What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 211 added, 125 removed, 148 unchanged (69% of the section changed)

1 unchanged sentence

Executive Overview

We entered 2023 committed to continuing our pursuit of profitable growth, despite the ongoing macroeconomic and labor market headwinds.

As is typical during times of economic uncertainty, some segments of the economy are proving more resilient than others.

Likewise, Kelly’s specialty solutions—where we have intentionally focused our growth strategy—are proving more resilient than others.

Our specialty growth strategy paid off in several areas in the first quarter.

• Our Education segment continued to report significant top-line growth on improving fill rates and new customer wins.

• Our higher margin outcome-based solutions in P&I and SET continued to demonstrate resilient revenue and gross profit growth as customers continue to demand our value-added solutions.

• Our favorable organic business mix and higher-margin acquisitions continued to drive improvements in our gross profit rate.

• We proactively managed expenses, balancing cost management with ongoing investment in businesses that are delivering strong revenue growth.

• In the face of decreased demand for staffing services, we took action to reposition P&I staffing to capitalize on local market opportunities.

As we approach the three-year anniversary of Kelly’s operating model, it’s clear we have made progress on our growth journey.

We have grown gross profit and improved our gross margin percentage by shifting to a higher-margin, higher-growth business mix;

unlocked value by monetizing non-core assets;

and reinvested that capital in future growth through our inorganic and organic investments.

Now it is time for our progress to start yielding meaningful improvement to the bottom line.

To that end, we have initiated a comprehensive transformation initiative to optimize our business and functional operations in a sustainable manner;

unlock additional value-creating opportunities;

and accelerate profitable growth.

Specific milestones and targets will be established, and we are already underway:

• We are sharpening our focus on reducing organizational complexity and inefficiencies, and finding new avenues of growth.

• We have formed a Transformation Management Office and appointed a Chief Transformation Officer to identify value-creating opportunities across the enterprise and drive the necessary changes to realize these opportunities.

• We have engaged an outside consulting firm that brings deep business transformation expertise, world-class data and analytics capabilities, and a tested model to inform our efforts.

The business transformation initiative is a top priority in the year ahead and we expect to see improvement in our EBITDA margin in the near term.

Our goal is to build on the progress we’ve made in the last three years to create long-term structural improvements that will benefit our employees, the talent we place, our customers, and shareholders.

The second quarter marked a continuation of the macroeconomic and labor market dynamics we’ve observed for several quarters.

Employers in most sectors maintained a guarded approach to hiring and focused on retaining their current workforce amid ongoing economic uncertainty.

In more resilient pockets of the economy where employers are in need of talent, the supply of candidates to fill open roles remains constrained.

These dynamics continued to put pressure on our business during the quarter, and while we captured growth where it exists, their effects became more noticeable in certain parts of our portfolio.

• Our Education segment continued to report significant year-over-year growth driven by net new customer wins and improved fill rates.

• Our higher margin outcome-based solutions in P&I delivered solid revenue growth as demand for these value-added solutions remains strong.

• We continued to experience a deceleration in demand for temporary and permanent placement services, which impacted results in our P&I and SET segments.

• We maintained a disciplined approach to managing expenses while ensuring Kelly is well positioned to capture demand on the other side of the current economic cycle.

Amid ongoing economic uncertainty, we remained focused on the future and took aggressive action on our transformation journey to improve Kelly’s profitability and accelerate growth over the long term.

Since announcing the transformation in May, our business unit and enterprise function teams, together with the Transformation Management Office, have made substantial progress on multiple initiatives to drive organizational efficiency and effectiveness.

The actions we have taken to date culminated in a strategic restructuring, which we disclosed in July.

They include:

• Further optimizing our operating model to reduce complexity and increase agility

• Renegotiating supplier agreements and real estate contracts

• Revamping our enterprise-wide performance management process

• Implementing a workforce reduction plan to align our resources with our streamlined organizational structure

These changes represent structural shifts to Kelly’s operations and are expected to deliver an immediate and meaningful improvement to the Company’s EBITDA margin through the end of 2023 and beyond.

