What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 157 added, 249 removed, 114 unchanged (78% of the section changed)

1 unchanged sentence

Executive Overview

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.

As we entered 2024, challenging staffing market dynamics continued as 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 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, 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 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.

These dynamics put pressure on our business, but we remain focused on capturing growth where it exists and positioning our resources to take advantage of even greater opportunities when conditions improve.

We remain focused on the future and are building on the aggressive actions we took in 2023 as part of our transformation journey.

We continue to build on the goals of our transformation activities to improve Kelly’s profitability and accelerate growth over the long term.

Our business unit and enterprise function teams, together with the Transformation Management Office, continue to make progress on multiple initiatives to drive organizational efficiency and effectiveness.

We are also committed to finding new avenues of growth.

This includes a refreshed go-to-market strategy with a comprehensive approach to delivering the full suite of Kelly solutions to our large enterprise customers that is intended to capture a greater share of wallet as we move into 2024.

We also remain committed to delivering the highest quality of service to all customers regardless of spend or size.

In our P&I segment, for example, we have enhanced our local delivery model and rolled out our Kelly Now mobile application across the U.S.

to meet the needs of clients and talent.

We completed the sale of our European staffing operations on January 2, 2024.

We move forward with a further streamlined operating model focused on North American staffing and global MSP and RPO solutions.

Together 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 as we move forward in 2024 and beyond.

Financial Measures

The constant currency (“CC”) change amounts refer to the year-over-year percentage changes resulting from translating 2023 financial data into U.S.

dollars using the same foreign currency exchange rates used to translate financial data for 2022.

We believe that CC measurements are a useful measure, indicating the actual trends of our operations without distortion due to currency fluctuations.

We use CC results when analyzing the performance of our segments and measuring our results against those of our competitors.

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

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

Reported percentage changes were computed based on actual amounts in thousands of dollars.

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

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

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

Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Reported and CC percentage changes were computed based on actual amounts in thousands of dollars.

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

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

the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.

Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported.

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Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer.

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

the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.

Results of Operations

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(Dollars in millions)

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

First Quarter

2024 2023 % Change

Revenue from services $ 1,045.1 $ 1,268.3 (17.6) %

Gross profit 205.7 254.1 (19.1)

SG&A expenses excluding restructuring charges 213.0 231.1 (7.8) 676.2 705.8 (4.2)

Restructuring charges 15.4 — NM 27.6 1.5 NM

SG&A expenses excluding restructuring, depreciation, and amortization 178.0 227.3 (21.7)

Restructuring charges 2.3 6.6 (64.7)

Total SG&A expenses excluding depreciation and amortization 180.3 233.9 (22.9)

Depreciation and amortization 10.2 9.5 7.7

Total SG&A expenses 190.5 243.4 (21.7)

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 (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 — — NM — 0.8 NM

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

Gain on sale of EMEA staffing operations (11.6) — NM

Earnings from operations 26.8 10.7 150.2

Gain on forward contract 1.2 — NM

Other income (expense), net 1.8 2.0 (8.8)

Earnings before taxes 29.8 12.7 134.6

Income tax expense 4.0 1.8 128.0

Net earnings $ 25.8 $ 10.9 135.7 %

Gross profit rate 19.7 % 20.0 % (0.3) pts.

20.1 % 20.4 % (0.3) pts.

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 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.

Gross profit decreased 5.1% on a reported basis and 6.3% on a constant currency basis.

The gross profit rate decreased 20 basis points due primarily to a decrease in permanent placement revenue and higher employee-related costs, partially offset by favorable business mix.

First Quarter Results

Revenue from services in the first quarter decreased 17.6%, which primarily reflects the January 2, 2024 sale of our EMEA staffing operations.

Excluding the impact from the sale, revenue from services decreased 2.6%.

This decline reflects revenue declines in Professional & Industrial, Science, Engineering & Technology and Outsourcing & Consulting, partially offset by increases in the Education segment.

Compared to the first quarter of 2023 and excluding the impact from the sale, revenue from staffing services decreased 0.5% and revenue from outcome-based services decreased 5.9%.

In addition, revenue from talent solutions decreased 5.7% and permanent placement revenue decreased 32.2% from the prior year, excluding the impact from the sale.

Gross profit decreased 19.1% largely driven by the sale of our EMEA staffing operations.

Excluding the impact from the sale, gross profit decreased 8.3%.

The gross profit rate decreased 30 basis points or 120 basis points excluding the impact from the sale.

These decreases are due primarily to unfavorable business mix and a decrease in permanent placement revenue.

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 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 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 gross profit rate decreased in all segments.

Total SG&A expenses decreased 21.7%, primarily due to the sale of our EMEA staffing operations.

Excluding this impact, SG&A expenses decreased 10.3%.

