KELLY SERVICES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Executive Overview During the past year, the COVID-19 pandemic and related containment measures have resulted in dramatic shifts in most aspects of the economy and how professional and private lives are conducted. While the pace of change was unprecedented and the resulting impacts are still being determined, our Noble Purpose, “We connect people to work in ways that enrich their lives,” will continue to guide our strategy and actions. As we navigate a world of work now impacted by these changes, we will continue to demonstrate our expected behaviors and actions: • Employ a talent-first mentality • Relentlessly deliver for customers • Grow through discipline and focus • Deliver efficiency and effectiveness in everything we do Kelly remains committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete. By aligning ourselves with our Noble Purpose and executing against these behaviors, we have weathered the past year and are emerging as a more agile and focused organization, prepared to achieve new levels of growth and profitability as we further develop our portfolio of businesses. The Talent Solutions Industry Prior to the COVID-19 pandemic, labor markets were in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps, and the current economic situation is accelerating that change. Global demographic trends are reshaping and redefining the way in which companies find and use talent and the COVID-19 pandemic is changing where and how companies expect work to be performed. In response, the talent solutions industry is adjusting how it sources, recruits, trains and places talent. Our industry is evolving to meet businesses’ growing demand for specialized talent, whether delivered as a single individual or as part of a total workforce solution. Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create customized workforce solutions that are flexible and responsive to the labor market. In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive. The ways in which people view, find and conduct work are undergoing fundamental shifts. And as the demand for skilled talent continues to climb, workers’ changing ideas about the integration of work into life are becoming more important. In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take greater control over their career trajectories and Kelly’s Talent Promise confirms our responsibility to workers in search of a better way to work. Our Business Kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries. We offer innovative outsourcing and consulting services, as well as staffing on a temporary and direct-hire basis. In 2020, we adopted the Kelly Operating Model and realigned our business into five specialty business units which are also our reportable segments. • Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused on office, professional, light industrial and contact center specialties in the U.S. and Canada, including our KellyConnect product • Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, information technology and telecommunications specialties predominately in the U.S. and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as our Softworld, Inc. subsidiary as of the beginning of the second quarter of 2021 27 • Education – delivers staffing, direct-hire and executive search services to the K-12, early childhood and higher education markets in the U.S., and includes several acquisitions: Teachers On Call, Insight Workforce Solutions and Greenwood/Asher & Associates • Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO") and Advisory Services to customers on a global basis • International – delivers staffing and direct-hire services in 15 countries in Europe, as well as Mexico In addition, we provide staffing services to customers in the Asia-Pacific region through PersolKelly Pte. Ltd., our joint venture with Persol Asia Pacific Pte. Ltd, a wholly owned subsidiary of Persol Holdings, a leading provider of HR solutions in Japan. We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use us to recruit permanent employees, and that rely on our talent advisory and outsourcing services. Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. The nature of our business is such that trade accounts receivable are our most significant asset. Average days sales outstanding varies within and outside the U.S. and was 60 days on a global basis as of the end of the first quarter of 2021 and 59 days as of the end of the first quarter of 2020. Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction. Our Perspective Short Term While far from certain, the impacts of COVID-19 on the global economy, the talent solutions industry, our customers and our talent have become clearer since the beginning of the pandemic. During 2020 and into the first quarter of 2021, year-over-year revenue declines have been substantial while recent trends have pointed to a slow recovery in demand. In response to the crisis, in April 2020 we took a series of proactive actions. These actions were designed to reduce spending, minimize layoffs, and bolster the strength and flexibility of Kelly’s finances. These actions included: • a 10% pay cut for full-time salaried employees in the U.S., Puerto Rico and Canada, in addition to certain actions in Europe and Asia-Pacific; • substantially reduced CEO compensation and reduced compensation of 10% or more for senior leaders; • temporary furloughing and/or redeployment of some employees until business conditions improve; • suspension of the Company match to