What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-12 · 156 added, 137 removed, 300 unchanged (49% of the section changed)

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Executive Overview

The COVID-19 pandemic and related containment measures and the subsequent economic recovery 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.

The COVID-19 pandemic, including the delta variant, related containment measures and the subsequent economic recovery have resulted in ongoing shifts in most aspects of the economy and how professional and private lives are conducted.

While the pace of change has been 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:

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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 navigated the challenges of 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.

By aligning ourselves with our Noble Purpose and executing against these behaviors, we have navigated the challenges of the pandemic 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 specialty businesses.

The Talent Solutions Industry

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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.

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• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Payroll Process Outsourcing ("PPO") 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

• International – operates in Mexico and 15 European countries where it delivers staffing, RPO and direct-hire services

In addition, we provide staffing services to customers in the Asia-Pacific region through PersolKelly Pte.

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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 second quarter of 2021 and 64 days as of the end of 2020.

and was 63 days on a global basis as of the end of the third quarter of 2021 and 64 days as of the end 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

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.

The impacts of COVID-19 on the global economy, the talent solutions industry, our customers and our talent became clearer as 2020 progressed.

Beginning in mid-March 2020, our year-over-year revenues declined swiftly and substantially as governments and businesses reacted to the crisis.

In response, 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.

In response, in April 2020 we took a series of proactive steps to reduce spending, minimize layoffs, and bolster the strength and flexibility of Kelly’s finances.

These actions included salary reductions for full-time salaried employees, including reduced CEO and senior leader compensation, temporary furloughing and/or redeployment of some employees.

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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 continued to assess economic and business conditions to determine future actions with respect to our dividend policy.

As of August 2021, the Board of Directors declared a dividend of $0.05 per share.

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.

In the second quarter of 2021, as we anniversary the impacts of the crisis, revenues have returned to year-over-year growth.

In addition, our sequential quarter-over-quarter revenue growth points to a continuation of the recovery.

The early months of 2021 brought optimism for a slow but steady, sustained recovery.

With that optimism, in August 2021 the Board of Directors reinstated the dividend at $0.05 per share.

In the second quarter of 2021, as we passed the one-year anniversary of the crisis, it became apparent that progress would be slower than originally anticipated.

Several headwinds continued throughout the third quarter, including the delta variant and its impact on talent availability and business operations, as well as ongoing global supply chain disruptions and uncertainty over vaccination requirements.

Despite these challenges, Kelly’s year-over-year revenue growth in the second and third quarters points to a continuation of the underlying recovery.

We expect that demand for our services will continue to gradually recover from the economic slowdown and the effects of 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 availability of the talent provided to our customers.

We are proactively taking steps to address talent shortages and mismatches in our businesses that were most impacted by the pandemic, including implementing new technologies, streamlining processes, adopting efficient recruiting models and collaborating with clients on innovative approaches to attract and retain talent.

We are proactively taking steps to address talent shortages and mismatches in our

businesses that were most impacted by the pandemic, including implementing new technologies, streamlining processes, adopting efficient recruiting models and collaborating with clients on innovative approaches to attract and retain talent.

We currently expect a gradual return to pre-crisis levels of customer demand;

however, the pace of such a return may be delayed if a resurgence in infections leads to additional disruption, containment measures or increased lack of available talent to match our customers’ demand.

2021 progresses, we expect that our revenue will reflect a continued gradual improvement in demand and result in continued improvements in year-over-year gross profit and earnings from operations.

however, the pace of such a return may be delayed if a resurgence in infections leads to additional containment measures, disruptions including the ongoing global supply chain disruption, or increased lack of available talent to match our customers’ demand.

As 2021 progresses and we enter 2022, we expect that our revenue will reflect a continued gradual improvement in demand and result in continued improvements in year-over-year gross profit and earnings from operations.

In November 2021, the Company initiated a series of cost management actions primarily designed to increase operational efficiencies within enterprise functions that provide centralized support to our operating units.

The actions are designed to align expenses with current expectations for top-line growth.

As a result, a restructuring charge of $3.5 to $4.5 million will be recorded in the 2021 fourth quarter, with expected expense savings of at least $10 million on an annual basis beginning in the first quarter of 2022.

Moving Forward

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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.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 % Change 2021 2020 % Change

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SG&A expenses excluding restructuring charges 220.0 193.5 13.7 640.0 582.6 9.8

Restructuring charges — (0.2) NM — 8.5 NM

Restructuring charges (0.1) (0.1) (15.4) (0.1) 8.4 (101.7)

Total SG&A expenses 219.9 193.4 13.7 639.9 591.0 8.3

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Gain on sale of assets — — NM — 32.1 NM

Earnings (loss) from operations 13.7 11.1 24.1 24.3 (100.7) NM

Earnings (loss) from operations 9.0 (2.4) NM 33.3 (103.1) NM

Gain (loss) on investment in Persol Holdings 35.5 16.8 112.0 71.8 (31.4) NM

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Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 44.2 13.7 222.8 101.1 (130.9) NM

Income tax expense (benefit) (2.6) 0.9 (406.2) 7.9 (35.3) 122.2

Equity in net earnings (loss) of affiliate 1.7 (1.3) NM 0.6 (2.8) NM

Income tax expense (benefit) 11.1 (1.2) NM 19.0 (36.5) 152.0

Equity in net earnings (loss) of affiliate 1.7 1.8 (3.6) 2.3 (1.0) NM

Net earnings (loss) $ 34.8 $ 16.7 108.9 % $ 84.4 $ (95.4) NM %

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Conversion rate 3.9 (1.3) 5.2 4.9 (17.1) 22.0

Second Quarter Results

Revenue from services in the second quarter increased 29.0% on a reported basis and 26.2% on a constant currency basis, and reflects revenue increases in all operating segments.

Third Quarter Results

Revenue from services in the third quarter increased 15.1% on a reported basis and 14.5% on a constant currency basis, and reflects revenue increases in all operating segments.

Our acquisition of Softworld, a technology staffing and solutions firm, added approximately 320 basis points to the revenue growth rate.

Compared to the second quarter of 2020, revenue from staffing services increased 32.4% and revenue from outcome-based services increased 7.8%.

Permanent placement revenue, which is included in revenue from services, more than doubled from the prior year.

Gross profit increased 22.1% on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased primarily due to the impact of temporary government wage subsidies in the prior year, partially offset by the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates.

Decreases in the gross profit rate for Professional & Industrial, Education and Outsourcing & Consulting were partially offset by increases in the gross profit rate for Science, Engineering & Technology and International.

Compared to the third quarter of 2020, revenue from staffing services increased 11.8% and revenue from outcome-based services increased 15.1%.

Permanent placement revenue, which is included in revenue from services, increased 118.0% from the prior year.

Gross profit increased 19.8% on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased primarily due to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, partially offset by unfavorable product mix and higher employee-related costs.

Increases in the gross profit rate for Science, Engineering & Technology and International were partially offset by decreases in Professional & Industrial, Education and Outsourcing & Consulting.

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.

Total SG&A expenses increased 13.7% on a reported basis and 13.2% on a constant currency basis.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 460 basis points to the year-over-year increase.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 500 basis points of the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of temporary expense mitigation efforts in the prior year.

Earnings from operations for the second quarter of 2021 totaled $13.7 million, compared to earnings from operations of $11.1 million in the second quarter of 2020.

Included in total earnings from operations is approximately $2.3 million, related to Softworld earnings from operations, inclusive of amortization of intangibles.

Earnings from operations increased in all operating segments, with the exception of Professional & Industrial.

In addition, 2020 expenses included a $9.5 million charge related to a customer dispute in the International segment.

Earnings from operations for the third quarter of 2021 totaled $9.0 million, compared to a loss of $2.4 million in the third quarter of 2020.

Included in total earnings from operations in the third quarter of 2021 is approximately $1.7 million related to

Softworld earnings from operations, inclusive of amortization of intangibles.

Included in earnings from operations in the third quarter of 2020 was a $9.5 million charge related to a customer dispute.

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.

Income tax benefit was $2.6 million in the second quarter of 2021 and income tax expense was $0.9 million for the second quarter of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in charges of $1.9 million and $9.0 million for the second quarter of 2021 and 2020, respectively.