Financial Measures

18 unchanged sentences

(Dollars in millions)

First Quarter

2023 2022 % Change

Second Quarter June Year to Date

2023 2022 % Change 2023 2022 % Change

Revenue from services $ 1,217.2 $ 1,267.3 (3.9) % $ 2,485.5 $ 2,563.7 (3.0) %

1 unchanged sentence

SG&A expenses excluding restructuring charges 226.4 240.3 (5.8) 463.2 474.7 (2.4)

Restructuring charges 5.7 1.7 238.2

Restructuring charges 5.6 (0.2) NM 12.2 1.5 NM

Total SG&A expenses 232.0 240.1 (3.4) 475.4 476.2 (0.2)

Gain on sale of assets — (0.9) NM

Earnings (loss) from operations 10.7 23.4 (54.4)

Asset impairment charge 2.4 18.5 (86.8) 2.4 18.5 (86.8)

Gain on sale of assets — (4.4) NM — (5.3) NM

Earnings from operations 6.2 8.2 (23.1) 16.9 31.6 (46.4)

Loss on investment in Persol Holdings — — — — (67.2) NM

1 unchanged sentence

Other income (expense), net (0.6) (1.1) 40.2 1.4 1.7 (19.7)

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate 12.7 (61.4) NM

Earnings (loss) before taxes and equity in net earnings of affiliate 5.6 7.1 (20.6) 18.3 (54.3) NM

Income tax expense (benefit) (1.9) 4.9 (137.4) (0.1) (8.1) 99.3

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

Equity in net earnings of affiliate — — — — 0.8 NM

Net earnings (loss) $ 7.5 $ 2.2 237.2 % $ 18.4 $ (45.4) NM %

Gross profit rate 19.8 % 20.7 % (0.9) pts.

First Quarter Results

Revenue from services in the first quarter decreased 2.2% on a reported basis and 1.4% on a constant currency basis, and reflects revenue declines in Professional & Industrial, International, and Science, Engineering & Technology segments, partially offset by increases in Education and Outsourcing & Consulting segments.

Our 2022 acquisitions of RocketPower, an RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 140 basis points to the revenue growth rate, while the sale of our Russian operations in July 2022 resulted in a 230 basis points year-over-year decline in constant currency.

Compared to the first quarter of 2022, revenue from staffing services decreased 4.3% and revenue from outcome-based services increased 13.3%.

In addition, revenue from talent solutions increased 1.4% and permanent placement revenue decreased 34.2% from the prior year.

19.9 % 20.3 % (0.4) pts.

Second Quarter Results

Revenue from services in the second quarter decreased 3.9% on a reported basis and 4.5% on a constant currency basis, and reflects revenue declines in Professional & Industrial, Science, Engineering & Technology, International, and Outsourcing & Consulting segments, partially offset by increases in the Education segment.

The sale of our Russian operations in July 2022 resulted in a 230 basis points year-over-year decline in constant currency.

Compared to the second quarter of 2022, revenue from staffing services decreased 4.1% and revenue from outcome-based services increased 9.4%.

In addition, revenue from talent solutions decreased 11.7% and permanent placement revenue decreased 36.8% from the prior year.

Gross profit decreased 8.3% on a reported basis and 8.5% on a constant currency basis.

The gross profit rate increased 10 basis points due primarily to favorable product mix partially offset by a decrease in permanent placement revenue.

The gross profit rate decreased 90 basis points due primarily to a decrease in permanent placement revenue and higher employee related costs, partially offset by favorable business mix.

Permanent placement revenue has very low direct costs of services and has a disproportionate impact on gross profit rates.

The acquisitions of RocketPower and PTS, which generate higher margins, contributed to the favorable product mix.

Increases in the gross profit rate for Outsourcing & Consulting and Education were partially offset by a decrease in the gross profit rate in Professional & Industrial.

Total SG&A expenses increased 3.1% on a reported basis and 3.8% on a constant currency basis.

Included in SG&A expenses in the first quarter of 2023 was $5.7 million of restructuring charges.

Actions were taken to further our cost management efforts in response to current demand levels and to reposition our P&I staffing business to better capitalize on opportunities in local markets.

Excluding restructuring, SG&A expenses increased 1.4% on a reported basis and 2.1% on a constant currency basis.

SG&A expenses related to RocketPower and PTS, including intangible asset amortization expense and other operating expenses, accounted for approximately 220 basis points of the year-over-year increase.

The increase in SG&A expenses was partially offset by decreases in performance-based incentive compensation expenses and lower expenses resulting from the sale of our Russian operations in 2022.

