TrueBlue, Inc.

Greetings and welcome to the True Blue second quarter 2024 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the full presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I want to remind everyone that today's call and slide presentation contain four looking statements, all of which are subject to risks and uncertainties. and management assumes 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 SEC filings, could cause action results to differ materially from those in the forward-looking statements. Management uses non-GAAP measures when presenting financial results. You are encouraged to review the non-GAAP reconciliations in today's earnings release or at qblue.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, a copy of the company's prepared remarks will be provided on True Blue's investor website at the conclusion of today's call, and a full transcript and audio replay will be available soon after the call. It is now my pleasure to turn the call over to Karen Owen, President and Chief Executive Officer.

Thank you, Operator, and welcome everyone to today's call. I am joined by our Chief Financial Officer, Carl Schweiss. We appreciate you being here with us. As we discussed on our last call, the current operating environment is challenging with economic uncertainty and client caution continuing to weigh on the temporary staffing industry. We are managing through the current market cycle with discipline and agility as we advance our strategic priorities to capture market share and enhance our long-term profitability Revenue for the quarter was $396 million, down 17% compared to the prior year as uncertainty around interest rates, inflation, and other factors continued to drive reduced business spend and curb hiring trends. Our revenue trends declined over the quarter as we did not see typical seasonal sequential builds in our on-demand business. We took decisive cost actions across the organization to deliver efficiencies and reduce operating costs, which is consistent with our strategic priorities. Not only have we aligned our operating structure with current market demand, we have simultaneously created greater agility and flexibility to scale as needed when customer volume returns. We understand the current labor market dynamics and our teams are laser focused on driving sales and ensuring we are capitalizing on every opportunity to serve our customers. As our teams stay highly engaged with clients to address their immediate and evolving needs, we have made significant progress advancing our strategic priorities. Our commitment to accelerating our digital transformation, expanding and attractive in markets, and simplifying our organizational structure will enable us to capture market share, deliver more sustainable growth, and enhance our long-term profitability. Positioning our contingent staffing business to better compete in the digital forward future is a key component of our strategic plan. We continued the rollout of our new proprietary job stack app during the quarter, and we are on track to complete the rollout this year. We have already had some early success with our initial launch in the form of improved usability for our associates using a fully digital application and onboarding process, as well as our ability to leverage real-time insights to implement changes and make it easier for our customers and our associates to engage with us. We are excited about the future opportunities this proprietary technology creates in allowing us to control our roadmap and quickly address evolving user needs. The successful rollout will represent a significant achievement in the digital transformation of our business, providing us with the platform to implement competitive enhancements and strengthen our market position through a differentiated experience that combines our technology with our expansive market presence and expertise. Another key strategic priority is our expansion and high growth, less cyclical and under-penetrated end markets to capitalize on secular growth opportunities. We have made solid progress in attractive end markets, such as skilled trades and healthcare. Within skilled trades, we have grown in renewable energy work and commercial driving services by leveraging our deep expertise and expanded service offerings. such as our renewable energy apprenticeship program and our driver management services. We have also made progress in expanding our healthcare presence across the organization, both in commercial staffing and RPO engagement. Within RPO, we continued diversifying into higher skilled placements with recent wins serving the government sector and expanding existing relationships with higher skilled roles, including engineering, technology, and corporate positions. We are energized by this early success winning new deals and expanding our customer count in high growth and high value in markets. We are confident that as customer volumes return, the scale of these opportunities will drive further revenue expansion. The third element of our strategic plan is the simplification of our organizational structure to drive enhanced focus, growth, and profitability. We have made notable strides in this area with the sale of our on-demand labor business in Canada consolidation of our on-site and global leadership structures, and elimination of silos amongst our support teams and technology functions. As I mentioned, we have also taken disciplined cost action, creating a more simplified structure and driving enhanced long-term profitability. Streamlining creates opportunities to reduce inefficiencies and enable greater focus on operational excellence and innovation as we look to realize future growth. We are already seeing benefits from our efforts in the form of increased synergies and cross-selling as we align our internal organization around two core specialties, commercial staffing and direct hire. When we talk about commercial staffing, this encompasses our on-demand and on-site industrial staffing services, as well as our skilled trades and commercial driving services. While we will continue to go to market under our current well-established brand, Aligning our organizational structure around our core specialties allows us to better leverage our strengths and assets. Direct hire includes our go-to-market brand People Scout with its strong growth and margin prospects. With a more focused structure, we are able to bring our teams closer to our clients and associates, allowing us to reduce costs and better leverage our combined strengths to deliver long-term profitable growth. Current labor market dynamics remain challenging. and consistent with our efforts to streamline operations, we have taken actions to create immediate efficiencies and strategically position us for even stronger growth and profitability when customer demand volumes return. Evolving workforce needs and structural staffing shortages will create compelling opportunities for our business, and our competitive strengths, tremendous assets, and clear strategic priorities position us well to capitalize. The long-term staffing outlook is positive, and we have the right people, technology, and resources to drive our strategic priorities forward. We are excited about the opportunities ahead as we remain committed to enhancing shareholder value and advancing our mission to connect people and work. I will now pass the call over to Carl, who will share further details around our financial results and outlook.

