What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 150 added, 146 removed, 213 unchanged (58% of the section changed)

1 unchanged sentence

Executive Overview

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

The third quarter marked continued macroeconomic headwinds and further deceleration of the staffing 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.

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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.

• Our Education segment continued to report significant year-over-year growth driven by improved fill rates, strong demand from existing customers, and net new customer wins.

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

• 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.

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

We have 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.

The actions we have taken to date included restructuring actions in the quarter.

In addition, work has continued throughout the third quarter to:

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

• Renegotiate supplier agreements and real estate contracts

• Align our workforce to achieve a streamlined organizational structure

• Further focus efforts to accelerate growth over both the short- and long-term

These changes represent structural shifts in Kelly’s operations and are delivering meaningful improvement to the Company’s EBITDA margin which we expect to continue through the end of 2023 and beyond.

Financial Measures

18 unchanged sentences

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

4 unchanged sentences

Total SG&A expenses 228.4 231.1 (1.2) 703.8 707.3 (0.5)

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

Asset impairment charge — — NM 2.4 — NM

Goodwill impairment charge — 30.7 NM — 30.7 NM

Loss on disposal — 0.2 NM — 18.7 NM

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

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

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

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

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 of affiliate 5.6 7.1 (20.6) 18.3 (54.3) NM

Earnings (loss) from operations 0.1 (21.4) NM 17.0 10.2 67.0

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

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

Other income (expense), net 1.6 0.2 NM 3.0 1.9 55.9

Earnings (loss) before taxes and equity in net earnings of affiliate 1.7 (21.2) NM 20.0 (75.5) NM

Income tax expense (benefit) (4.9) (5.0) 0.1 (5.0) (13.1) 61.8

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

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

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

Net earnings (loss) $ 6.6 $ (16.2) NM % $ 25.0 $ (61.6) NM %

Gross profit rate 20.4 % 20.6 % (0.2) pts.

20.1 % 20.4 % (0.3) 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.

Third Quarter Results

Revenue from services in the third quarter decreased 4.3% on a reported basis and 5.8% on a constant currency basis.

The revenue decline in constant currency reflects revenue declines in Professional & Industrial, Science, Engineering & Technology, Outsourcing & Consulting, and International segments, partially offset by increases in the Education segment.

The sale of our Russian operations in July 2022 resulted in a 40 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%.

Compared to the third quarter of 2022, revenue from staffing services decreased 4.2% and revenue from outcome-based services increased 1.6%.

In addition, revenue from talent solutions decreased 6.8% and permanent placement revenue decreased 26.3% from the prior year.

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

The gross profit rate decreased in all segments.

The gross profit rate decreased in Science, Engineering & Technology, International, Outsourcing & Consulting, and Education segments while the Professional & Industrial segment gross profit rate increased.

Total SG&A expenses decreased 1.2% on a reported basis and 2.4% 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.

Included in SG&A expenses in the third quarter of 2023 was $15.4 million of transformation and restructuring charges.

Actions taken in the third quarter of 2023 were a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative.

The actions build on the strategic progress to monetize non-core assets, reinvest capital in organic and inorganic growth initiatives, and shift to higher-margin, higher-growth business mix.

Excluding transformation and restructuring charges, SG&A expenses decreased 7.8% on a reported basis and 9.1% on a constant currency basis and were primarily due to structural workforce reductions as part of our transformation initiatives, as well as lower performance-based incentive compensation expenses in response to lower revenue volume.

Earnings from operations for the third quarter of 2023 totaled $0.1 million, compared to a loss of $21.4 million in the third quarter of 2022.

The increase is primarily related to the impact of the prior year goodwill impairment, partially offset by the impact of our 2023 transformation and restructuring charges and the impact of lower SG&A expenses compared to the prior year.

Income tax benefit was $4.9 million for the third quarter of 2023 and income tax benefit was $5.0 million for the third quarter of 2022.

Included in the 2023 benefit is $5.1 million related to the reversal of the valuation allowance on deferred tax assets in Germany.

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

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It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets and the tax effects of stock compensation, which are treated as discrete since they cannot be estimated.

The net earnings for the period 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 net earnings for the period were $6.6 million, compared to a loss of $16.2 million for the third quarter of 2022.