The second quarter of 2021 had a benefit of $5.2 million from a change in United Kingdom tax rates, while the second quarter of 2020 had a benefit of $7.7 million from Brazil outside basis differences.

Income tax expense was $11.1 million in the third quarter of 2021 and income tax benefit was $1.2 million for the third quarter of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in charges of $10.9 million and $5.2 million for the third quarter of 2021 and 2020, respectively.

The amounts were also impacted by improved earnings from operations in the third quarter of 2021.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

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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 net earnings for the period were $24.0 million, compared to net earnings of $41.1 million from the second quarter of 2020.

This change was due primarily to lower gains on Persol Holdings common stock.

June Year-to-Date Results

Revenue from services in the first six months of 2021 increased 10.2% on a reported basis and 8.3% on a constant currency basis, and reflects revenue increases in all operating segments.

The net earnings for the period were $34.8 million, compared to net earnings of $16.7 million from the third quarter of 2020.

This change was due primarily to higher earnings from operations and higher gains on Persol Holdings common stock.

September Year-to-Date Results

Revenue from services in the first nine months of 2021 increased 11.8% on a reported basis and 10.3% on a constant currency basis, and reflects revenue increases in all operating segments.

Our acquisition of Softworld in early April 2021 added approximately 200 basis points to the revenue growth rate.

Compared to the first six months of 2020, revenue from staffing services increased 9.2%, revenue from outcome-based services increased 5.1%, and permanent placement income increased 74.1%.

Gross profit increased 7.7% on higher revenue volume, partially offset by a decrease in the gross profit rate.

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.

Compared to the first nine months of 2020, revenue from staffing services increased 9.9%, revenue from outcome-based services increased 9.0%, and permanent placement income increased 87.8%.

Gross profit increased 11.5% on higher revenue volume.

The gross profit rate was flat in comparison to the prior year primarily due to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, partially offset by unfavorable product mix and higher employee-related costs.

Decreases in the gross profit rate for Professional & Industrial and Outsourcing & Consulting were offset by increases in the gross profit rate for Science, Engineering & Technology, Education and International.

The April 2021 acquisition of Softworld accounted for approximately 30 basis points.

Government wage subsidies improved our 2020 gross profit rate by approximately 20 basis points.

Total SG&A expenses increased 8.3% compared to last year.

With the exception of Professional & Industrial, SG&A expenses in all segments increased in comparison to the prior year.

Excluding restructuring charges, SG&A expenses in all segments increased in comparison to the prior year.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 310 basis points to the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of temporary expense mitigation efforts in the prior year.

Included in SG&A expenses in the first six months of 2020 was $8.5 million of restructuring charges.

Included in SG&A expenses in the first nine months of 2020 was a $9.5 million charge related to a customer dispute and $8.4 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.

During the first six months 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.

During the first nine months 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.

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The main headquarters building was subsequently leased back by the Company during the first quarter of 2020.

Earnings from operations for the first six months of 2021 totaled $24.3 million, compared to a loss from operations of $100.7 million in the first six months 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.

Earnings from operations for the first nine months of 2021 totaled $33.3 million, compared to a loss from operations of $103.1 million in the first nine months of 2020.

The increase in earnings from operations from the prior year primarily reflects the

impact of the goodwill impairment charge, the customer dispute charge and a 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 six months of 2021 totaled $3.7 million, compared to other income of $4.3 million for the first six months of 2020.

Other expense for the first nine months of 2021 totaled $4.0 million, compared to other income of $3.6 million for the first nine months of 2020.

Included in the 2021 amount are transaction-related expenses from the April 2021 acquisition of Softworld and a one-time, non-cash write-down of an equity investment.

Income tax expense was $7.9 million in the first six months of 2021 and income tax benefit was $35.3 million for the first six months of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $11.1 million and a benefit of $14.8 million for June year to date 2021 and 2020, respectively.

June year to date 2020 includes a tax benefit of $23.0 million on the impairment of goodwill.

Income tax expense was $19.0 million in the first nine months of 2021 and income tax benefit was $36.5 million for the first nine months of 2020.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a charge of $22.0 million and a benefit of $9.6 million for September year to date 2021 and 2020, respectively.

September year to date 2021 also included a benefit of $5.2 million from a change in United Kingdom tax rates.

