Thank you for joining us for the TrueBlue Third Quarter 2020 Earnings Call. I will now pass the conference over to your speaker today, Derrek Gafford, CFO. Please proceed.

Good afternoon, everyone, and thank you for joining today's call. I'm joined by our Chief Executive Officer, Patrick Beharelle. Before we begin, I want to remind everyone that today's call and slide presentation contains forward-looking statements, all of which are subject to risks and uncertainties. And we assume no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and in our SEC filings, could cause actual results to differ materially from those in our forward-looking statements. We use non-GAAP measures when presenting our financial results. We encourage you to review the non-GAAP reconciliations in today's earnings release or at trueblue.com under the Investor Relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated. Lastly, we will be providing a copy of our prepared remarks on our website at the conclusion of today's call and a full transcript and audio replay will also be available soon after the call. With that, I'll turn the call over to Patrick.

Thank you, Derrek, and welcome everyone to today’s call. Total revenue for the third quarter was down 25% and we posted positive net income of $9 million or $0.25 per share. We're very pleased that the company has returned to profitability. We've taken the right actions to restore profitability and position the company for long-term growth as the economy recovers. During the third quarter, we saw steady improvements in our revenue trends across most of the industries and geographies we serve. Our cost management actions continue to show meaningful results, which helps position us for stronger incremental profit margins when revenue growth returns. Now let's turn to our results by segments starting with PeopleReady. PeopleReady is our largest segment representing 61% of trailing 12-month revenue and 76% of segment profit. PeopleReady is the leading provider of on-demand labor and skilled trades in the North American industrial staffing market. We service our clients via a national footprint of physical branch locations, as well as our job stack mobile app. PeopleReady’s revenue was down 29% during the quarter and we saw intra-quarter improvement with revenue down 27% in September versus down 32% in July. PeopleManagement is our second-largest segment representing 30% of trailing 12-month revenue and 15% of segment profit. PeopleManagement provides onsite industrial staffing and commercial driving services in the North American industrial staffing market. The essence of a typical PeopleManagement engagement is supplying an outsourced workforce that involves multi-year, multi-million dollar onsite or driver relationships. These types of client engagements tend to be more resilient in the downturn. Revenue for PeopleManagement was down 8% during the quarter, with top line down just 2% in September versus down 12% in July. Our third segment, PeopleScout, represents 9% of trailing 12-month revenue and 9% of segment profit. PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offers. Revenue was down 48% during the quarter versus down 53% in Q2. PeopleScout results were particularly impacted by exposure to large travel and leisure clients. Now I'd like to shift gears and update you on our key strategies by segments starting with PeopleReady. Our long-term strategy of PeopleReady is to digitalize our business model to gain market share. Most of our competitors in this segment are smaller mom and pops that don't have the scale or capital to deploy something like our job stack mobile app. So this, along with our nationwide footprint is what makes us unique. We began rolling out job stack in 2017 to our associates and in 2018, we launched the client side of the app. We now have digital filling north of 50% and more than 26,000 clients using the app. In Q3 2020, we sold 726,000 shifts via job stack, representing a digital fill rate of 51%. Our client user count ended the quarter at 26,100, up 37% versus Q3 2019. In mid-2020, we introduced new digital onboarding features that cut application time in half. This has led to some great operational results as we increase the ratio of associates put to work versus all applicants. Early results indicate a 20% increase in worker throughput. This is exciting because as we move back to a supply-constrained environment, an increase in worker throughput will translate directly to revenue. We believe we can further improve applicant throughput as we fine-tune our processes. Right now, we're also very focused on driving heavy client user growth. A heavy user is a client who has 50 or more touches on job stack per month, whether it's entering an order, creating a worker, or approving time. Job stack heavy users have consistently posted better year-over-year growth rates compared to the rest of PeopleReady. The growth differential is north of 20 percentage points and it's held true even in this market downturn. This makes sense since we have many clients who use multiple vendors and we can grow our business simply by growing our wallet share even if our client's total volume is flat to down. Our focus on heavy user growth is starting to pay off. We doubled our heavy user mix since 2019, up from 11% of our business in fiscal 2019 to 22% for 2020 year-to-date. Our positive strategic progress is obviously overshadowed by the macro environment at the moment, but we continue to invest in our digital strategy and believe this approach will help PeopleReady to emerge stronger than ever. As our digital strategy continues to mature, we're taking a look at areas within PeopleReady where we can reduce our service delivery costs. In 2020, we began testing a few different strategies. It's too early to quantify potential savings, but we're developing a plan where cost savings will come from a mixture of both technology utilization and changing our go-to-market approach. As we move down this path, I want to emphasize that the value and importance of our branch network should not be underestimated. We need to maintain a local presence in the communities where we do business. At the same time, we do see an opportunity to centralize more services and reorient job roles to improve our client-focused delivery. We will continue to update you on this front as our plans evolve. According to PeopleManagement, our strategy is to focus on execution and grow our client base. Initiatives we've already implemented include sharpening our vertical market focus to target essential manufacturers and leverage our strength in e-commerce. These are verticals that have held up well relative to the decline in non-essential goods at traditional brick and mortar retailers. We've also completed the integration of our Staff Management and SIMOS brand sales team, allowing the integrated team to offer a full portfolio of hourly and cost per unit solutions to clients. These strategic initiatives are already paying off even in the middle of this downturn year-to-date new business wins at PeopleManagement are up 13% versus the prior year, as we've secured $7 million in annualized new business wins versus $62 million the prior year. Approximately half of new wins are in our Q3 run rate. As the demand environment recovers, we'll be increasing sales resources and investing in client care programs to maintain our momentum. Turning to PeopleScout, our strategy is to capture opportunities in an industry poised for growth. Before COVID struck, we noticed a trend toward insourcing, bringing more recruitment functions in-house. Many of those in-house teams have been reduced or eliminated during the pandemic and we expect a trend reversal back towards outsourcing as the economy recovers. Our strategy leverages our strong brand reputations as we are consistently ranked as a market leader by independent industry analysts, and PeopleScout is traditionally the highest margin business within our portfolio. Finally, I'd like to take a moment to touch on our balance sheet and capital allocation priorities. We do have a solid balance sheet. Our credit facility provides ample liquidity and we ended Q3 with more cash than debt. Before the pandemic hit, we were generating substantial free cash flow and we're focused on returning capital to shareholders. Over the last five years, we've returned $169 million of capital to shareholders via share repurchases. As we returned to a more normalized environment, investing in our organic business opportunities will remain our top priority. But we'll also expect to renew our focus on returning excess capital to shareholders.