September Year-to-Date Results

Revenue from services in the first nine months of 2023 decreased 3.4% on a reported basis and 3.8% 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 2022 acquisitions of RocketPower, a RPO solutions provider, and PTS, a specialty firm that provides in-school therapy services, added approximately 50 basis points to the year-to-date revenue growth rate.

This was offset by a 170 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%.

Compared to the first nine months of 2022, revenue from staffing services decreased 4.2% and revenue from outcome-based services increased 8.0%.

In addition, revenue from talent solutions decreased 6.0% and permanent placement revenue, which is included in revenue from services, decreased 32.9% from the prior year.

Gross profit decreased 5.0% on a reported basis and 5.2% 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.

The gross profit rate decreased 30 basis points due primarily to lower permanent placement income and higher employee-related costs, partially offset by favorable business mix.

Included in gross profit for the first nine months of 2022 is a one-time permanent placement fee from a large customer, as well as an adjustment to prior periods workers' compensation expenses, resulting in 20 basis points of favorable impact.

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

Total SG&A expenses decreased 0.5% on a reported basis and 0.8% 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.

Included in SG&A expenses in the first nine months of 2023 was $27.6 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.

In the second and third quarters 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 4.2% on a reported basis and 4.5% 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.

The decrease in SG&A expenses primarily related to lower performance-based incentive compensation expenses in response to lower revenue volume, lower salary expenses as a result of transformation-related workforce reductions, as well as reduced expenses from the sale of our Russian operations in 2022.

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

The goodwill impairment charge in 2022 relates to our RocketPower business which delivers recruitment process outsourcing services primarily to customers in the high-tech industry and is included in the OCG segment.

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

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

Earnings from operations for the first nine months of 2023 totaled $17.0 million, compared to $10.2 million in the first nine months of 2022.

The increase is primarily related to the impact from the prior year goodwill impairment charge and loss on sale

of our Russia operations, partially offset by the impact of our 2023 transformation and restructuring charges, asset impairment charge, and the impact of lower revenue compared to the prior year in addition to the impact of the 2022 gain on sale of assets.

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

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.

Income tax benefit was $5.0 million for the first nine months of 2023 and $13.1 million for the first nine months of 2022.

Included in the 2023 benefit is $5.1 million related to the reversal of the valuation allowance on deferred tax assets in Germany.

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

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It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation and, 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.

The net earnings for the first nine months of 2023 were $25.0 million, compared to a net loss of $61.6 million from the first nine months of 2022.

This change was due to the Persol Holdings investment, including the first quarter 2022 sale and related impacts, the 2022 goodwill impairment charge, and the 2022 loss on disposal related to the sale of our Russian operations, partially offset by the 2023 transformation-related charges and higher operating earnings in the first nine months of 2022.

Operating Results By Segment

(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

7 unchanged sentences

Consolidated Total $ 1,118.0 $ 1,167.9 (4.3) % $ 3,603.5 $ 3,731.6 (3.4) %

Second Quarter Results

Third Quarter Results

Professional & Industrial revenue from services decreased 10.8%.

The decrease was due primarily to a 14.8% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates.

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

Revenue from outcome-based services increased by 3.0%.

Revenue from permanent placement fees declined 50.0%.

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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 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

Permanent placement fees declined 38.8% and revenue in our outcome-based services was flat to the prior year.

Education revenue from services increased 22.9%, driven by higher fill rates and increased demand for our services as compared to a year ago, reflecting the impact of strong demand from existing customers and new customer wins.

Outsourcing & Consulting revenue from services decreased 3.8% on a reported basis and 4.0% in constant currency, as revenue declined in RPO and MSP, partially offset by increasing revenue in PPO.

International revenue from services increased 2.4% on a reported basis and decreased 6.2% in constant currency.

The increase reflects an 860 basis points impact from foreign exchange during the quarter.

Excluding this impact, the decline reflects a 220 basis point decrease from 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.

This was partially offset by higher hours volume in Mexico and Portugal.

September Year-to-Date Results

Professional & Industrial revenue from services decreased 10.8%.

The decrease was due primarily to a 16.6% 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.

Revenue from outcome-based services increased 10.7% due to increased demand.

Science, Engineering & Technology revenue from services decreased 6.2% on a reported basis.

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Education revenue from services increased 34.8%, reflecting an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May 2022 which added 360 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.

The revenue increase reflects an increased fill rate and an increased demand for our services from existing customers and from net new customer wins.

Outsourcing & Consulting revenue from services decreased 2.7% 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.