Included in SG&A expenses in the first quarter of 2024 and 2023 were $2.3 million and $6.6 million of transformation and restructuring charges, respectively.

Actions taken in the first quarter of 2024 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.

Actions taken in the first quarter of 2023 reflected management undertaking actions to further our cost management efforts in response to the demand levels and reflected a repositioning of our P&I staffing business to better capitalize on opportunities in local markets.

In addition, SG&A expenses in 2024 include $5.6 million of transaction-related costs arising from the sale of our EMEA staffing operations.

Excluding the impact from the sale, as well as transaction, transformation and restructuring charges, SG&A expenses decreased 11.6% 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.

The gain on sale of EMEA staffing operations relates to the completion of the sale in January 2024 in which we have recognized a gain of $11.6 million as of the first quarter-end 2024.

Earnings from operations for the first quarter of 2024 totaled $26.8 million, compared to $10.7 million in the first quarter of 2023.

The increase is primarily related to the $11.6 million gain on the sale of our EMEA staffing operations in the first quarter of 2024, a decrease of $4.3 million in transformation and restructuring charges, and the impact of lower SG&A compared to the prior year, partially offset by $5.6 million of transaction costs directly related to the sale of our EMEA staffing operations and the impact of lower revenue compared to the prior year.

Gain on forward contract of $1.2 million represents the gain recognized in the first quarter of 2024 for the settlement of the foreign currency forward contract in January 2024 that was entered into in 2023 relating to the sale of the EMEA staffing operations.

Income tax expense was $4.0 million for the first quarter of 2024 and $1.8 million for the first quarter of 2023.

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 $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 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 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 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 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.

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 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 $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.

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 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.

The net earnings for the period were $25.8 million, compared to $10.9 million for the first quarter of 2023.

Operating Results By Segment

(Dollars in millions)

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

First Quarter

2024 2023 % Change

Revenue from Services:

4 unchanged sentences

International — 195.8 (100.0)

Intersegment revenue (5.0) (0.3) NM (15.1) (0.9) NM

Intersegment revenue (0.5) (0.5) —

Consolidated Total $ 1,045.1 $ 1,268.3 (17.6) %

Third Quarter Results

First Quarter Results

Professional & Industrial revenue from services decreased 11.0%.

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

Revenue from outcome-based services increased by 3.0%.

Revenue from outcome-based services decreased by 3.7% due primarily from lower demand for our call-center solutions.

Revenue from permanent placement fees declined 42.4%.

1 unchanged sentence

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

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 10.7% due to increased demand.

Science, Engineering & Technology revenue from services decreased 6.2% 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 40.1% and revenues from outcome-based services increased 4.9%.

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.

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 3.5%, 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.

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.

Revenue in our outcome-based services decreased by 8.8% and permanent placement fees declined 23.4%.

Education revenue from services increased 16.2%, driven by higher fill rates and increased demand for our services as compared to a year ago, reflecting the impact of net new customer wins and improving demand from existing customers.

Outsourcing & Consulting revenue from services decreased 5.7% as revenue declined in RPO and MSP, partially offset by increasing revenue in PPO.

International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our P&I segment.

The P&I segment information for 2023 has been recast to conform to the new structure.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2023 2022 Change 2023 2022 Change

First Quarter

2024 2023 Change

Gross Profit:

7 unchanged sentences

Professional & Industrial 17.8 % 18.0 % (0.2) pts.

17.7 % 18.2 % (0.5) pts.

Science, Engineering & Technology 22.3 23.3 (1.0)

3 unchanged sentences

Consolidated Total 19.7 % 20.0 % (0.3) pts.

20.1 % 20.4 % (0.3) pts.

Third Quarter Results

First 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.

In comparison to the prior year, the gross profit rate decreased 20 basis points.

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 also decreased 70 basis points due to lower permanent placement revenues and unfavorable business mix, partially offset by lower employee-related costs.

The gross profit rate also decreased 100 basis points due to unfavorable business mix and lower permanent placement revenues.

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

The gross profit rate decreased 40 basis points due to unfavorable business mix, pa rtially offset by lower employee-related costs.

The gross profit rate decreased 130 basis points due primarily to unfavorable customer mix and lower permanent placement revenues from higher education executive search.

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 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 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.

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 40 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 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 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.

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.

The gross profit rate decreased 360 basis points primarily due to a change in business mix within this segment and higher employee-related costs in PPO.

The unfavorable business mix was primarily driven by declines in revenue in RPO and MSP, which generates higher margins and improving PPO revenue which generates lower margins.

International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our P&I segment.

The P&I segment information for 2023 has been recast to conform to the new structure.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

SG&A Expenses:

First Quarter

2024 2023 % Change

SG&A Expenses (excluding depreciation and amortization):

Professional & Industrial $ 58.0 $ 73.4 (20.9) %

5 unchanged sentences

Consolidated Total $ 180.3 $ 233.9 (22.9) %

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 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 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 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.

