What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 189 added, 376 removed, 238 unchanged (70% of the section changed)

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Executive Overview

Kelly’s strategy and actions are guided by our simple yet powerful Noble Purpose:

“We connect people to work in ways that enrich their lives.” We are committed to being a leading talent solutions provider among the talent with whom we choose to specialize and in the global markets in which we choose to compete.

As we navigate the post-pandemic landscape, we will continue to demonstrate our expected behaviors and actions:

• Employ a talent-first mentality

• Relentlessly deliver for customers

• Grow through discipline and focus

• Deliver efficiency and effectiveness in everything we do

By aligning ourselves with our Noble Purpose and executing against these behaviors, we are becoming a more agile and focused organization, prepared to achieve new levels of growth and profitability as we develop and reshape our portfolio of businesses.

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.

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.

In response, the talent solutions industry is adjusting how it sources, recruits, trains and places talent.

Our industry is evolving to meet businesses’ growing demand for specialized talent, whether delivered as a single individual or as part of a total workforce solution.

Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create customized workforce solutions that are flexible and responsive to the labor market.

In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive.

The ways in which people view, find and conduct work are undergoing fundamental shifts.

And as the demand for skilled talent continues to climb, workers’ changing ideas about the integration of work into life are becoming more important.

2021 saw record-breaking employee resignations in the U.S.

as workers opted out of jobs that did not align with their needs.

In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take even greater control over their career trajectories.

Kelly is proud to be a career partner of choice for workers in search of a better way to work.

Kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries.

We offer innovative outsourcing and consulting services, as well as staffing on a temporary and direct-hire basis.

In 2020, we adopted 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

• 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, Insight Workforce Solutions and Greenwood/Asher & Associates

• Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), Business Process Outsourcing ("BPO") and Talent Advisory Services to customers on a global basis

• International – delivers staffing, RPO and direct-hire services in 15 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations

In addition, PersolKelly Pte.

Ltd., our joint venture with Persol Asia Pacific Pte.

Ltd, a wholly owned subsidiary of Persol Holdings, a leading provider of HR solutions in Japan, provides staffing and direct hire services to customers in the Asia-Pacific region.

We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use us to recruit permanent employees, and that rely on our talent advisory and outsourcing services.

Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable.

The nature of our business is such that trade accounts receivable are our most significant asset.

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

and was 60 days on a global basis as of the end of 2021 and 64 days as of the end of 2020.

Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction.

Our Perspective and Outlook on Growth

Our 2020 results reflected the substantial decline in demand for our services during the depth of the COVID-19 crisis and the decisive actions we took to reduce costs and protect our balance sheet.

We were successful in positioning Kelly to take advantage of improving economic conditions and the beginning of a recovery in customer demand as we entered 2021.

While 2021 had its share of headwinds, most notably the emergence of the Delta and Omicron variants, continued global supply chain shortages, and a talent supply shortage, Kelly persevered and ended the year better than we began it.

We made our largest-ever acquisition in April 2021 with the purchase of Softworld, a leader in the fast-growing technology staffing and solutions space.

We made structural improvements in our businesses, driving growth in our GP rate;

and we reinstated a dividend, which had been temporarily suspended during the worst of the pandemic.

Within our specialty solutions, customer demand for our services increased throughout 2021, reaching or exceeding pre-pandemic levels at various rates across specialties.

Our P&I and Education segments, the hardest-hit by COVID-19 and its variants, put the worst of the pandemic behind them by year’s end.

Our SET business drove double-digit growth in outcome-based business and Softworld.

Our International segment continued its recovery, led by growth in key European countries.

And OCG, the most resilient of our business segments, continued to deliver double-digit growth throughout 2021.

We enter 2022 having shifted from recovery to growth.

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.

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.

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

• We are mapping our digital transformation journey, building a technology foundation to optimize our business, personalize the talent journey and improve the client experience.

For example, in 2021 we launched Helix UX, an industry-leading talent management tool that is enabling our customers to better manage their global workforce across temporary, full-time and cloud-based talent pools.

• We are consistently striving to better understand and support our talent and their shifting needs.

We have reallocated resources to be solely focused on the temporary worker experience, and our Equity@Work initiative is designed to break down long-standing, systemic barriers that make it difficult for many people to participate in the labor market.

• We are investing in the talent experience of our full-time employees, taking action to ensure we have the people coaches and performance management systems that will help our employees thrive in their Kelly careers.

We know that our success is powered by our people, and we are aiming for industry-leading results.

As we execute our specialty growth strategy, we are focused on both the speed and scope of change.

To that end, on February 14, 2022 we announced transactions that will allow us to strategically re-deploy resources to accelerate our growth in high-margin, high-growth specialties.

Specifically, we are unwinding our cross-ownership with Persol Holdings and reducing our ownership interest in our APAC joint venture, PersolKelly.

Monetizing our investments in Persol Holdings and PersolKelly provides us with additional capital, when combined with our available borrowing capacity, that results in approximately $500 million of capital available to invest in our specialty growth strategy and positions us to continue to grow both organically and inorganically in 2022 and beyond.

In 2022, Kelly moved forward on its strategic growth journey amid a dynamic macroeconomic environment in the first half of the year.

As the year progressed, a mixed pattern of revenue growth and deceleration emerged and persisted through the balance of 2022 driven by rising inflation, increasing interest rates and heightened economic uncertainty.

Consequently, a growing number of employers scaled back or paused hiring – and in some cases reduced the size of their workforces – to align their costs with declining growth.

Notwithstanding these dynamics, the labor market remained tight.

The economy continued to add jobs – albeit at a slightly slower pace to end the year – and unemployment remained at historically low levels, which contributed to ongoing challenges with sourcing talent.

By executing our strategy in a disciplined manner and focusing on factors within our control, we managed through these ongoing headwinds and achieved solid growth over the prior year.

• We increased total company revenue driven by top-line growth in our Education, SET and OCG business units.

• Our more profitable outcome-based solutions demonstrated resilience amid macroeconomic headwinds and generated solid revenue and gross profit growth.

• Each of our five business units expanded its gross profit rate, reflecting our ongoing drive to shift toward a higher-margin, higher-value business mix.

• Excluding the impact of goodwill impairment charges and a loss on the disposal of our Russian operations, we improved earnings from operations, demonstrating our ability to effectively translate gross margin expansion to earnings growth.

2022 was also a year in which we accelerated our transformation and streamlined our portfolio.

• We ended the cross-ownership arrangement between Kelly and Persol Holdings – selling our investment in the common shares of Persol Holdings and repurchasing our Class A and B common shares held by Persol Holdings – and reduced our ownership interest in our PersolKelly joint venture, unlocking $235 million of liquidity.

