TRUEBLUE, INC.
COMMENT ON FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q, other than purely historical information,
including estimates, projections, statements relating to our business plans,
objectives and expected operating results, the impact of and proposed actions in
response to COVID-19, and the assumptions upon which those statements are based,
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
involve risks and uncertainties, and future events and circumstances could
differ significantly from those anticipated in the forward-looking statements.
These forward-looking statements generally are identified by the words
"believe," "project," "expect," "anticipate," "estimate," "intend," "strategy,"
"future," "opportunity," "goal," "plan," "may," "should," "will," "would," "will
be," "will continue," "will likely result," and similar expressions.
Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties, which may cause actual results to
differ materially from those expressed or implied in our forward-looking
statements, including the risks and uncertainties described in "Management's
Discussion and Analysis" (Part I, Item 2 of this Form 10-Q),"Quantitative and
Qualitative Disclosures about Market Risk" (Part I, Item 3 of this Form 10-Q),
and "Risk Factors" (Part II, Item 1A of this Form 10-Q). We undertake no duty to
update or revise publicly any of the forward-looking statements after the date
of this report or to conform such statements to actual results or to changes in
our expectations, whether because of new information, future events, or
otherwise.
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide the reader of our accompanying
unaudited consolidated financial statements ("financial statements") with a
narrative from the perspective of management on our financial condition, results
of operations, liquidity and certain other factors that may affect future
results. MD&A is provided as a supplement to, and should be read in conjunction
with, our Annual Report on Form 10-K for the fiscal year ended December 29,
2019 , and our financial statements and the accompanying notes to our financial
statements.
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OVERVIEWTrueBlue, Inc. (the "company," "TrueBlue," "we," "us" and "our") is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2019, we connected approximately 724,000 people with work and served approximately 139,000 clients. We report our business as three reportable segments:PeopleReady , PeopleManagement andPeopleScout . See Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our operating segments and reportable segments. OurPeopleReady segment offers on-demand, industrial staffing; our PeopleManagement segment offers contingent, on-site industrial staffing and commercial driver services; and ourPeopleScout segment offers recruitment process outsourcing ("RPO") and managed service provider ("MSP") solutions to a wide variety of industries. The global economy and our business specifically have been dramatically affected by COVID-19. COVID-19 was first identified inWuhan, China in late 2019, and subsequently declared a pandemic by theWorld Health Organization . To date, COVID-19 has surfaced in nearly all regions around the world and resulted in country-level quarantines, global travel restrictions and broad-based economic slowdowns. There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it. For that reason, it is difficult to predict the short-term and the long-term impact of the pandemic on our business at this time. Our first priority, with regard to the COVID-19 pandemic, is to do everything we can to ensure the safety, health, and hygiene of our associates, employees, clients, suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented business environment. A number of states, counties and municipalities issued orders requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders required nonessential businesses to close. Our business remains open and we provide key services to essential businesses. In response to these rapidly changing market conditions, we are taking all appropriate steps to reduce selling, general and administrative ("SG&A") expense and other cash outflows. We have taken actions to reduce our operating expenses by approximately$95 million to$105 million in fiscal 2020 while preserving key strengths of our business, such as our branch footprint and technology innovation, to ensure we are prepared when business conditions improve. We entered fiscal 2020 from a position of strength given our balance sheet that included$37 million of debt and a comparable amount of cash. In March, we drew substantially all of the remaining availability on our$300 million revolving credit agreement (the "Credit Agreement," and the revolving credit facility established thereunder, the "Revolving Credit Facility") to further enhance our liquidity position and are taking steps to improve positive cash flow. We continue to monitor this rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. There