Total SG&A expenses in Education increased 14.8% 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 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 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 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.

First Quarter Results

Total SG&A expenses excluding depreciation and amortization in Professional & Industrial decreased 20.9% from the prior year, or 17.7% excluding restructuring charges of $0.1 million in the first quarter of 2024 and $3.0 million in the first quarter of 2023.

Total SG&A expenses excluding depreciation and amortization in Science, Engineering & Technology decreased 12.5% from the prior year, primarily due to lower salary-related costs and lower performance-based incentive compensation expenses.

Lower salary-related costs reflect the response to lower revenue volume compared to the prior year, as well as the impact of transformation-related actions.

Total SG&A expenses excluding depreciation and amortization in Education increased 0.3% from the prior year.

Costs related to increased year-over-year revenue levels were offset by the impact of transformation-related actions.

Total SG&A expenses excluding depreciation and amortization in Outsourcing & Consulting decreased 11.1% from the prior year, primarily due to lower performance-based incentive compensation expenses.

International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our P&I segment.

The P&I segment information for 2023 has been recast to conform to the new structure.

Corporate expenses increased 28.4% from the prior year primarily due to EMEA staffing operations transaction-related costs and transformation-related charges, partially offset by lower legal settlement costs.

Operating Results By Segment (continued)

(Dollars in millions)

Third Quarter September Year to Date

2023 2022 % Change 2023 2022 % Change

Earnings (Loss) from Operations:

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

First Quarter

2024 2023 % Change

Business Unit Profit (Loss)

Professional & Industrial $ 5.9 $ (1.2) NM %

Science, Engineering & Technology 18.2 18.5 (1.3)

Education 18.1 15.4 17.7

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

Outsourcing & Consulting (1.8) (0.1) NM

International — (0.7) 100.0

Business Unit Profit (Loss) 40.4 31.9 26.8

Corporate (15.0) (11.7) (28.3)

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

Gain on sale of assets — — NM — 5.3 NM

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.

Gain on sale of EMEA staffing operations 11.6 — NM

Depreciation and amortization (10.2) (9.5) 7.7

Consolidated Total Earnings from Operations $ 26.8 $ 10.7 150.2 %

First Quarter Results

Professional & Industrial reported profit of $5.9 million for the quarter, compared to a loss of $1.2 million 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.

Science, Engineering & Technology reported profit of $18.2 million for the quarter, a 1.3% 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 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 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.

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 $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 $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.

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.

Corporate expenses increased $16.3 million year-over-year primarily due to $15.2 million of restructuring charges related to ongoing transformation activities.

Education reported profit of $18.1 million for the quarter, compared to $15.4 million a year ago.

The change was primarily due to higher revenue and gross profit.

Outsourcing & Consulting reported a loss of $1.8 million for the quarter, compared to a loss of $0.1 million a year ago.

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

International reflects the sale of our EMEA staffing operations in January 2024 and the transfer of our Mexico operations to our P&I segment.

The P&I segment information for 2023 has been recast to conform to the new structure.

Corporate expenses increased $3.3 million year-over-year primarily due to EMEA staffing operations transaction-related costs and transformation-related charges, partially offset by lower legal settlement costs.

Financial Condition

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Cash, Cash Equivalents and Restricted Cash

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.

Cash, cash equivalents and restricted cash totaled $208.9 million at the end of the first quarter of 2024 and $167.6 million at year-end 2023, including $33.5 million held for sale.

As further described below, we used $25.5 million of cash for operating activities, generated $72.1 million of cash from investing activities and used $4.7 million of cash for financing activities.

Operating Activities

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 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 1.6 at the end of the third quarter of 2023 and 1.5 at year-end 2022.

In the first three months of 2024, we used $25.5 million of net cash for operating activities, as compared to using $13.5 million in the first three months of 2023, primarily due to increased working capital requirements.

Trade accounts receivable totaled $1.2 billion at the end of the first quarter of 2024.

Global DSO was 58 days at the end of the first quarter of 2024 and 59 days at year-end 2023, including amounts held for sale, and 59 days at the end of the first quarter of 2023.

Our working capital position (total current assets less total current liabilities) was $639.3 million at the end of the first quarter of 2024, an increase of $32.6 million from year-end 2023, excluding amounts held for sale as of year-end 2023.

Our working capital position increased primarily as a result of lower accounts payable balances caused by the normalization of payment timing.

The current ratio (total current assets divided by total current liabilities) was 1.8 at the end of the first quarter of 2024 and 1.6 at year-end 2023.

Investing Activities

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.

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 and $6.0 million of cash disposed from the sale of Russia in July 2022, net of proceeds.

In the first three months of 2024, we generated $72.1 million of cash from investing activities, as compared to using $2.2 million in the first three months of 2023.

