Greetings and welcome to the TrueBlue Fourth 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. [Operator Instructions] As a reminder, this conference is being recorded. At this time, 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 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 actual results to differ materially from those in 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 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, a copy of the Company’s prepared remarks will be provided on TrueBlue’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 Taryn 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 Schweihs. We appreciate you being here with us. The economic environment that we and many of our customers are operating in continues to be challenging. Uncertainty led to a greater focus on reducing costs, leading many companies to ask for more from their internal teams to be more selective in the temporary and full-time positions they choose to fill. These dynamics resulted in reduced market demand across the staffing industry. Revenue for the quarter was $492 million, down 12% compared to the prior year as economic uncertainty persisted, constraining business spend and impacting hiring trends. We are managing through this market cycle with agility and discipline, meeting our clients’ current needs and ensuring we are favorably positioned to capitalize on opportunities as conditions improve. Our teams are highly focused on growing sales, providing excellent service and responding to our clients’ immediate and evolving needs. As companies hesitate to make long-term workforce commitments, we are leveraging our short duration and flexible offerings to satisfy current needs and ensure we are ready to support clients as their needs change or expand. Additionally, we continue to seek opportunities in high-growth and attractive end markets with targeted expansion in areas such as renewable energy and skilled trades. While most sectors reflect softened demand, the long-term staffing outlook remains positive. We are well-positioned to fill some of the structural staffing shortages we see as Baby Boomers retire, work from home trends continue and shortages in skilled trades expand. We understand the current market dynamics and the needs of our customers, and we also understand the urgency to see improvement in our results. We are committed to maintaining a dialogue with you and providing transparency about our efforts…

Thank you, Taryn. On a comparable 13-week basis, revenue was down 15% and at the high end of our outlook due to strong performance in renewable energy work. Our fiscal fourth quarter included an extra 14th week versus the 13 weeks in the prior year period, adding incremental revenue of $20 million and driving reported revenue for the quarter of $492 million or a decline of 12%. Renewable energy work more than doubled, delivering its sixth straight quarter of revenue growth. Strength in this vertical helped to offset overall softness in market demand as economic uncertainty continues to weigh on businesses, driving greater focus on cost cutting and restricting hiring trends. While the tight labor market emphasizes the importance of retaining talent, cost pressures are causing businesses to ask more from their teams and be more selective in the positions they fill, leading to lower overall demand in the staffing market. Gross margin was 26.1% for the quarter, down 40 basis points. The decline was driven by unfavorable revenue mix due to the increase in PeopleReady’s renewable energy work, which carries a lower gross margin than the general on-demand business due to more pass-through travel costs, as well as a decline in the revenue mix of our highest margin business, PeopleScout. These factors were partially offset by disciplined pricing in our PeopleReady business, which delivered its eleventh consecutive quarter of positive spread between bill and pay-rate inflation. We were able to reduce SG&A by 8% on a comparable 13-week basis with the extra 14th week contributing $7 million of additional expense, resulting in a reported decline of 3% for the quarter. We adjusted our cost structure to better align with client demand, and we remain focused on managing costs to enhance our profitability. These actions are balanced with maintaining our…

Thank you, Carl. Before we wrap up, I want to reiterate that while current market conditions are challenging, we are taking decisive actions to preserve and enhance our strengths to deliver long-term value. We are entering 2024 with a strong balance sheet and clear strategic priorities, positioning us well to capitalize on growth opportunities and capture market share as conditions improve. We are confident that these strategic priorities, combined with our many strengths and assets, will enable us to advance our mission to connect people and work while delivering long-term value. This concludes our prepared remarks. Operator, please open the call now for questions.

[Operator Instructions] Our first question is from Jeff Silber with BMO Capital Markets. Please proceed with your question.

Thanks so much. I wanted to focus on your outlook for the first quarter. Is it possible to get a little bit more color on the revenue side by your different segments?

Yes. Thanks, Jeff, for the question here. The revenue decline on midpoint was 13%. The midpoint for PeopleReady is around 11%, PeopleManagement is around minus 6%, and PeopleScout minus 35%. The slight improvement from Q4 is really tied to a less challenging prior year comparison. As we think about kind of -- think about the quarter, January trends were slightly lower due to the renewables piece, but it's in line with expectations for where our outlooks are.

Okay. That's great. And is it safe to assume that at least on a reported basis, none of the segments will be profitable in the first quarter? I understand it's seasonality, but is that correct?

Yes, that's a good way to think about it.

All right. And you mentioned the renewable business, and it's great to see how much it's grown. Can you quantify how large it is right now and roughly what the gross margin difference is between your other businesses and this business?

Yeah. So, if we kind of look back at the fourth quarter, as I said in our prepared remarks, our business mix -- the unfavorable mix there was about 130 basis points for renewable energy in the PeopleReady business, and that really carries a lower gross margin due to our general on-demand business really due to more pass-through travel costs. As we look at Q1, Jeff, it's about 140 basis points for renewable, but we'll continue to -- that will begin to normalize as we lap year-over-year comparisons. Just keep in mind, as the gross margin is lower for renewable vertical, it carries high pass-through costs due to remote geographies of many of these projects. If you exclude those pass-through costs, GM is really in line with other large accounts, and it's really an attractive business for us. For the quarter, we're a little north of about $50 million in renewable.

Yeah. And, Jeff, if I could add, certainly, we're seeing significant success in our renewable business, and we are expecting that to continue to grow double-digits as we move through this year.

Sorry, just to clarify, you said a little north of $50 million, $50 million, is that correct?

$50 million for the quarter, yes.

All right. Appreciate the color. I’ll jump back in the queue. Thanks.

Thank you. Our next question is from Mark Marcon with Baird. Please proceed with your question.

Jeff, asked a lot of my questions as well in terms of the renewables. Just in terms of just the -- what sort of bill rates does that typically run? And how big is the pass-through component?

Well, we don't share specific bill rates. Kind of as I just mentioned, it's comparable. If you remove those pass-through costs, it's comparable to our large accounts, PeopleReady business.

Okay. How big is the pass-through component? So of the $50 million, what percentage of that is pass-through?

I don't have those numbers in front of me. I can get that back to you after the call.

Okay. Thanks, Carl. And then on PeopleScout, you're projecting down 35%. Do you see anything on the horizon that would say, hey, it's going to stabilize?" Or do you think as long as the -- as long as job churn stays relatively low, and there's still a lot of uncertainty out there that we're probably going to be in this pattern?

Yeah. Hi, Mark. This is Taryn. Thanks for the questions. Certainly, our customers in the PeopleScout space, they're really focused on reducing costs, and they have lower hiring volumes. And so what we're seeing is that they're relying more on their internal resources to fill positions. So while we've remained engaged with our customers, they are -- definitely have lower hiring volume. And in many cases, they were able to handle those themselves with the talent acquisition teams that they have. One of the things that we're doing to help drive revenue during this challenging time as our customers aren't making as many hires as we're offering some flexible solutions to them that they can utilize, where they may not be prepared to outsource all or part of their hiring function as they're trying to keep their internal teams busy. So an example of that is our recruiter on-demand offerings that we provide to help supplement their recruiting teams when they need some excess capacity. Just an example of that to bring to life, there's a customer that we were providing that recruiter on-demand service too, and that customer actually split their company into two divisions, and they needed some consulting support in terms of helping them develop their talent acquisition strategy and their recruitment technology solution. And so, PeopleScout was able to provide that solution to them. And ultimately, that recruiter on-demand offering as well as that consulting service that we provided resulted in a multi-year RPO contract award. So that's just an example of some of the things that we're doing to stay close to our customers and make sure that we're meeting their current needs, so that we're well positioned to help them expand when they do have increased hiring needs.

Great. And so, Taryn, I take it with the vast majority of the clients, even if they're reducing the work, it's not like you've complete -- it's not like they've terminated their relationship with you just to get greater clarity on that, like in January of this year, like what percentage of the clients from January of last year did you retain on the PeopleScout side?

Yeah. So we are retaining our customers. It's really around the volume in which they're utilizing us. Some have gone to zero, but we're under contract, and we remain engaged perhaps, again, with alternative solutions to help them right now. But definitely not a client retention issue as much as this is a hiring volume challenge on their side.

Okay. And then with regards to PeopleReady, can you just give us any regional differences or -- and if we think about some of the areas that were hardest hit, anything on the horizon that you would see in terms of stabilization? So for example, with retail in terms of PeopleReady, what are you -- how would you think about the balance of the year there?