Earnings from operations for the first quarter of 2023 totaled $10.7 million, compared to earnings of $23.4 million in the first quarter of 2022.

The decline is primarily related to the impact of our 2023 restructuring charge and the impact of lower revenue compared to the prior year.

The loss on investment in Persol Holdings and loss on currency translation from liquidation of subsidiary in 2022 are non-cash charges related to changes in the fair value of our investment in the common stock of Persol Holdings, the completion of the sale of the investment in the first quarter of 2022 and the liquidation of our Japanese subsidiary following the sale.

Income tax expense was $1.8 million for the first quarter of 2023 and income tax benefit was $13.0 million for the first quarter of 2022.

The variance primarily relates to the 2022 loss on investment in Persol Holdings.

The gross profit rate decreased in all segments.

Total SG&A expenses decreased 3.4% on a reported basis and 3.9% on a constant currency basis.

Included in SG&A expenses in the second quarter of 2023 was $5.6 million of transformation and restructuring charges.

Actions were taken that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness as part of a comprehensive transformation initiative.

Excluding transformation and restructuring charges, SG&A expenses decreased 5.8% on a reported basis and 6.3% on a constant currency basis.

The decrease in SG&A expenses primarily related to lower performance-based incentive compensation expenses in response to lower revenue volume in addition to reduced expenses from the sale of our Russian operations in 2022.

Impairment of assets in the second quarter of 2023 represents the impairment of right-of-use assets related to an unoccupied office space lease exited in the quarter.

Earnings from operations for the second quarter of 2023 totaled $6.2 million, compared to earnings of $8.2 million in the second quarter of 2022.

The decline is primarily related to the impact of our 2023 transformation and restructuring charges, the 2023 impairment charge, and the impact of lower revenue compared to the prior year partially offset by the net prior year impact of the impairment of assets held for sale and gain on sale of assets.

Income tax benefit was $1.9 million for the second quarter of 2023 and income tax expense was $4.9 million for the second quarter of 2022.

The variance primarily relates to changes in the cash surrender value of tax-exempt investments in life insurance policies and non-deductible impairment charges on our Russian investment in the second quarter of 2022.

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

The net earnings for the period were $10.9 million, compared to a net loss of $47.6 million for the first quarter of 2022.

The 2023 net earnings includes the restructuring charges, net of tax, and 2022 includes a loss on the sale of Persol Holdings and related loss on currency translation from liquidation of subsidiary, net of tax.

The net earnings for the period were $7.5 million, compared to earnings of $2.2 million for the second quarter of 2022.

June Year-to-Date Results

Revenue from services in the first six months of 2023 decreased 3.0% on a reported basis and 2.9% on a constant currency basis, and reflects revenue declines in Professional & Industrial, International, Science, Engineering & Technology, and Outsourcing & Consulting segments, partially offset by increases in the Education segment.

The first quarter impact of our acquisitions of RocketPower, a RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 70 basis points to the year-to-date revenue growth rate.

This was offset by a 230 basis points impact from the July 2022 sale of our Russian operations.

Compared to the first six months of 2022, revenue from staffing services decreased 4.2% and revenue from outcome-based services increased 11.3%.

In addition, revenue from talent solutions decreased 5.6% and permanent placement revenue, which is included in revenue from services, decreased 35.5% from the prior year.

Gross profit decreased 5.0% on a reported basis and 4.7% on a constant currency basis on lower revenue volume, combined with a decrease in the gross profit rate.

The gross profit rate decreased 40 basis points due primarily to unfavorable business mix and lower permanent placement income, partially offset by lower employee-related costs.

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

Permanent placement revenue, which is included in revenue from services and has very low direct costs of services, has a disproportionate impact on gross profit rates.

Total SG&A expenses decreased 0.2% on a reported basis and 0.1% on a constant currency basis.

Included in SG&A expenses in the first six months of 2023 was $12.2 million of transformation and restructuring charges.

In the first quarter of 2023, actions were taken to further our cost management efforts in response to current demand levels and to reposition our P&I staffing business to better capitalize on opportunities in local markets.

In the second quarter of 2023, additional actions were taken that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness as part of a comprehensive transformation initiative.

Excluding transformation and restructuring charges, SG&A expenses decreased 2.4% on a reported basis and 2.3% on a constant currency basis.

Impairment of assets in the second quarter of 2023 represents the impairment of right-of-use assets related to an unoccupied office space lease exited in the quarter.