may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, it is difficult to estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, we do expect that it will have a material adverse impact on our future revenue, overall profitability and liquidity. For additional discussion on the uncertainties and business risks associated with COVID-19, refer to "Risk Factors" in Part II, Item 1A of this Form 10-Q. First quarter of 2020 highlights Revenue from services Total company revenue declined 11% to$494 million for the thirteen weeks endedMarch 29, 2020 , compared to the same period in the prior year. Revenue declined 7% for the first two months of 2020 compared to the same period in the prior year due primarily to less demand for our services as clients moderated contingent labor spend in response to lower volumes in light of continued economic uncertainty. Declines were broad-based across multiple geographies and industries. Revenue declined 16% in March compared to the same period in the prior year due to a significant drop in demand associated with government and societal actions to address the COVID-19 threat. In particular, the outbreak and preventive measures taken to help curb the spread had severe adverse impacts on our operations and business results in March. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. Year-over-year weekly revenue trends rapidly decelerated in March culminating in a 32% decline in ourPeopleReady business and a 30% decline in our PeopleManagement business during the last week of the quarter.PeopleScout bills monthly and accordingly, weekly trends are not available. Revenues have also been impacted by higher levels of unemployment making it easier for businesses to find labor on their own. We expect these two factors to have a significant adverse impact on our future revenue as well as our overall profitability and liquidity for as long as the negative economic impacts of COVID-19 are being Page - 20
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experienced. Our business remains open and we provide key services to essential businesses such as health care, food processors, grocery stores, and government, which have experienced less pressure.PeopleReady , our largest segment, experienced a revenue decline of 8%. PeopleManagement, our lowest margin segment, experienced a revenue decline of 10%.PeopleScout , our highest margin segment, experienced a revenue decline of 21%. In addition to less demand from existing clients,PeopleScout continues to experience the impact of the lower volume and margin from a large industrial client due to the client's adverse business conditions in fiscal 2019. Gross profit Total company gross profit as a percentage of revenue for the thirteen weeks endedMarch 29, 2020 decreased by 110 basis points to 25.5%, compared to 26.6% for the same period in the prior year. OurPeopleScout business contributed approximately 100 basis points to the decline primarily due to continued impact of lower volume from a large, higher margin industrial client and the rapid revenue decline caused by the disruption of the COVID-19 pandemic which outpaced the reductions to our service delivery team. Our staffing businesses contributed 50 basis points to the decline primarily due to a change in revenue mix associated with larger declines in our higher margin local accounts compared to our lower margin national accounts and energy-related businesses. This was largely offset by a benefit from a reduction in estimated costs to comply with the Affordable Care Act which were recorded in prior fiscal years, net of additional insurance coverage associated with former workers' compensation carriers in liquidation in the prior year. We do not expect the benefit from lower affordable health care costs to reoccur. Selling, general and administrative expense Total company SG&A expense decreased by$11 million to$117 million , or 23.7% of revenue for the thirteen weeks endedMarch 29, 2020 , compared to$128 million , or 23.2% of revenue for the same period in the prior year. The decrease in SG&A expense is primarily due to cost control programs put in place in 2019 in response to softening revenue trends. Commencing in the latter half ofMarch 2020 , we also initiated comprehensive actions to dramatically reduce costs in response to rapidly changing market conditions due to COVID-19 pandemic. We are taking all appropriate steps to reduce SG&A expense while preserving the key strengths of our business to ensure we are prepared for the time when business conditions improve. We will continue to monitor and manage our SG&A expense in the current environment. Loss from operations Total company loss from operations was$176 million for the thirteen weeks endedMarch 29, 2020 , compared to income from operations of$9 million for the same period in the prior year. The loss for the first quarter of 2020 consisted almost entirely of a goodwill and intangible asset impairment charge of$175 million related to our acquisitions. The charge is a result of the adverse impact on expected future cash