September year to date 2020 includes a tax benefit of $23.0 million on the impairment of goodwill and a tax benefit of $7.7 million from Brazil outside basis differences.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S.

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The first quarter of 2020 impairment of goodwill was treated as discrete.

The net earnings for the period were $49.6 million, compared to a net loss of $112.1 million from the first six months of 2020.

The United Kingdom rate change benefit in the second quarter of 2021, the first quarter of 2020 impairment of goodwill and the second quarter of 2020 Brazil outside basis differences were treated as discrete.

The net earnings for the period were $84.4 million, compared to a net loss of $95.4 million for the first nine months of 2020.

This change was due primarily to higher earnings from operations and increased gains of Persol Holdings common stock, net of tax.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 % Change 2021 2020 % Change

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Consolidated Total $ 1,195.4 $ 1,038.2 15.1 % $ 3,659.4 $ 3,274.6 11.8 %

Second Quarter Results

Professional & Industrial revenue from services increased 14.8%, due primarily to an increase in the hours volume as customer demand improved in our staffing businesses as compared to last year, which was significantly impacted by COVID-19.

This increase was coupled with higher permanent placement income, partially offset by a decrease in revenue from our outcome-based services as customer demand declined.

Third Quarter Results

Professional & Industrial revenue from services increased 1.4%.

The increase was due primarily to higher revenue in the staffing product due to an increase in the bill rate per hour as compared to last year, partially offset by a lower hours volume, reflecting the challenge to meet customers’ increasing demand for talent amid a tighter labor supply.

The increase in staffing revenue was coupled with higher permanent placement income, partially offset by a decrease in revenue from our outcome-based services as customer demand declined.

Science, Engineering & Technology revenue from services increased 25.5% on a reported basis, which includes revenues from the acquisition of Softworld.

On an organic basis, the revenue growth was 11.7%, which was driven by hours volume increases in our staffing business across most specialties as customer demand increased compared to last year, which was impacted by COVID-19, coupled with increases in outcome-based services and permanent placement income.

Education revenue from services increased 322.1%, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In the second quarter of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19, which decreases the demand for our services.

Outsourcing & Consulting revenue from services increased due primarily to the increase in hours revenue volume in our PPO specialty.

Education revenue from services increased 142.1%, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago, as well as the impact of new customer wins.

In the third quarter of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19, which decreased the demand for our services.

Outsourcing & Consulting revenue from services increased 29.1% due primarily to the increase in hours revenue volume in our PPO specialty, coupled with revenue growth in both RPO and MSP products.

International revenue from services increased 10.5% on a reported basis and increased 8.8% in constant currency.

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Excluding Brazil, revenue increased 11.4% on a reported basis and 9.7% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in France, Portugal and Mexico.

June Year-to-Date Results

Professional & Industrial revenue from services increased 3.8%, due primarily to an increase in the hours volume as customer demand improved in our staffing businesses as compared to last year, which was significantly impacted by COVID-19.

The increase was primarily due to higher hours volume, particularly in France, Russia and Portugal.

This was partially offset by lower hours volume in Mexico, due to new labor legislation which became effective September 1, 2021 and prohibits staffing solutions not considered specialized services.

September Year-to-Date Results

Professional & Industrial revenue from services increased 3.0%, due primarily to a higher bill rate per hour on lower hours volume.

This increase was combined with an increase in revenue from permanent placement income and our outcome-based services.

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Education revenue from services increased 45.6% reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In the first six months of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Outsourcing & Consulting revenue from services increased 19.3% due primarily to increased hours volume in our PPO product and new customer wins in our RPO product.

In the first nine months of 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Outsourcing & Consulting revenue from services increased 22.6% due primarily to increased hours revenue volume in our PPO specialty, coupled with revenue growth in both RPO and MSP products.

International revenue from services increased 14.0% on a reported basis and increased 9.0% in constant currency.

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Excluding Brazil, revenue increased 16.8% on a reported basis and 11.6% on a constant currency basis.

The increase was primarily due to higher hours volume, particularly in France, Portugal and Mexico.

The increase was primarily due to higher hours volume, particularly in France, Portugal and Switzerland.

Operating Results By Segment (continued)

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 Change 2021 2020 Change

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18.4 % 18.4 % — pts.

