What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 149 added, 156 removed, 270 unchanged (53% of the section changed)

32 unchanged sentences

• 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.

Effective July 20, 2022, we completed a transaction to sell 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.

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

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.

and was 64 days on a global basis as of the end of the third quarter of 2022 and 63 days as of the end of the third 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, 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.

Demand for our services remains strong, although continued economic uncertainty, including inflation and rising interest rates, has created more variability in demand across industry verticals and customer size.

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

Our business is arranged around specialties that target these areas of strong demand, promising growth opportunities, and Kelly’s proven ability to win.

Our segments also reflect our intent to shift our portfolio toward high-margin, higher-value specialties that deliver a competitive edge and increased shareholder value.

We believe that an aggressive inorganic growth strategy will accelerate the achievement of these goals.

We believe that an inorganic growth strategy will accelerate the achievement of these goals.

As we continue our strategic growth journey in the year ahead, we will also invest in key value drivers.

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

Monetizing our investments in Persol Holdings and PersolKelly provides us with additional capital, which we have already begun to use to accelerate our specialty growth strategy.

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.

Monetizing our investments in Persol Holdings and PersolKelly provided us with additional capital, which we have already begun to use to accelerate our specialty growth strategy.

In March 2022, we completed the acquisition of RocketPower, a business that diversifies and strengthens Kelly’s RPO business by accessing the high-tech market.

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.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2022 2021 % Change 2022 2021 % Change

1 unchanged sentence

Gross profit 240.6 228.9 5.1 761.6 673.2 13.1

SG&A expenses excluding restructuring charges 231.1 220.0 5.0 707.3 640.0 10.3

Restructuring charges — (0.1) NM — (0.1) NM

Total SG&A expenses 231.1 219.9 5.1 707.3 639.9 10.5

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

Goodwill impairment charge 30.7 — NM 30.7 — NM

Loss on disposal 0.2 — NM 18.7 — NM

Gain on sale of assets — — NM (5.3) — NM

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

Earnings (loss) from operations (21.4) 9.0 NM 10.2 33.3 (69.4)

Gain (loss) on investment in Persol Holdings — 35.5 NM (67.2) 71.8 NM

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Other income (expense), net 0.2 (0.3) 156.6 1.9 (4.0) 148.0

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 7.1 19.7 (64.1) (54.3) 56.9 NM

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate (21.2) 44.2 NM (75.5) 101.1 NM

Income tax expense (benefit) (5.0) 11.1 (144.6) (13.1) 19.0 (169.1)

Equity in net earnings (loss) of affiliate — 1.7 NM 0.8 2.3 (66.8)

Net earnings (loss) $ 2.2 $ 24.0 (90.8) % $ (45.4) $ 49.6 NM %

Net earnings (loss) $ (16.2) $ 34.8 NM % $ (61.6) $ 84.4 NM %

Gross profit rate 20.6 % 19.2 % 1.4 pts.

20.4 % 18.4 % 2.0 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%.

Third Quarter Results

Revenue from services in the third quarter decreased 2.3% on a reported basis and increased 0.3% 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 130 basis points to the revenue growth rate, while the sale of our Russian operations in July 2022 resulted in a 250 basis points year-over-year decline in constant currency.

Compared to the third quarter of 2021, revenue from staffing services decreased 5.0% and revenue from outcome-based services increased 6.1%.

Permanent placement revenue, which is included in revenue from services, increased 0.7% 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 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.

Gross profit increased 5.1% on a reported basis and 7.6% on a constant currency basis due to an increase in the gross profit rate.

The gross profit rate increased 140 basis points due primarily to favorable product mix, and lower employee-related costs, coupled with the impact of the acquisitions of RocketPower and PTS which generate higher margins, as well as higher permanent placement income.

The gross profit rate increased in all operating segments.

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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.

The goodwill impairment charge relates to our RocketPower business, which delivers recruitment process outsourcing services primarily to customers in the high-tech industry and is included in the OCG segment.

Changes in market conditions related to demand in hiring in the high-tech industry and slowing growth in RPO more broadly triggered an interim goodwill impairment test which resulted in an impairment charge of $30.7 million.

Loss on disposal relates to the completion of the sale of our Russia operations in July 2022.

We have completed the sale of our business in Russia to a local firm within the country and are no longer operating in Russia.

Loss from operations for the third quarter of 2022 totaled $21.4 million, compared to earnings of $9.0 million in the third quarter of 2021.

The decline is primarily related to the goodwill impairment charge.

Income tax benefit was $5.0 million for the third quarter of 2022 and income tax expense was $11.1 million for the third quarter of 2021.

These amounts were 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.

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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 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%.

The net loss for the period was $16.2 million, compared to net earnings of $34.8 million for the third quarter of 2021.

The 2022 net loss includes the goodwill impairment charge, net of tax, and the 2021 period includes a gain on the sale of Persol Holdings common shares, net of tax.

September Year to Date Results

Revenue from services in the first nine months of 2022 increased 2.0% on a reported basis and 4.0% 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 and our 2022 acquisitions of RocketPower, an RPO solutions provider, and PTS, a specialty firm, that provides in-school therapy services, added approximately 200 basis points to the revenue growth rate.

Compared to the first nine months of 2021, revenue from staffing services decreased 0.6% and revenue from outcome-based services increased 6.6%.

Permanent placement revenue, which is included in revenue from services, increased 31.2% from the prior year.

Gross profit increased 13.1% on a reported basis and 15.1% 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 200 basis points due primarily to favorable product mix, lower employee-related costs, higher permanent placement income and the impact of the acquisitions 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.

Included in gross profit for the first nine 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 20 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 10.5% on a reported basis and 12.2% 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.

Approximately 320 basis points of the year-over-year increase is attributable to the first quarter SG&A expenses for Softworld and the second and third 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.

The goodwill impairment charge relates to our RocketPower business which delivers recruitment process outsourcing services primarily to customers in the high-tech industry and is included in the OCG segment.

Loss on disposal relates to our decision to sell our business in Russia in May 2022.

As a result, our Russian operations were classified as a held for sale disposal group and an impairment loss of $18.5 million representing the excess carrying value over the fair value of the net assets, less costs to sell, was recognized in the second quarter of 2022 with an additional loss of $0.2

million recognized in the third quarter upon completion of the transaction.

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.

Earnings from operations for the first nine months of 2022 totaled $10.2 million, compared to earnings of $33.3 million in the first nine months of 2021.

The decline is due primarily to the goodwill impairment charge and the loss on disposal, partially offset by higher gross profit, net of increased SG&A expenses and gain on sale of assets.

Included in total earnings from operations in the first nine months of 2022 is approximately $12.5 million related to Softworld, RocketPower and PTS earnings from operations, inclusive of amortization of intangibles, and $4.1 million in the first nine months of 2021 related to Softworld, inclusive of amortization of intangibles.

The loss on investment in Persol Holdings in the first nine 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 nine months 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.

1 unchanged sentence

parent in the first quarter of 2022.

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.

Income tax benefit was $13.1 million for the first nine months of 2022 and income tax expense was $19.0 million for the first nine months of 2021.

These amounts were impacted by changes in earnings from operations and from non-taxable returns on life insurance policies.

The second quarter of 2021 also benefited $5.2 million from a change in United Kingdom tax rates.

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

1 unchanged sentence

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.

The net loss for the period was $61.6 million, compared to net earnings of $84.4 million for the first nine months of 2021.

This change was due to the Persol Holdings investment, including the first quarter 2022 sale and related impacts, the goodwill impairment charge, the loss on disposal related to the sale of our Russian operations, partially offset by improved gross profit in the first nine months of 2022 and the gain on sale of under-utilized real property in the United States.

Operating Results By Segment

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2022 2021 % Change 2022 2021 % Change

7 unchanged sentences

Consolidated Total $ 1,167.9 $ 1,195.4 (2.3) % $ 3,731.6 $ 3,659.4 2.0 %

Second Quarter Results

Third Quarter Results

Professional & Industrial revenue from services decreased 9.7%.

1 unchanged sentence

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.

Revenue from outcome-based services increased by 3.4%, as the decline in demand for our call center specialty was more than offset by an increase in demand for other outcome-based specialties.

Science, Engineering & Technology revenue from services increased 5.0%.

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.

The revenue growth was driven by increases in our outcome-based product, bill rates and permanent placement income, partially offset by lower hours volume in our staffing specialties.

Education revenue from services increased 56.6%, 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.

On an organic basis, revenue increased 44.5% reflecting new customer wins, increased demand from existing customers and the impact of higher fill rates.

Outsourcing & Consulting revenue from services increased 4.5% 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.

On an organic basis, revenue declined 1.7% in nominal currency and 0.3% in constant currency, as declines in PPO revenue partially offset revenue growth in higher margin MSP and RPO products.

International revenue from services decreased 16.1% on a reported basis and decreased 5.4% 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 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

The decrease was primarily the result of the sale of our Russian operations in July 2022, partially offset by the favorable impact of higher hours volume in Portugal, Switzerland and Germany.

September Year to Date Results

Professional & Industrial revenue from services decreased 8.5%.

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Excluding the impact of the addition of Softworld revenue in the first quarter of 2022, the revenue growth was 7.7%, 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.

Education revenue from services increased 52.5%, 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.

On an organic basis, revenue increased 47.1% reflecting new customer wins, increased demand from existing customers and the impact of higher fill rates.

Outsourcing & Consulting revenue from services increased 10.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

1 unchanged sentence

International revenue from services decreased 11.6% on a reported basis and decreased 3.5% 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.

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, combined with the impact of the sale of our Russian operations in July 2022.

Revenue in Europe decreased 6.1% on a reported basis and increased 2.9% in constant currency with growth in most geographies.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2022 2021 Change 2022 2021 Change

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20.4 % 18.4 % 2.0 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.

Third Quarter Results

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

In comparison to the prior year, the gross profit rate increased 30 basis points.

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 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.

This increase reflects lower employee-related costs.

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

The gross profit rate increased 140 basis points due to improved specialty mix, partially offset by higher employee-related costs.

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

The gross profit rate increased 80 basis points due primarily to the acquisition of PTS which generates higher margins, lower employee-related costs 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.

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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

International gross profit decreased 9.6% on a reported basis and increased 2.0% in constant currency.

The decrease on a reported basis resulted from lower revenue volume, partially offset by an improved gross profit rate.

On a constant currency basis, the improved gross profit rate more than offset the lower revenue volume.

The gross profit rate increased 110 basis points primarily due to improved customer mix and higher permanent placement income.

September 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.

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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.

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

The gross profit rate increased 150 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.

The gross profit rate increased 50 basis points due primarily to the acquisition of PTS which generates higher margins, and higher permanent placement income at Greenwood/Asher.

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

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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 170 basis points primarily due to higher margin specialized solutions in Mexico following the legislative change, customer mix and higher permanent placement income.

International gross profit decreased 1.8% on a reported basis and improved 7.4% on a constant currency basis.

On a reported basis, lower revenue volume was partially offset by an improved gross profit rate.

On a constant currency basis, the improved gross profit rate more than offset the impact of lower revenue volume.

In comparison to the prior year, the gross profit rate increased 150 basis points primarily due to improved customer mix and higher permanent placement income.

Operating Results By Segment (continued)

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2022 2021 % Change 2022 2021 % Change

7 unchanged sentences

Consolidated Total $ 231.1 $ 219.9 5.1 % $ 707.3 $ 639.9 10.5 %

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.

Third Quarter Results

Total SG&A expenses in Professional & Industrial decreased 6.0% from the prior year, primarily due to cost management in response to lower revenue volume compared to the prior year.

Total SG&A expenses in Science, Engineering & Technology increased 10.2% 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 25.6% 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.

Excluding the impact of the PTS acquisition, SG&A expenses increased 15.5% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown, partially offset by the prior year impact of a charge to adjust the earnout liability due to the former owners of Greenwood/Asher & Associates.

Total SG&A expenses in Outsourcing & Consulting increased 23.4% 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.

Excluding the impact of the RocketPower acquisition, SG&A expenses increased 12.6% from the prior year, primarily due to higher salary-related expenses as a result of headcount related to higher MSP and RPO revenue and salary increases.

Total SG&A expenses in International decreased 9.1% on a reported basis and increased 1.5% 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.

The constant currency increase was due to higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe, partially offset by the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased 9.9% 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.

September Year to Date Results

Total SG&A expenses in Professional & Industrial decreased 1.8% from the prior year, primarily due to lower expenses to support lower volumes in our staffing and outcome-based call center specialties, partially offset by higher performance-based incentive compensation expense.

Total SG&A expenses in Science, Engineering & Technology increased 23.2% from the prior year, and includes the impact of the acquisition of Softworld in the second quarter of 2021.

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Excluding the impact of the RocketPower acquisition, SG&A expenses increased 17.4% 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.

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

Total SG&A expenses in International decreased 3.0% on a reported basis and increased 5.4% on a constant currency basis.

The increase in constant currency was primarily due to higher salary-related expenses driven by an increase in headcount, reflecting improving revenue in Europe, partially offset by the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased 11.3% primarily due to higher performance-based incentive compensation expense.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2022 2021 % Change 2022 2021 % Change

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Science, Engineering & Technology 22.9 19.7 16.2 63.9 56.8 12.5

Education 5.6 1.5 278.6 13.6 4.5 203.1

Outsourcing & Consulting 6.4 4.7 34.5 9.4 7.6 23.1

Education (4.8) (7.0) 31.8 8.8 (2.5) NM

Outsourcing & Consulting (24.3) 6.6 NM (14.9) 14.2 NM

International 1.9 2.4 (16.9) 9.1 8.1 13.4

Corporate (21.9) (19.9) (9.9) (70.4) (63.2) (11.3)

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

Loss on disposal (0.2) — NM (18.7) — NM

Gain on sale of assets — — NM 5.3 — NM

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

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 and lower SG&A expense.

Consolidated Total $ (21.4) $ 9.0 NM % $ 10.2 $ 33.3 (69.4) %

Third Quarter Results

Professional & Industrial reported earnings of $5.0 million for the quarter, a 30.7% decrease from a year ago.

The decrease in earnings was primarily due to lower gross profit, partially offset by lower SG&A expense.

Science, Engineering & Technology reported earnings of $22.9 million for the quarter, a 16.2% 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.

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 headcount and increased performance-based incentive compensation.

Education reported a loss of $4.8 million for the quarter, compared to a loss of $7.0 million a year ago.

The change was primarily due to the increase in revenue resulting from improved demand for our services as compared to a year ago, coupled with good operating leverage.

2022 results also include earnings of $0.7 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.

Outsourcing & Consulting reported a loss of $24.3 million for the quarter, compared to earnings of $6.6 million a year ago, due primarily to a $30.7 million charge related to the impairment of goodwill of RocketPower.

Excluding the goodwill impairment charge, earnings decreased from a year ago as a result of increasing costs, partially offset by higher revenue and gross profit.

International reported earnings of $1.9 million for the quarter, compared to earnings of $2.4 million a year ago.

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 decrease in earnings was primarily due to the sale of our Russian operations in July 2022.

September Year to Date Results

Professional & Industrial reported earnings of $27.1 million for the first nine months of 2022, a 36.1% increase from a year ago.

The increase was due to improved gross profit, including conversion fees related to a large customer and good cost management.

Science, Engineering & Technology reported earnings of $63.9 million for the first nine months of 2022, a 12.5% 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.

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 headcount and increased performance-based incentive compensation.

Education reported earnings of $8.8 million for the first nine months of 2022, compared to a loss of $2.5 million a year ago.

The change was primarily due to the increase in revenue resulting from improved demand for our services as compared to a year ago, coupled with good operating leverage.

2022 results also include earnings of $1.6 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.

Outsourcing & Consulting reported a loss of $14.9 million for the first nine months of 2022, compared to earnings of $14.2 million from a year ago, due primarily to a $30.7 million charge related to the impairment of goodwill of RocketPower.

International reported earnings of $9.1 million for the first nine months of 2022, compared to earnings of $8.1 million a year ago.

The increase in earnings was primarily due to gross profit growth in most geographies, partially offset by the impact of the sale of our Russian operations in July 2022.

Financial Condition

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Cash, Cash Equivalents and Restricted Cash

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.

Cash, cash equivalents and restricted cash, totaled $130.7 million at the end of the third quarter of 2022 and $119.5 million at year-end 2021.

As further described below, we used $111.7 million of cash for operating activities, generated $167.7 million of cash from investing activities and used $37.4 million of cash for financing activities.

Operating Activities

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.

In the first nine months of 2022, we used $111.7 million of net cash for operating activities, as compared to generating $31.0 million in the first nine months of 2021, primarily due to increased working capital requirements.

As revenue levels continue to recover or surpass pre-COVID levels in certain segments, days sales outstanding increased.

As of the end of the third 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 $735.2 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.

This increase partially mitigated the impact of higher global DSO on net cash from operating activities.

In addition, we paid $50.1 million of income taxes related to the sale of Persol Holdings common stock and $29.5 million related to deferred U.S.

payroll taxes in 2022.

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

Global DSO was 64 days at the end of the third quarter of 2022, 60 days at year-end 2021 and 63 days at the end of the third quarter of 2021.

Our working capital position (total current assets less total current liabilities) was $587.1 million at the end of the third quarter of 2022, an increase of $93.6 million from year-end 2021.

Excluding the increase in cash, working capital increased $83.9 million from 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.

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

Investing Activities

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.

In the first nine months of 2022, we generated $167.7 million of cash from investing activities, as compared to using $198.4 million in the first nine months of 2021.

Included in cash generated from investing activities in the first nine 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 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, $84.8 million of cash used for the acquisition of PTS in May 2022, net of cash received, and $6.0 million of cash disposed from the sale of Russia in July 2022, net of proceeds.

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.

Financing Activities

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.

We used $37.4 million of cash for financing activities in the first nine months of 2022, as compared to using $5.7 million in the first nine 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 nine months of 2022 and the year-over-year change in dividend payments.

Dividends paid per common share were $0.20 in the first nine months of 2022 and $0.05 in first nine months of 2021.

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

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.

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

The change in short-

term borrowings in the first nine months of 2021 was primarily due to payments on local lines of credit.

Debt totaled $0.1 million at the end of the third 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 third quarter of 2022 and at year-end 2021.

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 2022, these reviews have not resulted in specific plans to repatriate a majority of our international cash balances.

As of the end of the third 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.

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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 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 third 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.

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

As of the end of the third 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.

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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 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.

We expect our working capital requirements to increase over the next several quarters if demand for our services increases, to pay the remaining deferred payroll tax balances noted above by January 3, 2023, and to fund future share repurchases.

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 concluded 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

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

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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