Impairment of assets held for sale in the second quarter of 2022 related to our decision to transition 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 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.

Gain on sale of assets in the second quarter of 2022 related to the disposition of under-utilized real property located in the United States.

Earnings from operations for the first six months of 2023 totaled $16.9 million, compared to earnings of $31.6 million in the first six months of 2022.

The decline is primarily related to the impact of our 2023 transformation and restructuring charges, impairment charge, and the impact of lower revenue compared to the prior year, partially offset by the net prior year impact of the impairment of assets held for sale and gain on sale of assets.

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.

Loss on currency translation from liquidation of subsidiary represented 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.

Income tax benefit was $0.1 million for the first six months of 2023 and $8.1 million for the first six months of 2022.

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, 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 earnings for the first six months of 2023 were $18.4 million, compared to a net loss of $45.4 million from the first six months of 2022.

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

Operating Results By Segment

(Dollars in millions)

First Quarter

2023 2022 % Change

Second Quarter June Year to Date

2023 2022 % Change 2023 2022 % Change

Revenue from Services:

4 unchanged sentences

International 225.1 247.6 (9.1) 436.9 500.4 (12.7)

Intersegment revenue (3.7) (0.3) NM

Intersegment revenue (6.4) (0.3) NM (10.1) (0.6) NM

Consolidated Total $ 1,217.2 $ 1,267.3 (3.9) % $ 2,485.5 $ 2,563.7 (3.0) %

First Quarter Results

Second Quarter Results

Professional & Industrial revenue from services decreased 9.3%.

The decrease was due primarily to a 15.9% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates.

Revenue from outcome-based services increased by 14.9% as all specialties experienced an increase in demand.

Revenue from outcome-based services increased by 14.8%, primarily driven by continued demand increases.

Revenue from permanent placement fees declined 55.2%.

Science, Engineering & Technology revenue from services decreased 7.0%.

The revenue decline was driven by declines in hours volume in our staffing specialties and lower permanent placement fees, partially offset by higher outcome-based services revenue and higher bill rates in our staffing specialties.

Education revenue from services increased 43.9%, 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 34.8% reflecting the impact of higher fill rates, new customer wins and increased demand from existing customers.

Outsourcing & Consulting revenue from services increased 5.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

On an organic basis, revenue increased 2.6% in nominal currency and 4.0% in constant currency, as revenue growth in higher margin RPO and MSP products were partially offset by declines in PPO revenue.

The revenue decline was driven by declines in hours volume in our staffing specialties, partially offset by higher bill rates.

Permanent placement fees declined 48.9% and revenue in our outcome-based services increased 3.6%.

Education revenue from services increased 32.6%, reflecting an increased demand for our services as compared to a year ago, reflecting the impact of new customer wins and higher fill rates.

Outsourcing & Consulting revenue from services decreased 8.6% on a reported basis and 8.2% in constant currency, as revenue declined in RPO as well as in PPO.

International revenue from services decreased 9.1% on a reported basis and decreased 12.8% in constant currency.

The decrease was primarily the result of the sale of our Russian operations in July 2022.

Excluding this impact, revenue decreased 5.1% on a reported basis and 2.3% in constant currency, reflecting overall lower hours volume primarily in France and Switzerland, partially offset by revenue growth in Mexico, Portugal and Germany.

Excluding this impact, revenue increased 2.8% on a reported basis and decreased 1.3% in constant currency.

This decline reflects that certain customer programs are serviced by OCG in 2023 that were previously in International, as well as the impact of higher hours volume primarily in Portugal and Mexico, partially offset by lower hours volume in Ireland, UK, and France.

June Year-to-Date Results

Professional & Industrial revenue from services decreased 10.9%.

The decrease was due primarily to a 17.5% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates.

Revenue from outcome-based services increased 14.9% due to continued demand.

Science, Engineering & Technology revenue from services decreased 5.2% on a reported basis.

The decrease was driven by a decline in staffing services resulting from declines in hours volume in our staffing specialties, partially offset by higher bill rates.

Permanent placement fees were down 40.6% and revenues from outcome-based services increased 7.4%.

Education revenue from services increased 38.6%, 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 which added 480 basis points to the year-over-year revenue growth.

Increased demand for our services reflects new customer wins and an increased fill rate related to demand of existing customers.

Outsourcing & Consulting revenue from services decreased 2.2% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022.