Thank you, Taryn. Total revenue for the quarter was 396 million, a decline of 17%, and one point short of our outlook range. Overall, weakness in demand trends continued with economic pressures driving greater client focus on reducing costs and restricting hiring trends. This led to a lack of sequential build in our on-demand People Ready business, resulting in larger year-over-year decline. People Ready Q2 revenue was flat to Q1, while historical trends would typically result in low double-digit growth. While economic uncertainty and client caution continue to weigh on the broader temporary staffing industry, we're capitalizing on growing verticals. Our renewable energy work grew for the eighth consecutive quarter, and our commercial driving services delivered its second quarter of growth with near double-digit revenue growth in Q2. Gross margin was 26.4% for the quarter, down 100 basis points. The primary driver of the decline was unfavorable changes in revenue mix, both from increased renewable energy work as well as a decline in our highest margin business, PeopleScout. As a reminder, PeopleReady's renewable energy work carries a lower gross margin than the general business due to the pass-through travel costs involved. Outside of these costs, the underlying margin for renewable energy work is consistent with other large PeopleReady accounts, and the impact to total gross margin will normalize as we lapse low-volume comparable periods. Unfavorable bill and pay rate inflation also contributed to the margin decline as we managed pricing pressures typical of this type of economic environment. These were partially offset by recognition of certain COVID-19 government subsidies, which are excluded from our adjusted net income and adjusted EBITDA calculations. We reduced SG&A by 20%. with six points driven by the COVID-19 government subsidies and the remaining decline from disciplined actions to better align our cost structure with client demand and enhance our profitability. We are operating with discipline and focus in the areas we can control, and we are confident in our ability to manage through this market cycle with a commitment to enhance our profitability and ensure that we are better positioned as conditions improve. To that end, we've taken over 70 million of costs out of our operating structure and we expect many of these reductions to be permanent due to our simplified organizational structure, enhanced automation, and other improved efficiencies, which means enhanced profitability as industry demand rebounds. We reported a net loss of $105 million this quarter, which included a non-cash, goodwill, and intangible asset impairment charge of $45 million after tax, driven by weakness in our demand trends due to the economic uncertainty and our recent stock performance. Also included in our results for the quarter was a valuation allowance charge of $55 million on our deferred tax assets due in large part to the loss incurred from the impairment charge. As a reminder, these charges have no impact on our operations, liquidity, or debt covenants. Adjusted net loss was $11 million, while adjusted EBITDA was $1 million. Now let's turn to the specifics of our segments. People Ready revenue decreased 19%. which includes two points of decline from the sale of our on-demand business in Canada, and segment profit margin was down 280 basis points. As I mentioned earlier, PeopleReady revenue was flat compared to the prior quarter and lacked our typical sequential build, leading to a larger-than-expected year-over-year decline. Overall, softness and demand trends continued across most verticals and geographies with lower client volumes, partially offset by continued growth in renewable energy work, which delivered double-digit growth for the quarter. From a margin perspective, the contraction was largely driven by the lower operating leverage as revenue declined, as well as increased revenue mix from renewable energy work and unfavorable bill pay rate inflation, with bill rates up 4% and pay rates up 4.8%. We are facing the type of pricing pressure we would expect in this type of economic environment, as customers look to cut costs and staffing companies compete in a lower demand environment. We continue to demonstrate pricing discipline and we expect this to improve as the business environment returns to growth and demand rebounds. PeopleScout revenue decreased 31% and segment profit margin was down 640 basis points. The decline in demand was driven by lower client volumes as businesses face ongoing economic challenges leading to cost pressure and uncertainty around their workforce needs. Many are seeing less churn in their employee base and for some, hiring volumes have declined to a level where they are relying more heavily on internal resources to fill jobs. All of these factors are leading to curbed hiring trends and overall reduced market demand. The margin contraction was driven by lower operating leverage as revenue declined. People management revenue decreased 6% while segment profit margin was up 100 basis points. The decline in demand was driven by lower on-site client volumes consistent with the macro conditions evident in the verticals we served. and partially offset by solid growth in our commercial driving services. People management segment profit margin expanded due to the disciplined cost management actions to better align our cost structure with client demand. Now let's turn to the balance sheet. We finished the quarter with no debt, $26 million in cash, and $130 million of borrowing availability. We repurchased $7 million of common stock during the quarter, leaving $38 million remaining under our authorization. We have a solid balance sheet providing us with strong liquidity position and great flexibility to support future growth opportunities. Turning to our outlook for the third quarter, we expect a revenue decline of 20 to 14%. This includes one percentage point drag on total company revenue growth due to the sale of our on-demand business in Canada. Our outlook reflects a continuation of current market trends with the year-over-year decline in the third quarter largely driven by a lack of sequential build that we typically see in our on-demand business. We expect SG&A of $99 to $103 million, which represents a reduction of roughly $20 million compared to the prior year period, driven by disciplined cost management and includes approximately $2 million of workforce reduction costs, which will be excluded from our adjusted net income and adjusted EBITDA calculations. Keep in mind, our lean cost structure will drive additional margin improvement as we move through the year and our heightened operating leverage from increased efficiencies will drive enhanced profitability as the demand environment rebounds. Additional information on the outlook can be found in the earnings presentation shared on our website today. Before we open the call up for questions, I want to turn it back over to Taryn for some closing remarks.