Included in cash generated from investing activities in the first three months of 2024 is $77.1 million of proceeds from the sale of the EMEA staffing operations, net of cash disposed.

This was partially offset by $3.7 million of cash used for capital expenditures as well as $2.4 million of cash used for the settlement of the foreign currency forward contract in January 2024 in connection with the sale of the EMEA staffing operations.

I ncluded in the cash used from investing activities in the first three months of 2023 is $4.4 million of cash used for capital expenditures, partially offset by a gain of $2.0 million for the receipt of earnout proceeds in connection with an investment that was sold in 2021.

Financing Activities

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 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 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.

We used $4.7 million of cash for financing activities in the first three months of 2024, as compared to using $24.8 million in the first three months of 2023.

The change in cash used for financing activities was primarily related to the buyback of the Company's common shares in the first three months of 2023 which represented repurchases of the Company's Class A common stock as part of the share repurchase program.

Dividends paid per common share were $0.075 in the first three months of 2024 and 2023.

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.

Our ratio of debt-to-total capital was 0.0% at the end of the first quarter of 2024 and 2023.

New Accounting Pronouncements

Management has evaluated recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

See New Accounting Pronouncements footnote in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a description of new accounting pronouncements.

Critical Accounting Estimates

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

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

We periodically review our foreign subsidiaries’ cash balances and projected cash needs.

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 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.

A cash pooling arrangement (the “Cash Pool”) is available to fund general corporate needs internationally.

We assess and monitor our liquidity and capital resources globally.

We use a global cash pooling arrangement (the "Cash Pool"), intercompany loans, dividends, capital contributions, redemptions and local lines of credit to meet funding needs and allocate our capital resources among our various subsidiaries.

The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance;

individual accounts may be positive or negative.

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

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.

Together, the revolving credit and securitization facilities provide the Company with committed funding capacity that may be used for general corporate purposes subject to financial covenants and restrictions.

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

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

We periodically review our foreign subsidiaries’ cash balances and projected cash needs.

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 2024, these reviews have not resulted in specific plans to repatriate a majority of our international cash balances.

In addition, as of the first quarter of 2024, $33.5 million of our international cash balances were included in the assets divested related to the sale of our EMEA staffing operations (see the Disposition footnote in the notes to our consolidated financial statements for more details).

The Company continues to provide MSP, RPO and Functional Service Provider solutions in the EMEA region.

Therefore, we expect much of our remaining international cash will be needed to fund working capital growth in our local operations.

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 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.

On January 2, 2024, the Company completed the sale of its EMEA staffing operations to Gi Group Holdings S.P.A.

and received cash proceeds of $110.6 million or $77.1 million net of cash disposed.

The foreign currency forward contract that the Company entered into on November 2, 2023 to manage the foreign currency risk associated with the transaction was settled on January 5, 2024.

A total loss of $2.4 million was realized upon settlement on the contract.

The Company expects to receive additional cash proceeds related to the sale to reflect the cash-free, debt-free transaction basis, as well as working capital and other adjustments.

The Company has recorded a receivable of $26.9 million representing the adjustments that are determinable which is expected to be received in the third quarter of 2024.

The Company entered into a foreign currency forward contract on February 8, 2024 to manage the foreign currency risk associated with the additional expected proceeds.

See the Disposition and Fair Value Measurements footnotes in the notes to our consolidated financial statements for more details.

As of the first quarter of 2024, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and $103.9 million of available capacity on our $150.0 million securitization facility.

The securitization facility carried no short-term borrowings and $46.1 million of standby letters of credit related to workers’ compensation.

As of the end of the first quarter of 2024, we met the debt covenants related to our revolving credit facility and securitization facility.

On May 2, 2024, the Company, MRP Merger Sub, Inc.

(“Merger Sub”), a newly-formed, wholly owned subsidiary of the Company, MRP Topco (“Topco”), the indirect parent company of Motion Recruitment Partners, LLC (“Motion”), and Littlejohn Fund V, L.P.

(“Littlejohn”), in its capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby the Company would indirectly acquire 100% of the equity interests in Motion by

way of a merger of Merger Sub with and into Topco, with Topco surviving the merger (the “Merger”).

The Company will pay cash at close of $425.0 million, subject to customary adjustments for cash, indebtedness, working capital and transaction expenses.

The transaction is expected to close in the second quarter of 2024, subject to regulatory approvals and other customary closing conditions.

In addition, further cash consideration of up to $60.0 million may be due in the second quarter of 2025 if certain conditions are satisfied during an earnout period ending on March 31, 2025.

The earnout payment is based on a multiple of gross profit in excess of an agreed-upon amount during the earnout period.

We are also in the process of refinancing our revolving credit facility and securitization facility and expect it to be completed by the second quarter of 2024.

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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis