Greetings, and welcome to the TrueBlue Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Derrek Gafford, EVP. Thank you, Derrek. You can begin.

Good afternoon, everyone, and thank you for joining today’s call. I’m joined by our Chief Executive Officer, Steve Cooper, and our President and Chief Operating Officer, Taryn Owen. 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 our 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 turn the call over to Steve.

Thank you, Derrek, and welcome everyone to today’s call. Revenue for the quarter was $476 million, down 16% compared to the prior year. Our results reflect an environment of softening demand. While the broader economy remains mixed with some traditional indicators showing resilience and others highlighting caution, when it comes to the staffing industry, the recessionary sentiment is already taking effect. Economic uncertainty is weighing on our customers and we’re seeing that manifest in the demand trends across all three of our segments. Given the tight labor market, clients continue to focus on retaining employees, but they are also increasingly focused on reducing costs. As a result, clients are becoming more selective about which jobs they choose to fill. While the number of job openings across the United States remains high at about 10 million, the jobs added in recent months have been primarily in professional and permanent roles. For manufacturing, wholesale, and retail trade, which involve more blue-collar positions and where we play a larger role in the market, as well as with temporary help overall, the number of open jobs has declined year-over-year. While the challenging macro-environment is leading to lower staffing volumes, clients still need help finding talent to fill critical roles. With our decades of experience and breadth of services, we know how to find the right talent for our clients. Even though current demand levels are not what we’d like, the long-term outlook for staffing remains positive and really comes down to a matter of timing. We’re often viewed as an early indicator for broader trends, being that we’re usually first in and first out when it comes to economic cycles. We take pride in helping our customers through these challenging times and are prepared to help them as the macroeconomic environment improves. Now, I will turn the call over to Taryn, who will provide additional detail about the actions we’re taking today as well as our growth strategies for the future.

Thank you, Steve. Staying highly engaged with our clients remains critical as they adjust their workforce needs in response to cost pressures within their businesses. This is a high priority for our sales and service teams. With PeopleReady, we are focused on sales, providing excellent service, and being responsive to our customers’ needs. We are enhancing our sales training in our on-demand business, increasing the velocity of business development efforts by leveraging our centralized teams and have embedded account managers to cover new markets within skilled trades. While most of our clients are acting with caution, the renewable energy sector continues to present a strong growth opportunity for us as our portfolio expands and our pipeline remains healthy. We are targeting further expansion in this area as well as other high-growth industries. At PeopleScout, we have entered the healthcare sector, which has shown greater resiliency to market pressures. We are targeting further sales efforts in this vertical as well as other recession-resistant industries. For clients who remain hesitant to make long-term workforce commitments, we are leveraging our short-term offerings, such as Recruiter On-Demand, to meet their current needs while building the relationships that will drive growth in the future. We are also expanding our reach with complimentary service offerings in the recruitment media and consulting space. With PeopleManagement, we are aligning our go-to-market messaging around reducing the complexity for our clients. Many businesses are looking to rebalance and consolidate their service provider portfolio, which creates an opportunity for us to gain market share. Our short-term project and flex offerings allow us to support our clients in this challenging macroeconomic environment and ensure that we are ready to scale as they return to growth. These efforts, combined with our ongoing commitment to employee satisfaction and technology transformation underpinned by our mission to connect people and work, help ensure that we will continue to be ready to meet our clients’ evolving workforce needs. I’ll now pass the call over to Derrek, who will share further details around our financial results.

Thank you, Taryn. Total revenue for Q2 2023 was $476 million, a decrease of 16%. We are in a climate of softening demand, with revenue for the quarter coming up 4 points short of our midpoint expectation. Clients are certainly becoming more cost-conscious, with many of our clients making the choice to only fill their most critical job openings while taking a wait-and-see approach for other jobs. We posted a net loss of $7 million, down from net income of $24 million in Q2 last year. Included in our results is a non-cash impairment charge of $9 million. The impairment charge is mostly tied to a goodwill write down in PeopleScout’s MSP business in conjunction with lower demand expectations. Adjusted net income was $5 million, down from $27 million, while adjusted EBITDA declined to $11 million versus $39 million. Gross margin of 27.4% was down 40 basis points. This was driven by a drop in PeopleScout revenue mix and a mix increase in PeopleReady’s renewable energy business, which carries a lower gross margin than the blended business, in part due to contingent employee travel expenses that do not include a markup. This was partially offset by better workers’ compensation results from the favorable development of prior year reserves, as well as disciplined pricing in our PeopleReady business. Our PeopleReady business delivered its ninth consecutive quarter of positive spread between bill rate and pay rate inflation. SG&A decreased $1 million, or 1%. In the prior year, there was a $3 million benefit in incentive-related costs associated with the departure of our CEO. Excluding this event, SG&A was down 3% in Q2 this year. In Q1 this year, actions were taken to reduce costs by about $10 million, and similar actions were taken in Q2, bringing the total cost savings for this year to about $20 million. We are also seeing additional inflation in our costs, most notably medical benefits, which is a factor in our cost savings netting to about $10 million for the year. Despite our pre-tax loss, we incurred $1 million in income tax expense for the quarter primarily due to the non-deductible nature of the goodwill impairment charge. For the year, we expect an income tax benefit of $2 million to $3 million as a result of our job tax credits exceeding the income tax associated with our pre-tax income. Now, let’s turn to the specific results of our segments. PeopleReady is our largest segment, representing 57% of trailing 12-month revenue and 59% of total segment profit. PeopleReady revenue decreased 13%, while segment profit decreased 60%, and segment profit margin was down 340 basis points. The retail industry is currently our most challenging vertical due to the lower volumes flowing through distribution centers associated with excess inventories, and next in line are clients in the transportation and service industries. Declines in these three industries ranged from 25% to 40%. On the flip side, construction is our most resilient market. Our renewable energy business was up 100%, an acceleration from growth of 50% in Q1, and the rest of our construction business was only down about 10% in Q2. We are maintaining strong pricing discipline to help cover the inflation in our SG&A expenses. The business produced a positive spread between bill and pay rate inflation with bill rates up 8.5% and pay rates up 7.6%. PeopleScout is our highest margin segment, representing 13% of trailing 12-month revenue and 30% of total segment profit. PeopleScout revenue decreased 33%, while segment profit decreased 57%, and segment profit margin was down 820 basis points, but still produced a healthy segment profit margin of 15%. Demand was softer across an assortment of industries with some clients initiating hiring freezes and some attempting to use internal resources to fill jobs. Demand for our services has also moderated as many of our clients are seeing lower levels of employee turnover compared to peak levels in the prior year. PeopleManagement represents 30% of trailing 12-month revenue and 11% of total segment profit. PeopleManagement revenue decreased 13%, while segment profit decreased 47%, and segment profit margin was down 100 basis points. Demand declined in both on-site and commercial driving services as economic uncertainty led to lower client volumes. Now, let’s turn to the balance sheet. The balance sheet is in great shape. We finished the quarter with $50 million in cash, no debt, and $200 million of borrowing availability. Before we wrap up, I’d like to take a moment to provide additional color on one of our forward-looking items. We expect a revenue decline of 16% to 12% in Q3 2023. While the midpoint decline of 14% is an improvement compared to the Q2 decline of 16%, this is driven by a less challenging prior year comparison. For additional details on our outlook, please see our earnings presentation posted to our website today. I’ll add one more thought before we close. Though we are not currently where we want to be from a performance perspective, we are excited about the opportunity ahead of us when the macroeconomic environment improves. We believe the supply of blue-collar labor will remain tight for quite some time, and we are well equipped to help businesses of all sorts fill this critical workforce need. In the meantime, we are focused on positioning ourselves for a strong recovery by staying highly engaged with our customers, staying true to our service and technology commitments, and remaining disciplined on costs. This concludes our prepared remarks. Operator, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Jeff Silber with BMO Capital Markets.

Thanks. Let me start first with PeopleScout. I know you don't give specific guidance by segment, but that was a pretty sharp decline year-over-year in PeopleScout. Was it sudden? Were there some large accounts that left? If you can give us a little bit more color on that steep drop.

Hi Jeff, it's Derrek here. When it comes to the PeopleScout drop this quarter, it's important for us to also talk about what happened in Q2 last year. If you remember, in Q2 last year, we talked about that we had our all-time record on quarterly revenue with PeopleScout. So, we were already trending at some pretty high levels because of the level of high turnover and churn that was happening in the employee base of our customers. And then, we had a really big surge. So, not only that created an all-time peak for us from a revenue perspective, it also created a peak for us from an operating margin perspective. So, as we're taking a look at the year-over-year comps for PeopleScout, it's given an exaggerated revenue decline based on that peak, and the same goes with the segment profit margin. So, as we look towards our guidance for Q3, we would expect that this would drop down to about a 20% revenue decline. So, more moderate as we get past that comp of Q2 last year.

All right. Is it possible to get similar color for 3Q for both PeopleReady and PeopleManagement?

Yes. So for PeopleReady in our guidance, I'm just going to give you the midpoint of the ranges versus quoting a range in each segment for clarity purposes. So PeopleReady down around 12%, PeopleScout down around 22%, and PeopleManagement down around 13%.

Okay. That's really helpful. I appreciate that. In looking at your debt, and I'm referring to slide 7, there seem to be some pretty sizable changes from last quarter. I think last quarter you had kind of strategy and highlighted the priority of how you're looking at the current business priorities with different bullet points. What changed so dramatically? I mean, we were seeing declines in your business last quarter. What happened in the second quarter to update this framework?

Well, what we decided to do, we have a roadshow deck that also has our big picture strategies in it. And we thought it would be more suitable to just keep that in the roadshow deck. And based on how we're operating right now, what's going on with the industry, and what's going on with buying behaviors, that would be more helpful to talk about what some of our current operating priorities are in the field. And so, the deck that you see here that we put in the lines really carries over Taryn's prepared comments in summarized form into the deck that you're referring to.

Got it. So, just a change in focus in the presentation, not a change in overall business strategy. I understand. Thanks for that. If I can just sneak in one more. We're hearing about this potential massive UPS strike this week. I'm just wondering if UPS is a client. And if not, do you serve some of the other logistics companies like FedEx or some of the smaller companies? How do you think this might impact your business?

Yes. UPS is not a customer of ours and the other names that you mentioned in that space, we don't do much business with them. However, we do have a commercial driving practice that, call it, a $150 million run rate of revenue. So, it could have some impact there. And then, I think, like many other industries, there could be some ripple impacts to the industries we serve indirectly, but no direct exposure to the business units that you're referring to here.

Our next question is from Marc Riddick with Sidoti.

So, I was wondering if you could talk a little bit about... I appreciate the color to the details around some of the verticals and some of the things that you're seeing with the verticals. I was wondering if you could talk a little bit about if there was sort of... was there any seasonal aspect, for instance, around the retail concerns or issues, or are there more the overall general macroeconomic factors that we're seeing with some retail? We've certainly seen a lot of restructurings, bankruptcies, et cetera. So, I was wondering how much of that might be a function of seasonal consumer weakness or anything like that versus just maybe just the mix of the specific retailers you may have under your umbrella?

Yes. You're right, Marc. The retail industry, if we were to pick one where we're seeing the most pressure, it is certainly that industry. We pointed out not from a seasonal perspective but really kind of from an underlying fundamentals perspective. If we take a look at where we stand on a year-over-year basis or how things have moved from the first quarter to the second quarter based on where we would expect volume to be based on our historical patterns, retail has shown weakness in both sets. Much of this comes back to the fact that while there is still some adequate level of retail spending, where our work is not in the store, it's actually in the distribution operations. We've still got many customers that are long on inventory, and we're seeing less volume flowing through those centers, and that's translating into less volume requirements from our customers that are using our services.

That's certainly helpful. And then, one of the things I was sort of thinking about is for all the challenges that the industry has seen; the bill pay spread has generally improved. I was wondering if you could talk a little bit about maybe what your thoughts are there as far as the planning going forward as to whether your level of comfort as to how that might play out through the remainder of the year.

Well, we have stayed pretty disciplined on our pricing, and this is our ninth consecutive quarter having a positive spread between bill and pay rate inflation, and we think that's warranted because down in our SG&A section, we're having to do a lot more work to find people. We're spending more time and energy to find people and to screen people to deliver the kind of candidates at the quality level that our clients expect. So, as we take a look forward, we're going to still stay disciplined on that pricing. But we also want to make sure we continue to stay very in touch market by market. These dynamics are different in different markets and in different geographies. And we want to make sure that we also don't get priced out. I would expect we'd see the pay rate inflation maybe take a step down a point or so as we go into the back half of the year, but we would still expect to maintain a positive spread because of the tightness of the labor pools for the second half of the year.

Okay. And then, I was wondering if you could talk a little about any particular areas that you may see, maybe seeing some positive activity, whether it's like anything that maybe is a callout that we haven't talked about yet something, whether it's an industry vertical or a geographic area, anything like that that we should sort of be thinking about that might begin to be turning the tide?

Hi Marc, this is Taryn speaking. Thanks for the question. Certainly, a bright spot for us from an industry perspective is in our renewable energy business, particularly around solar farm installation. So, we're seeing some good results there, a healthy pipeline with just a good opportunity to continue to grow that segment, and it's not slowing down. So, we've got some positive results there.

Yes, and just to add to that, Marc, we're really pleased with that business. With the direction the country is headed in renewable energy, we see significant opportunities. Legislation passed last year has increased investment in this industry. Our renewable energy business now represents a high single-digit percentage of our revenue. Year-over-year, that business has doubled, and sequentially, it has grown by 50%. This is certainly one of the highlights, not just for our earnings this quarter, but also looking ahead. We have a strong team that understands how to serve this business effectively, and we've been doing so for a while. I believe we can leverage this opportunity to assist many customers in this area.

Thank you. Our next question is from Kartik Mehta with Northcoast Research.

Hey, Steve and Derrek. I think you both have said that TrueBlue has been very price-disciplined. I'm wondering if that's because of what you're seeing in the marketplace and competitors being aggressive in their pricing, or if you were just pointing out that you haven't gone down that road.

Well, the pricing in our industry has always been competitive. It still is competitive. And we have never generally been the cheapest price in a given market. So, we feel like we provide a really good suite of services, particularly, I'm talking about staffing right now versus RPO in the blue-collar space. We think we're really suited to take good care of customers here, now and in the future based on our experience. So, we are staying disciplined on the pricing there. I think that's both a function of how we are operating and where we're choosing to play and how we're choosing to price in certain markets. And probably the biggest thing overall is where the labor supply is. When the labor supply is this tight, there's a certain amount of pricing power that the market has in general. That's not to say that there are some that aren't out there cutting prices and trying to take market share that way. We just choose not to play there. We haven't seen a big change in that dynamic now versus where we were a year ago.

And then just for the PeopleReady and PeopleManagement business. I'm wondering what the trends were like throughout the quarter, if they stayed steady or if you saw an acceleration? And Derrek, if you're able to give any kind of color on how July has performed.

Yes. Let's discuss the revenue trends for the quarter. In April, our revenue was down approximately 14% overall, which was in line with our expectations and guidance. As we entered May, we noticed further softening, with revenue decreasing by 18% year-over-year for that month. By the end of June, the decline was at 17%, a trend that has continued into July. While there were some fluctuations around the Fourth of July holiday, we estimate that revenue for July is about 17%. The decline we observed in the last week of July was also 17%, consistent with the year-over-year figures we saw as we closed the quarter.

Our next question comes from Mark Marcon with Baird.

I was wondering, can you talk a little bit more about PeopleManagement just in terms of what you're thinking about for the core holiday season? How are clients thinking about ramping up that business?

Well, as far as the fourth quarter, it's still a little early for us, Mark. There's been a lot of puts and takes around what's going on from a retail perspective. As opposed to some other competitors in the industrial staffing space, from a manufacturing perspective, our business there has held up pretty well. Although I can't see their books, I think that our mix is a little bit more geared towards food and consumer packaged goods than some of the others that may be reporting here. So, for us, manufacturing has really kind of held up in the low-teens as far as year-over-year pressure. As far as what we're looking at for the fourth quarter, if we don't see any more softening this quarter, we're just basing our internal expectations on an atypical type of ramp-up with historical patterns. But, there are a lot of moving parts right now. Hard to say.

Okay. And then, I'm wondering if you can give a little more detail with regards to some of the comments that you made on PeopleScout. You did indicate there were certain verticals that were a little bit more challenged. I'm assuming the retail comments were more around PeopleReady, not PeopleScout. Could you correct me if I'm wrong, or what verticals were the most soft with regards to PeopleScout? And for July, are you trending in that down 22% range, or is that down 22% a little bit better than what July is actually showing for PeopleScout?

Okay. I'm going to do my best to answer some of your questions, and a lot comes back to that 22%. All of our comments that I made from an industry vertical perspective were based at PeopleReady. I think that's the best proxy to talk about what's going on industry-wide. It's a nice big population set of a lot of customers. When it comes to PeopleScout, I don't think that it's productive to talk too much about industry trends. Especially when you get down on a quarterly basis, one customer can really set the whole trend for an industry. So, we tend to not get into those industries much. But what I will say is that the pressure that we've seen at PeopleScout is pretty broad-based across all industries, particularly when we're looking at year-over-year because Q2 last year was such a boom quarter and a record quarter for us. We have some really tough comps that we're facing.

So, Derrek, in July, are you still seeing that decrease of 22%, or is that decline more related to later in the quarter?

Everything that we've seen so far is on track to deliver the 22% midpoint that I suggested. We haven't seen anything that would throw that off track.

Can you discuss what steps you took to maintain the margins despite a significant decline on a sequential basis? It seems you reduced some expenses. How advanced are those efforts, and what is your outlook on future cost-cutting measures? Additionally, what margin goals do you hope to achieve if conditions turn out to be worse than anticipated?

Yes. We're talking about PeopleScout right now, Mark? For PeopleScout, the year-over-year trends are a bit distracting. So, to put it into perspective, the PeopleScout margin in all of 2022 was 14%. Q2 this year was 15%, so higher than the average of last year and actually took a step up of a couple of points from where we finished the first quarter. There have been a lot of adjustments that have been made. And so, those have mostly been in different staffing levels. Those adjustments were made throughout the first quarter, and almost all of that hit the run rate here in the second quarter. So, with permanent placement, it's one of the areas that deleverages the most. So, while this is certainly some tough sledding on where we're at as an industry and as a company at this particular point through the year, we're really pleased with where PeopleScout is showing, turning a 15% margin. That's really how we built the structure in place was to keep this margin in the 10% to 15% range, low- to mid-teens, let's call it, throughout the rest of the year. I think we're positioned to do that. If things take another step down at PeopleScout and talking about the company as a whole overall, we'll make some adjustments. That's what our business is about. It's about workforce flexibility for our customers. So, we've done a set of actions in Q1, actions in Q2. If things continue to soften more, we haven't seen that yet, we'll make some more adjustments.

Okay, great. And then on the workers' comp positive accruals, were those all concentrated in PeopleReady, or were those across the board? And how should we think about the balance of the year? I would assume that you should continue to see those sorts of positive accruals just given the conservatism with the initial accruals.

Yes. This primarily relates to PeopleReady. We've seen some positive developments in reserves set up in previous years. Although the dollar amounts in Q2 this year and last year are comparable, we also experienced lower revenue. As a result, those positive reserve adjustments are now appearing larger as a percentage of revenue. This is the main point. Looking ahead, you can refer to our gross margin guidance, which indicates we expect margins to increase year-over-year in Q3 and Q4. There's a lot of factors at play, including workers' compensation, but it seems clearer to focus on the overall gross margin profile, and we do anticipate it to rise slightly compared to last year.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Steve for closing comments.

We'd just like to thank all of you for joining us here today, and we look forward to updating you on our Q3 results in October. Thanks, everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.