certain retirement accounts in the U.S. and Puerto Rico; • reduction of discretionary expenses and projects, including capital expenditures; and • a hiring freeze with the exception of critical revenue-generating positions. The actions generated substantial cost savings and allowed us the time necessary to assess the variety of impacts the crisis has had on our business. These initial actions were intentionally broad in scope and became more targeted to the areas of business where demand declines have been more significant and persistent. Actions such as the 10% pay cut, compensation adjustments for senior leaders and temporary furloughs were in place until early in the fourth quarter of 2020. The suspension of the Company match to retirement accounts ended in January 2021 and others, such as reductions in discretionary spending, capital expenditures and carefully managing staffing levels in non-revenue generating positions, will continue. In addition, we benefited in 2020 from CARES Act provisions allowing deferral of employer social security tax payments. In connection with expiration of the temporary cost reduction measures noted above, management reduced staffing levels to align with expected revenue levels and recorded restructuring charges of $4.4 million for severance and related benefits for impacted employees in the fourth quarter of 2020. Given the level of uncertainty surrounding the duration of the COVID-19 crisis, Kelly’s board also voted to suspend the quarterly dividend in May 2020 and has continued to assess economic and business conditions to determine future actions with respect to our dividend policy. The impact of the pandemic began in March 2020 with the limitations on public life in the U.S. and the European markets we serve and has continued through the end of first quarter of 2021 as the effect of the pandemic response slowed global economic activity. We expect that demand for our services will gradually recover from the economic slowdown and the effects of 28 customer and talent concerns related to operating safely during a pandemic. The impact on the revenues of each segment will vary, given the differences in pandemic-related measures enacted in each geography, the customer industries served and the skill sets of the talent provided to our customers and their ability to work remotely. We currently expect a gradual return to pre-crisis levels of customer demand, however, the pace of such a return may be delayed by repeated cycles of increased economic activity and subsequent disruption caused by a resurgence in infection leading to additional containment measures. As 2021 progresses, we expect that our revenue will reflect a continued gradual improvement in demand and result in improvements in year-over-year gross profit and earnings from operations. The negative market reaction to the COVID-19 crisis in March 2020 also resulted in a decline in our common stock price which caused our market capitalization to decline significantly at the end of the first quarter of 2020. This triggered an interim goodwill impairment test and resulted in a $147.7 million non-cash goodwill impairment charge in the first quarter of 2020. Moving Forward While the continuing economic and labor market recovery cannot be precisely predicted, we believe that the mid-term impacts on how people view, find and conduct work will continue to align with our strategic path. As a result, we have continued to move forward with our specialization strategy, reinventing our operating model and reorganizing our business into five distinct reporting segments. These specialties represent areas where we see the most robust demand, the most promising growth opportunities, and where we believe we excel in attracting and placing talent. Our current operating segments also reflect our desire to shift our portfolio toward high-margin, higher-value specialties. Kelly has done business in these specialties for many years, but our current operating model represents a new approach – one that brings together both staffing and outcome-based pieces of a specialty under a single specialty leader and aggregates assets to accelerate specialty growth and profitability. We believe this specialty structure gives us greater advantages in the market, and we expect our disciplined focus to deliver profitable growth coming out of the crisis. In addition, we intend to invest in strategic, targeted M&A opportunities in our specialties, while optimizing our portfolio, as demonstrated by the recent announcement of our acquisition of Softworld, Inc. in the second quarter of 2021, the completed acquisition of Greenwood/Asher & Associates in the fourth quarter of 2020 and the sale of our operations in Brazil during the third quarter of 2020. Faced with market conditions that may continue to be uneven in the near term, Kelly continues to focus on accelerating the execution of our strategic plan and making necessary investments to advance that strategy. • We are making strides in our digital transformation journey, building a technology foundation to sustain growth and to support our teams, clients and talent with powerful new technologies that make it faster and easier than ever to connect. • We are using our platform, Equity@Work, to break down long-standing, systemic barriers that make it difficult for many people to secure enriching work. This powerful extension of our Noble Purpose uses our unique position in the middle of the supply and demand equation to help more people flow into Kelly’s talent pools, while also helping families, communities and economies thrive. • We are committed to helping each Kelly team define the fastest, most efficient and creative paths to achieving their business goals by removing unnecessary work and refocusing efforts in the right places to achieve our defined performance expectations in the most effective way possible. 