On an organic basis, revenue declined 3.3%, due primarily to lower PPO revenue.

International revenue from services decreased 12.7% on a reported basis and decreased 13.3% in constant currency.

The decrease was primarily the result of the sale of our Russian operations in July 2022 and the servicing of certain customer programs by OCG in 2023 that were previously in International.

Revenues were also impacted by higher hours volume in Portugal and Mexico offset by lower volumes in France, Ireland and Switzerland.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2023 2022 Change

Second Quarter June Year to Date

2023 2022 Change 2023 2022 Change

Gross Profit:

7 unchanged sentences

Professional & Industrial 17.3 % 18.7 % (1.4) pts.

17.6 % 18.7 % (1.1) pts.

Science, Engineering & Technology 22.6 23.2 (0.6) 22.9 23.2 (0.3)

3 unchanged sentences

Consolidated Total 19.8 % 20.7 % (0.9) pts.

First Quarter Results

19.9 % 20.3 % (0.4) pts.

Second Quarter Results

Gross profit for the Professional & Industrial segment decreased on lower revenue volume and a decrease in the gross profit rate.

In comparison to the prior year, the gross profit rate decreased 140 basis points.

This decrease reflects lower permanent placement revenues and higher employee-related costs, partially offset by improved product mix.

This decrease reflects lower permanent placement revenues and higher employee-related costs, partially offset by improved business mix.

The Science, Engineering & Technology gross profit decreased on lower revenue volume.

The gross profit rate was flat to prior year.

Improved product mix was offset by lower permanent placement revenues and 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 50 basis points due primarily to the acquisition of PTS which generates higher margins, partially offset by unfavorable customer mix.

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

The gross profit rate increased 210 basis points primarily due to a change in product mix within this segment.

The gross profit rate decreased 60 basis points due to lower permanent placement revenues partially offset by improved business mix and lower employee-related costs.

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

The gross profit rate decreased 90 basis points due primarily to lower permanent placement fees and unfavorable customer mix.

The Outsourcing & Consulting gross profit decreased on lower revenue volume, combined with a decrease in the gross profit rate.

The gross profit rate decreased 80 basis points primarily due to a change in business mix within this segment.

The decrease was primarily driven by declines in revenue in RPO, which generates higher margins.

International gross profit decreased 9.5% on a reported basis and 13.1% in constant currency.

The decrease was primarily the result of the sale of our Russian operations in July 2022 and the servicing of certain customer programs by OCG in 2023.

Partially offsetting these impacts was improving gross profit primarily driven by higher revenue volume in Portugal and Mexico.

June Year-to-Date Results

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 110 basis points.

This decrease reflects lower permanent placement income and higher employee-related costs, partially offset by favorable business mix.

Science, Engineering & Technology gross profit decreased on lower revenue volume and a decrease in the gross profit rate.

The gross profit rate decreased 30 basis points due to lower permanent placement revenues partially offset by favorable business mix.

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

The gross profit rate decreased 20 basis points due primarily to lower permanent placement fees partially offset by lower employee-related costs.

Outsourcing & Consulting gross profit decreased on lower revenue volume.

The gross profit rate increased 50 basis points primarily due to a change in business 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 12.2% on a reported basis and 12.6% in constant currency.

The decrease was primarily the result of the sale of our Russian operations in July 2022, and lower revenue volume in France and Switzerland.

The decrease was primarily the result of the sale of our Russian operations in July 2022 and the servicing of certain customer programs by OCG in 2023.

Partially offsetting these impacts was improving gross profit primarily driven by higher revenue volume in Mexico, Portugal and Germany.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2023 2022 % Change

Second Quarter June Year to Date

2023 2022 % Change 2023 2022 % Change

SG&A Expenses:

6 unchanged sentences

Consolidated Total $ 232.0 $ 240.1 (3.4) % $ 475.4 $ 476.2 (0.2) %

First Quarter Results

Second Quarter Results

Total SG&A expenses in Professional & Industrial decreased 13.1% from the prior year.

The decrease is primarily due to lower salary-related costs as a result of cost management in response to lower revenue volume compared to the prior year as well as lower performance-based incentive compensation expenses.

Total SG&A expenses in Science, Engineering & Technology decreased 8.6% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in Education increased 12.9% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting decreased 5.4% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in International decreased 5.7% on a reported basis and 9.3% on a constant currency basis.