flows related to the current state of the economy. The charge does not impact our current cash, liquidity or banking covenants. In addition, we experienced a decrease in income from operations compared to the same period in the prior year due to the decline in revenue and gross profit, partially offset by the decrease in SG&A expense due to cost control programs. Net loss Net loss was$150 million , or$4.04 per diluted share for the thirteen weeks endedMarch 29, 2020 , compared to net income of$8 million , or$0.21 per diluted share for the same period in the prior year. The net loss for the first quarter of 2020 included a goodwill and intangible asset impairment charge of$175 million ($152 million after tax or$4.08 per diluted share). The remaining$6 million decline was almost entirely driven by declining income from operations as a result of lower revenue and gross profit partially offset by a decline in SG&A expense due to cost control programs. Additional highlights We are focused on capital preservation as a top priority. In response to the rapidly changing market conditions, we have taken swift action to reduce operating costs and other cash outflows to preserve capital to fund working capital needs. We entered fiscal 2020 from a position of strength with a balance sheet that included$37 million of debt and a comparable amount of cash. OnMarch 16, 2020 , we extended the maturity of the Revolving Credit Facility toMarch 16, 2025 , and under the Credit Agreement we have the option, subject to lender approval, to increase the Revolving Credit Facility to$450 million . In March, we drew substantially all of the remaining availability on our$300 million Revolving Credit Facility to further enhance our liquidity position. As ofMarch 29, 2020 , we had cash and cash equivalents of$265 million and total debt of$294 million . We continue to monitor the rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. There may be Page - 21
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developments outside our control requiring us to adjust our operating plan. As
such, given the dynamic nature of this situation, it is difficult to estimate
the impacts of COVID-19 on our financial condition, results of operations or
cash flows in the future. A protracted recession will have a material adverse
impact on our future revenue as well as our overall profitability, ability to
fund working capital needs and comply with banking covenants.
RESULTS OF OPERATIONS
Total company results
The following table presents selected financial data:
Thirteen weeks ended
March 29, March 31,
(in thousands, except percentages and per share data) 2020 % of revenue 2019 % of revenue
Revenue from services $ 494,252 $ 552,352
Total revenue growth (decline) % (10.5 )% (0.4 )%
Gross profit $ 126,159 25.5 % $ 146,695 26.6 %
Selling, general and administrative expense 117,381 23.7 % 127,980 23.2 %
Depreciation and amortization 9,094 1.8 % 9,952 1.8 %
Goodwill and intangible asset impairment charge 175,189 -
Income (loss) from operations (175,505 ) (35.5 )% 8,763 1.6 %
Interest and other income (expense), net 263 553
Income (loss) before tax expense (benefit) (175,242 ) 9,316
Income tax expense (benefit) (24,748 ) 1,040
Net income (loss) $ (150,494 ) (30.4 )% $ 8,276 1.5 %
Net income (loss) per diluted share $ (4.04 ) We report our business as three reportable segments described below and in Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q. •PeopleReady provides access to reliable workers inthe United States ,Canada
and
contingent general and skilled labor.
a broad range of industries that include construction, manufacturing and
logistics, warehousing and distribution, waste and recycling, energy, retail,
hospitality, and others. As of
branches across all 50 states,
branch network is our mobile application, JobStackTM, which connects workers
with jobs, creates a virtual exchange between our workers and clients, and
allows our branch resources to expand their recruiting and sales efforts and
service delivery. JobStack is helping to competitively differentiate our
services, expand our reach into new demographics, and improve both service
delivery and work order fill rates as we lead our business into a digital
future.
• PeopleManagement predominantly provides a wide range of on-site contingent
staffing and workforce management solutions to larger multi-site
manufacturing, distribution and fulfillment clients. In comparison with
service teams are located at the client's facility. Effective
2019 (first day of our 2020 fiscal year), we combined our two on-site
contingent industrial workforce operating segments, Staff Management | SMX
and
which continues to be reported under PeopleManagement. On-site includes our
branded service offerings for hourly and productivity-based industrial
staffing solutions serving the same industries and similar clients.
PeopleManagement also includes Centerline Drivers ("Centerline"), which
specializes in dedicated and contingent commercial truck drivers to the
transportation and distribution industries.