29 While the COVID-19 pandemic has resulted in uncertainty in the economy and the labor markets that will affect our near-term financial performance, we have determined long-term measures to gauge our progress, including: • Revenue growth (both organic and inorganic) • Gross profit rate improvement • Conversion rate and EBITDA margin Financial Measures The constant currency (“CC”) change amounts refer to the year-over-year percentage changes resulting from translating 2021 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial data for 2020. We believe that CC measurements are a useful measure, indicating the actual trends of our operations without distortion due to currency fluctuations. We use CC results when analyzing the performance of our segments and measuring our results against those of our competitors. Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against currency risks in connection with their normal business operations. CC measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in accordance with GAAP. Our non-GAAP measures may be calculated differently from those provided by other companies, limiting their usefulness for comparison purposes. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Reported and CC percentage changes were computed based on actual amounts in thousands of dollars. Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) are ratios used to measure the Company’s operating efficiency. NM ("not meaningful") in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero. Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer. 30 Results of Operations Total Company (Dollars in millions) First Quarter 2021 2020 % Change Revenue from services $ 1,205.9 $ 1,261.1 (4.4) % Gross profit 213.3 223.3 (4.5) SG&A expenses excluding restructuring charges 202.7 210.8 (3.8) Restructuring charges — 8.7 NM Total SG&A expenses 202.7 219.5 (7.7) Goodwill impairment charge — 147.7 NM Gain on sale of assets — (32.1) NM Earnings (loss) from operations 10.6 (111.8) NM Gain (loss) on investment in Persol Holdings 30.0 (77.8) NM Other income (expense), net (3.4) 1.7 (308.2) Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 37.2 (187.9) NM Income tax expense (benefit) 10.5 (36.2) 129.0 Equity in net earnings (loss) of affiliate (1.1) (1.5) 29.7 Net earnings (loss) $ 25.6 $ (153.2) NM Gross profit rate 17.7 % 17.7 % — pts. Conversion rate 5.0 (50.1) 55.1 First Quarter Results Revenue from services in the first quarter declined 4.4% on a reported basis and 5.5% on a constant currency basis. Revenue declined in the Professional & Industrial, Science, Engineering & Technology and Education segments, reflecting the continuing impact of the COVID-19 pandemic and resulting mitigation efforts. Revenue increased in the Outsourcing & Consulting and International segments. Revenue from staffing services declined 7.5% compared to the first quarter of 2020. This decline was partially offset by a 2.5% increase in outcome-based services, as demand from customers utilizing these services increased during the quarter, and a 29.9% increase in permanent placement revenue, which is included in revenue from services. Gross profit declined as a result of lower revenue volume. The gross profit rate was flat year over year, as the impact of higher permanent placement income was offset by the negative impact of higher employee-related benefit costs. Decreases in the gross profit rate for Professional & Industrial and Outsourcing & Consulting were partially offset by increases in the gross profit rate for Science, Engineering & Technology, Education and International. This variability in gross profit rates reflects shifts in customer and product mix, along with the impact of certain one-time costs associated with expected increases in customer demand in Professional & Industrial. Total SG&A expenses decreased 7.7% compared to last year. Included in SG&A expenses in the first quarter of 2020 was $8.7 million of restructuring charges. Actions were taken in the first quarter of 2020 to position the Company to adopt the updated operating model and to align the U.S. branch network facilities footprint with a more technology-enabled service delivery methodology. Overall, SG&A expense reductions in all segments reflect management of expense levels in line with revenue trends. During the first quarter of 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price. This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020. 