What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 206 added, 93 removed, 220 unchanged (58% of the section changed)

10 unchanged sentences

The Talent Solutions Industry

Even before 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.

Labor markets have been in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps.

Global demographic trends are reshaping and redefining the way in which companies find and use talent, and the COVID-19 pandemic changed where and how companies expect work to be performed—a shift we expect will carry over into the future.

12 unchanged sentences

In 2020, we adopted a new 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 and Skilled Professional Solutions products

• Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused in office, professional, light industrial and contact center specialties in the U.S.

and Canada, including our KellyConnect and our Business and Professional Services products

• Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, technology and telecommunications specialties predominantly in the U.S.

and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as Softworld, a technology staffing and workforce solutions company acquired in 2021

• Education – delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S., and includes Teachers On Call, Greenwood/Asher & Associates and Pediatric Therapeutic Services ("PTS"), a specialty firm providing in-school therapy services, acquired in May 2022

• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), which includes our March 2022 acquisition of RocketPower, Payroll Process Outsourcing ("PPO") and Talent Advisory Services to customers on a global basis

• International – delivers staffing, RPO and direct-hire services in 14 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations.

Effective July 20, 2022, we completed a transaction to transfer our business in Russia to an in-country provider and no longer operate in Russia.

In addition, we hold a minority interest in PersolKelly Pte.

4 unchanged sentences

Average days sales outstanding varies within and outside the U.S.

and was 62 days on a global basis as of the end of the first quarter of 2022 and 60 days as of the end of the first quarter of 2021.

and was 63 days on a global basis as of the end of the second quarter of 2022 and 60 days as of the end of the second quarter of 2021.

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.

1 unchanged sentence

We entered 2022 having shifted from recovery from the COVID-19 pandemic to growth.

Even with the economic uncertainty created by events in Ukraine and a continuation of inflation, particularly in the U.S., demand for our services remains strong.

Even with the economic uncertainty created by events in Ukraine and a continuation of inflation, demand for our services remains strong.

Our permanent placement fee growth points toward our customers’ investments in their future workforce, and increased demand in our staffing and outcome-based businesses reflects strong market demand for the specialty solutions we provide.

14 unchanged sentences

In March 2022, we completed the acquisition of RocketPower, a business that diversifies and strengthens Kelly’s RPO business and opens new access to the fast-growing high-tech market.

And in May 2022, we completed the acquisition of Pediatric Therapeutic Services, a specialty firm that expands our K-12 leadership position and provides in-school services for occupational, physical, speech and behavioral health therapies.

And in May 2022, we completed the acquisition of PTS, a specialty firm that expands our K-12 leadership position and provides in-school services for occupational, physical, speech and behavioral health therapies.

Both acquisitions expand Kelly’s presence in high-growth, high margin specialties.

20 unchanged sentences

(Dollars in millions)

First Quarter

2022 2021 % Change

Second Quarter June Year to Date

2022 2021 % Change 2022 2021 % Change

Revenue from services $ 1,267.3 $ 1,258.1 0.7 % $ 2,563.7 $ 2,464.0 4.0 %

1 unchanged sentence

Total SG&A expenses 240.1 217.3 10.6 476.2 420.0 13.4

Impairment of assets held for sale (18.5) — NM (18.5) — NM

Gain on sale of assets 4.4 — NM 5.3 — NM

Earnings (loss) from operations 8.2 13.7 (40.6) 31.6 24.3 29.8

Gain (loss) on investment in Persol Holdings (67.2) 30.0 NM

Loss on currency translation from liquidation of subsidiary (20.4) — NM

Gain (loss) on investment in Persol Holdings — 6.3 NM (67.2) 36.3 NM

Loss on currency translation from liquidation of subsidiary — — NM (20.4) — NM

Other income (expense), net (1.1) (0.3) (350.6) 1.7 (3.7) 147.2

4 unchanged sentences

Gross profit rate 20.7 % 18.4 % 2.3 pts.

First Quarter Results

Revenue from services in the first quarter increased 7.5% on a reported basis and 9.0% on a constant currency basis, and reflects revenue increases in Education, Science, Engineering & Technology, and Outsourcing & Consulting operating segments, partially offset by declines in Professional & Industrial and International segments.

Our acquisition of Softworld, a technology staffing and solutions firm in the second quarter of 2021, added approximately 310 basis points to the revenue growth rate.