•
acquisition services from candidate sourcing and engagement through the
onboarding of employees as well as employer branding services. Our solution
is highly scalable and flexible, which allows for the outsourcing of all or a
subset of skill categories across a series of recruitment, hiring and
onboarding steps. Our solution delivers improved talent quality and candidate
experience, faster hiring, increased scalability, lower cost of recruitment,
greater flexibility, and increased compliance. Our clients outsource the
recruitment process to PeopleScout in all major industries and jobs. We
leverage our proprietary technology platform (AffinixTM) for sourcing,
screening and delivering
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a permanent workforce, along with dedicated service delivery teams to work as an integrated partner with our clients. Affinix uses artificial intelligence and machine learning to search the web and source candidates, which means we can create the first slate of candidates for a job posting within minutes rather than days. OurPeopleScout reportable segment also includes a managed service provider business, which provides clients with improved quality and cost management of their contingent labor vendors. Revenue from services Revenue from services by reportable segment was as follows: Thirteen
weeks ended
March 29, Growth Segment % March 31, Segment %
(in thousands, except percentages) 2020 (decline) % of total 2019 of total
Revenue from services:
PeopleReady $ 299,294 (8.4 )% 60.5 % $ 326,868 59.2 %
PeopleManagement 141,614 (10.4 ) 28.7 158,044 28.6
PeopleScout 53,344 (20.9 ) 10.8 67,440 12.2
Total company $ 494,252 (10.5 )% 100.0 % $ 552,352 100.0 %
The workforce solutions business is dependent on the overall strength of the
labor market. Clients tend to use contingent workers to supplement their
existing workforce and generally hire permanent workers when long-term demand is
expected to increase. As a consequence, our revenue from services tends to
increase quickly when the economy begins to grow. Conversely, our revenue
decreases quickly when the economy begins to weaken and thus contingent staff
positions are eliminated, permanent hiring is frozen and turnover replacement
diminishes.
The global economy and our business have been dramatically affected by the
COVID-19 pandemic. To date, COVID-19 has surfaced in nearly all regions around
the world and resulted in travel restrictions and business slowdowns or
shutdowns. There are no reliable estimates of how long the pandemic will last or
how many people are likely to be affected by it. Our first priority with regard
to the COVID-19 pandemic is to do everything we can to ensure the safety, health
and hygiene of our associates, employees, clients, suppliers and others with
whom we partner in our business activities to continue our business operations
in this unprecedented business environment. A number of states, counties and
municipalities issued orders requiring persons who were not engaged in essential
activities and businesses to remain at home. Other jurisdictions without
stay-at-home orders required nonessential businesses to close. Our business
remains open and we provide key services to essential businesses.
In response to these rapidly changing market conditions, we are taking all
appropriate steps to reduce SG&A expense and other cash outflows. We continue to
monitor the rapidly evolving situation and guidance from domestic and
international authorities, including federal, state and local public health
authorities and may take additional actions based on their recommendations.
There may be developments outside our control requiring us to adjust our
operating plan. As such, given the dynamic nature of this situation, it is
difficult to estimate the impacts of COVID-19 on our financial condition,
results of operations or cash flows in the future. However, we do expect that it
will have a material adverse impact on our future revenue as well as our overall
profitability. For additional discussion on the uncertainties and business risks
associated with COVID-19, refer to "Risk Factors" in Part II, Item 1A of this
Form 10-Q.
PeopleReady
PeopleReady revenue declined to $299.3 million for the thirteen weeks ended
March 29, 2020 , an 8.4% decrease compared to the same period in the prior year.