Second Quarter Results

Third Quarter Results

Gross profit for the Professional & Industrial segment decreased due to a decline in the gross profit rate, partially offset by higher revenue volume.

In comparison to the prior year, the gross profit rate decreased 40 basis points.

This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based services, and a shift in product mix compared to the prior year as demand for staffing services increased.

This decrease reflects increased costs associated with our outcome-based services, and an increase in employee-related costs.

These decreases were partially offset by the impact of increased permanent placement income this year.

The Science, Engineering & Technology gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 190 basis points due to increased permanent placement income, coupled with improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins.

The gross profit rate increased 150 basis points due to improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins, coupled with increased permanent placement income, partially offset by higher employee-related costs.

Gross profit for the Education segment increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

The gross profit rate decreased 130 basis points due primarily to the unfavorable year-over-year impact of government wage subsidies, partially offset by an increase in permanent placement income from Greenwood/Asher, our acquisition in late 2020.

The gross profit rate decreased 10 basis points due primarily to higher employee-related costs, partially offset by an increase in permanent placement income from Greenwood/Asher, our acquisition in late 2020.

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 240 basis points primarily due to a change in product mix within this segment, as PPO revenues increased.

The gross profit rate decreased 30 basis points primarily due to a change in product mix within this segment, as revenues increased in our PPO product, which generates lower profit margins.

International gross profit increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 150 basis points primarily due to customer mix and higher permanent placement income.

June Year-to-Date Results

September Year-to-Date Results

Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate, partially offset by higher revenue volume.

In comparison to the prior year, the gross profit rate decreased 150 basis points.

This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based services, higher employee-related costs in the staffing product and a shift in product mix compared to the prior year as demand

for staffing services increased.

These decreases were partially offset by the impact of increased permanent placement income this year.

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The gross profit rate increased 70 basis points due primarily to higher permanent placement income from Greenwood/Asher, our acquisition in late 2020.

This increase was partially offset by the unfavorable year-over-year impact of government wage subsidies.

This increase was partially offset by the unfavorable year-over-year impact of government wage subsidies and higher employee-related costs.

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 150 basis points primarily due to a change in product mix within this segment as PPO revenues increased.

The gross profit rate decreased 110 basis points primarily due to a change in product mix within this segment, as revenues increased in our PPO product, which generates lower profit margins.

International gross profit increased on higher revenue volume and an increase in the gross profit rate.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 % Change 2021 2020 % Change

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Consolidated Total $ 219.9 $ 193.4 13.7 % $ 639.9 $ 591.0 8.3 %

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 % Change 2021 2020 % Change

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International — — NM — 1.1 NM

Corporate expenses — (0.1) NM — 1.7 NM

Consolidated Total $ — $ (0.2) NM % $ — $ 8.5 NM %

Second Quarter Results

Corporate expenses (0.1) — NM (0.1) 1.7 (103.7)

Consolidated Total $ (0.1) $ (0.1) (15.4) % $ (0.1) $ 8.4 (101.7) %

Third Quarter Results

Total SG&A expenses in Professional & Industrial increased 6.2% from the prior year.

Year-over-year comparisons were impacted by temporary expense mitigation actions taken in the second quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

Year-over-year comparisons were impacted by temporary expense mitigation actions in place in the third quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

This increase was combined with an increase in performance-based incentive compensation as compared to the prior year.

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On an organic basis, SG&A expenses increased 24.0% from the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in the second quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

Total SG&A expenses in Education increased 60.5% from the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in the second quarter of 2020 to mitigate the impact of the lower revenue volume as a result of the COVID-19 disruption.

Year-over-year increases in salaries and related costs result from higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

These increases were combined with the impact of temporary expense mitigation actions in place in the third quarter of 2020 as a result of lower revenue volume due to the COVID-19 disruption.

Total SG&A expenses in Education increased 46.1% from the prior year, primarily due to higher salary and incentives expense related to improving revenues.

In addition, year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions in place in the third quarter of 2020 to mitigate the impact of the lower revenue volume as a result of the COVID-19 disruption.

Expenses in the third quarter of 2021 include a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher & Associates as a result of better than anticipated performance.