On an organic basis, revenue declined 3.5%, due primarily to lower PPO and RPO revenue.

International revenue from services decreased 8.2% on a reported basis and decreased 11.2% in constant currency.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 Change 2023 2022 Change

15 unchanged sentences

20.1 % 20.4 % (0.3) 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 business mix.

Third Quarter Results

Gross profit for the Professional & Industrial segment decreased on lower revenue volume.

In comparison to the prior year, the gross profit rate increased 70 basis points.

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

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

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.

The gross profit rate also decreased 70 basis points due to lower permanent placement revenues and unfavorable business mix, partially offset by 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 gross profit rate decreased 40 basis points due to unfavorable business mix, pa rtially offset by lower employee-related costs.

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 driven by declines in revenue in RPO, which generates higher margins and improving PPO revenue which generates lower margins.

International gross profit increased 1.0% on a reported basis and decreased 7.6% 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.

Partially offsetting these impacts was improving gross profit primarily driven by higher revenue volume in Mexico and improved fee-based revenue in Germany which generates higher margins.

September Year-to-Date Results

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

In comparison to the prior year, the gross profit rate decreased 50 basis points.

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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.

The gross profit rate decreased 30 basis points due primarily to lower permanent placement fees and unfavorable business mix, 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.

The gross profit rate was flat to the prior year.

Decreased revenues in our high-margin RPO product were offset by higher fee-based income from outplacement services.

International gross profit decreased 8.2% on a reported basis and 11.1% in constant currency.

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

7 unchanged sentences

Consolidated Total $ 228.4 $ 231.1 (1.2) % $ 703.8 $ 707.3 (0.5) %

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.

Third Quarter Results

Total SG&A expenses in Professional & Industrial decreased 11.6% from the prior year, or 17.7% excluding restructuring charges of $4.0 million.

The decrease excluding restructuring charges 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 transformation-related actions.

Total SG&A expenses in Science, Engineering & Technology decreased 10.4% from the prior year, primarily due to lower performance-based incentive compensation expenses and lower salary-related costs.

Total SG&A expenses in Education increased 5.0% from the prior year, due primarily to higher salary-related expenses as headcount has increased as revenues have grown.

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

Total SG&A expenses in Outsourcing & Consulting increased 3.3% from the prior year, or decreased 1.5% excluding restructuring charges of $1.8 million.

The decrease excluding restructuring charges is primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in International decreased 0.7% on a reported basis and 8.7% 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

The constant currency decrease was mainly due to lower performance-based incentive compensation expenses and the impact of the sale of our Russian operations in July 2022.

Corporate expenses increased 37.8% from the prior year due to transformation-related charges.

Excluding restructuring and transformation charges of $8.3 million, expenses were flat compared to the prior year.

September Year-to-Date Results

Total SG&A expenses in Professional & Industrial decreased 9.9% from the prior year, or 13.4% excluding restructuring charges of $7.3 million.

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

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

Total SG&A expenses in Science, Engineering & Technology decreased 6.7% from the prior year, primarily due to lower performance-based incentive compensation expenses.

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Excluding the impact of the PTS acquisition, SG&A expenses increased 11.3% 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 Outsourcing & Consulting increased 4.7% from the prior year, or 2.8% excluding restructuring charges of $2.3 million, and includes the first quarter impact of the acquisition of RocketPower in March 2022.

Excluding restructuring charges and the impact of the RocketPower acquisition, SG&A expenses were flat to prior year.

Total SG&A expenses in International decreased 3.0% on a reported basis and 5.8% 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.

Corporate expenses increased 23.2% compared to the prior year due primarily to restructuring and transformation charges.

Excluding restructuring and transformation charges of $15.2 million, expenses increased 2.6% year-over-year.

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

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(Dollars in millions)

Second Quarter June Year to Date

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

Earnings from Operations:

Earnings (Loss) from Operations:

Professional & Industrial $ 7.8 $ 5.0 54.2 % $ 16.3 $ 27.1 (40.4) %

1 unchanged sentence

Education (2.6) (4.8) 44.8 22.3 8.8 152.7

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

Outsourcing & Consulting 2.5 (24.3) NM 5.2 (14.9) NM

International 2.5 1.9 27.5 3.2 9.1 (64.9)

Corporate (30.3) (21.9) (37.8) (86.7) (70.4) (23.2)

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

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

Gain on sale of assets — — NM — 5.3 NM

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

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.

