Segment profit should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and may not be comparable to similarly titled measures of other companies.
PeopleReady segment performance was as follows:
(in thousands, except percentages) 2024 % of revenue 2023 % of revenue
Revenue from services $ 868,549 $ 1,096,318
Cost of services
614,860 70.8 % 772,058 70.4 %
Selling, general and administrative expense
247,906 28.5 % 297,654 27.2 %
Segment profit $ 5,783 0.7 % $ 26,606 2.4 %
PeopleReady segment profit declined $20.8 million and declined as a percentage of revenue for the fiscal year ended December 29, 2024, compared to the prior year. The decline in segment profit was driven by the decline in revenue, as well as the increase in cost of services as a percentage of revenue from pricing pressures typical of a low demand environment, partially offset by lower workers’ compensation costs. While SG&A expense declined overall due to operational cost management actions and simplification of our organizational structure, it increased slightly as a percentage of revenue due to the relatively high ratio of fixed to variable costs.
PeopleScout segment performance was as follows:
(in thousands, except percentages) 2024 % of revenue 2023 % of revenue
Revenue from services $ 156,643 $ 229,334
Cost of services
91,484 58.4 % 137,551 60.0 %
Selling, general and administrative expense
53,007 33.8 % 64,861 28.3 %
Segment profit $ 12,152 7.8 % $ 26,922 11.7 %
PeopleScout segment profit declined $14.8 million and declined as a percentage of revenue for the fiscal year ended December 29, 2024, compared to the prior year. The decline in segment profit was driven by the decline in revenue, partially offset by a decrease in cost of services as a percentage of revenue due to swift cost actions in response to lower revenue levels. While SG&A expense declined overall due to operational cost management actions and simplification of our organizational structure, it increased as a percentage of revenue due to the relatively high ratio of fixed to variable costs.
PeopleManagement segment performance was as follows:
(in thousands, except percentages) 2024 % of revenue 2023 % of revenue
Revenue from services $ 542,201 $ 580,591
Cost of services
456,096 84.1 % 488,692 84.2 %
Selling, general and administrative expense
70,986 13.1 % 84,936 14.6 %
Segment profit $ 15,119 2.8 % $ 6,963 1.2 %
PeopleManagement segment profit grew $8.2 million and grew as a percentage of revenue for the fiscal year ended December 29, 2024, compared to the prior year. This growth was primarily due to the decrease in SG&A expense, which was the result of disciplined cost management actions to simplify and streamline our organizational structure to improve efficiency.
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FISCAL 2023 AS COMPARED TO FISCAL 2022
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations , found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for discussion of fiscal 2023 compared to fiscal 2022.
FUTURE OUTLOOK
The following highlights represent our operating outlook. These expectations are subject to revision as our business changes with the overall economy.
Operating outlook
• For the fiscal first quarter of 2025, we expect revenue to decline between 13% and 7% as compared to the same period in the prior year. The decline assumes current market conditions continue, and includes approximately 1% headwind due to the sale of Labour Ready Temporary Services, Ltd. (“PeopleReady Canada”) in early 2024, partially offset by approximately 3% inorganic growth from the acquisition of Healthcare Staffing Professionals, Inc. (“HSP”) in late January 2025.
• For the fiscal first quarter of 2025 we anticipate gross profit as a percentage of revenue to decline between 70 and 30 basis points as compared to the same period in the prior year, primarily due to continued changes in business mix.
• For the fiscal first quarter of 2025, we anticipate SG&A expense to be between $93 million and $97 million, representing improvement compared to the same period in the prior year, and the result of our ongoing cost management efforts.
• For the fiscal first quarter of 2025 we expect basic weighted average shares outstanding to be approximately 30 million. This expectation does not include the impact of potential share repurchases.
• For fiscal 2025, we expect income tax expense between $2 million and $6 million, which is lower than historical levels due to the valuation allowance against our U.S. federal, state and certain foreign deferred tax assets.
Liquidity outlook
• For fiscal 2025, capital expenditures and spending for software as a service assets are expected to be between $19 million and $23 million, with approximately $3 million of this amount relating to spending for software as a service assets.
• To help fund the acquisition of HSP in late January, we borrowed $35.0 million under the Revolving Credit Facility as a Term Secured Overnight Financing Rate (“SOFR’) loan.
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LIQUIDITY AND CAPITAL RESOURCES
We believe we have a strong financial position and sufficient sources of funding to meet our short- and long-term obligations. As of December 29, 2024, we had $22.5 million in cash and cash equivalents and $7.6 million debt outstanding as a Swingline loan under the Revolving Credit Facility. An additional $2.7 million of the Revolving Credit Facility was utilized by outstanding standby letters of credit, leaving $244.7 million unused, of which $118.5 million is available for additional borrowing after considering our most restrictive covenant. We have an option to increase the total line of credit amount under the Revolving Credit Facility from $255.0 million to $405.0 million, subject to lender approval.
Cash generated through our core operations is generally our primary source of liquidity. Our principal ongoing cash needs are to finance working capital, fund capital expenditures, repay outstanding Revolving Credit Facility balances, and execute share repurchases. We may also need cash to fund future acquisitions. We manage working capital through timely collection of accounts receivable, which we achieve through focused collection efforts and tightly monitoring trends in days sales outstanding. While client payment terms are generally 90 days or less, we pay our associates daily and weekly, so additional financing through the use of our Revolving Credit Facility is sometimes necessary to support working capital needs in times of revenue growth. We also manage working capital through efficient cost management and strategically timing payments of accounts payable.
We continue to make investments in online and mobile apps to increase the competitive differentiation of our services long-term and improve the efficiency of our service delivery model. In addition, we continue to transition our technology from on-premise software platforms to cloud-based software solutions, to increase automation and the efficiency of running our business.
Outside of ongoing cash needed to support core operations, our insurance carriers and certain state workers’ compensation programs require us to collateralize a portion of our workers’ compensation obligation, for which they become responsible should we become insolvent. On a regular basis, these entities assess the amount of collateral they will require from us relative to our workers’ compensation obligation. Such amounts can increase or decrease independent of our assessments and reserves. We continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics. We generally anticipate that our collateral commitments will grow as our business grows. We pay our premiums and deposit our collateral, if required, in installments. The collateral typically takes the form of cash and cash-backed instruments, highly rated investment grade securities, letters of credit, and surety bonds. Restricted cash, cash equivalents and investments supporting our self-insured workers’ compensation obligation are held in a trust at the Bank of New York Mellon (“Trust”) and are used to pay workers’ compensation claims as they are filed. See Note 7: Workers' Compensation Insurance and Reserves , and Note 4: Restricted Cash, Cash Equivalents and Investments , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our workers’ compensation program as well as the restricted cash, cash equivalents and investments held in Trust.
We have established investment policy directives for the Trust with the first priority to preserve capital, second to ensure sufficient liquidity to pay workers’ compensation claims, third to diversify the investment portfolio and fourth to maximize after-tax returns. Trust investments must meet minimum acceptable quality standards. The primary investments include U.S. Treasury securities, U.S. agency debentures, U.S. agency mortgages, corporate securities and municipal securities. For those investments rated by nationally recognized statistical rating organizations the minimum ratings at time of purchase are:
S&P Moody’s Fitch
Short-term rating A-1/SP-1 P-1/MIG-1 F-1
Long-term rating A A2 A
Total collateral commitments decreased $24.5 million during the fiscal year ended December 29, 2024 primarily due to a decrease in collateral levels required by our insurance carriers, as well as the use of collateral to satisfy workers’ compensation claims. See Note 9: Commitments and Contingencies , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on our workers’ compensation commitments. We continue to actively manage workers’ compensation costs by focusing on improving our associate safety programs, and actively control costs with our network of service providers. These actions have had a positive impact creating favorable adjustments to workers’ compensation liabilities recorded in the prior periods, as well as lowering our required collateral levels. Continued favorable adjustments to our prior year workers’ compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims. Due to our progress in worker safety improvements and the resulting reduction in the frequency and severity of accident rates, we expect diminishing favorable adjustments to our workers’ compensation liabilities going forward.
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Restricted cash, cash equivalents and investments also includes collateral to support our non-qualified deferred compensation plan in the form of company-owned life insurance policies. Our non-qualified deferred compensation plan is managed by a third-party service provider, and the investments backing the company-owned life insurance policies align with the amount and timing of payments based on employee elections.
A summary of our cash flows for each period are as follows:
Fiscal year ended
(in thousands) Dec 29, 2024 Dec 31, 2023
Net cash (used in) provided by operating activities
$ (17,058) $ 34,754
Net cash used in investing activities (2,453) (32,322)
Net cash used in financing activities (17,087) (37,583)
Change in cash, cash equivalents and restricted cash and cash equivalents reclassified to assets held-for-sale — (300)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents (1,608) (874)
Net change in cash, cash equivalents and restricted cash and cash equivalents $ (38,206) $ (36,325)
Cash flows from operating activities
Operating cash flows consist of net income (loss) adjusted for non-cash benefits and expenses, and changes in operating assets and liabilities.
As client demand declines, the result is a deleveraging of accounts receivable and accounts payable. Accrued wages and benefits can fluctuate based on whether the period end requires the accrual of one or two weeks of payroll, the amount and timing of bonus payments, and timing of payroll tax payments.
Net cash provided by accounts receivable collections through deleveraging during the fiscal year ended December 29, 2024 was partially offset by an increase in days sales outstanding of approximately three days compared to 2023, primarily due to a shift in business mix towards clients with longer payment terms. Net cash used for payments on accounts payable and other accrued expenses was primarily related to timing of payments to vendors as well as a decrease in certain accrued expenses that fluctuate with revenue. Net cash used for payments on accrued wages and benefits was primarily due to the release of certain COVID-19 government subsidy reserves.
Cash flows from investing activities
Investing cash flows consist of capital expenditures, and purchases, sales and maturities of restricted investments, which are managed in line with our workers’ compensation collateral funding requirements and timing of claim payments.
Capital expenditures for the fiscal year ended December 29, 2024 included continued investments to upgrade our PeopleReady technology platform. Our capital expenditures were partially offset by cash provided by maturities of restricted investments to pay workers’ compensation claims exceeding purchases of new restricted investments.
Cash flows from financing activities
Financing cash flows consist primarily of repurchases of common stock as part of our publicly announced share repurchase program, amounts to satisfy employee tax withholding obligations upon the vesting of restricted stock, and the net change in our Revolving Credit Facility.
Net cash used in financing activities during the fiscal year ended December 29, 2024 was primarily due to use of $21.3 million to repurchase our common stock in the open market. As of December 29, 2024, $33.5 million remains available for repurchase under existing authorization, though we are limited to $25.0 million in aggregate share repurchases in any twelve-month period by our financial covenants. Common stock repurchases were partially offset by a net increase in debt outstanding under our Revolving Credit Facility.
FISCAL 2023 AS COMPARED TO FISCAL 2022
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations , found in Part II of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for discussion of fiscal 2023 compared to fiscal 2022.
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SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Management’s discussion and analysis of financial condition and results of operations discusses our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following accounting estimates are the most critical to understand and evaluate our reported financial results, and they require management’s most subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual future amounts differing from reported estimated amounts.
Workers’ compensation reserve
We maintain reserves for workers’ compensation claims, including the estimated expenses related to claims above our self-insured limits (“excess claims”), using actuarial estimates of the future cost of claims and related expenses. These estimates include claims that have been reported but not settled and claims that have been incurred but not reported. 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” 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 exceed the amount 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 in estimates are made.
Our workers’ compensation reserves include estimated expenses related to excess claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies. We discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns on “risk-free” U.S. Treasury instruments available during the year in which the liability was incurred. When appropriate, we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized.
There are two main factors that impact workers’ compensation cost: the number of claims and the cost per claim. The number of claims is driven by the volume of hours worked, the business mix, which reflects the type of work performed, and the safety of the environment where the work is performed. The cost per claim is driven primarily by the severity of the injury, the state in which the injury occurs, related medical costs, and lost-time wage costs. For fiscal 2024 claims, a 5% change in one or more of the above factors would result in a change to workers’ compensation cost of approximately $2 million. Our reserve balances have been positively impacted primarily by the success of our accident prevention programs and our focus on resolving open claims in a timely manner. In the event that we are not able to further reduce our accident rates or resolve open claims in a timely manner, the positive impacts to our reserve balance will diminish.
Management evaluates the adequacy of the workers’ compensation reserves in conjunction with an independent quarterly actuarial assessment. Factors considered in establishing and adjusting these reserves include, among other things:
• changes in medical and time loss (“indemnity”) costs;
• changes in mix between medical only and indemnity claims;
• regulatory and legislative developments impacting benefits and settlement requirements;
• type and location of work performed;
• impact of safety initiatives; and
• positive or adverse development of claims.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Accounts receivable 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 has 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.
• Centerline Drivers (“Centerline”) has a mix of client sizes, many with low dollar weekly invoices, but other clients that are invoiced on a consolidated basis, resulting in a high concentration of revenue related to its top 10 clients. Payment terms are slightly longer than PeopleReady.
• PeopleScout has a smaller number of clients, and generally sends monthly invoices on a consolidated basis for a client. Invoice amounts are generally higher for PeopleScout than our other businesses, with longer payment terms than PeopleReady and Centerline.
• Staff Management | SMX and SIMOS Insourcing Solutions have a smaller number of clients, and follow a contractual billing schedule. These clients have longer payment terms than our other businesses.
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).
Business combinations
We account for our business acquisitions using the acquisition method of accounting. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. Determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions. The significant judgments include estimation of future cash flows, which is dependent on forecasts; estimation of the long-term rate of growth; estimation of the useful life over which cash flows will occur; and determination of a weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the business being purchased. Intangible assets that arise from contractual/legal rights, or are capable of being separated, are measured and recorded at fair value and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.
Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date. Acquisition-related costs are expensed as incurred. Our acquisitions may include contingent consideration, which requires us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized on the Consolidated Statements of Operations and Comprehensive Income (Loss). Cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities on the Consolidated Statements of Cash Flows. Alternatively, our acquisitions may include contingent payments to employees that are selling shareholders, which are separate from the business combination and are accounted for as compensation expense.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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 stock 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 reporting units with remaining goodwill as of the first day of our fiscal second quarter of 2024 were PeopleReady, 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 exceeds the fair value, we recognize an impairment charge 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.
Determining the fair value of a reporting unit when performing a quantitative impairment test involves the use of significant estimates and assumptions to evaluate the impact of operational and economic changes on each reporting unit. We estimate the fair value using a weighting of the income and market valuation approaches. The income approach applies a fair value methodology to each reporting unit based on discounted cash flows. This analysis requires significant estimates and judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital, which is risk-adjusted to reflect the specific risk profile of the reporting unit being tested. We also apply 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.
We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We confirm the reasonableness of the valuation conclusions by comparing the indicated values of all the reporting units to the overall company value indicated by the stock price and outstanding shares as of the valuation date, or market capitalization.
Impairment test
During the fiscal second quarter of 2024, management determined that a triggering event had occurred as a result of additional decline in demand for our services, prolonged economic uncertainty, and a further decrease in our stock price. Therefore, we performed an interim impairment test as of the last day of fiscal May 2024. The weighted average cost of capital used in our most recent impairment test was risk-adjusted to reflect the specific risk profile of the reporting units and ranged from 13.5% to 14.5%. 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 forecasted future operating results of the reporting units. The primary market multiples considered for the market approach are revenue and earnings before interest, taxes, depreciation, and amortization. In our most recent impairment test, the market multiples were based on earnings before interest, taxes, depreciation, and amortization for Centerline and PeopleScout RPO, while market multiples based on revenue were used for PeopleReady. The income and market approaches for each reporting unit 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 the aggregate market value of our shares of common stock on the date of valuation.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Based on the results of our interim impairment test, we concluded that the carrying amount of goodwill for the PeopleReady reporting unit exceeded the estimated fair value and we recorded a non-cash impairment charge of $59.1 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 29, 2024. As a result of this impairment charge, the total goodwill carrying value of $59.1 million for PeopleReady was fully impaired. The goodwill impairment was primarily driven by recent performance of the PeopleReady reporting unit and the temporary industrial staffing industry since our annual impairment testing date, as well as a delay in the projected timing of recovery. Based on our interim impairment test, we concluded the fair value of all other reporting units were substantially in excess of their carrying value, and the goodwill associated with those reporting units was not impaired.