• We redeployed a portion of the net proceeds from these transactions to advance our inorganic growth strategy, while preserving the remaining capital to pursue additional high-margin, high-growth acquisitions in the future.

• We monetized non-core real estate holdings, unlocking more capital to invest in growth initiatives.

• We acted decisively to transfer ownership of our Russian operations to a Russian company.

• We increased our dividend to its pre-pandemic level and authorized a $50 million repurchase of outstanding Class A common shares.

Together, these achievements and actions demonstrate our commitment to our specialty growth strategy and create long-term value for all our stakeholders.

As the macroeconomic situation unfolds in 2023, we will stay the course in our pursuit of profitable growth while proactively controlling costs to manage through this economic cycle.

In each of our chosen specialties, we will continue to shift toward a business mix characterized not only by higher margins and value, but greater resilience to lessen the impact of market fluctuations.

We also intend to drive inorganic growth using our available capital to pursue additional high-quality acquisitions in Education, SET and OCG.

Finally, we will continue to invest in technology and new products that will improve the talent and customer experience, increase efficiency and enable organic growth.

Together, these actions will ensure that we continue to move forward on our strategic journey in pursuit of profitable, specialty growth.

Financial Measures

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Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against currency risks in connection with their normal business operations.

CC measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in accordance with GAAP.

CC measures are non-GAAP measures and are used to supplement measures in accordance with GAAP (Generally Accepted Accounting Principles).

Our non-GAAP measures may be calculated differently from those provided by other companies, limiting their usefulness for comparison purposes.

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Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) are ratios used to measure the Company’s operating efficiency.

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue

from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall

operating performance.

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall operating performance.

NM (not meaningful) in the following tables is used in place of percentage changes where:

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(Dollars in millions)

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) Change 2020

(53 Weeks) 2019

(52 Weeks) Change

2022 2021 Change

Revenue from services $ 4,965.4 $ 4,909.7 1.1 %

1 unchanged sentence

SG&A expenses excluding restructuring charges 943.5 866.6 8.9

Restructuring charges 4.0 12.8 (69.0) 12.8 5.5 131.5

Restructuring charges — 4.0 NM

Total SG&A expenses 943.5 870.6 8.4

Goodwill impairment charge — 147.7 NM 147.7 — NM

Goodwill impairment charge (41.0) — NM

Loss on disposal (18.7) — NM

Gain on sale of assets 6.2 — NM

Asset impairment charge — — NM — 15.8 NM

Earnings (loss) from operations 48.6 (93.6) NM (93.6) 81.8 NM

Gain (loss) on investment in Persol Holdings 121.8 (16.6) NM (16.6) 35.8 NM

Gain on insurance settlement 19.0 — NM — — NM

Earnings (loss) from operations 14.8 48.6 (69.7)

Gain (loss) on investment in Persol Holdings (67.2) 121.8 NM

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

Gain on insurance settlement — 19.0 NM

Other income (expense), net 1.6 (3.6) 146.4

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 185.8 (106.8) NM (106.8) 116.4 NM

Income tax expense (benefit) 35.1 (34.0) 203.4 (34.0) 0.4 NM

Equity in net earnings (loss) of affiliate 5.4 0.8 NM 0.8 (3.6) NM

Net earnings (loss) $ 156.1 $ (72.0) NM % $ (72.0) $ 112.4 NM %

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate (71.2) 185.8 NM

Income tax expense (benefit) (7.9) 35.1 (122.6)

Equity in net earnings (loss) of affiliate 0.8 5.4 (85.9)

Net earnings (loss) $ (62.5) $ 156.1 NM %

Gross profit rate 20.4 % 18.7 % 1.7 pts.

18.3 % 18.1 % 0.2 pts.

Conversion rate 1.5 5.3 (3.8)

Revenue from services for 2021 increased 8.7% on a reported basis and 7.8% on a constant currency basis as demand for our services increased from COVID-crisis driven levels in 2020.

Revenue increased in all operating segments, with the exception of Professional & Industrial.

Our acquisition of Softworld, a technology staffing and solutions firm, in early April 2021 added approximately 220 basis points to the revenue growth rate.

The 2020 fiscal year included a 53rd week.

This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods.

The 53rd week added approximately 1% to 2020 reported revenue.

Compared to 2020, revenue from staffing services increased 6.6%, revenue from outcome-based services increased 7.3%, and permanent placement income increased 89.7%.

Gross profit increased 11.1% on higher revenue volume and an improving gross profit rate.

The gross profit rate increased 40 basis points in comparison to 2020, primarily due to the impact of higher permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, partially offset by unfavorable product mix and higher employee-related costs.

Gross profit rate improved approximately 30 basis points as a result of the acquisition of Softworld.

The gross profit rate for 2020 includes approximately 20 basis points from COVID-related government wage subsidies.

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

Total SG&A expenses increased 8.1% compared to 2020.

SG&A expenses related to Softworld, including amortization of intangibles and other operating expenses, accounted for approximately 350 basis points to the year-over-year increase.

The increase in SG&A expenses also reflects increases in performance-based incentive compensation expenses and the impact of

temporary expense mitigation efforts in 2020.

With the exception of Professional & Industrial, SG&A expenses increased in all segments in comparison to 2020.

Included in SG&A expenses for 2021 was $4.0 million of restructuring charges, primarily reflecting cost management actions taken in the fourth quarter of 2021 to increase operational efficiencies within enterprise functions that provide centralized support to operating units.

Included in SG&A expenses for 2020 was $12.8 million of restructuring charges and a $9.5 million charge related to a customer dispute.

During 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price.

This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020.

Gain on sale of assets of $32.1 million in 2020 represents the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020.

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

Earnings from operations for 2021 totaled $48.6 million, compared to a loss from operations of $93.6 million in 2020.

The increase in earnings from operations from 2020 primarily reflects the impact of the goodwill impairment charge, the customer dispute charge and higher restructuring charges in 2020, partially offset by the 2020 gain on sale of assets.

Gain (loss) on investment in Persol Holdings represents the noncash gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings.

The gains or losses fluctuate each quarter based on the quoted market price of the Persol Holdings common stock at period end.

The gain on insurance settlement of $19.0 million in 2021 represents a payment received in the fourth quarter of 2021 related to the settlement of claims under a representations and warranties insurance policy purchased by the Company in connection with the acquisition of Softworld.

Other expense for 2021 totaled $3.6 million, compared to other income of $3.4 million for 2020.