Revenue declined 5.1% for the first two months of 2020 compared to the same
period in the prior year due primarily to less demand for our services as
clients moderated contingent labor spend in response to lower volumes in light
of continued economic uncertainty. Declines were broad-based across multiple
geographies and industries. Revenue declined 13.7% for March 2020 compared to
the same period in the prior year due to a significant drop in demand from our
clients associated with actions to address the COVID-19 threat. Weekly revenue
declines accelerated in the back half of March with declines of 19.9% and 32.3%
for the last two weeks of the quarter, respectively, compared to the same period
in the prior year. Many of the clients we serve have been severely impacted by
COVID-19 and have stopped or significantly reduced their use of our staffing
services, which has resulted in lower than expected revenue. We expect these two
factors to have a significant adverse impact on our future revenue as well as
our overall profitability and liquidity for as long as the negative economic
impacts of COVID-19 are being experienced. Our business remains open and we
provide key services to essential businesses such as health care, food
processors, grocery, and government, which have experienced less pressure.
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We believe the decline was partially offset by the use of our industry-leading JobStack mobile application that digitally connects workers with jobs. During the first quarter of 2020,PeopleReady dispatched approximately 1 million shifts via JobStack and achieved a digital fill rate of 51% compared to 47% in the same period in the prior year. JobStack has an 89% worker adoption rate and was used by 23,500 clients in the first quarter of 2020, or an increase of over 50% compared to the same period in the prior year. The digital fill rate and client adoption increased 2.3% and 10.3%, respectively, during the first quarter of 2020 compared to the fourth quarter of 2019. JobStack is helping us safely connect people with work during this time of crisis. PeopleManagement PeopleManagement revenue declined to$141.6 million for the thirteen weeks endedMarch 29, 2020 , a 10.4% decrease compared to the same period in the prior year. Revenue declined 8.1% for the first two months of 2020 compared to the same period in the prior year due primarily to less demand for our services as clients moderated contingent labor spend in response to lower volumes in light of continued economic uncertainty. Declines were broad-based across multiple industries. Revenue declined 14.1% forMarch 2020 compared to the same period in the prior year due to a significant drop in demand from our clients associated with actions to address the COVID-19 threat. Weekly revenue declines accelerated in the back half of March with declines of 15.1% and 29.6% for the last two weeks of the quarter respectively compared to the same period in the prior year. Many of the clients we serve have been severely impacted by COVID-19 and have stopped or significantly reduced their need for our staffing services, which has resulted in lower than expected revenue. We expect these two factors to have a significant adverse impact on our future revenue as well as our overall profitability and liquidity for as long as the negative economic impacts of COVID-19 are being experienced. Our business remains open and we provide key services to essential businesses such as health care, food processors, and grocery stores, which have experienced less pressure.PeopleScout PeopleScout revenue declined to$53.3 million for the thirteen weeks endedMarch 29, 2020 , a 20.9% decrease compared to the same period in the prior year. Revenue declined 16.6% for the first two months of 2020 compared to the same period in the prior year due primarily to the impact of the substantially reduced project-based recruiting volumes at a large industrial client, which declined throughout 2019 due to the client's adverse business conditions resulting in no order volume in the fourth quarter of 2019. Revenue declined 27.9% forMarch 2020 compared to the same period in the prior year due to less demand from existing clients resulting from the economic disruption caused by the COVID-19 pandemic. Our clients in the hospitality and airline industries were hit especially hard. Gross profit Gross profit was as follows: Thirteen weeks ended
(in thousands, except percentages)