Additionally, following performance of the interim impairment test, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred during the fiscal year ended December 29, 2024. See Note 6: Goodwill and Intangible Assets , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the 2024 and 2023 goodwill impairment. There were no goodwill impairment charges recorded during fiscal 2022.
Indefinite-lived intangible assets
We have indefinite-lived intangible assets for trade names/trademarks related to businesses within our PeopleScout and PeopleManagement segments. 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/trademarks. If the carrying value exceeds the fair value, we recognize an impairment charge in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including forecasted future revenue, royalty rates and appropriate discount rates.
Impairment test
We performed an indefinite-lived intangible asset impairment test during our fiscal second quarter of 2024. As a result of this impairment test, we concluded that a trade name/trademark related to the PeopleManagement segment exceeded its estimated fair value and we 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 29, 2024. The charge was primarily driven by recent revenue performance of the related business given a decline in demand and overall economic uncertainty. The remaining balance for this trade name/trademark was $2.7 million as of December 29, 2024. As of our impairment testing date, the fair value of the trade name/trademark related to the PeopleScout segment was substantially in excess of its carrying amount of $2.1 million, and therefore did not result in an impairment.
Additionally, following performance of the impairment test, we did not identify any events or conditions that make it more likely than not that an additional impairment may have occurred during the fiscal year ended December 29, 2024. See Note 6: Goodwill and Intangible Assets , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for additional details on the 2024 and 2023 indefinite-lived intangible asset impairment. There were no indefinite-lived intangible asset impairment charges recorded during fiscal 2022.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Finite-lived intangible assets and other long-lived assets
We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Important factors that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results, or significant changes in business strategies. We estimate the recoverability of these assets by comparing the carrying amount of the asset to the future undiscounted cash flows that we expect the asset to generate. An impairment charge is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment charge is recognized, the carrying amount of the asset is reduced to its estimated fair value based on discounted cash flow analysis or other valuation techniques.
No impairment charges were recorded during fiscal 2024, 2023 or 2022.
Estimated contingent legal and regulatory liabilities
We are subject to compliance audits by federal, state, local and foreign authorities relating to a variety of regulations including wage and hour laws, taxes, workers’ compensation, immigration, and safety. We are also subject to legal proceedings in the ordinary course of our operations. We have established reserves for contingent legal and regulatory liabilities. We record a liability when management determines that it is probable that a legal claim will result in an adverse outcome and the amount of liability can be reasonably estimated. To the extent that an insurance company or other third-party is legally obligated to reimburse us for a liability, we record a receivable for the amount of the probable reimbursement. We evaluate our estimated liability 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 period in which the estimate changes.
Income taxes and related valuation allowances
We account for income taxes by recording taxes payable or receivable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. These expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. 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 to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets 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. A significant piece of objective negative evidence is the existence of a three-year cumulative loss. Such objective negative evidence limits the ability of management to consider other subjective evidence, such as projected taxable income. When appropriate, we record a valuation allowance against deferred tax assets to reduce deferred tax assets to the amount that is more likely than not to be realized.
Based on our deferred tax asset realizability assessments during the year ended December 29, 2024, we determined that a valuation allowance was appropriate against our U.S. federal, state and certain foreign deferred tax assets that we expect will not be utilized within the permitted carryforward periods. Our conclusion was driven by U.S. and foreign pre-tax losses beginning in 2023 and continuing into 2024, combined with the significant non-cash goodwill impairment charge of $59.1 million recorded during the fiscal year ended December 29, 2024. See Note 13: Income Taxes , to our consolidated financial statements found in Item 8 of this Annual Report on Form 10-K, for details on our current valuation allowance.
NEW ACCOUNTING STANDARDS
See Note 1: Summary of Significant Accounting Policies, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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