Yeah. I would say, if we kind of look back on the quarter, we've seen kind of similar results as we reported. Retail, obviously, was the most challenging end market for us, which has continued through this year, followed by kind of services and transportation, particularly in the PeopleReady business. You might also be just asking about state trends. Those look pretty close to the overall in the end markets as well as what we've seen in January. Just as a reminder, kind of our biggest geographic opportunities in PeopleReady, California, Florida, Texas, those make up just over 30% of our CTM business there in PeopleReady.

Yeah. And just to add to that, in Q4, PeopleReady wins were really dominated in construction and hospitality and that has -- trend has continued as we've entered the first quarter here.

Great. Thank you very much.

Our next question is from Will Brunemann with Northcoast Research. Please proceed with your question.

Hey, guys. I just wanted -- wondering, if you could provide a little bit more color. Are you guys seeing any changes in the competitive environment? And has the demand environment for the PeopleScout business changed at all?

In terms of the competitive environment, I wouldn't say we've seen a change there. Certainly, as we look at our PeopleReady business, we compete with both small regional players and larger staffing firms. And we continue to compete well there with a combination of both our technology that we have to offer as well as our expansive market presence. And certainly, we've made some good advancements there with the launch of our new JobStack app. And I would say, similarly, in our other businesses, the competitive landscape has remained pretty consistent.

All right. Thank you guys.

Thank you. Our next question is from Marc Riddick with Sidoti & Company. Please proceed with your question.

Hi, good evening.

Hi, Marc.

Hi, Marc.

So I was wondering if you could -- given the announcement this morning, could maybe shed a little light on the transaction and sort of how that -- or how that might register with the outlook commentary? And then I have a quick follow-up after that.

Marc, thank you for asking that question. If we just take a step back and look at what we're focused on as an organization, number one, we're focused on growth, execution and client delivery now as we navigate this challenging cycle with the agility and discipline that we've been talking about. But in addition to that, we have three strategic priorities. The first is to simplify our organization structure and the sale of the on-demand business for people ready in Canada is really part of that. Secondly, advancing our digital transformation across the enterprise and then finally, expanding our market presence into high-growth and underpenetrated markets. If we look at the focus around simplifying our org structure, we've made a number of strides here. And some of our on-demand labor business in Canada really is allowing us to focus on our US operations, where we are an industry leader and make sure that we are focusing our -- both kind of financials and human capitals on our highest growth opportunities. In addition to that, we've made some other strides in this area. We brought together our on-site businesses with CMOs and staff management under a single leadership to really help us maximize some of the synergistic opportunities between those two businesses. And then finally, we're really working hard to better leverage the technology assets that we have across the entire organization. So an example of that is, we just started utilizing the technology that we have in our on-site business to support the growth and scale that we're seeing in renewables. So that sale of the Canadian business was really about just making sure we're remaining laser-focused on simplifying the organization and in areas where we see long-term growth opportunity.

And then, Marc, just to add on to what Taryn said, the Canadian operations are immaterial to both TrueBlue and to our PeopleReady's operations from an outlook perspective. And as we close the deal here in Q1, we'll share more going forward.

Great. And then I was wondering if you could -- given the strength of the balance sheet, especially as you finished the year, I was wondering if you could sort of give us a bit of an update as far as views on -- use of cash prioritization and whether or not acquisitions or the like is potentially on the table given the state of the industry? Thanks.

Yes, thanks. In the current economic cycle, we're focused on balancing ample liquidity, making our strategic investments, and we'll return excess capital to shareholders via share repurchases. Just as a reminder, we've got $55 million under our current authorizations. But as those -- we talked about kind of the strategic investments, virtually all those are still in capital investments in our technology. And then I'd also say, Marc, right now, we're not actively pursuing acquisitions, but we're interested in targets that can help diversify our hiring mix and as we enter high growth and resilient end market verticals.

Thank you very much.

Thank you. There are no further questions at this time. I would like to hand the floor back to Taryn Owen for closing comments.

Great. Thank you, operator, and thank you, everyone, for joining us today. I do want to take this opportunity to thank the entire TrueBlue team for their resilience and dedication to fulfilling our missions to connect people and work. We look forward to speaking with you at upcoming investor events and our next -- and on our next quarterly call. If you have questions, please don't hesitate to reach out. Thanks so much, and have a great evening.

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