Compared to the first quarter of 2021, revenue from staffing services increased 5.9% and revenue from outcome-based services increased 7.9%.

20.3 % 18.0 % 2.3 pts.

Second Quarter Results

Revenue from services in the second quarter increased 0.7% on a reported basis and 2.7% on a constant currency basis, and reflects revenue increases in Education, Science, Engineering & Technology, and Outsourcing & Consulting operating segments, partially offset by declines in Professional & Industrial and International segments.

Our 2022 acquisitions of RocketPower, an RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 150 basis points to the revenue growth rate.

Compared to the second quarter of 2021, revenue from staffing services decreased 2.8% and revenue from outcome-based services increased 5.9%.

Permanent placement revenue, which is included in revenue from services, increased 33.2% from the prior year.

Gross profit increased 13.6% on a reported basis and 15.6% on a constant currency basis on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased 220 basis points due primarily to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, coupled with lower employee-related costs and favorable product mix.

The gross profit rate increased in all operating segments, with the exception of Education, which declined slightly.

Included in gross profit for the first quarter of 2022 is a one-time permanent placement fee from a large customer, as well as an adjustment to prior periods worker’s compensation expenses, resulting in 40 basis points of favorable impact.

The gross profit rate increased 230 basis points due primarily to favorable product mix, and lower employee-related costs, coupled with the impact of higher permanent placement income and the acquisitions of RocketPower and PTS which generate higher margins.

The gross profit rate increased in all operating segments.

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 10.6% on a reported basis and 12.3% on a constant currency basis.

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 higher salary and related costs.

Earnings from operations for the first quarter of 2022 totaled $23.4 million, compared to earnings of $10.6 million in the first quarter of 2021.

Included in total earnings from operations in the first quarter of 2022 is approximately $3.5 million related to Softworld earnings from operations, inclusive of amortization of intangibles.

The loss on investment in Persol Holdings in the first quarter of 2022 represented the $52.4 million loss resulting from changes in the market price of our investment in the common stock of Persol Holdings up until the date of the transaction and the $14.8 million loss on sale, including transaction costs from the sale of the investment in an open-market transaction.

The gain on the investment in Persol Holdings in the first quarter of 2021 resulted from changes in the quoted market price of the Persol Holdings common stock.

Loss on currency translation from liquidation of subsidiary represents the impact of the substantial liquidation of our Kelly Japan subsidiary following the sale of the company’s investment in Persol Holdings and the return of capital through a dividend payment to its U.S-based parent, Kelly Services, Inc.

SG&A expenses related to RocketPower and PTS, including intangible asset amortization expense and other operating expenses, accounted for approximately 240 basis points of the year-over-year increase.

The increase in SG&A expenses also reflects higher salary and related costs, as well as increases in performance-based incentive compensation expenses.

Impairment of assets held for sale relates to our decision to transition our business in Russia in May 2022.

As a result, our Russian operations have been classified as a held for sale disposal group, and an impairment loss representing the excess carrying value over the fair value of the net assets, less costs to sell, has been recognized in the second quarter of 2022.

Gain on sale of assets relates to the disposition of under-utilized real property located in the United States.

Earnings from operations for the second quarter of 2022 totaled $8.2 million, compared to earnings of $13.7 million in the second quarter of 2021.

The decline is related to the impairment of assets held for sale, partially offset by the gain on sale of assets and improving gross profit, net of higher SG&A expenses.

Income tax expense was $4.9 million for the second quarter of 2022 and income tax benefit was $2.6 million for the second quarter of 2021.

The 2021 amount benefited $5.2 million from a change in United Kingdom tax rates, and from tax exempt gains on life insurance policies.

The second quarter 2022 amount had no tax benefit from losses on life insurance policies and was impacted by changes in earnings from operations.

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 and the tax effects of stock compensation, which are treated as discrete since they cannot be estimated.

The net earnings for the period was $2.2 million, compared to net earnings of $24.0 million from the second quarter of 2021.

Recent events in Ukraine have contributed to additional economic uncertainty in Europe.

The Company does not have operations in Ukraine and we did not experience any material impact on our revenues or earnings in the second quarter.

Subsequent to the end of the second quarter, we have completed a transaction to transfer our business in Russia to a local firm within the country and are no longer operating in Russia.

Revenues and earnings in the International segment will be unfavorably impacted beginning in the third quarter of 2022, but we do not expect to incur significant additional losses upon the completion of a transaction in the third quarter.

June Year-to-Date Results

Revenue from services in the first six months of 2022 increased 4.0% on a reported basis and 5.8% on a constant currency basis, and reflects revenue increases in Education, Science, Engineering & Technology, and Outsourcing & Consulting operating segments, partially offset by declines in Professional & Industrial and International segments.

Our acquisition of Softworld, a technology staffing and solutions firm in the second quarter of 2021 and our 2022 acquisitions of RocketPower, a RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 230 basis points to the revenue growth rate.

Compared to the first six months of 2021, revenue from staffing services increased 1.5% and revenue from outcome-based services increased 6.9%.

Permanent placement revenue, which is included in revenue from services, increased 48.5% from the prior year.

Gross profit increased 17.3% on a reported basis and 19.0% on a constant currency basis on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased 230 basis points due primarily to favorable product mix, lower employee-related costs and coupled with the impact of higher permanent placement income and the acquisition of Softworld, RocketPower and PTS which generate higher gross profit rates.

The gross profit rate increased in all operating segments.

Included in gross profit for the first six months of 2022 is a one-time permanent placement fee from a large customer, as well as an adjustment to prior periods workers' compensation expenses, resulting in 30 basis points of favorable impact.

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 13.4% on a reported basis and 14.8% on a constant currency basis.

Approximately 370 basis points of the year-over-year increase is attributable to the first quarter SG&A expenses for Softworld and the second quarter SG&A expenses for RocketPower and PTS, including amortization of intangibles and other operating expenses.

The increase in SG&A expenses also reflects increases in salary and related costs and increases in performance-based incentive compensation expenses.

Impairment of assets held for sale relates to our decision to transition our business in Russia in May 2022.

As a result, our Russian operations have been classified as a held for sale disposal group and an impairment loss representing the excess carrying value over the fair value of the net assets, less costs to sell, has been recognized in the second quarter of 2022.

Gain on sale of assets relates to the disposition of under-utilized real property located in the United States.

Earnings from operations for the first six months of 2022 totaled $31.6 million, compared to earnings of $24.3 million in the first six months of 2021.

Improvement is due primarily to higher gross profit, net of increased SG&A expenses and gain on sale of assets, partially offset by the impairment of assets held for sale.

Included in total earnings from operations in the first

six months of 2022 and 2021 is approximately $8.6 million and $2.3 million, respectively, related to Softworld, RocketPower and PTS earnings from operations, inclusive of amortization of intangibles.

The loss on investment in Persol Holdings in the first six months of 2022 represented the $52.4 million loss resulting from changes in the market price of our investment in the common stock of Persol Holdings up until the date of the transaction and the $14.8 million loss on sale, including transaction costs from the sale of the investment in an open-market transaction.

The gain on the investment in Persol Holdings in the first six months of 2021 resulted from changes in the quoted market price of the Persol Holdings common stock.

The change in Other income (expense), net is primarily the result of $5.5 million of foreign exchange gains related to U.S.-denominated cash equivalents held by our Kelly Japan subsidiary following the sale of the Persol Holdings shares and prior to its dividend payment to the U.S.

parent in the first quarter of 2022.

Income tax benefit was $13.0 million for the first quarter of 2022 and income tax expense was $10.5 million for the first quarter of 2021.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a benefit of $18.4 million and a charge of $9.2 million for the first quarter of 2022 and 2021, respectively.

Income tax benefit was $8.1 million for the first six months of 2022 and income tax expense was $7.9 million for the first six months of 2021.

These amounts were impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a benefit of $18.4 million and a charge of $11.1 million for June year-to-date 2022 and 2021, respectively.

The 2021 amount benefited $5.2 million from a change in United Kingdom tax rates, and from tax exempt gains on life insurance policies.

The 2022 amounts had no tax benefit from losses on life insurance policies.

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 net loss for the period was $47.6 million, compared to net earnings of $25.6 million from the first quarter of 2021.

This change was due to the Persol Holdings investment, including the first quarter 2022 sale and related impacts, partially offset by improved operating earnings in the first quarter of 2022.

During the first quarter of 2022 events in Ukraine have contributed to additional economic uncertainty in Europe.

The Company does not have operations in Ukraine and we did not experience any material impact on our revenues or earnings in the first quarter.

Subsequent to the end of the first quarter, Management initiated plans to actively explore an orderly transition of our operations in Russia in full compliance with International and Russian law.

We expect that revenues and earnings in the International segment will be unfavorably impacted beginning in the second quarter of 2022 and that we may recognize a loss upon the completion of a transition.

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, prior to February 2022, changes in the fair value of the Company’s investment in Persol Holdings, which were treated as discrete since they cannot be estimated.

The net loss for the period was $45.4 million, compared to net earnings of $49.6 million from the first six months of 2021.

This change was due to the Persol Holdings investment, including the first quarter 2022 sale and related impacts, partially offset by improved operating earnings in the first six months of 2022.

Recent events in Ukraine have contributed to additional economic uncertainty in Europe.

The Company does not have operations in Ukraine and we did not experience any material impact on our revenues or earnings.

Subsequent to the end of the second quarter of 2022, we have completed a transaction to transfer our business in Russia to a local firm within the country and are no longer operating in Russia.

Operating Results By Segment

(Dollars in millions)

First Quarter

2022 2021 % Change

Second Quarter June Year to Date

2022 2021 % Change 2022 2021 % Change

Revenue from Services:

6 unchanged sentences

Consolidated Total $ 1,267.3 $ 1,258.1 0.7 % $ 2,563.7 $ 2,464.0 4.0 %

First Quarter Results

Second Quarter Results

Professional & Industrial revenue from services decreased 10.9%.

The decrease was due primarily to a 9.9% decline in revenue from outcome-based services due to lower demand for our call center specialty, partially offset by growth in other specialties.

Revenue from staffing services also declined by 3.5% resulting from lower hours volume, partially offset by higher bill rates.

Science, Engineering & Technology revenue from services increased 24.5% on a reported basis, which includes revenues from the acquisition of Softworld in the second quarter of 2021.

On an organic basis, the revenue growth was 9.6%, which was driven by increases in our outcome-based services as well as increases in bill rates and permanent placement income in our staffing business.

Education revenue from services increased 55.4%, reflecting the return to in-school instruction, resulting in increased demand for our services as compared to a year ago, as well as the impact of new customer wins and an increased fill rate of the demand of existing customers.

Outsourcing & Consulting revenue from services increased 9.8% due primarily to strong demand for RPO services coupled with revenue growth in MSP, partially offset by declines in PPO revenue.

The decrease was due primarily to a 14.0% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates.

Included in the decline in hours was the impact of a shift of a large staffing customer to a direct hire model which resulted in lower staffing volume.

Revenue from outcome-based services declined by 2.7% due to lower demand for our call center specialty, partially offset by growth in other specialties.

Science, Engineering & Technology revenue from services increased 8.7%.

The revenue growth was driven by increases in our outcome-based product as well as increases in bill rates and permanent placement income in our staffing specialties.

Education revenue from services increased 46.8%, reflecting an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May 2022 which added 680 basis points to the year-over-year revenue growth.

Increased demand for our services reflects the return to in-school instruction as compared to the prior year, as well as new customer wins and an increased fill rate of the demand of existing customers.

Outsourcing & Consulting revenue from services increased 16.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

On an organic basis, revenue growth was 5.3% due primarily to strong demand for RPO services coupled with revenue growth in MSP, partially offset by declines in PPO revenue.

International revenue from services decreased 11.7% on a reported basis and decreased 4.3% in constant currency.

The decrease was primarily the result of revenue declines in Mexico due to the impact of legislation enacted in the third quarter of 2021, which placed restrictions on the staffing industry.

Revenue in Europe increased 1.7% on a reported basis and increased 9.0% in constant currency with growth in most geographies.

Revenue in Europe decreased 4.4% on a reported basis and increased 4.0% in constant currency with constant currency growth in most geographies.

June Year-to-Date Results

Professional & Industrial revenue from services decreased 7.9%.

The decrease was due primarily to a 9.5% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates.

Included in the decline in hours was the impact of a shift of a large staffing customer to a direct hire model which resulted in lower staffing volume.

Revenue from outcome-based services declined 6.5% due to lower demand for our call center specialty, partially offset by growth in other specialties.

Science, Engineering & Technology revenue from services increased 16.0% on a reported basis, which includes revenue from the acquisition of Softworld in the second quarter of 2021.

Excluding the impact of the addition of Softworld revenue in the first quarter of 2022, the revenue growth was 9.1%, which was driven by increases in our outcome-based services as well as increases in bill rates and permanent placement income in our staffing business.

Education revenue from services increased 51.2%, reflecting an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May 2022 which added 330 basis points to the year-over-year revenue growth.

Outsourcing & Consulting revenue from services increased 13.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

On an organic basis, revenue growth was 7.5% due primarily to strong demand for RPO services coupled with revenue growth in MSP, partially offset by declines in PPO revenue.

International revenue from services decreased 9.5% on a reported basis and decreased 2.7% in constant currency.

The decrease was primarily the result of revenue declines in Mexico due to the impact of legislation enacted in the third quarter of 2021, which placed restrictions on the staffing industry.

Revenue in Europe decreased 1.4% on a reported basis and increased 6.4% in constant currency with growth in most geographies.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2022 2021 Change

Second Quarter June Year to Date

2022 2021 Change 2022 2021 Change

Gross Profit:

7 unchanged sentences

Professional & Industrial 18.7 % 16.1 % 2.6 pts.

18.7 % 16.2 % 2.5 pts.

Science, Engineering & Technology 23.2 22.3 0.9 23.2 21.6 1.6

3 unchanged sentences

Consolidated Total 20.7 % 18.4 % 2.3 pts.

First Quarter Results

20.3 % 18.0 % 2.3 pts.

Second Quarter Results

Gross profit for the Professional & Industrial segment increased due to an increase in the gross profit rate, partially offset by lower revenue volume.

In comparison to the prior year, the gross profit rate increased 260 basis points.

This increase reflects higher permanent placement income, including one-time conversion fees for staffing talent hired directly by a large customer, lower employee-related costs and improved business mix.

This increase reflects improved business mix, lower employee-related costs and higher permanent placement income.

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

The gross profit rate increased 240 basis points due to increased permanent placement income and improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins, partially offset by higher employee-related costs.

Gross profit for the Education segment increased on higher revenue volume.

The gross profit rate decreased 10 basis points due primarily to unfavorable customer mix, partially offset by higher permanent placement income and lower employee-related costs.

The gross profit rate increased 90 basis points due to improved specialty mix and higher permanent placement income, partially offset by higher employee-related costs.

Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 90 basis points due primarily to the acquisition of PTS which generates higher margins, and higher permanent placement income at Greenwood/Asher.

The Outsourcing & Consulting gross profit increased on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased 470 basis points primarily due to a change in product mix within this segment.

Growth in RPO and MSP with higher margins was coupled with decreased revenues in our PPO product, which generates lower profit margins.

Growth in RPO, including the acquisition of RocketPower, and MSP with higher margins was coupled with decreased revenues in our PPO product, which generates lower profit margins.

International gross profit decreased 1.5% on a reported basis due to the impact of currency exchange rates.

On a constant currency basis, gross profit increased 7.3%.

The increase was due to a higher gross profit rate, partially offset by lower revenue volume.

In comparison to the prior year, the gross profit rate increased 160 basis points primarily due to higher margin specialized solutions in Mexico following the legislative change, improved customer mix and higher permanent placement income.

June Year-to-Date Results

Gross profit for the Professional & Industrial segment increased due to an increase in the gross profit rate, partially offset by lower revenue volume.

In comparison to the prior year, the gross profit rate increased 250 basis points.

This increase reflects higher permanent placement income, including conversion fees related to a large customer, lower employee-related costs and improved business mix.

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

The gross profit rate increased 160 basis points due to improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins, and increased permanent placement income, partially offset by higher employee-related costs.

Gross profit for the Education segment increased on higher revenue volume and an increase in the gross profit rate.

The gross profit rate increased 40 basis points due primarily to the acquisition of PTS which generates higher margins and higher permanent placement income.

Outsourcing & Consulting gross profit increased on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased 380 basis points primarily due to a change in product mix within this segment.

Growth in RPO, including the acquisition of RocketPower, and MSP with higher margins was coupled with decreased revenues in our PPO product, which generates lower profit margins.

International gross profit increased due to an increase in the gross profit rate, partially offset by lower revenue volume.

In comparison to the prior year, the gross profit rate increased 190 basis points primarily due to customer mix and higher permanent placement income.

In comparison to the prior year, the gross profit rate increased 170 basis points primarily due to higher margin specialized solutions in Mexico following the legislative change, customer mix and higher permanent placement income.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2022 2021 % Change

Second Quarter June Year to Date

2022 2021 % Change 2022 2021 % Change

SG&A Expenses:

6 unchanged sentences

Consolidated Total $ 240.1 $ 217.3 10.6 % $ 476.2 $ 420.0 13.4 %

First Quarter Results

Total SG&A expenses in Professional & Industrial increased 2.8% from the prior year, primarily due to higher performance-based incentive compensation expenses.

Second Quarter Results

Total SG&A expenses in Professional & Industrial decreased 2.2% from the prior year, primarily due to lower expenses in our outcome-based call center specialty as volume has declined compared to the prior year period.

Total SG&A expenses in Science, Engineering & Technology increased 16.9% from the prior year, primarily due to higher performance-based incentive compensation expense and higher salary-related costs from higher headcount and salary increases.

Total SG&A expenses in Education increased 33.4% from the prior year, and includes the impact of the acquisition of PTS in May 2022.

Excluding the impact of the PTS acquisition, SG&A expenses increased 25.0% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 32.5% from the prior year, and includes the impact of the acquisition of RocketPower in March 2022.

Excluding the impact of the RocketPower acquisition, SG&A expenses increased 19.5% from the prior year, due primarily due to higher salary-related expenses as a result of headcount and salary increases.

Total SG&A expenses in International decreased 0.1% on a reported basis and increased 8.2% on a constant currency basis.

This increase was due to higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe.

Corporate expenses increased 7.9% primarily due to higher performance-based incentive compensation expense.

June Year-to-Date Results

Total SG&A expenses in Professional & Industrial increased 0.3% from the prior year, primarily due to higher performance-based incentive compensation expenses mostly offset by lower expenses to support lower volumes in our outcome-based call center specialty.

Total SG&A expenses in Science, Engineering & Technology increased 30.8% from the prior year, and includes the impact of the acquisition of Softworld in the second quarter of 2021.

On an organic basis, SG&A expenses increased 20.4% from the prior year.

Excluding the impact of the addition of Softworld expenses in the first quarter of 2022, SG&A expenses increased 18.4% from the prior year.

The increase in organic SG&A expenses are due primarily to higher performance-based incentive compensation expense and higher salary-related costs from increasing headcount.

Total SG&A expenses in Education increased 31.2% from the prior year, primarily due to higher salary related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 20.5% from the prior year, primarily due to higher salary-related expenses as a result of headcount and salary increases.

Total SG&A expenses in Education increased 32.4% from the prior year, and includes the impact of the acquisition of PTS in May 2022.

Excluding the impact of the PTS acquisition, SG&A expenses increased 28.0% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 26.7% from the prior year, and includes the impact of the acquisition of RocketPower in March 2022.

Excluding the impact of the RocketPower acquisition, SG&A expenses increased 20.0% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in International increased 0.2% on a reported basis and increased 7.4% on a constant currency basis.

3 unchanged sentences

(Dollars in millions)

First Quarter

2022 2021 % Change

Second Quarter June Year to Date

2022 2021 % Change 2022 2021 % Change

Earnings (Loss) from Operations:

5 unchanged sentences

Corporate (23.1) (21.4) (7.9) (48.5) (43.3) (12.0)

Impairment of assets held for sale (18.5) — NM (18.5) — NM

Gain on sale of assets 4.4 — NM 5.3 — NM

Consolidated Total $ 8.2 $ 13.7 (40.6) % $ 31.6 $ 24.3 29.8 %

First Quarter Results

Second Quarter Results

Professional & Industrial reported earnings of $10.4 million for the quarter, a 68.6% increase from a year ago.

The increase in earnings was primarily due to improved gross profit, including conversion fees related to a large customer.

Science, Engineering & Technology reported earnings of $20.6 million for the quarter, an 18.0% increase from a year ago.

The increase in earnings was primarily due to the impact of the Softworld acquisition.

Increases in organic staffing and permanent placement revenues in most of our specialties within the SET business unit were partially offset by increases in certain expenses, including those related to additional full-time employees and increased performance-based incentive compensation.

The increase in earnings was primarily due to improved gross profit and lower SG&A expense.

Science, Engineering & Technology reported earnings of $20.4 million for the quarter, a 3.8% increase from a year ago.

The increase in earnings was primarily due to increases in revenues in most of our specialties within the SET business unit that 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 $5.6 million for the quarter, compared to earnings of $1.5 million a year ago.

The change was primarily due to the increase in revenue, reflecting the return to in-school instruction, resulting in increased demand for our services as compared to a year ago, coupled with good cost management.

2022 results also include earnings of $0.9 million from PTS acquired in May 2022.

Outsourcing & Consulting reported earnings of $6.4 million for the quarter, a 34.5% increase from a year ago.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment, partially offset by increased costs related to additional full-time employees.

2022 results also include earnings of $1.0 million from RocketPower acquired in March 2022.

International reported earnings of $2.6 million for the quarter, compared to earnings of $3.1 million a year ago.

The increase in earnings was primarily due to improving revenue in Europe.

The decrease in earnings was primarily due to transitioning our Russian operations.

Impairment of assets held for sale relates to our decision to transition our business in Russia in May 2022.

Gain on sale of assets relates to the disposition of under-utilized real property located in the United States.

June Year-to-Date Results

Professional & Industrial reported earnings of $22.1 million for the first six months of 2022, a 74.2% increase from a year ago.

The increase in earnings was primarily due to improved gross profit, including conversion fees related to a large customer.

Science, Engineering & Technology reported earnings of $41.0 million for the first six months of 2022, a 10.5% increase from a year ago.

The increase in earnings was primarily due to the impact of the Softworld acquisition.

Increases in revenues in most of our specialties within the SET business unit 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 $13.6 million for the first six months of 2022, compared to earnings of $4.5 million a year ago.

2022 results also include earnings of $0.9 million from PTS acquired in May 2022.

Outsourcing & Consulting reported earnings of $9.4 million for the first six months of 2022, a 23.1% increase from a year ago.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment, partially offset by increased costs related to additional full-time employees.

2022 results also include earnings of $1.0 million from RocketPower acquired in March 2022.

International reported earnings of $7.2 million for the first six months of 2022, compared to earnings of $5.7 million a year ago.

The increase in earnings was primarily due to improving revenue, on a constant currency basis, in Europe, partially offset by the impact of transitioning our Russian operations.

Impairment of assets held for sale relates to our decision to transition our business in Russia in May 2022.

Gain on sale of assets relates to the disposition of under-utilized real property located in the United States.

Financial Condition

10 unchanged sentences

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash totaled $238.1 million at the end of the first quarter of 2022 and $119.5 million at year-end 2021.

Cash, cash equivalents and restricted cash, including cash held for sale, totaled $154.0 million at the end of the second quarter of 2022 and $119.5 million at year-end 2021.

As further described below, we used $107.3 million of cash for operating activities, generated $175.6 million of cash from investing activities and used $33.9 million of cash for financing activities.

Operating Activities

In the first three months of 2022, we used $106.1 million of net cash for operating activities, as compared to generating $10.5 million in the first three months of 2021, primarily due to increased working capital requirements as revenue levels continue to recover or surpass pre-COVID levels in certain segments and as a result, in increasing days sales outstanding due to customer payment terms.

Trade accounts receivable totaled $1.5 billion at the end of the first quarter of 2022.

Global DSO was 62 days at the end of the first quarter of 2022, 60 days at year-end 2021 and 60 days at the end of the first quarter of 2021.

Our working capital position (total current assets less total current liabilities) was $630.0 million at the end of the first quarter of 2022, an increase of $136.5 million from year-end 2021.

In the first six months of 2022, we used $107.3 million of net cash for operating activities, as compared to generating $47.6 million in the first six months of 2021, primarily due to increased working capital requirements as revenue levels continue to recover or surpass pre-COVID levels in certain segments and as a result, in increasing days sales outstanding.

As of the end of the second quarter of 2022, Global DSO has increased primarily as a result of an increase in the mix of MSP and other customers with extended terms and, to a lesser extent, the timing of customer payments.

Accounts payable and accrued liabilities was $734.7 million and increased from year-end 2021 as a result of increased MSP supplier payables.

In addition, we paid $50.1 million of income taxes related to the sale of Persol Holdings common stock in 2022.

Trade accounts receivable totaled $1.5 billion at the end of the second quarter of 2022.

Global DSO was 63 days at the end of the second quarter of 2022, 60 days at year-end 2021 and 60 days at the end of the second quarter of 2021.

Our working capital position (total current assets less total current liabilities) was $576.0 million at the end of the second quarter of 2022, an increase of $82.5 million from year-end 2021.

Excluding the increase in cash, working capital increased $61.3 million from year-end 2021.

The current ratio (total current assets divided by total current liabilities) was 1.5 at the end of the first quarter of 2022 and at year-end 2021.

The current ratio (total current assets divided by total current liabilities) was 1.5 at the end of the second quarter of 2022 and at year-end 2021.

Investing Activities

In the first three months of 2022, we generated $257.1 million of cash from investing activities, as compared to generating $7.9 million in the first three months of 2021.

Included in cash generated from investing activities in the first three months of 2022 is $196.9 million of proceeds from the sale of the investment in Persol Holdings and $119.5 million of proceeds from the sale of almost all of the Company's shares in our equity investment in PersolKelly Pte.

This was partially offset by $58.3 million of cash used for the acquisition of RocketPower in March 2022, net of cash received.

Included in cash generated from investing activities in the first three months of 2021 is $10.4 million of proceeds from company-owned life insurance.

In the first six months of 2022, we generated $175.6 million of cash from investing activities, as compared to using $201.7 million in the first six months of 2021.

Included in cash generated from investing activities in the first six months of 2022 is $196.9 million of proceeds from the sale of the investment in Persol Holdings and $119.5 million of proceeds from the sale of almost all of the Company's shares in our equity investment in PersolKelly.

This was partially offset by $58.3 million of cash used for the acquisition of RocketPower in March 2022, net of cash received and $84.8 million of cash used for the acquisition of PTS in May 2022, net of cash received.

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.

Financing Activities

In the first three months of 2022, we used $30.7 million of cash for financing activities, as compared to generating $0.1 million in the first three months of 2021.

The change in cash used for financing activities was primarily related to the buyback of the Company's common shares held by Persol Holdings for $27.2 million in the first three months of 2022 and the year-over-year change in dividend payments.

Dividends paid per common share were $0.05 in the first three months of 2022 and $0.00 in first three months of 2021.

In the first six months of 2022, we used $33.9 million of cash for financing activities, as compared to using $1.0 million in the first six months of 2021.

The change in cash used for financing activities was primarily related to the buyback of the Company's common shares held by Persol Holdings for $27.2 million in the first six months of 2022 and the year-over-year change in dividend payments.

Dividends paid per common share were $0.125 in the first six months of 2022 and $0.00 in first six months of 2021.

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

The change in short-term borrowings in the first three months of 2022 and the first three months of 2021 was primarily due to borrowings on local lines of credit.

Debt totaled $0.2 million at the end of the first quarter of 2022, which represented local borrowings, compared to no debt at year-end 2021.

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 first quarter of 2022 and at year-end 2021.

There was no change in short-term borrowings in the first six months of 2022.

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

There was no debt at the end of the second quarter of 2022 and at year-end 2021.

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 2022 and at year-end 2021.

New Accounting Pronouncements

10 unchanged sentences

social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act.

The remaining deferrals of $57.6 million are required to be repaid by January 3, 2023.

We have repaid $59.4 million, including $29.5 million in the first quarter of 2022 and the remaining deferrals of $57.6 million are required to be repaid by January 3, 2023.

We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis.

1 unchanged sentence

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 first quarter of 2022, these reviews have not resulted in plans to repatriate foreign subsidiary cash.

As of the end of the second quarter of 2022, these reviews have not resulted in 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.

3 unchanged sentences

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

As of the first quarter of 2022, 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 second quarter of 2022, 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.

1 unchanged sentence

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 2022, we met the debt covenants related to our revolving credit facility and securitization facility.

As of the end of the second quarter of 2022, 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.

1 unchanged sentence

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 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, of which $29.5 million was paid on January 3, 2022 and another $57.6 million is due on January 3, 2023.

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 remaining deferred payroll tax balances noted above by January 3, 2023.

In February 2022, we completed transactions to monetize a substantial portion of our assets in the Asia-Pacific region which will allow us to strategically redeploy resources to accelerate our growth.

Specifically, we unwound our cross-shareholding arrangement with Persol Holdings and reduced our ownership interest in PersolKelly, our APAC joint venture.

Specifically, we concluded our cross-shareholding arrangement with Persol Holdings and reduced our ownership interest in PersolKelly, our APAC joint venture.

We sold our investment in Persol Holdings common stock in an open-market transaction.

We repurchased the 1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior to the transaction.

We repurchased the 1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior to the

We sold almost all of our ownership interest in PersolKelly to our joint venture partner.

The payment of income taxes due as a result of the sale of the Persol Holdings shares of approximately $50 million will be made by the end of 2022.

In the second quarter of 2022, the Company paid $50.1 million in taxes resulting from the sale of the Persol Holdings shares.

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

12 unchanged sentences

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