31 Gain on sale of assets of $32.1 million in 2020 represents the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020. The main headquarters building was subsequently leased back by the Company during the first quarter of 2020. Earnings from operations for the first quarter of 2021 totaled $10.6 million, compared to a loss from operations of $111.8 million in the first quarter of 2020. The increase in earnings from operations from the prior year primarily reflects the impact of the goodwill impairment charge and restructuring charge in 2020, partially offset by the 2020 gain on sale of assets. Gain (loss) on investment in Persol Holdings represents the gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings. The gains or losses fluctuate each quarter based on the quoted market price of the Persol Holdings common stock at period end. Other expense for the first quarter of 2021 totaled $3.4 million, compared to other income of $1.7 million for the first quarter of 2020. Included in the 2021 first quarter amount are transaction-related expenses from the April 2021 acquisition of Softworld, Inc., a technology staffing and solutions firm, and a one-time non-cash write-down of an equity investment. Income tax expense was $10.5 million in the first quarter of 2021 and income tax benefit was $36.2 million for the first quarter of 2020. The first quarter of 2021 includes tax expense of $9.2 million for the gain on the Company's investment in Persol Holdings. The first quarter of 2020 includes a tax benefit of $23.0 million on the impairment of goodwill and a tax benefit of $23.8 million for the loss on the Company's investment in Persol Holdings. The first quarter of 2020 benefit was partially offset by losses on tax exempt investments in life insurance policies and income from the sale of assets discussed in the Sale of Assets footnote. Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of tax exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation, and changes in the fair value of the Company’s investment in Persol Holdings, which are treated as discrete since they cannot be estimated. The first quarter of 2020 impairment of goodwill was treated as discrete. The net earnings for the period were $25.6 million, compared to a net loss of $153.2 million from the first quarter of 2020. This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, partially offset by a higher effective income tax rate. 32 Operating Results By Segment (Dollars in millions) First Quarter 2021 2020 % Change (Dollars in millions) Revenue from Services: Professional & Industrial $ 467.6 $ 493.8 (5.3) % Science, Engineering & Technology 254.7 270.2 (5.7) Education 111.6 142.5 (21.7) Outsourcing & Consulting 99.3 89.5 11.0 International 272.9 265.2 2.9 Less: Intersegment revenue (0.2) (0.1) 204.5 Consolidated Total $ 1,205.9 $ 1,261.1 (4.4) % First Quarter Results Professional & Industrial revenue from services decreased due primarily to decreases in the hours volume in our staffing businesses, which continue to be impacted by COVID-19, as talent supply constraints and internal fulfillment challenges have resulted in a gradual recovery rate. These decreases were partially offset by increased revenue in our outcome-based businesses due to program expansions and increased permanent placement income in our staffing business. Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing business across most specialties due to the continued impact of COVID-19, except where we have experienced a steady demand for talent to support life sciences and clinical research. The staffing decrease was partially offset by an increase in permanent placement income. Education revenue from services decreased due primarily to the impact of COVID-19 as many districts continued to use virtual or hybrid instruction, reducing the historical demand for our Education services. Outsourcing & Consulting revenue from services increased due primarily to the increase in revenue volume in our payroll processing outsourcing specialty. International revenue from services increased 2.9% on a reported basis and decreased 1.1% in constant currency. Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020. Excluding Brazil, revenue increased 6.5% on a reported basis and 2.4% on a constant currency basis. The increase was primarily due to higher hours volume, particularly in Mexico. 33 Operating Results By Segment (continued) (Dollars in millions) First Quarter 2021 2020 Change (Dollars in millions) Gross Profit: Professional & Industrial $ 75.9 $ 85.1 (10.7) % Science, Engineering & Technology 53.2 54.7 (2.8) Education 17.2 20.4 (15.7) Outsourcing & Consulting 31.3 28.8 8.8 International 35.7 34.3 4.1 Consolidated Total $ 213.3 $ 223.3 (4.5) % Gross Profit Rate: Professional & Industrial 16.2 % 17.2 % (1.0) pts. Science, Engineering & Technology 20.9 20.3 0.6 Education 15.4 14.3 1.1 Outsourcing & Consulting 31.5 32.2 (0.7) International 13.1 12.9 0.2 Consolidated Total 17.7 % 17.7 % — pts. First Quarter Results Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume and a decline in the gross profit rate. The gross profit rate decreased 100 basis points due to one-time costs associated with expected future volume increases in our contact center business, partially offset by the impact of an increase in permanent placement income this year. Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates. The Science, Engineering & Technology gross profit declined as lower revenue volume was partially offset by a higher gross profit rate. The gross profit rate increased 60 basis points due to increased permanent placement income, coupled with improved specialty mix. Gross profit for the Education segment declined as a result of lower revenue volume, partially offset by an improved gross profit rate. The gross profit rate increased 110 basis points due primarily to higher permanent placement fee income and lower employee-related costs, partially offset by the impact of unfavorable customer mix. The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate. The gross profit rate decreased by 70 basis points primarily due to a change in product mix within this segment. International gross profit increased on higher revenue volume and an increase in the gross profit rate. The gross profit rate increased 20 basis points primarily due to customer mix, partially offset by lower permanent placement income. 