The constant currency decrease was mainly due to the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased 30.0% compared to the prior year, or 7.0% excluding restructuring and transformation charges of $5.1 million.

The increase excluding restructuring charges is primarily due to higher stock-based compensation and other employee benefit expenses.

June Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 9.2% from the prior year, or 11.3% excluding restructuring charges of $3.3 million.

The decrease excluding restructuring charges is primarily due to cost management in response to lower revenue volume compared to the prior year as well as lower performance-based incentive compensation expenses.

The decrease excluding restructuring charges is primarily due to lower salary-related and performance-based incentive compensation expenses in response to lower revenue volume.

Total SG&A expenses in Science, Engineering & Technology decreased 4.8% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in Education increased 28.2% 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 17.0% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown as well as increased performance-based incentive compensation expenses.

Total SG&A expenses in Outsourcing & Consulting increased 18.0% 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 9.2% from the prior year, primarily due to higher salary-related expenses as a result of headcount related to higher RPO and MSP revenue.

Total SG&A expenses in International decreased 2.3% on a reported basis and increased 0.5% on a constant currency basis.

The constant currency increase was mainly due to higher salary-related expenses, partially offset by the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased 4.3% compared to the prior year primarily due to litigation-related costs.

Total SG&A expenses in Education increased 20.2% from the prior year and includes the first quarter impact of the acquisition of PTS in May 2022.

Excluding the impact of the PTS acquisition, SG&A expenses increased 14.8% from the prior year, due primarily to higher salary-related and performance-based incentive compensation expenses as headcount has increased as revenues have grown.

Total SG&A expenses in Outsourcing & Consulting increased 5.4% from the prior year and includes the first quarter impact of the acquisition of RocketPower in March 2022.

Excluding the impact of the RocketPower acquisition, SG&A expenses increased 1.3% from the prior year, due primarily to higher salary-related costs, partially offset by lower performance-based incentive compensation expenses.

Total SG&A expenses in International decreased 4.0% on a reported basis and 4.5% on a constant currency basis.

This decrease was primarily due to the impact of the sale of our Russian operations in July 2022, partially offset by higher salary-related expenses in most countries and restructuring expenses in the first quarter of 2023.

Corporate expenses increased 16.5% compared to the prior year, or 3.7% excluding restructuring charges of $6.9 million.

The increase excluding restructuring charges is primarily due to litigation-related costs.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2023 2022 % Change

Earnings (Loss) from Operations:

Second Quarter June Year to Date

2023 2022 % Change 2023 2022 % Change

Earnings from Operations:

Professional & Industrial $ 6.2 $ 10.4 (41.5) % $ 8.5 $ 22.1 (61.9) %

2 unchanged sentences

Outsourcing & Consulting 1.6 6.4 (73.9) 2.7 9.4 (70.7)

International (0.3) 4.6 NM

International 1.0 2.6 (60.5) 0.7 7.2 (89.7)

Corporate (30.0) (23.1) (30.0) (56.4) (48.5) (16.5)

Gain on sale of assets — 0.9 NM

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

Gain on sale of assets — 4.4 NM — 5.3 NM

Consolidated Total $ 6.2 $ 8.2 (23.1) % $ 16.9 $ 31.6 (46.4) %

First Quarter Results

Professional & Industrial reported earnings of $2.3 million for the quarter, an 80.0% decrease from a year ago.

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

Science, Engineering & Technology reported earnings of $18.5 million for the quarter, a 10.2% decrease from a year ago.

The decrease in earnings was primarily due to declines in revenues and gross profit in most of our specialties within the SET business unit that were partially offset by lower expenses.

Second Quarter Results

Professional & Industrial reported earnings of $6.2 million for the quarter, a 41.5% decrease from a year ago.

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

Science, Engineering & Technology reported earnings of $18.0 million for the quarter, an 11.5% decrease from a year ago.

The decrease in earnings was primarily due to declines in revenue and gross profit in most of our specialties within the SET business unit that were partially offset by lower expenses.

Education reported earnings of $9.4 million for the quarter, compared to earnings of $5.6 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.

2023 results also include earnings of $2.7 million from PTS acquired in May 2022.

Outsourcing & Consulting reported earnings of $1.1 million for the quarter, compared to earnings of $3.0 million a year ago, due primarily to increasing costs, partially offset by higher revenue and gross profit.

2023 results also include a loss of $2.6 million from RocketPower acquired in March 2022.

International reported a loss of $0.3 million for the quarter, compared to earnings of $4.6 million a year ago.

The decrease in earnings was primarily due to lower hours volume in higher margin countries, higher salary-related expenses and the sale of our Russian operations in July 2022.

Outsourcing & Consulting reported earnings of $1.6 million for the quarter, compared to earnings of $6.4 million a year ago, due primarily to declines in revenue and gross profit and a $2.0 million right-of use-asset impairment charge, partially offset by lower expenses.

International reported earnings of $1.0 million for the quarter, compared to earnings of $2.6 million a year ago.

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

Impairment of assets held for sale in the second quarter of 2022 related to our decision to transition 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 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.

Gain on sale of assets in 2022 related to the disposition of under-utilized real property located in the United States.

Corporate expenses increased $6.9 million year-over-year primarily due to $5.1 million of restructuring charges related to ongoing transformation activities.

June Year-to-Date Results

Professional & Industrial reported earnings of $8.5 million for the first six months of 2023, a 61.9% decrease from a year ago.

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

Science, Engineering & Technology reported earnings of $36.5 million for the first six months of 2023, a 10.9% decrease from a year ago.

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

Education reported earnings of $24.9 million for the first six months of 2023, compared to earnings of $13.6 million a year ago.

The change was primarily due to the increase in revenue, coupled with good cost management.

2023 results also include the impact of first quarter earnings of $2.7 million from PTS acquired in May 2022.

Outsourcing & Consulting reported earnings of $2.7 million for the first six months of 2023, a 70.7% decrease from a year ago.

The decrease in earnings was primarily due to the impact of the first quarter loss of $2.6 million from RocketPower, acquired in March 2022, the impact of a $2.0 million right-of-use asset impairment charge and the impact of lower revenue and gross profit.

International reported earnings of $0.7 million for the first six months of 2023, compared to earnings of $7.2 million a year ago.

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

Impairment of assets held for sale in the second quarter of 2022 related to our decision to transition our business in Russia in May 2022.

Gain on sale of assets in 2022 related to the disposition of under-utilized real property located in the United States.

Corporate expenses increased $7.9 million year-over-year primarily due to $6.9 million of restructuring charges related to ongoing transformation activities.

Financial Condition

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Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash, totaled $121.1 million at the end of the first quarter of 2023 and $162.4 million at year-end 2022.

As further described below, we used $13.5 million of cash for operating activities, used $2.2 million of cash for investing activities and used $24.8 million of cash for financing activities.

Cash, cash equivalents and restricted cash totaled $134.5 million at the end of the second quarter of 2023 and $162.4 million at year-end 2022.

As further described below, we generated $23.4 million of cash from operating activities, used $7.7 million of cash for investing activities and used $45.4 million of cash for financing activities.

Operating Activities

In the first three months of 2023, we used $13.5 million of net cash for operating activities, as compared to using $106.1 million in the first three months of 2022, primarily due to decreased working capital requirements.

Accounts receivable have decreased in the first quarter of 2023 as a result of lower revenue and lower DSO.

In addition, we paid $29.5 million related to deferred U.S.

In the first six months of 2023, we generated $23.4 million of net cash from operating activities, as compared to using $107.3 million in the first six months of 2022, primarily due to decreased working capital requirements.

Accounts receivable have decreased in the first six months of 2023 as a result of lower revenue .

In addition, we paid $50.1 million of income taxes related to the sale of Persol Holdings common stock in the first six months of 2022 and $29.5 million related to deferred U.S.

payroll taxes in the first quarter of 2022.

Trade accounts receivable totaled $1.4 billion at the end of the first quarter of 2023.

Global DSO was 59 days at the end of the first quarter of 2023, 61 days at year-end 2022 and 62 days at the end of the first quarter of 2022.

Our working capital position (total current assets less total current liabilities) was $581.6 million at the end of the first quarter of 2023, a decrease of $4.8 million from year-end 2022.

Trade accounts receivable totaled $1.4 billion at the end of the second quarter of 2023.

Global DSO was 61 days at the end of the second quarter of 2023 and at year-end 2022 and 63 days at the end of the second quarter of 2022.

Our working capital position (total current assets less total current liabilities) was $573.3 million at the end of the second quarter of 2023, a decrease of $13.1 million from year-end 2022.

Excluding the decrease in cash, working capital increased $15.8 million from year-end 2022.

The current ratio (total current assets divided by total current liabilities) was 1.6 at the end of the first quarter of 2023 and 1.5 at year-end 2022.

The current ratio (total current assets divided by total current liabilities) was 1.5 at the end of the second quarter of 2023 and at year-end 2022.

Investing Activities

In the first three months of 2023, we used $2.2 million of cash for investing activities, as compared to generating $257.1 million in the first three months of 2022.

Included in cash used for investing activities in the first three months of 2023 is $4.4 million of cash used for capital expenditures primarily related to technology programs and IT infrastructure, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 2021.

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

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

In the first six months of 2023, we used $7.7 million of cash for investing activities, as compared to generating $175.6 million in the first six months of 2022.

Included in cash used for investing activities in the first six months of 2023 is $9.3 million of cash used for capital expenditures primarily related to technology programs and IT infrastructure, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 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 Pte.

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.

Financing Activities

We used $24.8 million of cash for financing activities in the first three months of 2023, as compared to using $30.7 million in the first three months of 2022.

We used $45.4 million of cash for financing activities in the first six months of 2023, as compared to using $33.9 million in the first six months of 2022.

The change in cash used for financing activities was primarily related to the year-over-year change in the buyback of the Company's common shares and the year-over-year change in dividend payments.

In the first quarter of 2023, the buyback of $18.3 million represents repurchases of the Company's Class A common stock as part of the share repurchase program.

In the first quarter of 2022, the $27.2 million represents the buyback of the Company's common shares held by Persol Holdings.

Dividends paid per common share wer e $0.075 in the first three months of 2023 and $0.05 in the first three months of 2022.

In the first six months of 2023, the buyback of $34.8 million represents repurchases of the Company's Class A common stock as part of the share repurchase program.

In the first six months of 2022, the $27.2 million represents the buyback of the Company's common shares held by Persol Holdings.

Dividends paid per common share wer e $0.075 in the first two quarters of 2023, $0.075 in Q2 2022 and $0.050 in Q1 2022.

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

There was no debt at the end of the first quarter of 2023 and debt totaled $0.7 million at year-end 2022, which represented local borrowings.

The changes in short-term borrowings in the first three months of 2023 and 2022 were primarily due to payments and borrowings on local lines of credit, respectively.

Debt-to-total capital (total debt reported in the consolidated balance sheet divided by total debt plus stockholders’ equity) is a common ratio to measure the relative capital structure and leverage of the Company.

Our ratio of debt-to-total capital was 0.0% at the end of the first quarter of 2023 and 0.1% at year-end 2022.

There was no debt at the end of the second quarter of 2023 and debt totaled $0.7 million at year-end 2022, which represented local borrowings.

The changes in short-term borrowings in the first six months of 2023 were primarily due to payments on local lines of credit.

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

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 2023 and 0.1% at year-end 2022.

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 first quarter of 2023, these reviews have not resulted in specific plans to repatriate a majority of our international cash balances.

As of the end of the second quarter of 2023, 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 first quarter of 2023, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $100.6 million of available capacity on our $150.0 million securitization facility.

As of the second quarter of 2023, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $100.6 million of available capacity on our $150.0 million securitization facility.

The securitization facility carried no short-term borrowings and $49.4 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 first quarter of 2023, we met the debt covenants related to our revolving credit facility and securitization facility.

As of the end of the second quarter of 2023, 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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We expect our working capital requirements to increase if demand for our services increases.

We also expect to use $23.9 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.

We also expect to use $7.4 million of cash for repurchases of the Company's Class A common stock for the remainder of 2023 pursuant to the $50.0 million plan approved by the Company's board of directors on November 9, 2022.

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

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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.

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.

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, (i) changing market and economic conditions, (ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, loss of large corporate customers and government contractor requirements, (iii) the impact of laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, (v) litigation and other legal liabilities (including tax liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business development, results of operations and financial condition, (viii) damage to our brands, (ix) dependency on third parties for the execution of critical functions, (x) conducting business in foreign countries, including foreign currency fluctuations, (xi) availability of temporary workers with appropriate skills required by customers, (xii) cyberattacks or other breaches of network or information technology security, and (xiii) 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-Q

Item 2. Management’s Discussion and Analysis