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

Income tax expense was $35.1 million for 2021 and income tax benefit was $34.0 million for 2020.

The 2021 income tax expense was impacted by higher pretax earnings and changes in the fair value of the Company's investment in Persol Holdings.

Income taxes for 2021 also includes a charge for gain on insurance settlement and a benefit from a United Kingdom tax rate change.

Income taxes for 2020 includes a tax benefit from the impairment of goodwill and a U.S.

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

The net earnings for 2021 were $156.1 million, compared to a net loss of $72.0 million for 2020.

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

Revenue from services for 2020 declined in all segments, reflecting the impact of COVID-19, and resulting in a decline in demand for both our staffing and permanent placement services across a broad range of industries and geographies.

Revenue from staffing services declined 20% compared to 2019.

Permanent placement revenue, which is included in revenue from services, decreased 34% year-over-year as the impact of economic uncertainty depressed full-time hiring in all operating segments.

These declines were partially offset by a 9% increase in outcome-based services as demand from customers utilizing these services increased during the year.

The 2020 fiscal year included a 53rd week.

This fiscal leap year occurs every five or six years and is necessary to align the fiscal and calendar periods.

The 53rd week added approximately 1% to 2020 reported and CC revenue.

Gross profit declined as a result of lower revenue volume, partially offset by an increase in the gross profit rate.

The gross profit rate increased 20 basis points in comparison to 2019.

With the exception of Education and International, the gross profit rate increased in all other operating segments, primarily reflecting improved product mix and lower employee-related costs.

The gross profit rate for Education declined primarily as a result of increased pricing pressures.

International's gross profit rate was negatively impacted by the decrease in permanent placement revenue.

The total Company 2020 gross profit rate included approximately 20 basis points related to COVID-19 government subsidies.

Total SG&A expenses decreased 8.8% in comparison to 2019.

This decrease was due primarily to lower administrative salaries and performance-based compensation, including short-term cost reductions implemented to further align costs with revenue volume trends.

Included in total SG&A expenses are restructuring charges of $12.8 million in 2020.

Actions were taken in the first quarter of 2020 to position the Company to adopt the new operating model and to align the U.S.

branch network facilities footprint with a more technology-enabled service delivery methodology.

Actions were taken in the fourth quarter of 2020 to align costs with expected revenue levels.

Restructuring charges of $5.5 million in 2019 represent severance costs primarily related to position eliminations within Professional & Industrial staffing operations.

During 2020, the negative reaction to the pandemic by the global equity markets also resulted in a decline in the Company's common stock price.

This triggered an interim goodwill impairment test, resulting in a $147.7 million goodwill impairment charge in the first quarter of 2020.

Gain on sale of assets of $32.1 million represented the excess of the proceeds over the cost of the headquarters properties sold in the first quarter of 2020.

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

Gain on sale of assets in 2019 of $12.3 million primarily represented the excess of the proceeds over the cost upon the sale of an unused parcel of land located near the Company headquarters.

Asset impairment charge of $15.8 million in 2019 represented the write-off of previously capitalized costs associated with a new U.S.

front and middle office technology development project which management determined would not be completed but replaced by an enhanced and expanded use of an existing technology platform.

The loss from operations for 2020 of $93.6 million reflected a decline from the $81.8 million of earnings from operations in 2019.

Earnings from operations declined as a result of the goodwill impairment charge and lower gross profit as a result of the impact of COVID-19 on demand, partially offset by lower expenses due to cost reduction efforts and higher gain on sale of assets.

Gain (loss) on investment in Persol Holdings represented the noncash gain or loss resulting from changes in the market price of our investment in the common stock of Persol Holdings.

The gains or losses fluctuate based on the quoted market price of the Persol Holdings common stock at period end.

Income tax benefit was $34.0 million and expense was $0.4 million for 2020 and 2019, respectively.

The 2020 income tax benefited from lower pretax earnings and included the impairment of goodwill, a decline in the fair value of the Company's investment in Persol Holdings, and a tax loss on the sale of our Brazil operations.

These benefits were offset by lower work opportunity credits.

The 2019 tax expense benefited from releasing a valuation allowance in the United Kingdom.

The work opportunity credit has been extended through 2025 as part of the Consolidated Appropriations Act, 2021.

The discussion that follows focuses on 2022 results compared to 2021.

For a discussion of 2021 results compared to 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, filed on February 17, 2022.

Revenue from services increased 1.1% on a reported basis and 3.2% 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 first quarter 2021 acquisition of Softworld, a technology staffing and solutions firm, and our first quarter 2022 acquisition of RocketPower, an RPO solutions provider, and our second quarter 2022 acquisition of PTS, a specialty firm that provides in-school therapy services, added approximately 180 basis points to the revenue growth rate.

Compared to 2021, revenue from staffing services decreased 1.2% and revenue from outcome-based services increased 6.3%.

Permanent placement revenue, which is included in revenue from services, increased 18.9% from 2021.

Gross profit increased 10.1% on a reported basis and 12.1% on a constant currency basis on higher revenue volume, combined with an increase in the gross profit rate.

The gross profit rate increased 170 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.

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 8.4% on a reported basis and 10.0% on a constant currency basis.

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

The goodwill impairment charge relates to our RocketPower business, which delivers RPO services primarily to customers in the high-tech industry, and is included in the Outsourcing & Consulting segment.

Changes in market conditions related to demand in hiring in the high-tech industry and slowing growth in RPO more broadly resulted in a goodwill impairment charge of $41.0 million in 2022.

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

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 2022 totaled $14.8 million, compared to earnings of $48.6 million in 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 2022 is approximately $14.4 million related to Softworld, RocketPower and PTS earnings from operations, inclusive of amortization of intangibles but excluding the RocketPower goodwill impairment charge, and $6.3 million in 2021 related to Softworld, inclusive of amortization of intangibles.

The loss on investment in Persol Holdings in 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 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 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.

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 $7.9 million for 2022 and income tax expense was $35.1 million for 2021.

2022 benefited from lower pretax earnings, changes in the fair value of the Company’s investment in Persol Holdings, and the impairment of tax deductible goodwill.

These benefits were offset by the charge associated with tax exempt life insurance cash surrender value losses.

Income tax expense for 2021 included charges from changes in the fair value of the Company’s investment in Persol Holdings and the gain on insurance settlement.

These amounts were offset by benefits from a change in tax rate in the United Kingdom and tax exempt life insurance cash surrender value gains.

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.

The impairment of goodwill in the first quarter of 2020 and the recording of deferred taxes on the Brazil outside basis differences in the second quarter of 2020 were treated as discrete items.

The net loss for 2020 of $72.0 million, a decrease from net earnings of $112.4 million in 2019, was due primarily to lower earnings from operations due to the goodwill impairment charge taken in the first quarter of 2020, combined with losses of Persol Holdings common stock, partially offset by the impact of an income tax benefit in comparison to income tax expense in 2019.

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 could not be estimated.

The net loss for 2022 was $62.5 million, compared to net earnings of $156.1 million for 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 2022 and the gain on sale of under-utilized real property in the United States.

Operating Results By Segment

(Dollars in millions)

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

2022 2021 % Change

Revenue From Services:

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Consolidated Total $ 4,965.4 $ 4,909.7 1.1 %

Professional & Industrial revenue from services decreased 1.1% due primarily to lower demand from our outcome-based call center specialty.

Revenue from staffing services also declined on lower hours volume due to talent supply constraints even as customer demand improved.

Lower hours volume in staffing services was partially offset by higher average bills rates.

These decreases were partially offset by increased outcome-based revenue in other specialties, as well as higher permanent placement income which is included in revenue from services.

The 53rd week added approximately 1% to 2020 reported revenue from services in Professional & Industrial.

Science, Engineering & Technology revenue from services increased 13.5% on a reported basis, which includes revenues from the acquisition of Softworld.

On an organic basis, revenue growth was 3.9%, which was driven by hours increases in our staffing business across most specialties, coupled with an increase in outcome-based revenue and permanent placement income.

The 53rd week added approximately 1% to 2020 reported revenue from services in Science, Engineering & Technology.

Education revenue from services increased 45.2% reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to a year ago.

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

The 53rd week added less than 1% to 2020 reported revenue from services in Education.

Outsourcing & Consulting revenue from services increased 18.9% due primarily to increased hours revenue volume in our PPO specialty, coupled with revenue growth in both RPO and MSP products.

The 53rd week added approximately 2% to 2020 reported revenue from services in Outsourcing & Consulting.

International revenue from services increased 8.0% on a reported basis and increased 4.9% on a CC basis.

Year-over-year revenue comparisons were unfavorably impacted by the sale of our staffing operations in Brazil in August 2020.

Excluding Brazil, revenue increased 9.9% on a reported basis and 6.8% on a constant currency basis.

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

The 53rd week added approximately 1% to 2020 reported revenue from services in International.

Professional & Industrial revenue from services decreased due primarily to decreases in our hours volume in our staffing product which was impacted by COVID-19.

These decreases were partially offset by increased revenue in our outcome-based products due to program expansions.

The 53rd week added approximately 1% to 2020 reported revenue from services in Professional & Industrial.

Science, Engineering & Technology revenue from services decreased due to lower hours volume in our staffing product across most specialties due to the continued impact of COVID-19, with the exception of our government staffing business, which has seen increased demand for life sciences support.

The 53rd week added approximately 1% to 2020 reported revenue from services in Science, Engineering & Technology.

Education revenue from services decreased due to the impact of COVID-19.

Temporary school closures and use of virtual or hybrid instructional delivery reduced the demand.

These decreases were partially offset by the revenues from the first quarter 2020 acquisition of Insight.

The 53rd week added less than 1% to 2020 reported revenue from services in Education.

Outsourcing & Consulting revenue from services decreased due primarily to decreases in our PPO, MSP and RPO products due in part to COVID-19 demand declines, as well as lower demand from customers in the oil and gas industry.

The 53rd week added approximately 2% to 2020 reported revenue from services in Outsourcing & Consulting.

International revenue from services decreased 16.4% on a reported basis and 15.6% on a CC basis.

The decline was primarily due to a decrease in hours volume as COVID-19 disruptions continued across operations in all countries, in particular France, Portugal and the U.K.

These decreases were partially offset by increased revenue in Russia, due to higher average bill rates.

The 53rd week added approximately 1% to 2020 reported and CC revenue from services in International.

Professional & Industrial revenue from services decreased 9.3%.

The decrease was due primarily to a 12.4% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates.

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

Revenue from outcome-based services declined 0.3% due to lower demand for our call center specialty, partially offset by growth in other specialties.

Science, Engineering & Technology revenue from services increased 9.4% 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 6.1%, which was driven by increases in our outcome-based services as well as an increase in revenue in our staffing business coming from increases in bill rates and permanent placement income, partially offset by a decline in hours.

Education revenue from services increased 52.7%.

The revenue increase includes the impact of the acquisition of PTS in May 2022.

On an organic basis, revenue increased 45.9% reflecting increased demand from existing customers, new customer wins and the impact of higher bill rates.

Outsourcing & Consulting revenue from services increased 8.3% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

On an organic basis, revenue growth was 2.7% 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 12.7% on a reported basis and decreased 4.7% in constant currency.

The decrease was primarily the result of the sale of our Russian operations in July 2022, combined with 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 9.2% on a reported basis and decreased 0.3% in constant currency, with the impact of the sale of our Russian operations nearly offset by growth in most geographies.

Operating Results By Segment (continued)

(Dollars in millions)

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) Change 2020

(53 Weeks) 2019

(52 Weeks) Change

2022 2021 Change

Gross Profit:

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Professional & Industrial 18.2 % 16.9 % 1.3 pts.

17.8 % 17.5 % 0.3 pts.

Science, Engineering & Technology 23.5 21.9 1.6

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Consolidated Total 20.4 % 18.7 % 1.7 pts.

18.3 % 18.1 % 0.2 pts.

Gross profit for the Professional & Industrial segment decreased due to a decrease in the gross profit rate, combined with lower revenue volume.

In comparison to the prior year, the gross profit rate decreased 90 basis points.

This decrease reflects the unfavorable year-over-year impact of government wage subsidies, increased costs associated with our outcome-based call center specialties, higher employee-related costs in the staffing product and a shift in product mix compared to the prior year as demand for staffing services, which generally carry lower margins, increased.

These decreases were partially offset by the impact of increased permanent placement income in 2021.

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

The gross profit rate increased 140 basis points due to increased permanent placement income and improved specialty mix, including the acquisition of Softworld in April 2021, partially offset by higher employee-related costs.

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

In comparison to the prior year, the gross profit rate increased 130 basis points.

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

Science, Engineering & Technology gross profit increased on higher revenue volume, combined with 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 90 basis points due primarily to higher permanent placement income from Greenwood/Asher, our acquisition in late 2020.

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

The Outsourcing & Consulting gross profit increased on higher revenue volume, partially offset by a decrease in the gross profit rate.

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

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

The gross profit rate increased 120 basis points primarily due to customer mix.

Gross profit for the Professional & Industrial segment declined as the result of lower revenue volume, partially offset by an improved gross profit rate.

The gross profit rate increased 30 basis points due to lower employee-related costs coupled with improved product mix, as a greater proportion of the segment revenue came from outcome-based services with higher margins.

The Science, Engineering & Technology gross profit declined as lower revenue volume was partially offset by a higher gross profit rate.

The gross profit rate increased 50 basis points due to lower employee-related costs, partially offset by specialty and customer mix.

Gross profit for the Education segment declined as a result of lower revenue volume, combined with a lower gross profit rate.

The Education gross profit rate decreased 130 basis points due to increased pricing pressures, partially offset by lower employee-related costs.

Outsourcing & Consulting gross profit declined on lower revenue volume, partially offset by an improved gross profit rate.

The Outsourcing & Consulting gross profit rate increased 60 basis points due to improved customer mix in the RPO product, coupled with lower employee-related costs in the PPO product.

International gross profit declined as a result of lower revenue volume and a decline in the gross profit rate.

The International gross profit rate decreased primarily due to lower permanent placement revenue.

The gross profit rate increased 20 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.

The gross profit rate increased 360 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 decreased 4.3% on a reported basis and improved 4.6% 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 140 basis points, primarily due to improved business mix and higher permanent placement income.

Operating Results By Segment (continued)

(Dollars in millions)

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

2022 2021 % Change

SG&A Expenses:

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Consolidated Total $ 943.5 $ 870.6 8.4 %

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

Restructuring Charges Included in SG&A Expenses:

Professional & Industrial $ — $ 6.0 NM % $ 6.0 $ 5.1 16.8 %

Science, Engineering & Technology — 0.6 NM 0.6 0.4 74.1

Education — 1.0 NM 1.0 — NM

Outsourcing & Consulting — 0.3 NM 0.3 — NM

International 1.2 1.4 (10.2) 1.4 — NM

Corporate expenses 2.8 3.5 (18.4) 3.5 — NM

Consolidated Total $ 4.0 $ 12.8 (69.0) % $ 12.8 $ 5.5 131.5 %

Total SG&A expenses in Professional & Industrial decreased 3.5% and decreased 1.4% excluding restructuring charges.

Expenses are lower as a result of cost reductions in response to lower revenue volumes, partially offset by higher performance-based compensation expenses.

Total SG&A expenses in Science, Engineering & Technology increased 34.1%, or 34.7% excluding restructuring charges.

Excluding restructuring charges and the acquisition of Softworld, SG&A expenses increased 13.9%.

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

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

Total SG&A expenses in Education increased 21.1%, or 23.6% excluding restructuring charges, primarily due to higher salary and incentives expense related to improving revenues.

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

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

Total SG&A expenses in Outsourcing & Consulting increased 13.3% in comparison to the prior year.

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

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

Total SG&A expenses in International increased 2.9% on a reported basis and increased 0.1% on a constant currency basis.

Total SG&A expenses in 2021 and 2020 include restructuring charges, and the prior year also included a charge related to a customer dispute in Mexico and SG&A expenses related to our staffing operations in Brazil, which were sold in August 2020.

Excluding these items, SG&A expenses increased 13.6% on a reported basis and 10.4% on a constant currency basis.

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

Corporate expenses decreased $0.1 million from 2020.

Lower disability, non-restructuring severance and restructuring costs were partially offset by higher performance-based compensation expense.

Total SG&A expenses in Professional & Industrial decreased due primarily to lower salaries and related costs due to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

In addition, Professional & Industrial took restructuring actions in both 2020 and 2019, which reduced salaries and related costs and facilities expenses.

Included in total SG&A expenses for 2020 and 2019 are the costs of those restructuring efforts of $6.0 million and $5.1 million, respectively, representing primarily employee severance costs.

Total SG&A expenses in Science, Engineering & Technology decreased due primarily to cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

Total SG&A expenses in Education decreased due primarily to lower salaries and related costs resulting from the cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

The decreased revenue volume also resulted in lower performance-based compensation.

These decreases were partially offset by the impact of the acquisition of Insight that took place in the first quarter of 2020.

Total SG&A expenses in Outsourcing & Consulting decreased due primarily to lower salaries and related expenses resulting from cost management actions and initiatives taken to help mitigate the lower revenue volume as a result of the COVID-19 disruption.

Total SG&A expenses in International decreased 4.2% on a reported basis and 3.6% on a CC basis.

Included in International SG&A expenses for 2020 is a $9.5 million non-cash charge related to a customer dispute in Mexico that resulted in an additional uncollectible accounts receivable charge.

Excluding this charge, total SG&A expenses decreased 11.0% due primarily to lower salaries, driven by cost management to contend with the COVID-19 disruption, combined with lower incentive-based compensation.

Corporate expenses decreased as a result of lower performance-based compensation expense and lower professional fees, partially offset by restructuring charges incurred during 2020.

Total SG&A expenses in Professional & Industrial decreased 2.9%, 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 19.2%, and includes the impact of the acquisition of Softworld in the second quarter of 2021.

Excluding the impact of the addition of Softworld expenses in the first quarter of 2022, SG&A expenses increased 13.6%.

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

Total SG&A expenses in Education increased 31.7%, and includes the impact of the acquisition of PTS in May 2022.

Excluding the impact of the PTS acquisition, SG&A expenses increased 24.0%, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 22.1%, and includes the impact of the acquisition of RocketPower in March 2022.

Excluding the impact of the RocketPower acquisition, SG&A expenses increased 12.0%, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in International decreased 4.6% on a reported basis and increased 3.6% 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 6.6%, primarily due to higher performance-based incentive compensation expense.

Operating Results By Segment (continued)

(Dollars in millions)

2020 2020 vs.

(52 Weeks) 2020

(53 Weeks) % Change 2020

(53 Weeks) 2019

(52 Weeks) % Change

2022 2021 % Change

Earnings (Loss) from Operations:

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Science, Engineering & Technology 82.1 73.7 11.4

Education 3.0 (9.0) NM (9.0) 15.8 NM

Outsourcing & Consulting 18.7 11.5 62.7 11.5 3.0 291.3

International 9.9 (8.9) NM (8.9) 18.7 NM

Education 18.5 3.0 NM

Outsourcing & Consulting (21.2) 18.7 NM

International 9.9 9.9 (0.5)

Corporate (94.0) (88.1) (6.6)

Consolidated Total $ 48.6 $ (93.6) NM % $ (93.6) $ 81.8 NM %

Professional & Industrial reported earnings of $31.4 million, a 24.4% decrease from 2020.

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

These were partially offset by an increase in our permanent placement income.

Science, Engineering & Technology reported earnings of $73.7 million, a 1.7% decrease from 2020.

The decrease in earnings was primarily due to higher expenses related to performance-based incentive compensation and higher salaries.

The increase in higher salaries was related to an investment in additional sales and recruiting resources, which exceeded revenue and gross margin growth.

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

Education reported earnings of $3.0 million, compared to a loss of $9.0 million from 2020.

The change was primarily due to an increase in revenue, reflecting the return to in-school instruction by many schools, resulting in increased demand for our services as compared to 2020.

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

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

Outsourcing & Consulting reported earnings of $18.7 million, a 62.7% increase compared to 2020.

The increase in earnings was primarily due to the impact of increased revenue volumes within the segment.

International reported earnings of $9.9 million, compared to a loss of $8.9 million in 2020.

The increase in earnings was primarily due to the favorable comparison related to the charge for a customer dispute in Mexico and restructuring charges in 2020, combined with improving revenue in Europe.

Corporate loss from operations was $88.1 million in 2021, compared to a loss of $203.8 million in 2020.

The 2020 loss includes the goodwill impairment charge of $147.7 million, partially offset by a gain on sale of assets of $32.1 million.

Professional & Industrial reported earnings of $41.6 million, a 33.4% decrease from 2019.

The decrease in earnings was primarily due to the impact of COVID-19 on our staffing product, partially offset by increases in our outcome-based products and the cost management initiatives taken to mitigate the impact of the pandemic on our operations.

Science, Engineering & Technology reported earnings of $75.0 million, a 5.8% decrease from 2019.

The decrease in earnings was primarily due to the impact of COVID-19 on demand for our services, partially offset by the cost management initiatives taken to mitigate its impact.

Education reported a loss of $9.0 million, compared to earnings of $15.8 million in 2019.

The decrease is due to the impact of COVID-19 on our revenue, partially offset by the cost management initiatives taken to mitigate its impact.

Outsourcing & Consulting reported earnings of $11.5 million, an $8.5 million increase over 2019.

The increase in earnings was primarily due to the impact of the cost management initiatives taken to mitigate the impact of COVID-19, partially offset by lower revenue volume due to the impact of COVID-19 and lower customer demand in the oil and gas industry.

International reported a loss of $8.9 million, compared to earnings of $18.7 million in 2019, largely driven by the impact of COVID-19 on revenue and a charge related to a customer dispute in Mexico, partially offset by cost management initiatives.

Corporate loss from operations of $203.8 million for 2020 includes the goodwill impairment charge of $147.7 million and gain on sale of assets of $32.1 million.

Loss on disposal (18.7) — NM

Gain on sale of assets 6.2 — NM

Consolidated Total $ 14.8 $ 48.6 (69.7) %

Professional & Industrial reported earnings of $32.0 million, a 1.8% increase from 2021.

The increase was due to effective cost management as gross profit declined.

Science, Engineering & Technology reported earnings of $82.1 million, an 11.4% increase from 2021.

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

In addition, increases in gross profit in our outcome-based and telecom specialties were partially offset by increases in certain expenses in most of our specialties in the SET business unit, including those related to additional headcount and increased performance-based incentive compensation.

Education reported earnings of $18.5 million in 2022, compared to earnings of $3.0 million in 2021.

The change was primarily due to the increase in revenue resulting from improved demand for our services as compared to 2021, coupled with operating leverage.

2022 results also include earnings of $3.8 million from PTS acquired in May 2022.

Outsourcing & Consulting reported a loss of $21.2 million in 2022, compared to earnings of $18.7 million in 2021, due primarily to a charge of $41.0 million related to the impairment of goodwill of RocketPower in 2022.

International reported earnings of $9.9 million in both 2022 and 2021.

The decline in earnings due to the sale of operations in Russia was nearly offset by growth in most geographies.

Results of Operations

6 unchanged sentences

however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period.

The impact of the COVID-19 crisis on our business began in March 2020.

While we have yet to return to pre-crisis revenue levels, we have experienced improving demand for our services and expect a sustained recovery throughout 2022.

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

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Cash, cash equivalents and restricted cash totaled $162.4 million at year-end 2022, compared to $119.5 million at year-end 2021.

As further described below, during 2021, we generated $85.0 million of cash from operating activities, used $180.7 million of cash for investing activities and used $8.1 million of cash for financing activities.

As further described below, during 2022, we used $76.3 million of cash for operating activities, generated $167.5 million of cash from investing activities and used $50.6 million of cash for financing activities.

Operating Activities

In 2021, we generated $85.0 million of net cash from operating activities, as compared to generating $186.0 million in 2020 and generating $102.2 million in 2019.

Net cash from operating activities in 2020 benefited from a deferral of $117.0 million of U.S.

federal payroll taxes.

Net cash from operating activities in 2021 included $29.7 million of cash outflows related to the repayment of the payroll tax deferral.

The change from 2020 to 2021 was primarily due to the impact of changes in the payroll tax deferral, partially offset by the favorable impact of improving global DSO.

The change from 2019 to 2020 was primarily due to the deferral of payroll tax payments, partially offset by the impact of higher global DSO.

In 2022, we used $76.3 million of net cash for operating activities, as compared to generating $85.0 million in 2021 and generating $186.0 million in 2020.

Net cash used for operating activities in 2022 and 2021 included $86.8 million and $29.7 million, respectively, of cash outflows related to the repayment of U.S.

payroll taxes originally deferred in 2020.

Net cash from operating activities in 2020 benefited from the deferral of $117.0 million of U.S.

payroll taxes.

In addition, in 2022 we paid $48.4 million of income taxes related to the sale of Persol Holdings common stock.

The change from 2021 to 2022 was primarily due to the impact of payments related to the payroll tax deferral, income tax payments related to the sale of Persol Holdings common stock and increased working capital requirements.

Trade accounts receivable totaled $1.5 billion at year-end 2022 and $1.4 billion at year-end 2021.

Global DSO for the fourth quarter was 61 days for 2022, compared to 60 days for 2021.

DSO at year-end 2020 reflected the impact of customer-driven administrative issues among a limited number of large customers which were resolved in early 2021.

Our working capital position (total current assets less total current liabilities) was $493.5 million at year-end 2021, a decrease of $130.5 million from year-end 2020.

Excluding the decrease in cash, working capital decreased $20.2 million from year-end 2020.

The current ratio (total current assets divided by total current liabilities) was 1.5 at year-end 2021 and 1.7 at year-end 2020.

Accounts payable and accrued liabilities was $723.3 million and increased from year-end 2021 as a result of increased MSP supplier payables.

The change from 2020 to 2021 was primarily due to the deferral of payroll tax payments, partially offset by the impact of higher global DSO.

Our working capital position (total current assets less total current liabilities) was $586.4 million at year-end 2022, an increase of $92.9 million from year-end 2021.

Excluding the increase in cash, working capital increased $51.9 million from year-end 2021.

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

Investing Activities

In 2021, we used $180.7 million of net cash for investing activities, compared to generating $9.8 million in 2020 and using $94.3 million in 2019.

In 2022, we generated $167.5 million of net cash from investing activities, compared to using $180.7 million in 2021 and generating $9.8 million in 2020.

Included in cash generated from investing activities in 2022 is $196.9 million of proceeds from the sale of the investment in Persol Holdings, $119.5 million of proceeds from the sale of almost all of the Company's shares in our equity investment in PersolKelly and $10.1 million of proceeds from the sale of land and other real property.

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 our operations in Russia in July 2022, net of proceeds.

Included in cash used for investing activities in 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.

1 unchanged sentence

Included in cash generated from investing activities in 2020 is $55.5 million of proceeds representing the cash received, net of transaction expenses, for the sale of three headquarters properties as a part of a sale and leaseback transaction and $5.6 million received from a payment on the loans to PersolKelly Pte.

This was partially offset by cash used for the acquisitions of Insight in January 2020 and Greenwood/Asher in November 2020.

This was partially offset by cash used for the acquisitions of

Insight in January 2020 and Greenwood/Asher in November 2020.

Cash used for the acquisition of Insight totaled $36.4 million, net of the cash received and including working capital adjustments.

Cash used for the acquisition of Greenwood/Asher totaled $2.8 million, net of the cash received and including working capital adjustments.

Included in cash used for investing activities in 2019 is $50.8 million for the acquisition of NextGen in January 2019, net of cash received, $35.6 million for the acquisition of GTA in January 2019, net of cash received, and $4.4 million for loans to

PersolKelly Pte.

to fund working capital requirements.

These uses of cash were partially offset by proceeds of $13.8 million primarily from the sale of unused land during the second quarter of 2019.

Capital expenditures totaled $12.0 million in 2022, $11.2 million in 2021 and $15.5 million in 2020.

Capital expenditures in 2021 primarily related to the Company's IT infrastructure, technology programs and headquarters building improvements.

Capital expenditures in both 2022 and 2021 primarily related to the Company's IT infrastructure, technology programs and headquarters furniture and fixtures.

Capital expenditures in 2020 primarily related to the Company's headquarters leasehold improvements, IT infrastructure and technology programs.

Capital expenditures in 2019 primarily related to the Company’s technology programs.

Financing Activities

In both 2021 and 2020, we used $8.1 million of cash for financing activities, as compared to using $16.1 million in 2019.

Changes in net cash from 2019 financing activities were primarily related to dividend payments.

In 2022, we used $50.6 million of cash for financing activities, as compared to using $8.1 million in both 2021 and 2020.

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 February 2022, $7.8 million in share repurchases of the Company's Class A common stock in the fourth quarter of 2022 and the year-over-year change in dividend payments.

Dividends paid per common share were $0.275 in 2022, $0.10 in 2021 and $0.075 in 2020.

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

There was no debt at year-end 2021 and debt was $0.3 million at year-end 2020.

Debt totaled $0.7 million at year-end 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 year-end 2021 and 2020.

Our ratio of debt-to-total capital was 0.1% at year-end 2022 and 0.0% at year-end 2021.

In 2022, the net change in short-term borrowings was primarily due to borrowings on local lines of credit.

In 2021 and 2020, the net change in short-term borrowings was primarily due to payments on local lines of credit.

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Accrued retirement benefits 197.5 23.4 46.7 46.9 80.5

Accrued payroll taxes 87.1 29.5 57.6 — —

Other liabilities 7.4 2.2 4.2 0.6 0.4

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We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities.

Additional funding sources could include asset-based lending, additional bank facilities or sale of non-core assets.

Additional funding sources could include additional bank facilities or sale of non-core assets.

To meet significant cash requirements related to our nonqualified retirement plan, we may utilize proceeds from Company-owned life insurance policies.

1 unchanged sentence

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

Such remaining deferrals are required to be repaid by January 3, 2023.

We have repaid the $117.0 million deferred payroll tax balances, including $29.5 million in the first quarter of 2022 and $57.3 million in the fourth quarter of 2022.

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 2021 year end, these reviews have not resulted in plans to repatriate foreign subsidiary cash.

As of the 2022 year end, 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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Throughout 2022 and as of the 2022 year end, we met the debt covenants related to our revolving credit facility and securitization facility.

At year-end 2021, we also had additional unsecured, uncommitted short-term credit facilities totaling $8.1 million, under which we had no borrowings.

At year-end 2022, we also had additional unsecured, uncommitted short-term credit facilities totaling $5.9 million, under which we had $0.7 million of borrowings.

Details of our debt facilities as of the 2022 year end are contained in the Debt footnote in the notes to our consolidated financial statements.

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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 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.

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

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

We expect our working capital requirements to increase if demand for our services increases.

We also expect to use $42.2 million of cash for repurchases of the Company's Class A common stock during 2023 pursuant to the $50.0 million plan approved by the Company's board of directors on November 9, 2022.

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.

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

The transactions will be complete in the first quarter of 2022.

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

In 2022, the Company paid $48.4 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.

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We retain an independent consulting actuary to establish ultimate loss forecasts for the current and prior accident years of our insurance and self-insurance programs.

The consulting actuary establishes loss development factors, based on our historical claims experience as well as industry experience, and applies those factors to current claims information to derive an estimate of our ultimate claims liability.

The consulting actuary establishes loss development factors and loss rates, based on our historical claims experience as well as industry experience, and applies those factors to current claims information to derive an estimate of our ultimate claims liability.

In preparing the estimates, the consulting actuary may consider factors such as the nature, frequency and severity of the claims;

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We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred.

Generally accepted accounting principles require that goodwill be tested for impairment at a reporting unit level.

GAAP requires that goodwill be tested for impairment at a reporting unit level.

For segments with a goodwill balance, we have determined that our reporting units are the same as our operating and reportable segments based on our organizational structure or one level below our operating segments (the component level).

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If the carrying value of the net assets assigned to a reporting unit exceeds the estimated fair value of a reporting unit, goodwill is deemed impaired and is written down to the extent of the difference.