Total SG&A expenses in Outsourcing & Consulting increased 20.5% from the prior year.

These increases were combined with an increase in performance-based incentive compensation.

Total SG&A expenses in International increased 22.3% on a reported basis and increased 13.3% on a constant currency basis.

Expenses were higher as a result of higher salary-related expenses due to increased headcount, mainly in our branch network.

Corporate expenses increased 10.7% due primarily to higher performance-based incentive compensation.

June Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 4.6%, or 1.7% excluding restructuring charges, due primarily to reduced facilities expense as we continue to evaluate and reduce our branch footprint in the U.S.

This decrease was partially offset by an increase in salaries and performance-based incentive compensation as compared to the prior year.

These increases were combined with an increase in salaries and performance-based incentive compensation, reflecting improving revenue.

Total SG&A expenses in International decreased 13.6% on a reported basis and decreased 14.8% on a constant currency basis.

The prior year included a specific customer provision in Mexico following a negative outcome of litigation over a disputed accounts receivable balance for certain services rendered several years ago.

Excluding this one-time charge, SG&A expenses increased 13.6% on a reported basis and 12.0% on a constant currency basis.

This increase was due to higher performance-based incentive compensation as compared to the prior year and higher salary-related expenses due to increased headcount, mainly in our branch network.

September Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 1.2% and increased 0.8% excluding restructuring charges.

Year-over-year comparisons were impacted by temporary expense mitigation actions enacted in 2020 as a result of lower revenue volume due to the COVID-19 disruption.

This increase was combined with an increase in salaries and performance-based incentive compensation and was partially offset by reduced facilities expense as we continue to evaluate and reduce our branch footprint.

Total SG&A expenses in Science, Engineering & Technology increased 32.2%, or 32.9% excluding restructuring charges.

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These increases were combined with higher headcount in sales and recruiting talent, and an increase in performance-based incentive compensation.

Total SG&A expenses in Education increased 12.9%, or 16.8% excluding restructuring charges.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in 2020 in response to the COVID-19 disruption.

Total SG&A expenses in Education increased 23.1%, or 26.0% excluding restructuring charges, primarily due to higher salary and incentives expense related to improving revenues.

In addition, year-over-year comparisons of salaries and related costs were impacted by temporary expense mitigation actions taken in 2020 in response to the COVID-19 disruption.

Expenses in 2021 include a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher & Associates as a result of better than anticipated performance.

Total SG&A expenses in Outsourcing & Consulting increased 12.6% in comparison to the prior year.

Year-over-year comparisons of salaries and related costs were impacted by temporary expense actions taken in 2020 in response to the impact of the COVID-19 disruption.

Total SG&A expenses in International increased 10.1% on a reported basis and increased 3.3% on a constant currency basis.

Excluding the restructuring charges, expenses increased 5.1% on a constant currency basis.

Expenses were higher primarily due to increases in performance-based incentive compensation.

Corporate expenses were flat in comparison to the prior year.

Lower restructuring and long-term disability costs were offset by higher performance-based incentive compensation.

These increases were combined with an increase in salaries and performance-based incentive compensation reflecting improving revenue.

Total SG&A expenses in International increased 0.7% on a reported basis and decreased 3.9% on a constant currency basis.

The prior year included a charge related to a customer dispute in Mexico, SG&A expenses related to our staffing operations in Brazil which were sold in August 2020 and restructuring charges.

Excluding these items, SG&A expenses increased 16.1% on a reported basis and 10.8% on a constant currency basis.

This increase was primarily due to higher performance-based compensation and higher salary-related expenses due to increased headcount, primarily in our branch network.

Operating Results By Segment (continued)

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2021 2020 % Change 2021 2020 % Change

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Science, Engineering & Technology 19.7 19.4 1.7 56.8 56.9 (0.2)

Education 1.5 (5.2) NM 4.5 (1.4) NM

Education (7.0) (7.5) 6.6 (2.5) (8.9) 72.1

Outsourcing & Consulting 6.6 3.7 79.1 14.2 8.0 79.0

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Corporate (19.9) (19.9) (0.8) (63.2) (178.9) 64.6

Consolidated Total $ 13.7 $ 11.1 24.1 % $ 24.3 $ (100.7) NM %

Second Quarter Results

Consolidated Total $ 9.0 $ (2.4) NM % $ 33.3 $ (103.1) NM %

Third Quarter Results

Professional & Industrial reported earnings of $7.2 million for the quarter, a 38.1% decrease from a year ago.

The decrease in earnings was primarily due to the year-over-year impact of the government wage subsidies we received in the second quarter of 2020 and increased costs of services reducing our gross profit rate in our outcome-based products, as well as increasing expenses.

The decrease in earnings was primarily due to increased costs of services reducing our gross profit rate in our outcome-based products, as well as increasing expenses.

These were partially offset by increased revenues in our staffing product and an increase in our permanent placement income.

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The increase in earnings was primarily due to the impact of the Softworld acquisition, coupled with increases in organic staffing and permanent placement revenues in most of our specialties within the SET business unit.

These increases were partially offset by increases in certain expenses, including those related to additional full-time employees and increased performance-based incentive compensation.

Education reported earnings of $1.5 million for the quarter, compared to a loss of $5.2 million a year ago.

These increases were offset by increases in certain expenses, including those related to additional full-time employees and increased performance-based incentive compensation.

Education reported a loss of $7.0 million for the quarter, compared to a loss of $7.5 million a year ago.

The change was primarily due to the increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Partially offsetting this improvement is a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher & Associates.

Outsourcing & Consulting reported earnings of $6.6 million for the quarter, a 79.1% increase from a year ago.

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International reported earnings of $2.4 million for the quarter, compared to a loss of $9.9 million a year ago.

The increase in earnings was primarily due to improving revenue across both Europe and Mexico.

June Year-to-Date Results

The increase in earnings was primarily due to the favorable comparison related to the charge for a customer dispute in Mexico in the prior year.

September Year-to-Date Results

Professional & Industrial reported earnings of $19.9 million, a 34.9% decrease from a year ago.

The decrease in earnings was primarily due to increased costs of services reducing our gross profit rate in our outcome-based product lines and the year-over-year impact of the government wage subsidies we received in 2020.

These were partially offset by increased revenues in our staffing product and an increase in our permanent placement income.

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This was partially offset by earnings from Softworld, which was acquired in April 2021.

Education reported earnings of $4.5 million, compared to a loss of $1.4 million a year ago.

The increase was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

Education reported a loss of $2.5 million, compared to a loss of $8.9 million a year ago.

The change was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our

services as compared to a year ago.

In 2020, many districts were using virtual or hybrid instruction methods due to the impact of COVID-19.

Partially offsetting this improvement is a charge to adjust the contingent consideration due to the former owners of Greenwood/Asher & Associates.

Outsourcing & Consulting reported earnings of $14.2 million, a 79.0% increase compared to a year ago.

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International reported earnings of $8.1 million, compared to a loss of $10.9 million a year ago.

The increase in earnings was primarily due to improving revenue across both Europe and Mexico.

The increase in earnings was primarily due to the favorable comparison related to the charge for a customer dispute in Mexico and restructuring charges in the prior year, combined with improving revenue in Europe.

Financial Condition

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The impact of the current economic slow-down resulting from the COVID-19 crisis began in March 2020.

While we have yet to return to pre-crisis revenue levels, we are seeing continued economic momentum and sustainable recovery in the second quarter of 2021.

While we have yet to return to pre-crisis revenue levels, we are seeing continued economic momentum and sustainable recovery in the third quarter of 2021.

As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components:

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Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash totaled $70.7 million at the end of the second quarter of 2021 and $228.1 million at year-end 2020.

Cash, cash equivalents and restricted cash totaled $51.1 million at the end of the third quarter of 2021 and $228.1 million at year-end 2020.

As further described below, we generated $31.0 million of cash from operating activities, used $198.4 million of cash for investing activities and used $5.7 million of cash for financing activities.

Operating Activities

In the first six months of 2021, we generated $47.6 million of net cash from operating activities, as compared to generating $178.1 million in the first six months of 2020, primarily due to increased working capital requirements as revenue levels continue to recover or surpass pre-COVID levels in certain segments.

Trade accounts receivable totaled $1.4 billion at the end of the second quarter of 2021.