Thank you, Patrick. Total Revenue for Q3 2020 was $475 million, representing a decline of 25%. We posted net income of $9 million or $0.25 per share and adjusted net income of $8 million or $0.24 per share. While this quarter’s bottom-line results are lower than the prior year period, they are sizably better than the losses incurred in Q2 this year due to further improvement in our revenue and SG&A expense trends. The Q3 year-over-year revenue decline was 14 percentage points better than the Q2 year-over-year revenue declines. And the Q3 year-over-year SG&A decline was eight points better than the Q2 year-over-year SG&A decline. Adjusted EBITDA was $18 million, down from $39 million in Q3 2019 but up from a loss of $5 million in Q2 2020. Gross Margin of 23.3% was down 300 basis points, our staffing businesses contributed 230 basis points of compression with 180 basis points of pressure from negative bill and pay rate spreads and 50 basis points from mix and other items. PeopleScout contributed another 70 basis points of compression primarily due to client mix and lower volume. I'm going to spend a few moments stepping back from this quarter's gross margin results and share our perspective on the ebb and flow of gross margin across an economic cycle. During a recession, the bill rates in our staffing businesses come under pressure as customers look to cut costs and as staffing companies compete in a lower demand environment. However, pay rates do not come under the same amount of pressure, which creates gross margin contraction. In this particular recession, pay rate inflation has accelerated to entice contingent employees given COVID health concerns and due to the amount of federal unemployment benefits available, which for jobs on the lower end of the pay scale, when combined with state unemployment benefits can provide more take-home pay than a work assignment. In the recruitment process outsourcing business, gross margin also comes under pressure, but this has more to do with volume and price as RPO cost of sales is mostly comprised of recruiting personnel costs. While we are able to reduce recruiting costs by reducing headcount, there is a semi-fixed component that creates negative operating leverage in the cost of sales for the RPO business as revenue declines. Similar to the dynamic with the rest of our enterprise personnel costs that are reported in SG&A expense. As the economy recovers, pricing power has historically swung back to the industrial staffing industry, as demand for talent surges due to economic growth, as well as a preference for more contingent labor due to the hesitation of businesses to hire permanent staff associated with uncertainty about the sustainability of the recovery. Likewise, additional revenue volume has assisted the recovery of RPO gross margin. We have an experienced team that has operated through these economic cycles. And we have tested processes in place to ensure we seize the opportunity to improve our gross margin in the future. Turning to SG&A expense, we turned in another quarter of very strong results. Expense was down $40 million, or 31% compared to Q3 2019. We also continue to challenge prior assumptions about the cost needed to run the business and invest in technology. We're optimistic these actions will result in a more efficient service delivery model. The opportunity for additional cost savings is greatest in our PeopleReady business. We see an opportunity to further reduce the cost of our branch network while maintaining the strength of our geographic footprint through a greater use of technology, centralizing work activities, and repurposing job roles. We've made good progress in 2020 by centralizing certain recruiting activities and repurposing certain job functions. An unnecessary precursor to further reducing the cost of the branch network is a broader repurposing of jobs to increase centralization, which can be accomplished through the normal course of employee attrition. Client-facing job functions must also be repurposed to ensure we continue to meet the service expectations of our clients. We will be testing these plans throughout 2021 before we make large-scale changes, which will also help us provide more clarity on the savings opportunity. Turning to our tax rate, our effective tax rate was 30% in Q3, which is higher than what we have experienced in prior years as a result of this quarter's performance, reducing the net operating loss for the year. This results in a reduction to our CARES Act carry back benefit expectation, resulting in some catch-up expense this quarter. Additional information on the components of our effective tax rate is available in our 10-Q filed today. Turning to our segments, PeopleReady, our largest segment saw a 29% decline in revenue and segment profit was down 39%. We saw a nice intra-quarter revenue improvement with September down 27% compared to 32% in July, with further improvement to a decline of 19% in October. The improvement was broad-based across most geographies and industries, with construction, manufacturing, services, and transportation industries leading the way. PeopleManagement saw an 8% decline in revenue, and segment profit was up 35%. PeopleManagement experienced encouraging intra-quarter revenue improvement with September down 2% compared to 12% in July, month-to-date for October, PeopleManagement was up 1%. About half of the segment profit growth is attributable to cost management actions and half from unique costs in Q3 last year, creating a favorable comparison this year. Turning to PeopleScout, we saw a 48% decline in revenue and segment profit was down 97%. Intra-quarter revenue did show improvement with September down 40% compared to 52% in July. As Patrick noted, PeopleScout results were adversely impacted by exposure to travel and leisure clients, which made up roughly 25% of the prior year mix. Revenue for this vertical was down 74% year-over-year. Now let's turn to the balance sheet and cash flows. Our balance sheet continues to shine, providing financial flexibility and stability. Our credit facility provides ample liquidity, and our deposition is at its lowest level since 2012. We also repurchased 9% of our common stock at favorable prices earlier this year to boost shareholder return. Year-to-date cash flow from operations was $99 million as compared to $53 million for Q3 year-to-date last year with the increase coming from the deleveraging of accounts receivable. We've been on a nice trajectory of reducing our total debt to capital. In 2017, our total debt to capital was 18%, in 2018 12%, in 2019 6%, and as of Q3 of this year, nearly zero. Now I'd like to take a few minutes to discuss certain forward-looking information we are providing to help investors form their own estimates. This information and more can be found in the quarterly earnings presentation filed today. For the fourth quarter of 2020, we expect gross margin contraction of 250 to 190 basis points. This is less contraction in comparison with Q3 due to favorable mix and less recruiting staff in our PeopleScout business given the current revenue volume. Our cost management strategies are on track, and for the fourth quarter of 2020, we expect a year-over-year SG&A reduction of $23 million to $27 million, which would result in $102 million to $106 million of savings in 2020. All in, this would produce a decrease in SG&A expense of about 20% in 2020. I'd also like to remind everyone that our business can generate an incremental operating margin of about 20% on incremental revenue, which can of course run much higher with gross margin expansion, or further SG&A decline. For capital expenditures, we expect about $7 million for the fourth quarter of 2020, which is net of approximately $4 million in build-out costs for our Chicago headquarters that are to be reimbursed by our landlord. Our outlook for fully diluted weighted shares outstanding for the fourth quarter of 2020 is 34.8 million. With respect to our tax rate, we're not able to provide an effective income tax rate outlook due to the variability associated with the relatively lower pre-tax income base, and the semi-fixed nature of the work opportunity tax credit. It's also worth noting that the work opportunity tax credit expires at the end of this year. While this program has been in existence for decades and has always been renewed due to its appeal to both political parties, the timing can be lumpy. Total benefits derived from this program were $11 million for fiscal 2019 and $6 million year-to-date in Q3 of this year. While we have a lot more work to do to get back to where we were before COVID hit, we like the progress we have made. We've taken the right actions to restore profitability, and we've done so without losing our operational strength or technology momentum. It has challenged us to think of new ways of running our business more efficiently. Our balance sheet is strong, of most importance, the spirit of our employees is high. This experience has created an even deeper sense of teamwork and camaraderie amongst all of us, and we're excited about the opportunities in front of us. This concludes our prepared remarks. Please open the call now for questions.

Your first question comes from Mark Marcon from Baird. Please go ahead.

Nice progress in terms of the results. Wondering if you can talk a little bit about PeopleReady and how broad-based the recovery was from month to month, particularly like how much of it was construction? And were there any sort of regional patterns that you ended up seeing?

Hey, Mark, thanks for the question, Derrek here. So it was very broad-based. If we went and took a look by industry, we saw progress in every industry. If we take a look at what the year-over-year decline was in each of the industries and compared Q3 to Q2. With the exception of retail, and it's only because retail, we had a lot of surge business in the second quarter. But on an absolute basis, retail is still our best industry. So it's the industry with the least amount of decline in it. And same goes for states. We could go and take a look at all of our states and there's a little give and take here and there, some caused by project work. But we saw improvements throughout the quarter. I won't go state by state, but California, Texas, and Florida make up about 35% of PeopleReady’s revenue and we saw pretty consistent improvements in all three of those states throughout the quarter and into the first three weeks of October as well.

Can you discuss your short-term plans for SG&A and elaborate on the long-term opportunities? It seems that there might be further centralization, especially on the PeopleReady side, primarily through attrition rather than more drastic measures. I'm trying to understand where we currently stand and how SG&A as a percentage of revenue for PeopleReady might evolve as job opportunities continue to improve.

Thanks for the question, Mark. Let's break this down into short-term and longer-term considerations. Starting with the short-term, looking at our position entering the fourth quarter, in the third quarter, SG&A decreased by 31%. About 3 to 4 percentage points of that decline were due to government subsidies, meaning that when excluding those, we collected a reduction of 28%, which is still better than our revenue decline. Typically, we don't aim for such a significant drop in SG&A. For the fourth quarter, we are projecting a 20% decrease in SG&A. Observing our trends as we enter October, particularly for our staffing businesses, SG&A is declining in the teens, which aligns with the downward trajectory of our revenue. This trend is vital as we remain committed to cost discipline. As conditions improve and we gain momentum, we need to focus on retaining our customers, ensuring we continue to provide excellent service. With increasing volume, we have fewer resources to manage that alongside new business development opportunities, yet we are still observing a notable decline in SG&A. You could likely extend this trend into the first quarter based on your revenue projections. As we reach the second quarter, we will see the effects of a significant revenue decline from the previous year, and concerning our cost reductions, we implemented them quite heavily at the beginning of the year, with most beginning in April. These factors are worth considering as you look ahead to 2021. Additionally, keep in mind that we had some one-time expenses in 2020, which we have excluded from our adjusted EBITDA and net income calculations for reference. To address your question about PeopleReady and its potential impact, we've successfully reduced over $100 million in SG&A costs this year. Approximately 25% of these savings are tied to variable expenses that align with revenue growth, including bonuses and maintaining consistent bad debt ratios. Another 25% of the savings came from unsustainable costs, such as salary cuts and changes to retirement program matches. This means roughly half of the costs we've cut could potentially be kept off permanently. When discussing PeopleReady, it's about finding the right balance between maintaining cost reductions and exploring further opportunities to lower expenses. Regarding employee turnover, I want to reassure our employees that we do not intend to implement significant layoffs. Our focus for 2021 will involve various testing methods. In metropolitan areas, we may have multiple smaller branches, each with a few employees, compared to competitors with larger, singular locations. To achieve desired savings, we will need to reassign certain job roles, streamline operations both nationally and locally, and seek efficiencies through technology. As we close or consolidate branches, we will need to reassign many customer-facing roles, aligning branch managers with either operational or business development positions based on their strengths. While our company has a strong culture and systems designed around branches, we are capable of adapting to these changes. However, we must implement these changes carefully and ensure that our clients remain unaffected during the transition. We are confident in our ability to carry out these modifications but recognize the need for thorough testing. In 2021, we encourage you to not expect immediate impacts from significant job repurposing or centralization on our bottom line as we will be in an experimental phase. We will keep you updated on our progress, investments, and the savings we are noticing, but we require time in 2021 to thoroughly assess this process.

Great. And then, got a short-term question, and I don't know if it's answerable. But you didn't give revenue guidance, understandably. But how are you thinking about whether the revenue trends that you've seen recently are sustainable or not particularly in light of what seems to be a resurgence with the virus here and some concerns?

That's a good question, and I'm glad you asked it. I want everyone to understand our thoughts on this matter. Looking at our monthly revenue trends, we notice a steady improvement. Specifically, the year-over-year decline has been decreasing each month. In some months, we've experienced improvements of six points, while other months saw a rise of one or two points. In July and early August, there was a resurgence in daily average cases, which slowed our improvements slightly in August. It's hard to determine how much of this is due to COVID versus other economic factors, but we believe it has some effect. As those cases increase, it might slow our progress, but so far, we haven't experienced anything that has made us go backwards.

Your next question is from Josh Vogel from Sidoti & Company. Please go ahead.

Apologies if my timing is off and I did hop on late. But I did catch the tail end of what you were saying actually kind of covered some questions I had around SG&A. But I did have a question around the gross margin and your guidance, what's implied by the midpoint of fairly stable gross margin over the last three quarters? And you say, bill pay spread pressure, lower volumes in client mix? My question is we continue to see sequential improvements here over the Q2 trial. You expect those pressures to ease and we think that the gross margin could get back to those like 2019 levels.

Thanks for the question, Josh. I'll address that, and then if Patrick has anything to add, he can jump in. Regarding our guidance for Q4, we're indicating a midpoint of gross margin contraction of 220 to 230 basis points, which is less than the 300 basis points we experienced in Q3. We have seen some mixed factors impacting gross margins, but we believe that these pressures will lessen in Q4. Additionally, our RPL business has shown slight revenue improvement towards the end of the quarter, and we are moving past some client-related challenges. Therefore, the contraction in Q4 should be less severe compared to Q3. Typically, as growth returns, pricing power shifts back to industrial staffing, and we anticipate regaining some of this gross margin similar to what we've seen in previous economic recoveries. I think the contraction we're facing is a standard part of the recessionary process, and it's crucial for us to maintain discipline in our operations. We have solid strategies in place to capitalize on opportunities once the market rebounds. This outlines our view of the gross margin situation from both a short-term and long-term perspective as we anticipate a return to growth.

All right. Thank you for the insights on that. Can you maybe just talk about trends and dialogue on the collections front today with regards to potentially better payment terms and what your clients may be asking for today versus at the onset of the pandemic, or even since you reported three months ago, just curious.

Well, Patrick, do you want to talk anything about the conversations with clients? And I can give a couple of facts as to where we are numerically?

Yes, I'm going to just go back to the question you had earlier, Josh, about the margins as well, just to add one point to what Derrek said. Our PeopleManagement business is our lowest margin business. But it's a business that we're seeing actually return to growth on a year-over-year basis and grow from a profitability perspective. As we've been selling new deals in that business, we've seen some very healthy margins come out of that business, both in the SIMOS brand and the Staff Management brand. So we're feeling really good about that business and the pricing that we're able to achieve there. From a collections perspective, and if you look at the last recession, our DSO went backwards on us by about five days. And for this particular downturn, we've seen movement of about one day on favorably, so we've done a much better job this time around than we've seen in previous downturns in keeping our DSO and our collections in as good a position as possible. So we've been working very closely with clients to make sure that we've got a handle on a relationship related to collections and bearing out and the results. Also, Derrek, you could probably cover a little bit more detail, but we're having good relationships with the clients and doing a really good job of collecting our receivables.

I don't have more to say, I think you’ve covered it well.

All right, great. As we think about this so-called K-shaped recovery that has emerged, I'm curious, where does your business fall today across the sectors that have largely recovered and begun hiring versus those that just don't seem to be coming back as of now?

Well, I'll make a few comments and Derrek maybe you can cover some of the details. If you look at our PeopleScout business as an example, we tilt pretty heavy into airlines, hotels, and hospitality providers. And there's some real pain there. And I think it's not only going to be pain in the short term, but we think it's going to be a multi-year level of pain. If you look at our hospitality and transportation, we're down in the 70 plus percent range, whereas within PeopleScout, the manufacturing is down in the mid-40s, and services are down around 50 or so. So there's some that are performing better than others for full-time hiring. If you look at our temp business, using PeopleManagement as an example, our retail business is actually up double digits year-over-year in Q3. So a lot of business and supply chains of retailers and manufacturing is down kind of high single digits. And then, if you look at the PeopleReady business, not surprisingly hospitality has been hit the hardest. Construction and retail less so. And then our services clients are actually up on a year-over-year basis. So K-shape is how I would describe it. We've got sort of two speeds going on, you've got those businesses that are in demand, bouncing back very strong. We've certainly seen it in the manufacturing part of our PeopleManagement business and retail, and then you look at some of the others like hospitality and travel. We think it's going to be late 2022, or probably in the late 2022 before we start to see a big turnaround on those businesses, whereas the others are bouncing back quite a bit faster.

All right, that's really helpful. And just lastly, and again, I apologize for hopping on late, but did you disclose in your prepared remarks what the monthly revenue trends you saw throughout the quarter and in September, I mean, October?

Yes. We've provided some information in our deck on this, but I'm going to just hit a couple of high points for you, Josh. So in June, we were down 35% as a company; in July we were down 29%; in August 27%; and September 22%. As you know we don't have October numbers, weekly numbers for our RPO business that's built on a monthly basis. But the improvement continued with our staffing business, which makes up 90% of our revenue, into October and we're running in the mid-teens in our staffing business through the first three weeks of October.

We have no further questions at this time. I will turn the call back over to the presenters.

Thank you. And thanks everyone for attending our Q3 earnings call. We look forward to speaking to all of you again for our fourth quarter earnings call. I just want to say thank you to all of our employees and associates that have worked so hard during this pandemic, they're really stepping up across the board to make sure that all of our candidates, associates and clients get served well. So appreciate all that they're doing. And look forward to our Q4 earnings call, and make sure everyone stay safe. Have a great day, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.