To derive the estimated fair value of a reporting unit, we primarily relied on an income approach.

For the step one quantitative test, we determine the fair value of our reporting units using the income approach.

Under the income approach, estimated fair value is determined based on estimated future cash flows discounted by an estimated market participant weighted-average cost of capital, which reflects the overall level of inherent risk of the reporting unit being measured.

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expected future revenue growth rates, profit margins and discount rate.

The goodwill resulting from the acquisition of RocketPower during the first quarter of 2022 was allocated to the OCG reportable segment and RocketPower was deemed to be a separate reporting unit.

The goodwill resulting from the acquisition of PTS during the second quarter of 2022 was allocated to the Education reportable segment and PTS was deemed to be a separate reporting unit.

The goodwill resulting from the acquisition of Softworld during the second quarter of 2021 was allocated to the SET reportable segment and Softworld was deemed to be a separate reporting unit.

The goodwill resulting from the acquisition of Greenwood/

Asher during the fourth quarter of 2020 was allocated to the Education reportable segment, which was deemed to be a reporting unit.

See the Acquisitions and Disposition footnote in the notes to our consolidated financial statements for more information.

See the Acquisitions and Dispositions footnote in the notes to our consolidated financial statements for more information.

We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2022.

We performed a step one quantitative test for the Softworld reporting unit.

As a result of the quantitative assessment, we determined that the estimated fair value of the Softworld reporting unit was more than its carrying value.

Additionally, we performed a step zero qualitative analysis for the Education reporting unit to determine whether a further quantitative analysis was necessary and concluded that a step one quantitative analysis was not necessary.

As a result of the quantitative and qualitative assessments, the Company determined goodwill was not impaired as of year-end 2021.

We performed a step one quantitative test for the Softworld and PTS reporting units.

As a result of the quantitative assessment, we determined that the estimated fair value of the Softworld and PTS reporting units was more than its carrying value.

Additionally, we performed a step zero qualitative analysis for the Education and RocketPower reporting units to determine whether a further quantitative analysis was necessary and concluded that a step one quantitative analysis was not necessary at that time.

As a result of the quantitative and qualitative assessments, the Company determined goodwill related to these reporting units was not impaired at that time.

During 2022, customers within the high-tech industry vertical, in which RocketPower specializes, reduced or eliminated their full-time hiring, reducing demand for RocketPower's services, and on-going economic uncertainty has more broadly impacted the growth in demand for RPO in the near-term.

These changes in market conditions therefore caused a triggering event requiring an interim impairment test for goodwill as of the third quarter of 2022.

Job eliminations in the high-tech industry vertical continued during the fourth quarter of 2022, indicating a broad, sustained reduction in hiring was likely and is now expected to last through much of 2023, directly impacting RocketPower and the demand for RocketPower's services in this vertical.

These changes in market conditions caused another triggering event requiring an interim impairment test for goodwill as of year-end 2022.

We performed an interim step one quantitative test for RocketPower’s goodwill and determined that the estimated fair value of the reporting unit no longer exceeded the carrying value as of third quarter-end and year-end 2022.

Based on the result of our interim goodwill impairment test, we recorded a goodwill impairment charge of $30.7 million in the third quarter of 2022 and we recorded an additional goodwill impairment charge of $10.3 million to write off the remaining balance of RocketPower’s goodwill in the fourth quarter of 2022, for a total goodwill impairment charge of $41.0 million as of year-end 2022.

Our analysis used significant assumptions, including:

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Different assumptions of the anticipated future results and growth from our business could result in an impairment charge, which would decrease operating income and result in lower asset values on our consolidated balance sheet.

The estimated fair value of the Softworld reporting unit exceeds the carrying value by more than 10%.

As a measure of sensitivity of the fair value of the reporting unit, while holding all other assumptions constant, an increase in the discount rate of 100 basis points or a decrease of 100 basis points in the revenue growth rate assumptions for each forecasted period used to determine the fair value of the reporting unit would not result in an impairment of goodwill.

During the first quarter of 2020, negative market reaction to the COVID-19 crisis, including declines in our common stock price, caused our market capitalization to decline significantly compared to the fourth quarter of 2019, causing a triggering event.

Therefore, we performed an interim step one quantitative test for our previous reporting units with goodwill, Americas Staffing and GTS, and determined that the estimated fair values of both reporting units no longer exceeded their carrying values.

Based on the result of our interim goodwill impairment test as of the first quarter of 2020, we recorded a goodwill impairment charge of $147.7 million to write off the entire goodwill balance.

In the fourth quarter of 2020, the Company elected to perform a step zero qualitative analysis to determine whether a further quantitative assessment was necessary for the reporting unit with goodwill.

The step zero test included making judgments and assessments to determine whether any events or circumstances have occurred that makes it more likely than not that the fair value of a reporting unit is less than its carrying amount.

As a result of this qualitative assessment, a step one quantitative analysis was not deemed necessary and the goodwill was not impaired.

The estimated fair value of the Softworld and PTS reporting units exceeds the carrying value by more than 10%.

As a measure of sensitivity of the fair value for the Softworld and PTS reporting units, while holding all other assumptions constant, an increase in the discount rate of 100 basis points or a decrease of 100 basis points in the revenue growth rate assumptions for each forecasted period used to determine the fair value of both reporting units would not result in an impairment of goodwill.

We completed our annual impairment test for all reporting units with goodwill in the fourth quarter for the fiscal year ended 2021.

We performed a step one quantitative test for the Softworld reporting unit.

As a result of the quantitative assessment, we determined that the estimated fair value of the Softworld reporting unit was more than its carrying value.

As a result of the quantitative and qualitative assessments, the Company determined goodwill was not impaired as of year-end 2021.

At year-end 2022 and 2021, total goodwill amounted to $151.1 million and $114.8 million, respectively.

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For further discussion, see the Contingencies footnote in the notes to our consolidated financial statements.

At both year-end 2021 and 2020, the gross accrual for litigation costs amounted to $1.4 million which is included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

At year-end 2022 and 2021, the gross accrual for litigation costs amounted to $2.3 million and $1.4 million, respectively, which is included in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

NEW ACCOUNTING PRONOUNCEMENTS

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Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors.

Ltd., risks associated with conducting business in foreign countries, including foreign currency fluctuations, the exposure to potential market and currency exchange risks relating to our investment in Persol Holdings, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission.

The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changing market and economic conditions, the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brands, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with certain equity investments, including with strategic partners, risks associated with conducting business in foreign countries, including foreign currency fluctuations, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission.

Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

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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-K

Item 7. Management’s Discussion and Analysis