Global DSO was 60 days at the end of the second quarter of 2021, 64 days at year-end 2020 and 61 days at the end of the second 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 $455.4 million at the end of the second quarter of 2021, a decrease of $168.6 million from year-end 2020.

Excluding the decrease in cash, working capital declined $10.0 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.4 at the end of the second quarter of 2021 and 1.7 at year-end 2020.

In the first nine months of 2021, we generated $31.0 million of net cash from operating activities, as compared to generating $216.5 million in the first nine months of 2020, primarily due to increased working capital requirements as revenue levels continue to recover or surpass pre-COVID levels in certain segments.

Trade accounts receivable totaled $1.4 billion at the end of the third quarter of 2021.

Global DSO was 63 days at the end of the third quarter of 2021, 64 days at year-end 2020 and 61 days at the end of the third quarter of 2020.

Our working capital position (total current assets less total current liabilities) was $460.4 million at the end of the third quarter of 2021, a decrease of $163.6 million from year-end 2020.

Excluding the decrease in cash, working capital increased $15.9 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.4 at the end of the third quarter of 2021 and 1.7 at year-end 2020.

Investing Activities

In the first six months of 2021, we used $201.7 million of cash for investing activities, as compared to generating $13.3 million in the first six months of 2020.

Included in cash used for investing activities in the first six months of 2021 is $219.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received.

Included in cash from investing activities in the first six 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.

In the first nine months of 2021, we used $198.4 million of cash for investing activities, as compared to generating $10.3 million in the first nine months of 2020.

Included in cash used for investing activities in the first nine months of 2021 is $213.0 million of cash used for the acquisition of Softworld in April 2021, net of cash received and including working capital adjustments.

Included in cash from investing activities in the first nine 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 $36.4 million of cash used for the acquisition of Insight in January 2020, net of the cash received and including working capital adjustments.

Financing Activities

In the first six months of 2021, we used $1.0 million of cash for financing activities, as compared to using $6.2 million in the first six 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 six months of 2020, while no dividends were paid in the first six months of 2021.

Changes in net cash from financing activities are also impacted by short-term borrowing activities.

Debt totaled $0.1 million at the end of the second quarter of 2021 and was $0.3 million at year-end 2020, and represented local borrowings in both periods.

In the first nine months of 2021, we used $5.7 million of cash for financing activities, as compared to using $6.8 million in the first nine months of 2020.

The change in cash from financing activities was primarily related to the year-over-year decrease of $1.3 million in short-term borrowings and lower dividend payments during the first nine months of 2021 as compared to the same period in the prior year.

These decreases were partially offset by $1.6 million, representing a portion of the contingent consideration payment made in the first nine months of 2021 related to our 2020 acquisition of Insight.

The change in short-term borrowings in the first nine months of 2021 and the first nine months of 2020 was primarily due to payments on local lines of credit.

Dividends paid per common share were $0.05 in the first nine months of 2021 and $0.075 in first nine months of 2020.

There was no debt at the end of the third quarter of 2021, compared to $0.3 million at year-end 2020, which represented local borrowings.

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 0.0% at the end of the second quarter of 2021 and at year-end 2020.

The change in short-term borrowings in the first six months of 2021 and the first six months of 2020 was primarily due to payments on local lines of credit.

Our ratio of debt-to-total capital was 0.0% at the end of the third quarter of 2021 and at year-end 2020.

New Accounting Pronouncements

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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 end of the second quarter of 2021, these reviews have not resulted in any specific plans to repatriate a majority of our international cash balances.

As of the end of the third quarter of 2021, these reviews have resulted in plans to repatriate targeted amounts of foreign subsidiary cash.

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.

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This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

As of the second 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.

As of the third 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.

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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 second quarter of 2021, we met the debt covenants related to our revolving credit facility and securitization facility.

As of the end of the third 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.

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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 the deferred payroll tax balances in which 50% are due in the fourth quarter of both 2021 and 2022.

We expect our working capital requirements to increase over the next several quarters if demand for our services continues to increase and to pay the deferred payroll tax balances, 50% of which are due in the fourth quarter of both 2021 and 2022.

We monitor the credit ratings of our major banking partners on a regular basis and have regular discussions with them.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis