Ladies and gentlemen, thank you for being here, and welcome to the TrueBlue Second Quarter 2022 Earnings Call. Derrek Gafford, Executive Vice President and Chief Financial Officer, you may now begin your conference.

Good afternoon, everyone and thank you for joining today's call. I'm joined by our President and Chief Executive Officer, Steve Cooper. Steve joined the Company in 1999 and served as Chief Financial Officer and later as President before serving as CEO from 2006 to 2018. He was also Chairman of the Board from 2018 until recently and is now serving as the Company's Chief Executive Officer. It's good to have you here, Steve. Okay. Before we begin, I want to remind everyone that today's call and slide presentation contain 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. Okay, let's now turn the call over to Steve.

Thank you, Derrek, and welcome everyone to today's call. We have a talented management team here at TrueBlue and across all of our operating brands, and we have the right strategies to position us for long-term growth. I'm impressed with the exceptional level of execution and engagement I see across our teams in providing quality workforce solutions to meet our clients' needs. Our employees possess an unwavering commitment to serve our clients and the people we place to work. It's gratifying to be part of a Company that is committed to being true to our values and to ensuring our employees and partners have a vibrant workplace that is inclusive and welcoming. Now turning to our results. I'm pleased to report strong performance during the second quarter with revenue and segment profit margin growth across all three segments. PeopleReady is our largest segment, representing 58% of total trailing 12-month revenue and 57% of total segment profit. PeopleReady is a 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 supported by our JobStack mobile app. Like others, we did experience a slowdown in demand as overall commercial staffing hours declined across the industry throughout the quarter. But revenue continued to grow 6% compared to Q2 a year ago. Our highest margin segment, PeopleScout, represents 14% of total trailing 12-month revenue and 34% of total segment profit. PeopleScout is a global leader in filling permanent positions through our recruitment process outsourcing services. PeopleScout delivered a quarter of impressive growth with revenue up 39% compared to Q2 a year ago. Volumes at existing clients and project work and new clients drove performance as open positions are at historical levels. Turning to our third segment, PeopleManagement, it represents 29% of total trailing 12-month revenue and 9% of total segment profit. PeopleManagement provides onsite industrial staffing and commercial driver services in North America. The essence of a typical PeopleManagement engagement is supplying an outsourced workforce that involves multi-year, multi-million dollar onsite or driver relationships. PeopleManagement delivered another quarter of growth with revenue up 6% compared to Q2 a year ago. Demand for commercial trucking services was strong and same-site sales on our onsite business were up year-over-year. I'd like to shift the discussion to our strategies. But before we go there, I'd like to talk about our most important priority. While the future state of the economy is on everyone's mind, it's important not to lose sight of the fact businesses are struggling to find people, and we know precisely how to help them. There are 11 million job openings in the United States, most of which are lower-paid blue-collar jobs where we specialize. Yes, demand for temporary labor has slowed recently. Businesses are taking a pause in filling some of these roles, it's understandable. We are in uncertain times and businesses are consuming all sorts of news causing them to hesitate. While it is unclear where the economy is headed, it's not hard to see that the supply of labor, particularly for blue-collar positions, is going to remain tight for some time. With a multitude of services, our brands know how to find the right talent in tight labor markets. We have decades of experience, a strong market presence across North America, and talented people and technology solutions. Our number one focus is using these assets and talents to get the job done and done well for our clients. Now let's talk about our strategies, starting with PeopleReady. At PeopleReady, the key strategy is to use digitalization to supplement our nationwide footprint to gain market share and improve the efficiency of our structure. The U.S. temporary day labor market is highly fragmented with the bulk of the market made up of smaller companies in the industrial staffing segment where PeopleReady competes. The smaller, more regional companies are typically not able to spend the type of investment required to deploy something like our JobStack mobile app. So this along with our local presence is what makes us a leading provider within the on-demand industrial staffing market. The face of our digital strategy is JobStack. The application provides a unique user experience for our associates and clients, allowing both groups to connect at any time. Since deploying the application nearly five years ago, associate adoption is growing to over 90%. Turning to our clients, total users of the application are over 30,000, a 13% increase versus a year ago. And the percentage of placements filled through the JobStack app has grown to approximately 60%. Turning to PeopleScout, our strategy leverages our strong brand reputation to capture opportunities in a growing industry. Companies today are confronted with historically high job openings. Our ability to hire large volumes of workers has allowed us to meet the demand for existing clients and has positioned us to capture new clients for the long and short-term engagements. As we move forward, we will continue to expand our product offerings to meet the growing needs of our clients, in helping them source, onboard, and effectively manage their employees. Turning to PeopleManagement, our strategy is centered around operational execution and geographic expansion. Within the onsite offering, our business development activities are targeting local and underserved markets and expansion into the western part of the United States. Meanwhile, we are focused on increasing market share in the Eastern part of the country with the commercial trucking business. Finally, we are investing in customer and associate care programs to improve service levels. Collectively, everything we do will be centered around capitalizing on demand, leading with a sales-first mentality in the areas we serve, combined with our digital capabilities. This will enable us to meet the demands of our clients and associates in a frictionless manner. These are big objectives that I believe we have the capability to meet. I'll now pass the call over to Derrek, who will share greater details around our financial results.

Thank you, Steve. Total revenue for Q2 2022 was $569 million, representing growth of 10%. This was driven by strong overall demand in all three segments reported revenue growth this quarter. PeopleScout continued to see significant volume increases from existing clients resulting in double-digit revenue growth, while PeopleReady and PeopleManagement revenue grew at mid-single digits. Revenue growth across all three segments favored bill pay spreads at PeopleReady in a higher mix of people-scaled businesses, which led to strong bottom line results. We posted net income growth of 51% and adjusted EBITDA growth of 53%. Our net income and adjusted EBITDA margins grew 110 and 190 basis points, respectively, driven by revenue growth and gross margin expansion. Adjusted EBITDA margin expanded more than net income margin due to government subsidies received last year, which were excluded from adjusted EBITDA. Gross margin for Q2 2022 of 27.8% was up 140 basis points. Our staffing segments contributed 100 basis points of margin expansion, driven by 60 basis points from positive spreads between billing and pay rate inflation and 40 basis points from customer mix. The remaining 40 basis points came from PeopleScout, our highest margin business, as it now constitutes a higher mix of total revenue and also benefited from operating leverage. SG&A expense increased 10%, which was in line with revenue growth for the quarter and was the same as Q2 last year on a percentage of revenue basis. On an adjusted basis, SG&A was up 8% or 50 basis points better than Q2 last year, which was more favorable than our GAAP trend, primarily due to government subsidies received in Q2 last year that were excluded from our adjusted results. Our effective income tax rate was 18%, which was close to our expectation and nearly the same as the rate in Q2 last year. Turning to our segments, PeopleReady revenue increased 6% while segment profit increased 10% and segment profit margin was up 20 basis points. Bill rates grew 10.3%, which outpaced pay rate growth of 8.6%, boosting segment profit margin. Intra-quarter revenue trends were mixed. We got off to a strong start with April revenue up 11%, but we exited the quarter with 3% growth in June as clients reassessed their labor needs given the current economic climate. Revenue growth was flat during the last two weeks of the quarter and that trend remains steady in July. The declining demand occurred across most geographies and industries, with the most notable drops occurring in services and hospitality. Improving job order fill rates helped offset the decline in demand, improving by five points from April to June. PeopleManagement revenue increased 6%, while segment profit increased 31% and segment profit margin was up 50 basis points. Our onsite businesses contributed two points of revenue growth and strong demand in our commercial driving business contributed the other four points of growth. Monthly revenue trends were steady in the mid-single digits throughout the quarter. The segment profit margin expansion was primarily driven by favorable changes to client mix, as our higher margin cost per unit and commercial driving businesses contributed higher volumes. PeopleScout revenue increased 39%, with segment profit up 90% and segment profit margin was up over 600 basis points. Demand for our services is high as clients look to fill their job openings. Operating leverage from higher sales volume contributed to the improvement in year-over-year segment profit margin. Now let's turn to the balance sheet and cash flows. Our balance sheet is in great shape. We finished the quarter with $32 million in cash and no outstanding debt. The business is producing strong cash flows with year-to-date cash flow from operations totaling $53 million and we returned $61 million of capital through share repurchases this year, leaving $89 million authorized. Now I'd like to take a moment to provide additional color on a couple of forward-looking items. We are not providing customary revenue guidance, but we did want to call out that recent trends at PeopleReady imply sequential growth from Q2 to Q3, of 3% to 5% for total TrueBlue, which is lower than our historical sequential average of 9%. Also as a reminder in Q4 2021 and Q1 2022, we disclosed that PeopleReady benefited from seasonal surges in retail project work, which are not in our run rates and are not expected to reoccur. The absence of this revenue will create a three-point year-over-year headwind for total TrueBlue growth in Q4. For additional details on our outlook for the third quarter and full year 2022, please see our earnings presentation filed today. This concludes our prepared remarks. Operator, please open the call now for questions.

Your first question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much. Steve, welcome back to these calls. Good to hear you again. Let me ask you a couple of questions just early on. I know you've been around the industry a long time; you've been through a few of these recessionary fears, viruses, etc. What lessons did you learn from going through this with the company beforehand? And is there anything that you might do differently this time if we are really heading into a downturn?

Thanks, Jeff, it's good to speak with you again. Each economic cycle has its unique characteristics, especially after 22 years and experiencing several of them. The pandemic was the toughest, and I was impressed by how our team adapted and stayed focused on our clients' needs. Over the past 22 years, the key takeaway has been to keep our team concentrated on what the clients require, even while we work to stabilize our own business. Prioritizing the client has consistently led to positive outcomes. We also manage our client-facing and customer-facing costs effectively. So, the first priority is to keep those objectives front and center. The significant recession before the pandemic in 2008 was related to construction and credit, and our focus then was heavily on construction. Since then, we've dedicated considerable effort to diversifying our organization to avoid having all our resources concentrated in one area, as we did in the past, particularly in major states like California, Texas, and Florida. While we still have a strong presence in those states, we are now more balanced across different industries, which has helped us navigate challenges more effectively. The second critical point is to ensure we have a diverse range of clients. As we enter this current period where our clients may take a moment to reassess their situations, we're not feeling any urgency or panic. Demand remains strong, and our clients are working to grow and stabilize their businesses following the pandemic’s impact. It's vital to recognize that each cycle is different, and this one is distinct as well. In recent discussions as a management team, we've focused on how to support our clients during this time. We're uncertain how long this pause will last, but we don't expect it to extend for many years—rather, it will be a shorter pause of a few quarters. We aim to remain strong for our clients, whether in recruiting for full-time roles or providing daily support to fill their temporary needs. There are some differences this time, but it's a great question regarding past reflections.

Okay. That was helpful. And you alluded to this in your remarks that we can get a little bit more color. On the labor supply, obviously, demand has been slowing down; I think everybody realizes that. If the labor supply is getting any looser, how is that impacting wage rates?

Well, definitely over the last six months, we've seen additions back to the labor force, maybe not as fast as we'd all like, meaning us and our customers. But there is supply coming back into the marketplace and that's been improving month-by-month, really going back to last fall; we've seen improvements there. But really continuing up through the summer, it's not as great as the demand, though, which I call a good thing because it comes right back to the heart of our business. And why we exist and what we do well is in tough labor markets is when we shine best for our customers. So as far as our own personal flow of applicants, it's slightly improving still.

Your next question comes from the line of Kartik Mehta with North Coast Research. Your line is open.

Maybe a little bit of an unfair question, so I apologize. But any thoughts on maybe the trends you're seeing in PeopleReady for July. We're almost to the end of the month and I'm wondering if the trends you saw in June continued or if there was any change?

I believe I can address that question. We ended June with a 3% growth for PeopleReady. The last two weeks of June remained flat, and that flat trend has continued into July.

You mentioned that services are experiencing some slowing. What specific categories and services do you think are not seeing the same level of growth as before?

Well, we've talked about a couple of different industries, just as a point of focus that have seen some softening, but you know it has been really across all industry groups. So I'll just give you a little bit of perspective. I know that you are asking really about services dropping down there a level. But if we compare Q1 to Q2 on a year-over-year basis, yes, we saw some in services; we saw that slowdown, same with retail, while retail slowed; by the way, it still grew by 16% at PeopleReady. We also called out hospitality as slowing. That's an exceptional growth rate that we were up over 100% in Q1 and dropped down to the mid-60s. So I could go through each one of the industries, but I think the main point here is, the step downs that we've seen are fairly widespread from a geographic and industry perspective. So I don't want to make it that it's about one industry that has impacted the demand trends.

Your next question comes from the line of Mark Marcon with Baird. Your line is open.

Good afternoon and great to hear you again, Steve. Welcome back. I'm wondering from a strategic perspective, you're mentioning the pause button being hit. How does that end up impacting kind of the strategic plans around some of the pilot programs in terms of centralizing some of the offices in PeopleReady, the continued shift towards JobStack? How do we think about that part of the business, particularly in the back half of this year and going into next year?

Mark, it's great to speak with you. I appreciate your question. Our current challenge is maintaining ongoing daily operations as we strive to help our clients find the right talent. We're focused on balancing our operational strategies from July with the program changes we've been implementing over the past year. We're dedicated to our strategic initiatives, especially with our digital platform and the JobStack feature of our PeopleReady brand. This commitment is essential because strengthening our client relationships is crucial. We've been working on centralizing some branch network functions for approximately ten years, which includes streamlining payroll and other responsibilities. This effort has been a long journey, and we're not going to abandon it. It reduces operating costs over time and enhances customer satisfaction, as consolidating tasks to a centralized location benefits both our business and our clients. Therefore, we will persist on this path. Regarding the programs we've discussed over the last three to four quarters, particularly opening market centers instead of branches, there will definitely be some slowing here. Our branch network remains our core strength, and it's important for us to maintain a local presence to serve our customers and manage labor supply effectively. Even with some planned pauses, we aren't stepping back from leveraging our branch strengths or what JobStack offers to enhance these assets. Ultimately, we see the integration of local presence and our digital platform as key to our strength. It's all about fostering strong relationships with our customers and ensuring we remain their go-to solution, especially in a challenging on-demand environment where client turnover in key positions is considerable. They need our services to help fill challenging roles, so we must be at the forefront of their needs. We will continue to address these operational expenses as we execute our strategies day by day.

Great. And Steve, how would you say Chicago and Dallas are performing relative to the rest of the country in terms of PeopleReady? Like for the last quarter, recent trends.

Well, Mark, this is Derrek here. I'll take that one. We've been experimenting in four markets with a more centralized service offering for our clients. The results are mixed; about half of those are performing better while the other half are underperforming compared to the overall population. When I refer to performance, I mean P&L, revenue, and pricing, but also the underlying factors that influence that. If we consider client satisfaction ratings, the workers we deploy, employee satisfaction scores, and turnover rates among our field-based employees, it's a split situation. Currently, I would describe the contribution of those market service centers as neutral in relation to our branch network. Earlier, you asked about this, so I want to emphasize that the challenges we're facing aren't prompting us to hasten the rollout of the service centers. We still believe in that approach and see significant potential in it. However, to execute it effectively as we envision, we need to implement more technology, particularly for workflow management, to enhance how we manage customer interactions and their overall experience, as well as support our associates. The dynamics differ in a virtual setup compared to an in-branch environment. Our existing systems are better suited for communication within a small branch, whereas we need improved workflow management for servicing a broader market. We have a plan to address this, but I expect that we won't make significant progress until the necessary technology is in place, likely around the middle to end of next year. For now, as Steve mentioned, we will maintain our current efforts but prioritize filling these jobs for customers rather than advancing the market service centers in the immediate future.

Got it. And then with regards to PeopleReady, you mentioned the fourth quarter and some retail clients. Can you just elaborate on that exactly like how much the impact is? And why some of those retail clients wouldn't be renewing or doing the same programs?

If we look back to the fourth quarter for retail, our retail business experienced nearly a 100% growth, followed by a 75% growth in the first quarter of 2022. The retail market remains strong for us, as we achieved a 17% increase this quarter. In the earlier quarters, some retail clients were in challenging situations and resorted to using additional labor that isn't sustainable for their ongoing operations. They are still utilizing our services and we have strong relationships with them. Those previous periods were peak times, which we identified as special projects. This situation accounts for about four to five points of headwind as we approach the fourth quarter. The decline in our current run rate contributes to this headwind and impacts our year-over-year comparisons as we near the fourth quarter. I wanted to ensure everyone is aware of this.

Yes. And really appreciate that Derrek, and that 4% to 5% of headwind is that for TrueBlue overall or for just for PeopleReady?

Yes, that's overall.

Overall? Okay, great. And then on PeopleScout, obviously you're doing phenomenally well, great quarter this quarter. Can you talk a little bit about the new business trends and new engagement trends as it relates to the end of the quarter, relative to the beginning and middle of the quarter, and what you're seeing in July? Like how should we think about PeopleScout, because there is obviously still lots of excess demand out there. But just wondering to what extent the pause ends up filtering over to PeopleScout?

We haven't experienced any slowdown with the PeopleScout business. Although new business is slightly down year-to-date compared to last year, we started off very strong last year. The decline is minimal. When we look at our three or five-year averages for new business, we're still seeing positive results this year at PeopleScout, which is encouraging. Our customers are not experiencing significant churn in their employed customer bases, so we continue to secure a lot of business. There hasn't been any indication of a reduction in this area, and it doesn't seem likely in the near future. There are many job openings right now, and the roles we are filling mainly require in-person presence. This contributes to a tight labor market for our clients, particularly in contrast to a labor pool that largely prefers virtual work or remote opportunities, which makes it more challenging for our clients to find talent. This dynamic is currently boosting sales for PeopleScout, and we see no signs of a downward trend at this time.

Your next question comes from the line of Marc Riddick with Sidoti. Your line is open.

I wanted to follow up on a few points, even though some of my questions have already been addressed. First, I would like to know about your perspective on the competitive landscape and how your position compares to where you were six months ago. It seems that you've gained some traction relative to certain peers. Could you discuss what is resonating well with clients, possibly more than you had anticipated or more than some competitors in the market? Additionally, I have a question about potential future acquisition opportunities.

Thank you, Marc. This is Steve. Over the past 45 days, I've focused on understanding the current demand in the market, identifying our competition, and assessing our position. First, regarding full-time hiring, there are over 11 million open positions in the United States, primarily in our sectors, indicating strong demand. While supply is not tightening, it is slightly improving. In this environment, PeopleScout is performing well. As Derrek pointed out, despite stable demand, our clients are experiencing a significant surge as employees explore their options regarding companies to join. When we consider our core business, PeopleScout is thriving, leading in recruitment process outsourcing in the U.S. and making strides globally in the U.K. and Australia. In North America, we often win, positioning ourselves as the preferred provider. However, we need to enhance our capabilities in handling global deals, where our competition is less successful. Shifting to our commercial staffing business in North America, demand remains robust. There was a minor slowdown at the end of Q2 and into Q3, but we believe this is minimal. The market remains strong, although growth has moderated slightly. The competitive landscape in this area is fragmented with many players, requiring us to clarify our competitive positioning. By strengthening our on-demand services through our branch network, we can leverage speed and local talent to meet local needs. JobStack has also contributed significantly to our success, with over 90% of our workers and nearly 60% of our revenue generated through that platform. Transitioning to a digital focus has proven successful for us, despite our traditional brick-and-mortar history. We need to enhance our digital presence, as some new companies are outshining us in this area, but we maintain an advantage with our local network and branches. We have work ahead to expand globally in RPO and improve customer engagement, which is increasingly digital for around 60% to 75% of our clients. The remaining 25% to 35% rely on daily local operations, where we excel. Our salesforce's engagement is crucial, even in small short-term placements, as they can develop into significant clients. Ensuring our competitiveness in these areas will be key for our commercial staffing business.

Great. I wanted to add a quick follow-up. This is more of a comment than a question. It's hard to argue against using some of your cash for share repurchases when the valuation is attractive. You've clearly demonstrated both the willingness and ability to do that. Could you provide an update on what we might expect in that area going forward? It's definitely an appealing return proposition as well.

Yes. Thanks for that question, Marc. Yes, you're absolutely right. Fundamentally, nothing has changed in our strategy about allocating the capital back to shareholders. We don't want to sit on the capital; we want to leverage it and turn it back. We think that's the most efficient way to do it for everybody. And do it somewhat consistently with some emphasis when we've got opportunity. We've kind of shown our cards there during the last recession. I'm not making a prediction about recessions, but we are priced at a pretty attractive level. That's something that we continue to talk about on how we could do that. What we want to make sure of is that we are opportunistic at certain times because we want to make sure over the complete economic cycle that we can return that capital back at the average share price or better over that cycle. So being opportunistic does play into this as well.

There are no further questions. This does conclude today's conference call. Thank you very much for joining. You may now disconnect.