Ladies and gentlemen, thank you for standing-by, and welcome to the TrueBlue Third Quarter 2020 Earnings Call [Operator Instructions] I would like to hand the conference over to your speaker today, Derrek Gafford, CFO. Thank you. Please go ahead.

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 Web site 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 people management engagement is supplying an outsourced workforce that involves multi-year, multi-million dollar onsite or driver relationship. These type 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. According to our third segment, PeopleScout represents 9% of trailing 12-month revenue and 9% of segment profit.…

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…

[Operator Instructions] 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, Derek here. So it was very broad base. 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.

Great. Can you talk a little bit about your plans for SG&A both from a short-term perspective? And then if you could elaborate a little bit on the longer-term opportunities it sounds like we are going to go through potentially some more centralization particularly on the PeopleReady side, basically getting there through attrition as opposed to something that would be perhaps more dramatic. But just trying to understand, like based on where we -- were things sitting now where we think like SG&A as a percentage of revenue could end up getting through on the PeopleReady side longer term as job stack continues to gain traction.

Yes. Thanks for the question Mark. So let's break it down as you suggest that talks short-term and longer term here. Let's start with the short-term, just taking a look at where we stand, third quarter and going into the fourth quarter. So in the third quarter SG&A was down 31%, about 3 points of that -- 3 and 4 points were some government subsidies, so excluding that we collect 28%, which is still higher than what our revenue decline was. Generally, that's not our intent is to have SG&A go down at that level. So, as we are looking into the fourth quarter, the guidance that we basically prepared is for SG&A to be down about 20%, which if you take a look at where our trends are headed, as we go into October, at least for our staffing businesses, we're down in the teens. So it's directionally aligned with where the revenue is headed. It's an important consideration for us, because we want to continue to be aggressive on our cost discipline but at the same time, as things start to recover and we build some momentum, we've got gross profit dollars here to look out for. And that's really all about taking really good care of the customers that we got, we don't want to lose any of those. And as more volume comes in, obviously, we have less people to spread around and take care of that as well as business development opportunities, but still a healthy decline in SG&A expense and you could probably trend that out into the first quarter, just based on your own revenue assumptions. As we get around to the second quarter, of course, we're going to anniversary a big amount of the fall off that we had from a revenue…

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?

Yes, that's a good question. I'm glad you asked that. So everybody can hear our thoughts on this one. When you take a look at our monthly revenue trends, what you will see is a pretty steady amount of improvement. And when I'm talking about improvement, meaning that each month a year-over-year decline gets less. We've had some months where from one month to another has improved by six points, we've had some months improved by a point or two. The best that I can take a look at is we did have a resurgence of daily -- the average daily cases in July, in the early part of August, and we did see the rain of our improvements slow a bit in August, or to put your finger on how much of that's the COVID versus other dynamics in the economy. But we think it's reasonable to assume that has some impact. So as those things surge, we could see it, maybe slow the pace. But we haven't yet seen anything where it has caused us to go backwards.

[Operator Instructions] Your next question is from Josh Vogel from Sidoti & Company. Please go ahead.

Apologies of any things are done 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, hereof 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 take that one, and then, if Patrick wants to add anything into it, I'll let Patrick weigh in on it. So what we do see in our guidance for Q4, if you want to call it that we're giving some alpha select outlook information is, we're talking about, a midpoint of gross margin contraction of 220 to 230 basis points, that's less than what we experienced in Q3 of 300 basis points. Some of that is, we've had some mixed things working against us in the gross margin area and we feel like we're starting to -- we'll have less of that focus in or less of that pressure going into Q4. Also, our RPL business is the revenue has improved a little bit towards the end of the quarter, we're anniversaring a couple of client issues. So it's coming down in terms of fourth quarter contraction versus third quarter. Looking out, what has typically happened is as growth comes back pricing power swings back to industrial staffing. And we would expect to recapture some of this gross margin, like we've worked out in prior economic cycles as demand comes back. So I think the contraction it's a normal part of the process that happens in a recession. And then we've just got to make sure that we stay disciplined with our processes and we've got some good ones in place to make sure we take advantage of this win, when things turn back around. So that's our plan and how we see the gross margin perspective, both from a short-term perspective this year and as we look to -- as things start to turn around and get back 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 [indiscernible]?

Well, Patrick, do you want to talk anything about the conversations with clients? And I can give a couple of facts as 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 that to what Derrek said is, 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. And 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 and keeping our DSO and our collections 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, kind of 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, hospitality providers. And there's some real pain there. And I think it's not only going to be paying 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 where as within PeopleScout, the manufacturing is down in the mid 40s, 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 is 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, 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 in 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%, 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.

[Operator Instructions] 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.