Consolidated Total $ 0.1 $ (21.4) NM % $ 17.0 $ 10.2 67.0 %

Third Quarter Results

Professional & Industrial reported earnings of $7.8 million for the quarter, a 54.2% increase from a year ago.

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

Science, Engineering & Technology reported earnings of $20.2 million for the quarter, an 11.7% 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.

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.

Education reported a loss of $2.6 million for the quarter, compared to a loss of $4.8 million a year ago.

The change was primarily due to higher revenue and gross profit partially offset by higher expenses.

Outsourcing & Consulting reported earnings of $2.5 million for the quarter, compared to a loss of $24.3 million a year ago, due primarily to the $30.7 million charge related to the impairment of goodwill of RocketPower in the third quarter of 2022.

Excluding the goodwill impairment charge, earnings decreased from a year ago as a result of declines in revenue and gross profit as well as restructuring charges in 2023.

International reported earnings of $2.5 million for the quarter, compared to earnings of $1.9 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.

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

Corporate expenses increased $8.4 million year-over-year primarily due to $8.3 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.

September Year-to-Date Results

Professional & Industrial reported earnings of $16.3 million for the first nine months of 2023, a 40.4% 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.

Science, Engineering & Technology reported earnings of $56.7 million for the first nine months of 2023, an 11.2% 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.

Education reported earnings of $22.3 million for the first nine months of 2023, compared to earnings of $8.8 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.

Outsourcing & Consulting reported earnings of $5.2 million for the first nine months of 2023, compared to a loss of $14.9 million a year ago.

The increase in earnings was primarily due to the impact of the prior year $30.7 million charge related to

the impairment of goodwill of RocketPower, partially offset by the first quarter 2023 loss of $2.6 million from RocketPower, acquired in March 2022, the impact of a $2.4 million right-of-use asset impairment charge in the second quarter of 2023, the impact of the third quarter of 2023 restructuring charge and the impact of lower revenue and gross profit.

International reported earnings of $3.2 million for the first nine months of 2023, compared to earnings of $9.1 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.

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

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

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Cash, Cash Equivalents and Restricted Cash

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.

Cash, cash equivalents and restricted cash totaled $126.5 million at the end of the third quarter of 2023 and $162.4 million at year-end 2022.

As further described below, we generated $33.4 million of cash from operating activities, used $10.8 million of cash for investing activities and used $56.6 million of cash for financing activities.

Operating Activities

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.

In the first nine months of 2023, we generated $33.4 million of net cash from operating activities, as compared to using $111.7 million in the first nine months of 2022, primarily due to decreased working capital requirements.

Accounts receivable have decreased in the first nine 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 nine 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 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.

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

Global DSO was 63 days at the end of the third quarter of 2023, 61 days at year-end 2022 and 64 days at the end of the third quarter of 2022.

Our working capital position (total current assets less total current liabilities) was $566.2 million at the end of the third quarter of 2023, a decrease of $20.2 million from year-end 2022.

Excluding the decrease in cash, working capital increased $16.3 million from 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.

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

Investing Activities

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.

In the first nine months of 2023, we used $10.8 million of cash for investing activities, as compared to generating $167.7 million in the first nine months of 2022.

Included in cash used for investing activities in the first nine months of 2023 is $12.4 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 nine months of 2022 was $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.

Financing Activities

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.

We used $56.6 million of cash for financing activities in the first nine months of 2023, as compared to using $37.4 million in the first nine 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 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.

In the first nine months of 2023, the buyback of $42.2 million represents repurchases of the Company's Class A common stock as part of the share repurchase program.

In the first nine 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 were $0.075 in each of the first three quarters of 2023, $0.075 in both the second and third quarter of 2022, and $0.050 in the first quarter of 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 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.

There was no debt at the end of the third 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 nine months of 2023 were primarily due to payments on local lines of credit.

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

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

Our ratio of debt-to-total capital was 0.0% at the end of the third quarter of 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 second 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 third 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 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.

As of the third 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 second quarter of 2023, we met the debt covenants related to our revolving credit facility and securitization facility.

As of the end of the third 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 $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 repurchased $42.2 million of the Company's Class A common stock in fiscal 2023 pursuant to the $50.0 million share repurchase program, which was approved by the Company's board of directors in November 2022 and completed in August 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis