What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-08 compared with 2024-05-09 · 261 added, 100 removed, 553 unchanged (39% of the section changed)

4 unchanged sentences

(In millions of dollars except per share data)

13 Weeks Ended

2024 April 2,

13 Weeks Ended 26 Weeks Ended

2023 June 30,

Revenue from services $ 1,057.5 $ 1,217.2 $ 2,102.6 $ 2,485.5

2 unchanged sentences

Selling, general and administrative expenses 191.5 232.0 382.0 475.4

Gain on sale of EMEA staffing operations ( 11.6 ) —

Asset impairment charge 5.5 2.4 5.5 2.4

(Gain) loss on sale of EMEA staffing operations 10.0 — ( 1.6 ) —

Gain on sale of assets ( 5.5 ) — ( 5.5 ) —

Earnings from operations 12.2 6.2 39.0 16.9

2 unchanged sentences

Earnings before taxes 5.7 5.6 35.5 18.3

Income tax expense 4.0 1.8

Income tax expense (benefit) 1.1 ( 1.9 ) 5.1 ( 0.1 )

Net earnings $ 4.6 $ 7.5 $ 30.4 $ 18.4

9 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2024 April 2,

13 Weeks Ended 26 Weeks Ended

2023 June 30,

Net earnings $ 4.6 $ 7.5 $ 30.4 $ 18.4

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments, net of tax benefit of $0.0, and tax expense of $0.0, respectively ( 0.5 ) 2.3

Foreign currency translation adjustments, net of tax expense of $0.0, tax benefit of $0.1, tax expense of $0.0 and tax benefit of $0.1, respectively ( 2.0 ) 2.8 ( 2.5 ) 5.1

Reclassification adjustments included in net earnings — — ( 0.6 ) —

46 unchanged sentences

Noncurrent Liabilities

Long-term debt 210.4 —

Operating lease liabilities 49.6 42.9

23 unchanged sentences

(In millions of dollars)

13 Weeks Ended

2024 April 2,

13 Weeks Ended 26 Weeks Ended

2023 June 30,

Capital Stock

37 unchanged sentences

26 Weeks Ended

2024 April 2,

Cash flows from operating activities:

1 unchanged sentence

Adjustments to reconcile net earnings to net cash from operating activities:

Asset impairment charge 5.5 2.4

Gain on sale of EMEA staffing operations ( 1.6 ) —

Gain on sale of assets ( 5.5 ) —

Depreciation and amortization 17.6 17.2

6 unchanged sentences

Changes in operating assets and liabilities, net of acquisition ( 21.5 ) ( 27.5 )

Net cash used in operating activities ( 25.5 ) ( 13.5 )

Net cash from operating activities 32.2 23.4

Cash flows from investing activities:

1 unchanged sentence

Proceeds from sale of EMEA staffing operations, net of cash disposed 77.1 —

Proceeds from sale of assets 4.4 —

Acquisition of company, net of cash received ( 427.4 ) —

Payment for settlement of forward contract ( 2.4 ) —

1 unchanged sentence

Other investing activities 1.9 ( 0.4 )

Net cash from (used in) investing activities 72.1 ( 2.2 )

Net cash used in investing activities ( 353.1 ) ( 7.7 )

Cash flows from financing activities:

Net change in short-term borrowings — ( 0.7 )

Proceeds from long-term debt 378.6 —

Payments on long-term debt ( 168.2 ) —

Financing lease payments — ( 0.5 )

4 unchanged sentences

Other financing activities ( 1.3 ) —

Net cash used in financing activities ( 4.7 ) ( 24.8 )

Net cash from (used in) financing activities 201.6 ( 45.4 )

Effect of exchange rates on cash, cash equivalents and restricted cash ( 2.7 ) 1.8

9 unchanged sentences

26 Weeks Ended

2024 April 2,

Reconciliation of cash, cash equivalents and restricted cash:

16 unchanged sentences

There were no changes in accounting policies as disclosed in the Form 10-K.

The Company’s first fiscal quarter ended on March 31, 2024 and April 2, 2023, each of which contained 13 weeks.

The Company’s second fiscal quarter ended on June 30, 2024 and July 2, 2023, each of which contained 13 weeks.

The corresponding June year-to-date periods for 2024 and 2023 each contained 26 weeks.

Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year's presentation.

8 unchanged sentences

Prior to 2024, the Company also had an International operating segment (see Segment Disclosures footnote).

Following the sale of the Company's EMEA staffing operations in January 2024 (see Acquisition and Disposition footnote), the Mexico operations, which were previously in our International segment, are now included in our P&I segment.

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

Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services.

Our OCG segment delivers talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.

Our OCG and SET segments, following the acquisition of Motion Recruitment Partners, LLC which is included in the SET segment (see Acquisition and Disposition footnote), deliver talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.

The following table presents our segment revenues disaggregated by service type (in millions of dollars):

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

Professional & Industrial

7 unchanged sentences

Outcome-based services 103.2 95.9 193.1 194.5

Talent solutions 4.0 — 4.0 —

Total Science, Engineering & Technology 332.2 301.4 621.5 607.8

18 unchanged sentences

In 2023, our International segment included our staffing operations in Europe as well as Mexico, which is included in the Americas region.

After the sale of the Company's EMEA staffing operations in January 2024 (see Disposition footnote), the Mexico operations, which were previously in our International segment, are now included in our P&I segment.

The below table presents our revenues disaggregated by geography (in millions of dollars):

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

United States $ 944.2 $ 892.4 $ 1,877.8 $ 1,851.6

6 unchanged sentences

Portugal — 49.3 — 93.7

Italy — 16.5 — 33.4

Other 9.8 47.6 19.5 95.3

7 unchanged sentences

The below table presents revenues from our SET, OCG and former International segment, which previously included our Mexico operations, disaggregated by geographic region, (in millions of dollars):

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

Science, Engineering & Technology

11 unchanged sentences

Deferred Costs

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 2.3 million as of first quarter-end 2024 and $ 3.4 million as of year-end 2023.

Amortization expense for the deferred costs in the first quarter of 2024 and 2023 was $ 2.4 million.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $ 1.6 million as of second quarter-end 2024 and $ 3.4 million as of year-end 2023.

Amortization expense for the deferred costs in the second quarter and June year-to-date 2024 was $ 1.7 million and $ 4.1 million, respectively.

Amortization expense for the deferred costs in the second quarter and June year-to-date 2023 was $ 1.4 million and $ 3.8 million, respectively.

Credit Losses

The rollforward of our allowance for credit losses related to trade accounts receivable, which is recorded in trade accounts receivable, less allowance in the consolidated balance sheet, is as follows (in millions of dollars):

First Quarter

June Year to Date

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 5.2 $ 7.7

Write-offs are presented net of recoveries, which were not material for first quarter-end 2024 or 2023.

As of first quarter-end 2024, the Company has a receivable of $ 26.9 million related to the sale of our EMEA staffing operations (see Disposition footnote).

The Company has determined that no credit loss provision is required on this receivable as it is considered collectible.

No other allowances related to other receivables were material as of first quarter-end 2024 or 2023.

Write-offs are presented net of recoveries, which were not material for second quarter-end 2024 or 2023.

As of second quarter-end 2024, the Company has a receivable of $ 16.8 million related to the sale of our EMEA staffing operations (see Acquisition and Disposition footnote).

The Company has determined that no credit loss provision is required on this receivable as it is consid ered collectible.

No other allowances related to other receivables were material as of second quarter-end 2024 or 2023.

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisition and Disposition

On May 31, 2024, the Company indirectly acquired 100 % of the equity interests in Motion Recruitment Partners, LLC ("MRP") by way of a merger with MRP Merger Sub, Inc.

("Merger Sub"), a newly-formed, wholly owned subsidiary of the Company, with and into MRP Topco ("Topco"), the indirect parent company of MRP and Littlejohn Fund V, L.P.

("Littlejohn"), with Topco surviving the merger (the "Merger").

MRP is a parent company to a group of leading global talent solutions providers and the acquisition will strengthen the scale and capabilities of Kelly's solutions portfolio.

Under terms of the merger agreement, the $ 425.0 million purchase price was adjusted for estimated cash held by MRP at the closing date and estimated working capital adjustments, resulting in the Company paying cash of $ 440.0 million.

The acquisition was funded with cash on hand and available credit facilities (see Debt footnote).

Total consideration includes $ 3.4 million of contingent consideration related to an earnout payment with a maximum potential cash payment of $ 60.0 million in the event certain financial metrics are met per the terms of the agreement.

The earnout payment is based on a multiple of gross profit in excess of an agreed-upon amount during the earnout period, defined as the 12 months ending March 31, 2025, and any necessary payment is due to the seller in the second quarter of 2025.

The initial fair value of the earnout was established using a Monte Carlo simulation model and will be reassessed on a quarterly basis (see Fair Value Measurements footnote).

The merger agreement contains representations and warranties and covenants customary for a transaction of this nature.

The total consideration is as follows (in millions of dollars):

Cash consideration paid $ 425.0

Estimated cash acquired 13.6

Estimated net working capital adjustment 1.4

Total cash consideration 440.0

Additional consideration payable 3.4

Total consideration $ 443.4

The purchase price allocation for this acquisition is preliminary and could change.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):

Cash and equivalents $ 12.6

Trade accounts receivable 89.1

Prepaid expenses and other current assets 8.5

Net property and equipment 3.1

Operating lease right-of-use assets 11.9

Goodwill, net 221.5

Intangibles, net 145.9

Other assets, noncurrent 10.6

Accounts payable and accrued liabilities, current ( 12.1 )

Operating lease liabilities, current ( 4.0 )

Accrued payroll and related taxes, current ( 15.9 )

Income and other taxes, current ( 0.5 )

Operating lease liabilities, noncurrent ( 9.0 )

Other long-term liabilities ( 18.3 )

Total consideration, including working capital adjustments $ 443.4

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The fair value of the acquired receivables represents the contractual value net of the allowance for potentially uncollectible accounts.

Included in the assets purchased in the MRP acquisition was $ 145.9 million of intangible assets, made up of $ 88.1 million in customer relationships, $ 56.5 million associated with MRP's trade names, and $ 1.3 million for non-compete agreements.

The customer relationships will be amortized over 15 years with no residual value, the trade names will be amortized over 10 - 15 years with no residual value, and the non-compete agreements will be amortized over four years with no residual value.

Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue and operational synergies and was assigned to the SET operating segment (see Goodwill footnote).

None of the goodwill generated from the acquisition is expected to be deductible for tax purposes.

MRP's results of operations are included in the SET segment.

For the second quarter and June year-to-date 2024, our consolidated revenues and net earnings include $ 40.0 million and $ 1.6 million from MRP, respectively.

Pro Forma Information

The following unaudited pro forma information presents a summary of the operating results as if the MRP acquisition had been completed as of January 2, 2023 (in millions of dollars):

Second Quarter June Year to Date

2024 2023 2024 2023

Pro forma revenues $ 1,147.4 $ 1,357.5 $ 2,323.0 $ 2,769.9

Pro forma net earnings (loss) $ — $ 5.4 $ 23.2 $ 12.4

The pro forma results for the periods above include adjustments to amortization expense for the intangible assets, reversal of MRP's interest expense on credit facilities that were settled upon completion of the acquisition, interest expense and associated amortization of debt issuance costs for financing the acquisition, reclassification of transaction expenses to the appropriate period, and applicable taxes.

The unaudited pro forma information presented has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results.

Disposition of EMEA Staffing Operations

On January 2, 2024, the Company completed the sale of its EMEA staffing operations ("disposal group"), which was included in the Company's International operating segment, to Gi Group Holdings S.P.A.

Upon closing, the Company received cash proceeds of $ 110.6 million, or $ 77.1 million net of cash disposed, which is included in investing activities in the consolidated statements of cash flows.

The total gain on the transaction as of the first quarter-end 2024 is $ 11.6 million, which is recorded in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

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

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

The Company does not expect to receive any proceeds from the contingent consideration opportunity associated with the transaction.

Included in the gain as of first-quarter end 2024, the Company has recorded a euro-denominated receivable from Gi of $ 26.9 million representing the adjustments that are determinable and is expected to be received in the third quarter of 2024.

The receivable is included in prepaid expenses and other current assets in the consolidated balance sheet.

In the first quarter of 2024, the Company recorded a euro-denominated receivable from Gi of $ 26.9 million representing the adjustments that were determinable and expected to be received.

In the second quarter of 2024, the Company recorded negative working capital and other adjustments of $ 10.1 million, which reduced the net receivable from Gi to $ 16.8 million.

The Company expects to finalize all adjustments to the transaction proceeds and settle the net receivable from Gi by the end of 2024.

The receivable is included in prepaid expenses and other current assets in the consolidated balance sheet and included in the gain on the transaction.

The total gain on the transaction through second quarter-end 2024 is $ 1.6 million, which is recorded in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings.

The disposal group did not meet the requirements to be classified as discontinued operations as the sale did not have a material effect on the Company's operations and did not represent a strategic shift in the Company's strategy.

Our consolidated earnings from operations for the first quarter of 2023 included a loss of $ 1.3 million from the EMEA staffing operations.

Our consolidated earnings from operations for the second quarter 2023 and June year-to-date 2023 included a loss of $ 0.6 million and $ 1.9 million, respectively, from the EMEA staffing operations.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The major classes of divested assets and liabilities were as follows (in millions of dollars):

24 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities measured at fair value on a recurring basis as of first quarter-end 2024 and year-end 2023 in the consolidated balance sheet by fair value hierarchy level, as described below.

The following tables present assets and liabilities measured at fair value on a recurring basis as of second quarter-end 2024 and year-end 2023 in the consolidated balance sheet by fair value hierarchy level, as described below.

Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities.

1 unchanged sentence

Level 3 measurements include significant unobservable inputs.

As of First Quarter-End 2024

As of Second Quarter-End 2024

Description Total Level 1 Level 2 Level 3

5 unchanged sentences

EMEA staffing indemnification ( 2.0 ) — — ( 2.0 )

MRP earnout ( 3.4 ) — — ( 3.4 )

Total liabilities at fair value $ ( 8.0 ) $ — $ — $ ( 8.0 )

8 unchanged sentences

Money market funds

Money market funds represent investments in money market funds that hold government securities, of which $ 7.6 million as of first quarter-end 2024 and $ 8.0 million as of year-end 2023 are restricted as to use and are included in other assets in the consolidated balance sheet.

Money market funds represent investments in money market funds that hold government securities, of which $ 7.7 million as of second quarter-end 2024 and $ 8.0 million as of year-end 2023 are restricted as to use and are included in other assets in the consolidated balance sheet.

The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California.

The remaining money market funds as of first quarter-end 2024 and year-end 2023 are included in cash and equivalents in the consolidated balance sheet.

The remaining money market funds as of year-end 2023 are included in cash and equivalents in the consolidated balance sheet.

The valuations of money market funds are based on quoted market prices of those accounts as of the respective period end.

Forward contracts

On February 8, 2024, the Company entered into a foreign currency forward contract with a notional amount of € 17.0 million to manage the foreign currency risk associated with the additional expected proceeds in the third quarter of 2024 related to the sale of our EMEA staffing operations (see Disposition footnote).

The expected proceeds are recorded as a euro-denominated receivable which is remeasured each period.

The forward contract was designated as a fair value hedge, with the mark-to-market changes of the forward contract offsetting the mark-to-market changes of the receivable in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

The contract was valued using observable inputs, such as foreign

The forward contract was designated as a fair value hedge, with the mark-to-market changes of the forward contract offsetting the mark-to-market changes of the receivable in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings.

The contract was valued using observable inputs,

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

currency exchange rates, and is considered a level 2 liability.

The Company recorded an unrealized gain of $ 0.1 million for the first quarter 2024 with a net receivable associated with the forward contract of $ 0.1 million recorded in prepaid expenses and other current assets on the consolidated balance sheet.

such as foreign currency exchange rates, and is considered a level 2 liability.

In the first six months of 2024, the Company has recorded an unrealized gain of $ 0.2 million with a net receivable associated with the forward contract of $ 0.2 million recorded in prepaid expenses and other current assets on the consolidated balance sheet as of second quarter-end 2024.

On November 2, 2023, the Company entered into a foreign currency forward contract with a notional amount of € 90.0 million to manage the foreign currency risk associated with the sale of our EMEA staffing operations, which was completed on January 2, 2024.

6 unchanged sentences

Indemnification liabilities

During the first quarter of 2024, the Company recorded an indemnification liability for $ 2.1 million relating to the sale of our EMEA staffing operations in January 2024.

The liability is included in other long-term liabilities in the consolidated balance sheet and the expense is included in the gain on sale of EMEA staffing operations in the consolidated statements of earnings.

As of second quarter-end 2024, the Company had an indemnification liability totaling $ 2.0 million relating to the sale of our EMEA staffing operations in January 2024.

The liability is included in other long-term liabilities in the consolidated balance sheet and the associated expense is included in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings.

As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences for an indefinite term.

1 unchanged sentence

Management believes the risk of material exposure is remote.

The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital.

The initial valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital.

The valuation, which represents the fair value, is considered a level 3 liability, and is measured on a recurring basis.

As of first quarter-end 2024, the Company had an indemnification liability totaling $ 2.9 million with $ 0.1 million in accounts payable and accrued liabilities and $ 2.8 million in other long-term liabilities, and $ 3.0 million at year-end 2023, with $ 0.1 million in accounts payable and accrued liabilities and $ 2.9 million in other long-term liabilities in the consolidated balance sheet related to the 2020 sale of the Brazil operations.

During the second quarter of 2024, the Company recognized a decrease of $ 0.1 million to the indemnification liability related to exchange rate fluctuations.

As of second quarter-end 2024, the Company had an indemnification liability totaling $ 2.6 million with $ 0.1 million in accounts payable and accrued liabilities and $ 2.5 million in other long-term liabilities, and $ 3.0 million at year-end 2023, with $ 0.1 million in accounts payable and accrued liabilities and $ 2.9 million in other long-term liabilities in the consolidated balance sheet related to the 2020 sale of the Brazil operations.

As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing.

2 unchanged sentences

The valuation, which represents the fair value, is considered a level 3 liability, and is being measured on a recurring basis.

During the first quarter of 2024 and 2023 the Company recognized a decrease of $ 0.1 million and an increase of $ 0.1 million, respectively, to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

Earnout liability

During June year-to-date 2024 and 2023, the Company recognized a decrease of $ 0.3 million and an increase of $ 0.3 million, respectively, to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

Earnout liabilities

The Company recorded an earnout liability relating to the 2024 acquisition of MRP totaling $ 3.4 million in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisition and Disposition footnote).

The valuation of the earnout liability was initially established using the Monte Carlo simulation model and represented the fair value and is considered a level 3 liability.

The maximum total cash payment which may be due related to the earnout liability is $ 60.0 million.

The Company had previously recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher.

1 unchanged sentence

During the first quarter of 2023, the Company paid the remaining earnout liability totaling $ 3.3 million, representing the year two portion of the earnout.

In the consolidated statements of cash flows, $ 1.4 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities.

In the consolidated statements of cash flows, $ 1.4 million of the payment is reflected as a financing activity representing the initial fair value of the earnout liability, with the remainder flowing through operating activities.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Equity Investment Without Readily Determinable Fair Value

3 unchanged sentences

The measurement alternative represents cost, less impairment, plus or minus observable price changes.

The investment totaled $ 6.4 million as of first quarter-end 2024, representing total cost plus observable price changes to date.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The investment totaled $ 6.4 million as of second quarter-end 2024, representing total cost plus observable price changes to date.

Restructuring and Transformation Activities

In the first quarter of 2024, the Company incurred $ 2.3 million of restructuring charges and transformation fees as a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative.

The transformation activities include $ 1.1 million of severance and $ 1.2 million of costs to execute the transformation through the use of an external consultant.

The Company incurred restructuring charges and transformation fees of $ 4.3 million in the second quarter of 2024 and $ 6.6 million in June year-to-date 2024 as a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative.

The transformation activities include severance charges of $ 2.4 million and $ 3.5 million for the second quarter and June year-to-date 2024, respectively, and costs to execute the transformation including the use of an external consultant of $ 1.9 million and $ 3.1 million for the second quarter and June year-to-date 2024, respectively.

The severance and transformation costs are recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings.

The restructuring and transformation costs included in SG&A are detailed below for the first quarter of 2024 (in millions of dollars):

Additionally, in the second quarter of 2024, the Company recognized an impairment charge of $ 5.5 million for certain right-of-use assets related to our leased headquarters facility reflecting adjustments as to how we are utilizing the building as a part of our ongoing transformation efforts.

The impairment charge related to the right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings.

The restructuring and transformation costs included in SG&A are detailed below for the second quarter and June year-to-date 2024 (in millions of dollars):

Second Quarter 2024 June Year to Date 2024

Costs Transformation Costs Total Severance

Costs Transformation Costs Total

Professional & Industrial $ 0.3 $ — $ 0.3 $ 0.4 $ — $ 0.4

Science, Engineering & Technology 0.3 — 0.3 0.3 — 0.3

Outsourcing & Consulting — — — 0.6 — 0.6

1 unchanged sentence

Total $ 2.4 $ 1.9 $ 4.3 $ 3.5 $ 3.1 $ 6.6

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

The total costs incurred related to these transformation activities in the second quarter of 2023 totaled $ 8.0 million.

The transformation activities included $ 4.5 million of costs to execute the transformation initiatives through the use of an external consultant, a $ 2.4 million impairment charge for right-of-use assets related to an unoccupied office space lease and additional severance of $ 1.1 million, net of adjustments.

The impairment charge related to the right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings.

The costs to execute and severance are included in the $ 5.6 million of restructuring costs incurred in the second quarter of 2023, net of prior period adjustments, and are recorded in SG&A expenses in the consolidated statements of earnings, as detailed further below.

In the first quarter of 2023, the Company undertook restructuring actions to further our cost management efforts in response to the current demand levels and reflect a repositioning of our P&I staffing business to better capitalize on opportunities in local markets.

Restructuring costs incurred in the first quarter of 2023 totaled $ 6.6 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings.

The restructuring and transformation costs included in SG&A are detailed below for the first quarter of 2023 (in millions of dollars):

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The restructuring and transformation costs included in SG&A are detailed below for the second quarter and June year-to-date 2023 (in millions of dollars):

Second Quarter 2023 June Year to Date 2023

Costs Lease Termination Costs,

Transformation

and Other Total Severance

Costs Lease Termination Costs,

Transformation

and Other Total

6 unchanged sentences

Total $ 1.1 $ 4.5 $ 5.6 $ 5.7 $ 6.5 $ 12.2

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accrual Summary

5 unchanged sentences

Balance as of first quarter-end 2024 4.7

The remaining balance of $ 4.7 million as of first quarter-end 2024 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by the end of 2024.

Reductions for cash payments ( 4.4 )

Balance as of second quarter-end 2024 $ 4.6

The remaining balance of $ 4.6 million as of second quarter-end 2024 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by the end of 2024.

No material adjustments are expected to be recorded.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The changes in the carrying amount of goodwill through June year-to-date 2024 are included in the table below.

The goodwill resulting from the acquisition of MRP during the second quarter of 2024 was allocated to the SET reportable segment (see Acquisition and Disposition footnote).

Year-End 2023 Additions to Goodwill Impairment Adjustments As of Second

Quarter-End 2024

Science, Engineering & Technology $ 111.3 $ 221.5 $ — $ 332.8

Education 39.8 — — 39.8

Total $ 151.1 $ 221.5 $ — $ 372.6

Revolving Credit Facility

On May 29, 2024, the Company entered into an agreement with its lenders to amend and restate its existing $ 200.0 million, five-year revolving credit facility (the "Facility"), with a termination date of May 29, 2029.

The amendment (i) decreased the current borrowing capacity to $ 150.0 million, (ii) added the ability to increase the borrowing capacity to an aggregate of $ 300.0 million and (iii) changed certain of the terms and conditions.

The Facility is available to be used to fund working capital, acquisitions and general corporate needs.

The Facility is secured by certain assets of the Company, excluding U.S.

trade accounts receivable.

At the end of the second quarter of 2024, there were $ 63.0 million of long-term borrowings on the term benchmark line under the Facility and a remaining borrowing capacity of $ 87.0 million.

The rate for these borrowings, which varies based on the Company's leverage ratio as defined in the agreement, includes either (i) the Prime rate plus the applicable margin for the floating line or (ii) a term Secured Overnight Financing Rate ("SOFR") for 1-, 3-, or 6-months dependent on the interest election plus a 0.10 % margin and the applicable margin for the term benchmark line.

At year-end 2023, there were no borrowings under the Facility and a remaining borrowing capacity of $ 200.0 million.

To maintain availability of the funds, we pay a facility fee on the full amount of the Facility, regardless of usage.

The facility fee varies based on the Company’s leverage ratio as defined in the agreement.

The Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, had a facility fee of 15.0 basis points at the end of the second quarter of 2024 and year-end 2023.

The Facility’s financial covenants and restrictions are described below, all of which were met at the end of the second quarter of 2024:

• We must maintain a certain minimum interest coverage ratio of earnings before interest, taxes, depreciation, amortization (“EBITDA”) and certain cash and non-cash charges that are non-recurring in nature to interest expense as of the end of any fiscal quarter.

• We must maintain a certain maximum ratio of total indebtedness to the sum of net worth and total indebtedness at all times.

• Dividends, stock buybacks and similar transactions are limited to certain maximum amounts.

• We must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset sales and the type and scope of investments.

Securitization Facility

On May 29, 2024, the Company and Kelly Receivables Funding, LLC, a wholly owned bankruptcy remote special purpose subsidiary of the Company (the “Receivables Entity”), amended the Receivables Purchase Agreement related to its $ 150.0 million, three-year , securitization facility (the “Securitization Facility”).

The amendment (i) increased the current borrowing capacity to $ 250.0 million, (ii) includes the ability to increase the borrowing capacity to an aggregate of

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

$ 350.0 million and (iii) changed certain of the terms and conditions.

The Receivables Purchase Agreement will terminate May 28, 2027, unless terminated earlier pursuant to its terms.

Under the Securitization Facility, the Company will sell certain trade receivables and related rights (“Receivables”), on a revolving basis, to the Receivables Entity.

The Receivables Entity may from time to time sell an undivided variable percentage ownership interest in the Receivables.

The Securitization Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, also allows for the issuance of standby letters of credit (“SBLC”) and contains certain restrictions based on the performance of the Receivables.

At the end of the second quarter of 2024, the Securitization Facility had $ 147.4 million of long-term borrowings, SBLCs of $ 46.1 million related to workers’ compensation and a remaining capacity of $ 56.5 million.

The rate for these borrowings includes the adjusted daily SOFR plus a 0.10 % margin and a 1.10 % utilization rate on the amount of our borrowings.

The rate for the SBLCs of 1.10 % represents a utilization rate on the outstanding balance.

In addition, we pay a commitment fee of 40 basis points on the unused capacity.

At year-end 2023, the Securitization Facility had no borrowings, SBLCs of $ 49.4 million related to workers’ compensation at a utilization rate of 0.90 % and a remaining capacity of $ 100.6 million.

In addition, we paid a commitment fee of 40 basis points on the unused capacity in 2023.

The Receivables Entity’s sole business consists of the purchase or acceptance through capital contributions of trade accounts receivable and related rights from the Company.

As described above, the Receivables Entity may retransfer these receivables or grant a security interest in those receivables under the terms and conditions of the Receivables Purchase Agreement.

The Receivables Entity is a separate legal entity with its own creditors who would be entitled, if it were ever liquidated, to be satisfied out of its assets prior to any assets or value in the Receivables Entity becoming available to its equity holders, the Company.

The assets of the Receivables Entity are not available to pay creditors of the Company or any of its other subsidiaries, until the creditors of the Receivables Entity have been satisfied.

The assets and liabilities of the Receivables Entity are included in the consolidated financial statements of the Company.

KELLY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter 2024 and 2023 are included in the table below.

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year-to-date 2024 and 2023 are included in the table below.

Amounts in parentheses indicate debits.

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

(In millions of dollars)

16 unchanged sentences

Earnings Per Share

The reconciliation of basic and diluted earnings per share on common stock for the first quarter 2024 and 2023 follows (in millions of dollars except per share data):

First Quarter

The reconciliation of basic and diluted earnings per share on common stock for the second quarter and June year-to-date 2024 and 2023 follows (in millions of dollars except per share data):

Second Quarter June Year to Date

2024 2023 2024 2023

Net earnings $ 4.6 $ 7.5 $ 30.4 $ 18.4

7 unchanged sentences

Diluted earnings per share $ 0.12 $ 0.20 $ 0.83 $ 0.49

Potentially dilutive share awards are related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the first quarter of 2024 and 2023 (see Stock-Based Compensation footnote for a description of performance shares).

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the first quarter of 2024 and 2023.

Potentially dilutive share awards are related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the second quarter and June year-to-date 2024 and 2023 (see Stock-Based Compensation footnote for a description of performance shares).

Dividends paid per share for Class A and Class B common stock were $ 0.075 for the second quarter of 2024 and 2023 and $ 0.15 for June year-to-date 2024 and 2023 .

In November 2022, the Company's board of directors authorized a $ 50.0 million Class A share repurchase program, which was completed in August 2023.

During the first quarter of 2023, the Company repurchased 1,099,728 shares for $ 18.3 million.

The Company repurchased 982,565 shares for $ 16.5 million during the second quarter of 2023 and 2,082,293 shares for $ 34.8 million through June year-to-date 2023.

A total of 2,971,471 shares were repurchased under the share repurchase program at an average price of $ 16.83 per share.

Stock-Based Compensation

For the first quarter of 2024, the Company recognized stock compensation expense of $ 2.8 million and a related tax benefit of $ 0.7 million.

For the first quarter of 2023, the Company recognized stock compensation expense of $ 3.1 million and a related tax benefit of $ 0.3 million.

For the second quarter of 2024, the Company recognized stock compensation expense of $ 2.4 million and a related tax benefit of $ 0.6 million.

For the second quarter of 2023, the Company recognized stock compensation expense of $ 2.5 million and a related tax benefit of $ 0.4 million.

For June year-to-date 2024, the Company recognized stock compensation expense of $ 5.2 million and a related tax benefit of $ 1.3 million.

For June year-to-date 2023, the Company recognized stock compensation expense of $ 5.6 million and a related tax benefit of $ 0.7 million.

Performance Shares

During the first quarter of 2024, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers.

The payment of performance share awards is contingent upon the achievement of specific revenue growth and earnings before interest, taxes, depreciation and amortization ("EBITDA") margin performance goals ("financial measure performance share awards") over a stated period of time.

The payment of performance share awards is contingent upon the achievement of specific revenue growth and EBITDA margin performance goals ("financial measure performance share awards") over a stated period of time.

The maximum number of performance shares that may be earned is 200 % of the target shares originally granted.

3 unchanged sentences

No dividends are paid on these performance shares.

In December 2021, the Compensation Committee approved a retention-based grant of 308,000 financial measure performance awards to certain senior officers which may be earned upon achievement of three financial goals over a performance period beginning in fiscal 2022 through the third quarter of 2024, with each goal having a unique projected achievement date.

Each goal can be earned independent of the other two goals.

Any shares earned during the performance period will cliff-vest three

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

years after achievement of the respective performance goals and approval of the financial results by the Compensation Committee.

beginning in fiscal 2022 through the third quarter of 2024, with each goal having a unique projected achievement date.

Each goal can be earned independent of the other two goals.

Any shares earned during the performance period will cliff-vest three years after achievement of the respective performance goals and approval of the financial results by the Compensation Committee.

On May 7, 2024, the Compensation Committee confirmed the actual performance achievement for the final financial goal related to the 2021 retention-based grant, which was not achieved before the end of the performance period and resulted in no payout.

A summary of the status of all nonvested performance shares at target as of first quarter-end 2024 and changes during this period is presented as follows below (in thousands of shares except per share data).

A summary of the status of all nonvested performance shares at target as of second quarter-end 2024 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

The vesting adjustment in the table below

represents the 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.

represents 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level or was not achieved, and resulted in no payout.

Financial Measure

6 unchanged sentences

Vesting adjustment ( 107 ) 16.52

Nonvested at first quarter-end 2024 680 $ 18.41

Nonvested at second quarter-end 2024 568 $ 18.66

Restricted Stock

A summary of the status of nonvested restricted stock as of first quarter-end 2024 and changes during this period is presented as follows below (in thousands of shares except per share data).

A summary of the status of nonvested restricted stock as of second quarter-end 2024 and year-to-date changes is presented as follows below (in thousands of shares except per share data).

Shares Weighted Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 52 ) 18.68

Nonvested at first quarter-end 2024 911 $ 19.39

Nonvested at second quarter-end 2024 859 $ 19.46

KELLY SERVICES, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Sale of Assets

On June 10, 2024, the Company sold Ayers Group, a division of our OCG segment, for a purchase price of $ 7.5 million, subject to final closing adjustments.

The Company received cash proceeds of $ 4.5 million in the second quarter of 2024, representing the purchase price less the value of rights to certain receivables and deferred revenue retained by the Company, net of working capital adjustments in accordance with the agreement.

As of the date of the sale, the net carrying value of the assets was a credit balance of $ 1.0 million, resulting in a gain on the sale of $ 5.5 million which was recorded in gain on sale of assets in the consolidated statements of earnings.

The sale is a part of the Company's ongoing strategy to further optimize its operating model.

Other Income (Expense), Net

Included in other income (expense), net for the first quarter 2024 and 2023 are the following:

First Quarter

Included in other income (expense), net for the second quarter and June year-to-date 2024 and 2023 are the following:

Second Quarter June Year to Date

2024 2023 2024 2023

(In millions of dollars)

4 unchanged sentences

Other income (expense), net $ ( 6.5 ) $ ( 0.6 ) $ ( 4.7 ) $ 1.4

Included in Other for the first quarter of 2023 is a gain of $ 2.0 million for the receipt of earnout proceeds in connection with an investment that was sold in 2021.

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

The quarterly variance primarily relates to changes in pretax income.

Included in Other for second quarter and June year-to-date 2024 is $ 7.8 million of transaction costs related to the acquisition of MRP (see Acquisition and Disposition footnote).

Included in Other for June year-to-date 2023 is a gain of $ 2.0 million for the receipt of earnout proceeds in connection with an investment that was sold in 2021.

Income tax expense was $ 1.1 million for the second quarter of 2024 and income tax benefit was $ 1.9 million for the second quarter of 2023.

Income tax expense was $ 5.1 million for June year-to-date 2024 and income tax benefit was $ 0.1 million for June year-to-date 2023.

The quarterly variance primarily relates to non-deductible transaction costs and a valuation allowance on the tax benefit from the reduction in the EMEA staffing operations sale proceeds in 2024.

The year-to-date variance primarily relates to changes in pretax income.

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

2 unchanged sentences

The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company continues to monitor its partial foreign tax credit valuation allowance for potential changes in the near term.

KELLY SERVICES, INC.

5 unchanged sentences

Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet.

At first quarter-end 2024 and year-end 2023, the gross accrual for litigation costs amounted to $ 4.4 million and $ 6.4 million, respectively, of which $ 1.5 million was held for sale at year-end 2023.

At second quarter-end 2024 and year-end 2023, the gross accrual for litigation costs amounted to $ 4.1 million and $ 6.4 million, respectively, of which $ 1.5 million was held for sale at year-end 2023.

The Company maintains insurance coverage which may cover certain losses.

When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet.

At first quarter-end 2024 and year-end 2023, the related insurance receivables amounted to $ 0.2 million.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is $ 0.1 million to $ 7.8 million as of first quarter-end 2024.

At second quarter-end 2024, there were no related insurance receivables.

At year-end 2023, the related insurance receivables amounted to $ 0.2 million.

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is zero to $ 5.2 million as of second quarter-end 2024.

This range includes matters where a liability has been accrued but it is reasonably possible that the ultimate loss may exceed the amount accrued and for matters where a loss is believed to be reasonably possible, but a liability has not been accrued.

19 unchanged sentences

The update had no impact on the consolidated financial information.

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings before taxes, for the first quarter of 2024 and 2023.

Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such information to manage its business.

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

(In millions of dollars)

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

(In millions of dollars)

2 unchanged sentences

Professional & Industrial SG&A expenses excluding depreciation and amortization ( 55.4 ) ( 65.0 ) ( 113.4 ) ( 138.4 )

Professional & Industrial asset impairment charge — ( 0.3 ) — ( 0.3 )

Professional & Industrial Profit (Loss) 6.9 3.2 12.8 2.0

1 unchanged sentence

Science, Engineering & Technology SG&A expenses excluding depreciation and amortization ( 52.8 ) ( 50.1 ) ( 99.0 ) ( 102.9 )

Science, Engineering & Technology asset impairment charge — ( 0.1 ) — ( 0.1 )

Science, Engineering & Technology Profit (Loss) 24.5 17.9 42.7 36.4

4 unchanged sentences

Outsourcing & Consulting SG&A expenses excluding depreciation and amortization ( 34.2 ) ( 39.1 ) ( 71.3 ) ( 80.8 )

Outsourcing & Consulting asset impairment charge — ( 2.0 ) — ( 2.0 )

Outsourcing & Consulting Profit (Loss) 3.0 0.2 1.2 0.1

3 unchanged sentences

Corporate ( 12.4 ) ( 14.2 ) ( 27.4 ) ( 25.9 )

Gain on sale of EMEA staffing operations 11.6 —

Asset impairment charge ( 5.5 ) — ( 5.5 ) —

(Loss) gain on sale of EMEA staffing operations ( 10.0 ) — 1.6 —

Gain on sale of assets 5.5 — 5.5 —

Depreciation and amortization ( 12.5 ) ( 10.2 ) ( 22.7 ) ( 19.7 )

9 unchanged sentences

The depreciation and amortization amounts by segment are as follows:

First Quarter

Second Quarter June Year to Date

2024 2023 2024 2023

(In millions of dollars)

21 unchanged sentences

Management has evaluated other 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.

Subsequent Event

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 adjustments for working capital and to reflect the cash-free, debt-free transaction basis.

Additional cash consideration of up to $ 60.0 million may be due under the terms of an earnout provision.

The earnout payment would be due in the second quarter of 2025 and is based on a multiple of gross profit in excess of an agreed-upon amount during the earnout period.

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

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 1. Financial Statements