34 Operating Results By Segment (continued) (Dollars in millions) First Quarter 2021 2020 % Change (Dollars in millions) SG&A Expenses: Professional & Industrial $ 69.4 $ 80.5 (13.8) % Science, Engineering & Technology 35.7 36.5 (2.1) Education 14.2 16.6 (14.5) Outsourcing & Consulting 28.4 28.6 (0.6) International 33.1 33.2 (0.4) Corporate expenses 21.9 24.1 (9.5) Consolidated Total $ 202.7 $ 219.5 (7.7) % First Quarter 2021 2020 % Change (Dollars in millions) Restructuring Charges Included in SG&A Expenses: Professional & Industrial $ — $ 4.4 NM % Science, Engineering & Technology — 0.5 NM Education — 0.9 NM Outsourcing & Consulting — — NM International — 1.1 NM Corporate expenses — 1.8 NM Consolidated Total $ — $ 8.7 NM % First Quarter Results Total SG&A expenses in Professional & Industrial decreased 13.8%, or 8.8% excluding restructuring charges, due primarily to lower salaries and related costs from cost management actions and initiatives taken to mitigate the impact of lower revenue volume as a result of the COVID-19 disruption, coupled with the impact of the restructuring actions taken in the first quarter of last year prior to the impact of COVID-19. Total SG&A expenses in Science, Engineering & Technology decreased 2.1% in total from a year ago and decreased 0.7% excluding last year’s restructuring charges. This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption. Total SG&A expenses in Education decreased 14.5%, or 9.6% excluding restructuring charges, due primarily to lower salaries and related costs as a result of cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption. Total SG&A expenses in Outsourcing & Consulting decreased 0.6%. This reduction was due primarily to lower travel and non-salary related sales costs due to continued COVID-19 disruption. Total SG&A expenses in International decreased 0.4% on a reported basis and decreased 5.2% on a constant currency basis. Excluding the restructuring charge in the first quarter of 2020, expenses decreased 2.1% on a constant currency basis. Expenses were lower as a result of cost management, combined with the impact of the sale of staffing operations in Brazil in August 2020. Corporate expenses decreased 9.5% due primarily to lower employee-related costs and the 2020 restructuring charges, partially offset by higher incentive-based compensation. 35 Operating Results By Segment (continued) (Dollars in millions) First Quarter 2021 2020 % Change (Dollars in millions) Earnings (Loss) from Operations: Professional & Industrial $ 6.5 $ 4.6 42.3 % Science, Engineering & Technology 17.5 18.2 (4.2) Education 3.0 3.8 (21.2) Outsourcing & Consulting 2.9 0.2 NM International 2.6 1.1 135.1 Corporate (21.9) (139.7) 84.3 Consolidated Total $ 10.6 $ (111.8) NM % First Quarter Results Professional & Industrial reported earnings of $6.5 million for the quarter, a 42.3% increase from a year ago. The increase in earnings was primarily due to decreased expenses of $11.1 million described above, partially offset by the lower staffing services volumes and one-time costs in the call center business. Science, Engineering & Technology reported earnings of $17.5 million for the quarter, a 4.2% decrease from a year ago. The decrease in earnings was primarily due to the impact of COVID-19 on our operations, partially offset by the cost management initiatives taken to mitigate its impact. Education reported earnings of $3.0 million for the quarter, a 21.2% decrease from a year ago. The decrease was primarily due to the impact of COVID-19 on our operations, partially offset by the cost management initiatives taken to mitigate its impact. Outsourcing & Consulting reported earnings of $2.9 million for the quarter, compared to earnings of $0.2 million a year ago. The increase in earnings was primarily due to the impact of increased revenue volumes within the segment. International reported earnings of $2.6 million for the quarter, compared to earnings of $1.1 million a year ago. The increase in earnings was primarily due to the year-over-year impact of restructuring charges incurred in the first quarter of 2020. 36 Financial Condition Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period. The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020 and continued during the first quarter of 2021. As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted cash, operating activities, investing activities and financing activities. Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash totaled $245.2 million at the end of the first quarter of 2021 and $228.1 million at year-end 2020. As further described below, we generated $10.5 million of cash from operating activities, generated $7.9 million of cash from investing activities and generated $0.1 million of cash from financing activities. Operating Activities In the first three months of 2021, we generated $10.5 million of net cash from operating activities, as compared to generating $8.4 million in the first three months of 2020, due to recurring working capital changes. Trade accounts receivable totaled $1.3 billion at the end of the first quarter of 2021. Global DSO was 60 days at the end of the first quarter of 2021, 64 days at year-end 2020 and 59 days at the end of the first quarter of 2020. The decrease since year-end 2020 reflects the collection of receivables from several large customers who were carrying higher balances due to customer-driven administrative issues at year end. Our working capital position (total current assets less total current liabilities) was $632.7 million at the end of the first quarter of 2021, an increase of $8.7 million from year-end 2020. Excluding additional cash, working capital declined $7.7 million from year-end 2020. The current ratio (total current assets divided by total current liabilities) was 1.7 at the end of the first quarter of 2021 and at year-end 2020. Investing Activities In the first three months of 2021, we generated $7.9 million of cash from investing activities, as compared to generating $15.9 million in the first three months of 2020. Included in cash from investing activities in the first three months of 2021 is $10.4 million of proceeds from company-owned life insurance. Included in cash from investing activities in the first three months of 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction. This was partially offset by $36.3 million of cash used for the acquisition of Insight in January 2020, net of the cash received. Financing Activities In the first three months of 2021, we generated $0.1 million of cash from financing activities, as compared to using $4.6 million in the first three months of 2020. The change in cash from financing activities was primarily related to the year-over-year change in dividend payments. Dividends paid per common share were $0.075 in first three months of 2020, while no dividends were paid in the first three months of 2021. Changes in net cash from financing activities are also impacted by short-term borrowing activities. Debt totaled $1.1 million at the end of the first quarter of 2021 and was $0.3 million at year-end 2020, and represented local borrowings in both periods. Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company. Our ratio of debt-to-total capital was 0.1% at the end of the first quarter of 2021 and 0.0% at year-end 2020. The change in short-term borrowings in the first three months of 2021 was primarily due to borrowings on local lines of credit. The change in short-term borrowings in the first three months of 2020 was primarily due to payments on local lines of credit. New Accounting Pronouncements See New Accounting Pronouncements footnote in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a description of new accounting pronouncements. 37 Critical Accounting Estimates For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. Contractual Obligations and Commercial Commitments There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities. Liquidity We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities. Additional funding sources could include asset-based lending, additional bank facilities or sale of non-core assets. To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies. During 2021, cash generated from operations will continue to be supplemented by recent enactment of laws providing COVID-19 relief, most notably the Coronavirus Aid, Relief, and Economic Security Act which allows for the deferral of payments of the Company's U.S. social security taxes. Such deferrals are required to be repaid by the end of 2021 and 2022. We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis. We periodically review our foreign subsidiaries’ cash balances and projected cash needs. As part of those reviews, we may identify cash that we feel should be repatriated to optimize the Company’s overall capital structure. As of the 2021 first quarter end, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances. We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth. A cash pooling arrangement (the “Cash Pool”) is available to fund general corporate needs internationally. The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance; individual accounts may be positive or negative. This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash. As of the end of the first quarter of 2021, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $97.0 million of available capacity on our $150.0 million securitization facility. The securitization facility carried no short-term borrowings and $53.0 million of standby letters of credit related to workers’ compensation. Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions. While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds. As of the end of the first quarter of 2021, we met the debt covenants related to our revolving credit facility and securitization facility. We have historically managed our cash and debt closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities. We believe that we may utilize a portion of our existing cash balances to fund working capital requirements over the next several quarters if demand for our services continues to increase and to pay 50% of deferred payroll tax balances which are due in the fourth quarter of 2021. We monitor the credit ratings of our major banking partners on a regular basis and have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash. 38 Forward-Looking Statements Certain statements contained in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we have no specific intention to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changing market and economic conditions, the recent novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brand, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with investments in equity affiliates including PersolKelly Pte. Ltd., risks associated with conducting business in foreign countries, including foreign currency fluctuations, the exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with violations of anticorruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K. 39