$ 126,159 $ 146,695 Percentage of revenue 25.5 % 26.6 % Gross profit as a percentage of revenue declined to 25.5%, or 110 basis points for the thirteen weeks endedMarch 29, 2020 , compared to 26.6% for the same period in the prior year. OurPeopleScout business contributed approximately 100 basis points to the decline primarily due to 60 basis points associated with substantially reduced project-based recruiting volumes from a large, higher margin industrial client which declined throughout 2019 due to the client's adverse business conditions and 40 basis points associated with the rapid revenue decline caused by the disruption of the COVID-19 pandemic which outpaced our reductions to our service delivery team. Our staffing businesses contributed 50 basis points to the decline primarily due to a change in revenue mix associated with larger declines in our higher margin local accounts compared to our lower margin national accounts and energy-related businesses. This was largely offset by a benefit from a reduction in estimated costs to comply with the Affordable Care Act which were recorded in prior fiscal years, net of additional insurance coverage associated with former workers' compensation carriers in liquidation in the prior year. We do not expect the benefit from lower affordable health care costs to reoccur. Page - 24
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Selling, general and administrative expense
SG&A expense was as follows:
Thirteen weeks ended
(in thousands, except percentages) March 29, 2020 March 31, 2019
Selling, general and administrative expense
23.7 % 23.2 %
Total company SG&A expense decreased by $10.6 million to $117.4 million , or
23.7% of revenue for the thirteen weeks ended March 29, 2020 , compared to $128.0
million , or 23.2% of revenue for the same period in the prior year. The decrease
in SG&A expense was primarily due to cost control programs put in place in
fiscal 2019 in response to softening revenue trends. Commencing in the latter
half of March 2020 , we also initiated comprehensive actions to dramatically
reduce costs in response to rapidly changing market conditions due to the
COVID-19 pandemic. We are taking all appropriate steps to reduce SG&A expense
while preserving the key strengths of our business to ensure we are prepared for
the time when business conditions improve. We will continue to monitor and
manage our SG&A expense in the current environment.
Depreciation and amortization
Depreciation and amortization was as follows:
Thirteen weeks ended
(in thousands, except percentages)
1.8 % 1.8 %
Depreciation and amortization decreased primarily due to several intangible
assets which became fully amortized in the second quarter of 2019, which
resulted in a decline in amortization expense for the thirteen weeks ended
March 29, 2020 .
Goodwill and intangible asset impairment charge
A summary of the goodwill and intangible asset impairment charge by reportable
segment is as follows:
(in thousands) PeopleManagement PeopleScout Total company
Goodwill 45,901 94,588 140,489
Client relationships 9,700 25,000 34,700
Total $ 55,601 $ 119,588 $ 175,189
We evaluate goodwill for impairment on an annual basis as of the first day of
our fiscal second quarter, and whenever events or circumstances make it more
likely than not that an impairment may have occurred. These events or
circumstances could include a significant change in the business climate,
operating performance indicators, competition, client engagement, legal factors,
or sale or disposition of a significant portion of a reporting unit. We monitor
the existence of potential impairment indicators throughout the fiscal year.
During the first quarter of 2020, the following events made it more likely than
not that an impairment had occurred and accordingly, we performed an interim
impairment test as of the last day of our fiscal first quarter of 2020.
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We experienced a significant decline in our stock price during the first quarter of 2020. As a result of the decline in stock price, our market capitalization fell significantly below the recorded value of our consolidated net assets. The reduced market capitalization reflected the expected continued weakness in pricing and demand for our services in an uncertain economic climate, which was further impacted inMarch 2020 by the COVID-19 pandemic. The response inthe United States andCanada has generally been to require that the populous remain at home unless they are working in an "essential" role as defined by state governments. We are continuing to support our clients during this period of time, many of whom are essential businesses, but volumes have declined substantially. Most industries we serve have been impacted by a significant decrease in demand for their products and services, and as a result, demand for our services has decreased. We expect significant decreases to our revenues and corresponding operating results as we experience continued weakness in pricing and demand for our services during this severe economic downturn. While we expect to see demand recover in the future, our expectation is that the rate of recovery will vary by geography and industry depending on the economic impact caused by COVID-19 and the rate at which infections decline to a contained level. As a result of our interim impairment test, we concluded that the carrying amounts of goodwill for PeopleScout RPO, PeopleScout MSP and PeopleManagement On-Site reporting units exceeded their implied fair values and we recorded a non-cash impairment loss of$140.5 million , which was included in goodwill and intangible asset impairment charge on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks endedMarch 29, 2020 . The total goodwill carrying value of$45.9 million for PeopleManagement On-site reporting unit was fully impaired. The goodwill impairment charge for PeopleScout RPO and PeopleScout MSP was$92.2 million and$2.4 million , respectively, leaving a remaining goodwill balance of$22.0 million and$9.7 million , respectively as ofMarch 29, 2020 . In the event that the declining revenue and operating results continue in the future, the remaining balances may become impaired. Our assessment of goodwill impairment indicated that as ofMarch 29, 2020 , the fair value of thePeopleReady and Centerline reporting units exceeded their carrying values and therefore goodwill was not impaired. Should actual results decline further or longer than we have currently estimated, the remaining goodwill balances may be further impaired. We will continue to closely monitor the operational performance of these reporting units as it relates to goodwill impairment. We generally record acquired intangible assets that have finite useful lives, such as client relationships, in connection with business combinations. We review intangible assets that have finite useful lives and other long-lived assets whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable. Factors considered important that could result in an impairment review include, but are not limited to, significant underperformance relative to historical or planned operating results or significant changes in business strategies. With the decrease in demand for our services due to the economic impact caused by COVID-19, we have lowered our future expectations, which was the primary trigger of an impairment to our acquired client relationships intangible assets for our PeopleScout RPO and PeopleManagement On-Site reporting units of$34.7 million , which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen weeks endedMarch 29, 2020 . The impairment charge for PeopleScout RPO and PeopleManagement On-site reporting units was$25.0 million and$9.7 million , respectively, leaving a remaining client relationship balance of$6.2 million and$8.5 million , respectively as ofMarch 29, 2020 . Income taxes The income tax expense and the effective income tax rate were as follows: Thirteen weeks ended
(in thousands, except percentages)
14.1 % 11.2 %
Our tax provision and our effective tax rate are subject to variation due to
several factors, including variability in accurately predicting our pre-tax and
taxable income and loss by jurisdiction, tax credits, government audit
developments, changes in laws, regulations and administrative practices, and
relative changes of expenses or losses for which tax benefits are not
recognized. Additionally, our effective tax rate can be more or less volatile
based on the amount of pre-tax income. For example, the impact of discrete
items, tax credits and non-deductible expenses on our effective tax rate is
greater when our pre-tax income is lower.
Our effective tax rate for the thirteen weeks ended March 29, 2020 was 14.1%.
The difference between the statutory federal income tax rate of 21.0% and our
effective income tax rate results primarily from a non-deductible goodwill and
intangible asset impairment charge, the Coronavirus Aid, Relief and Economic
Security Act, and the federal Work Opportunity Tax Credit ("WOTC"). WOTC is
designed to encourage employers to hire workers from certain targeted groups
with higher than average unemployment rates. Other differences between the
statutory federal income tax rate of 21.0% and our effective tax rate of 14.1%
result from state and foreign income taxes, certain non-deductible expenses, tax
exempt interest, and tax effects of stock-based compensation.
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Segment performance We evaluate performance based on segment revenue and segment profit (loss). Segment profit (loss) includes revenue, related cost of services, and ongoing operating expenses directly attributable to the reportable segment. Segment profit (loss) excludes goodwill and intangible impairment charges, depreciation and amortization expense, unallocated corporate general and administrative expense, interest, other income and expense, income taxes, and other adjustments not considered to be ongoing. See Note 11: Segment Information, to our consolidated financial statements found in Item 1 of this Quarterly Report on Form 10-Q, for additional details on our reportable segments, as well as a reconciliation of segment profit to income (loss) before tax expense (benefit). Segment profit (loss) should not be considered a measure of financial performance in isolation or as an alternative to net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) in accordance with accounting principles generally accepted inthe United States of America , and may not be comparable to similarly titled measures of other companies.PeopleReady segment performance was as follows:
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