What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 202 added, 110 removed, 161 unchanged (66% of the section changed)

1 unchanged sentence

Executive Overview

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.

As the year progresses, 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.

4 unchanged sentences

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.

1 unchanged sentence

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.

We completed the sale of our European staffing operations on January 2, 2024 and on June 12, 2024 announced the sale of the Ayers Group, a division of our OCG segment.

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

To further sharpen our focus on higher-margin, higher-growth specialties, we completed the acquisition of Motion Recruitment Partners, LLC (“MRP”) on May 31, 2024.

The acquisition of MRP will strengthen the scale and capabilities of Kelly’s staffing and consulting solutions across technology, telecommunications, and government specialties in North America, and RPO solutions globally.

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.

8 unchanged sentences

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.

The DSO calculation excludes results from the MRP acquisition as our consolidated results do not reflect a full quarter of revenue for MRP whereas our consolidated balance sheet as of the second quarter-end 2024 includes the full amount of the related accounts receivable.

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

3 unchanged sentences

(Dollars in millions)

First Quarter

2024 2023 % Change

Second Quarter June Year to Date

2024 2023 % Change 2024 2023 % Change

Revenue from services $ 1,057.5 $ 1,217.2 (13.1) % $ 2,102.6 $ 2,485.5 (15.4) %

5 unchanged sentences

Total SG&A expenses 191.5 232.0 (17.4) 382.0 475.4 (19.6)

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

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

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

Asset impairment charge 5.5 2.4 124.1 5.5 2.4 124.1

Earnings from operations 12.2 6.2 95.9 39.0 16.9 130.2

Gain on forward contract — — — 1.2 — NM

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

Other income (expense), net (6.5) (0.6) NM (4.7) 1.4 (439.8)

Earnings before taxes 5.7 5.6 1.4 35.5 18.3 93.8

Income tax expense 4.0 1.8 128.0

Income tax expense (benefit) 1.1 (1.9) 160.7 5.1 (0.1) NM

Net earnings $ 4.6 $ 7.5 (38.2) % $ 30.4 $ 18.4 65.3 %

Gross profit rate 20.2 % 19.8 % 0.4 pts.

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.

19.9 % 19.9 % — pts.

Second Quarter Results

Revenue from services in the second quarter decreased 13.1%, which primarily reflects the January 2, 2024 sale of our EMEA staffing operations, partially offset from an increase related to the acquisition of MRP in June 2024.

Excluding the impact from the sale and the acquisition, revenue from services increased 0.6%.

This increase reflects revenue increases in the Education and Outsourcing & Consulting segments which were mostly offset by declines in the Professional & Industrial and Science, Engineering & Technology segments.

Compared to the second quarter of 2023 and excluding the impact from the sale and acquisition, revenue from staffing services increased 2.3% and revenue from outcome-based services decreased 4.8%.

In addition, revenue from talent solutions increased 2.9% and permanent placement revenue decreased 19.9% from the prior year, excluding the impact from the sale and the acquisition.

Gross profit decreased 11.2% largely driven by the sale of our EMEA staffing operations, partially offset from an increase related to the acquisition of MRP.

Excluding the impact from the sale and the acquisition, gross profit decreased 4.3%.

The gross profit rate increased 40 basis points to 20.2% and was favorably impacted by the sale of our EMEA staffing operations and the acquisition of MRP.

Excluding the impact from the sale and acquisition, the gross profit rate declined 100 basis points.

These decreases are due primarily to unfavorable business mix and a decrease in permanent placement revenue, partially offset by a decrease in employee-related costs.

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

The gross profit rate decreased in all segments on an organic basis, excluding the MRP acquisition.

Total SG&A expenses decreased 17.4%, primarily due to the sale of our EMEA staffing operations, partially offset by the acquisition of MRP.

Excluding these impacts, SG&A expenses decreased 10.1%.

Included in SG&A expenses in the second quarter of 2024 and 2023 were $4.3 million and $5.6 million of transformation and restructuring charges, respectively.

Actions taken in the second quarter of 2024 and 2023 were a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative.

In addition, SG&A expenses in 2024 include $1.5 million of

transaction-related costs arising from the sale of our EMEA staffing operations.

Excluding the impact from the sale and acquisition, as well as transaction, transformation and restructuring charges, SG&A expenses decreased 10.4% 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 loss on sale of EMEA staffing operations relates to a second quarter net working capital adjustment of $10.0 million relating to the completion of the January 2024 sale in which we have recognized a gain of $1.6 year to date.

The gain on sale of assets represents the sale of the Company's Ayers Group in which we have recognized a gain of $5.5 million in the second quarter 2024.

Impairment of assets in the second quarter of 2024 represents the impairment of certain right-of-use assets related to our leased headquarters facility.

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

Earnings from operations for the second quarter of 2024 totaled $12.2 million, compared to $6.2 million in the second quarter of 2023.

The increase is primarily related to the impact of lower SG&A compared to the prior year and the sale of the Ayers Group, partially offset by the adjustment to the gain on the sale of our EMEA staffing operations, the asset impairment charge and the impact of lower revenue compared to the prior year.

Income tax expense was $1.1 million for the second quarter of 2024 compared to a tax benefit of $1.9 million for the second quarter of 2023.

The change 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 net earnings for the period were $4.6 million, compared to $7.5 million for the second quarter of 2023.

June Year-to-Date Results

Revenue from services in the first six months of 2024 decreased 15.4%, which primarily reflects the January 2, 2024 sale of our EMEA staffing operations, partially offset from an increase related to the acquisition of MRP in June 2024.

Excluding the impact from the sale and the acquisition, revenue from services decreased 1.0%.

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

Compared to the first six months of 2023 and excluding the impact from the sale and acquisition, revenue from staffing services increased 2.7% and revenue from outcome-based services decreased 5.4%.

In addition, revenue from talent solutions decreased 1.4% and permanent placement revenue decreased 27.6% from the prior year, excluding the impact from the sale and the acquisition.

Gross profit decreased 15.2% largely driven by the sale of our EMEA staffing operations, partially offset from an increase related to the acquisition of MRP.

Excluding the impact from the sale and the acquisition, gross profit decreased 6.4%.

The gross profit rate was flat to the prior year at 19.9% and was favorably impacted by the sale of our EMEA staffing operations and the acquisition of MRP.

Excluding the impact from the sale and the acquisition, the gross profit rate declined 110 basis points.

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 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.

The gross profit rate decreased in all segments on an organic basis, excluding the MRP acquisition.

Total SG&A expenses decreased 19.6%, primarily due to the sale of our EMEA staffing operations, partially offset by the acquisition of MRP.

Excluding these impacts, SG&A expenses decreased 10.2%.

Included in SG&A expenses in the first six months of 2024 and 2023 were $6.6 million and $12.2 million of transformation and restructuring charges, respectively.

Actions taken in the first six months of 2024 and the second 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.

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 $7.1 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.

Excluding the impact from the sale and acquisition, as well as transaction, transformation and restructuring charges, SG&A expenses decreased 10.9% 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 $1.6 million in the first six months of 2024.

The gain on sale of assets represents the sale of the Company's Ayers Group in which we have recognized a gain of $5.5 million in the second quarter 2024.

Impairment of assets in the second quarter of 2024 represents the impairment of certain right-of-use assets related to our leased headquarters facility.

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

Earnings from operations for the first six months of 2024 totaled $39.0 million, compared to $16.9 million in the first six months of 2023.

The increase is primarily related to the impact of lower SG&A compared to the prior year, a $5.6 million decrease in transformation and restructuring charges, the gain on sale of Ayers Group and the gain on sale of our EMEA staffing operations, partially offset by the asset impairment charge 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.

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

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

Income tax expense was $5.1 million for the first six months of 2024 compared to an income tax benefit of $0.1 million for the first six months of 2023.

The change primarily relates to changes in pre-tax income.

The net earnings for the period were $30.4 million, compared to $18.4 million for the first six months of 2023.

Operating Results By Segment

(Dollars in millions)

First Quarter

2024 2023 % Change

Second Quarter June Year to Date

2024 2023 % Change 2024 2023 % Change

Revenue from Services:

6 unchanged sentences

Consolidated Total $ 1,057.5 $ 1,217.2 (13.1) % $ 2,102.6 $ 2,485.5 (15.4) %

First Quarter Results

Second Quarter Results

Professional & Industrial revenue from services decreased 8.5%.

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.

The decrease was due primarily to an 8.6% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates.

Revenue from outcome-based services decreased by 7.4% due primarily from lower demand for our call-center solutions.

Revenue from permanent placement fees declined 36.9%.

Science, Engineering & Technology revenue from services decreased 5.6%.

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

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.

Science, Engineering & Technology revenue from services increased 10.2%.

The revenue increase was primarily driven by the acquisition of MRP.

Excluding the acquisition, revenue from services decreased 3.1%, primarily due to declines in hours volume in our staffing specialties, partially offset by higher bill rates.

On an organic basis, revenue in our outcome-based services decreased 1.4% and permanent placement fees decreased 20.3%.

Education revenue from services increased 21.7%, driven by 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 and the impact of higher fill rates.

Outsourcing & Consulting revenue from services increased 2.9% as revenue increased in PPO, partially offset by declines in RPO and MSP.

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.

June Year-to-Date Results

Professional & Industrial revenue from services decreased 9.8%.

The decrease was due primarily to a 11.3% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates.

Revenue from outcome-based services decreased 5.6% due to lower demand for our call-center solutions.

Revenue from permanent placement fees declined 39.9%.

Science, Engineering & Technology revenue from services increased 2.2%.

The increase was primarily driven by the acquisition of MRP in June 2024.

Excluding the acquisition, revenue from services decreased 4.3%, primarily due to declines in hours volume in our staffing specialties, partially offset by higher bill rates.

On an organic basis, permanent placement fees were down 22.1% and revenues from outcome-based services decreased 5.1%.

Education revenue from services increased 18.7%, reflecting an increased demand for our services as compared to a year ago.

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

Outsourcing & Consulting revenue from services decreased 1.4% as revenue decreased in RPO and MSP, partially offset by increases in PPO revenue.

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)

First Quarter

2024 2023 Change

Second Quarter June Year to Date

2024 2023 Change 2024 2023 Change

Gross Profit:

7 unchanged sentences

Professional & Industrial 17.4 % 17.5 % (0.1) pts.

17.6 % 17.7 % (0.1) pts.

Science, Engineering & Technology 23.3 22.6 0.7 22.8 22.9 (0.1)

3 unchanged sentences

Consolidated Total 20.2 % 19.8 % 0.4 pts.

First Quarter Results

19.9 % 19.9 % — pts.

Second Quarter Results

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

In comparison to the prior year, the gross profit rate decreased 10 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 100 basis points due to unfavorable business mix and lower permanent placement revenues.

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

The Science, Engineering & Technology gross profit increased primarily as a result of the acquisition of MRP.

The gross profit rate also increased 100 basis points due to the acquisition of MRP which generates higher gross profit rates.

This impact was partially offset by a 30 basis point decrease in the gross profit rate in other SET specialties reflecting lower permanent placement fees and unfavorable business mix, partially offset by lower employee-related costs.

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

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

The gross profit rate decreased 110 basis points due primarily to unfavorable customer mix.

The Outsourcing & Consulting gross profit decreased with a decrease in the gross profit rate.

The gross profit rate decreased 460 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.

June Year-to-Date Results

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

In comparison to the prior year, the gross profit rate decreased 10 basis points.

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

The Science, Engineering & Technology gross profit increased resulting from the acquisition of MRP, partially offset by the decrease in revenue volume in other specialties.

The gross profit rate also decreased 10 basis points as the acquisition of MRP with favorable gross profit rates was more than offset by unfavorable business mix and lower permanent placement revenues in other specialties.

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

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

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

5 unchanged sentences

(Dollars in millions)

First Quarter

2024 2023 % Change

Second Quarter June Year to Date

2024 2023 % Change 2024 2023 % Change

SG&A Expenses (excluding depreciation and amortization):

6 unchanged sentences

Consolidated Total $ 179.0 $ 221.8 (19.2) % $ 359.3 $ 455.7 (21.1) %

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.

Second Quarter Results

Total SG&A expenses excluding depreciation and amortization in Professional & Industrial decreased 14.8% from the prior year.

The decrease is primarily due to lower employee-related costs as a result of cost management in 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 Science, Engineering & Technology increased 5.6% primarily as a result of the acquisition of MRP.

Excluding the acquisition, expenses decreased 11.5% from the prior year primarily due to lower employee-related costs reflecting 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 4.3% from the prior year primarily related to increased year-over-year revenue levels.

Total SG&A expenses excluding depreciation and amortization in Outsourcing & Consulting decreased 12.3% from the prior year, primarily due to lower employee-related 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 decreased 12.5% compared to the prior year, or 3.8% excluding restructuring and transformation charges of $3.7 million in the second quarter of 2024 and $5.1 million in the second quarter of 2023.

June Year-to-Date Results

Total SG&A expenses excluding depreciation and amortization in Professional & Industrial decreased 18.0% from the prior year, or 16.3% excluding restructuring charges of $0.4 million in the first six months of 2024 and $3.3 million in the first six months of 2023.

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 the impact of transformation-related actions.

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 Science, Engineering & Technology decreased 3.7%.

Excluding the impact from the acquisition of MRP, expenses decreased 11.3% from the prior year primarily due to lower employee-related costs reflecting 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 2.3% from the prior year.

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

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

Total SG&A expenses excluding depreciation and amortization in Outsourcing & Consulting decreased 11.7% from the prior year, primarily due to lower performance-based incentive compensation expenses.

1 unchanged sentence

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.

Corporate expenses increased 6.0% compared to the prior year, or 16.3% excluding restructuring and transformation charges of $5.3 million in the first six months of 2024 and $6.9 million in the first six months of 2023.

The increase excluding restructuring and transformation charges is primarily due to EMEA staffing operations transaction-related costs, partially offset by lower legal settlement costs.

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter

2024 2023 % Change

Second Quarter June Year to Date

2024 2023 % Change 2024 2023 % Change

Business Unit Profit (Loss)

2 unchanged sentences

Education 12.7 9.3 36.2 30.8 24.7 24.7

Outsourcing & Consulting (1.8) (0.1) NM

International — (0.7) 100.0

Outsourcing & Consulting 3.0 0.2 NM 1.2 0.1 NM

International — — NM — (0.7) (100.0)

Business Unit Profit (Loss) 47.1 30.6 53.1 87.5 62.5 39.7

Corporate (12.4) (14.2) (12.4) (27.4) (25.9) 6.0

Gain on sale of EMEA staffing operations 11.6 — NM

Asset impairment charge (5.5) — NM (5.5) — NM

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

Gain on sale of assets 5.5 — NM 5.5 — NM

Depreciation and amortization (12.5) (10.2) 21.2 (22.7) (19.7) 14.8

Consolidated Total Earnings from Operations $ 12.2 $ 6.2 95.9 % $ 39.0 $ 16.9 130.2 %

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.

Second Quarter Results

Professional & Industrial reported profit of $6.9 million for the quarter, compared to $3.2 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 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.

Science, Engineering & Technology reported profit of $24.5 million for the quarter, including $2.9 million of business unit profit from the acquisition of MRP.

Excluding the acquisition impact, the increase in earnings was primarily due to lower SG&A expenses partially offset by declines in revenue and gross profit.

Education reported profit of $12.7 million for the quarter, compared to $9.3 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.

Outsourcing & Consulting reported a profit of $3.0 million for the quarter, compared to $0.2 million a year ago.

The increase is due primarily to the impact of a $2.0 million asset impairment charge in the second quarter 2023 results.

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.

Corporate expenses decreased $1.8 million year-over-year primarily due to lower transformation-related costs partially offset by EMEA staffing operations transition-related costs.

June Year-to-Date Results

Professional & Industrial reported profit of $12.8 million for the first six months of 2024, compared to $2.0 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 profit of $42.7 million for the first six months of 2024, including $2.9 million of business unit profit from the acquisition of MRP.

Excluding the acquisition impact, the increase in earnings was primarily due to lower SG&A expenses, partially offset by declines in revenue and gross profit.

Education reported profit of $30.8 million for the first six months of 2024, compared to $24.7 million a year ago.

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

Outsourcing & Consulting reported profit of $1.2 million for the first six months of 2024, compared to $0.1 million a year ago.

The change was primarily due to the impact of the asset impairment charge in the second quarter of 2023.

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 $1.5 million year-over-year primarily due to EMEA staffing operations transaction-related costs and transformation-related charges, partially offset by lower other transformation-related expenses and legal settlement costs.

Financial Condition

8 unchanged sentences

Cash, Cash Equivalents and Restricted Cash

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.

Cash, cash equivalents and restricted cash totaled $45.6 million at the end of the second quarter of 2024 and $167.6 million at year-end 2023, including $33.5 million held for sale.

As further described below, we generated $32.2 million of cash from operating activities, used $353.1 million of cash for investing activities and generated $201.6 million of cash from financing activities.

Operating Activities

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.

In the first six months of 2024, we generated $32.2 million of net cash from operating activities, as compared to generating $23.4 million in the first six months of 2023, primarily due to decreased working capital requirements.

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

Global DSO was 57 d ays at the end of the second quarter of 2024 and 59 days at year-end 2023, including amounts held for sale, and 61 days at the end of the second quarter of 2023.

Our working capital position (total current assets less total current liabilities) was $498.5 million at the end of the second quarter of 2024 including the impact of our acquisition of MRP, a decrease of $108.2 million from year-end 2023, excluding amounts held for sale as of year-end 2023.

Excluding the decrease in cash, working capital decreased $20.6 million from year-end 2023.

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

Investing Activities

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.

In the first six months of 2024, we used $353.1 million of cash for investing activities, as compared to using $7.7 million in the first six months of 2023.

Included in cash used from investing activities in the first six months of 2024 is $427.4 million of cash used for the acquisition of MRP in June 2024, net of cash received, $6.7 million of cash used for capital expenditures, and $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, partially offset by $77.1 million of proceeds from the sale of the EMEA staffing operations, net of cash disposed.

I ncluded in the cash used from investing activities in the first six months of 2023 is $9.3 million of cash used for capital expenditures, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 2021.

Financing Activities

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.

We generated $201.6 million of cash from financing activities in the first six months of 2024, as compared to using $45.4 million in the first six months of 2023.

The cash generated from financing activities in the first six months of 2024 is driven by the net borrowings of $210.4 million on the Company's credit facilities in connection with the acquisition of MRP.

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

Divi dends paid per common share were $0.075 in each of the first two quarters 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 first quarter of 2024 and 2023.

Our ratio of debt-to-total capital was 14.1% at the end of the second quarter of 2024 and 0.0% at year-end 2023.

New Accounting Pronouncements

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

The credit facilities, which were amended in the second quarter of 2024, now include an accordion feature to increase our combined borrowing capacity by $250.0 million as discussed in the Debt footnote in the notes to our consolidated financial statements.

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

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

We have historically managed our cash and debt closely to optimize our capital structure.

As our cash balances build, we tend to pay down debt as appropriate, unless it is needed for organic or inorganic investments that align with our overall growth strategy.

Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the global cash pooling arrangement (the "Cash Pool") first, and then access our borrowing facilities.

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

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

We use 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.

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.

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

Following the sale of our EMEA staffing operations completed in the first quarter of 2024, discussed below, 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.

As our cash balances build, we tend to pay down debt as appropriate.

Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities.

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

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

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

The Company has recorded a receivable of $16.8 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.

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

On May 31, 2024, the Company indirectly acquired 100% of the equity interests in Motion Recruitment Partners, LLC ("MRP") for a purchase price of $425.0 million 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").

Under terms of the merger agreement, the 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.

Total consideration includes $3.4 million of contingent consideration related to an earnout payment with a maximum

potential cash payment of $60.0 million 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 and any necessary payment is due to the seller in the second quarter of 2025.

See the Acquisition and Disposition footnote in the notes to our consolidated financial statements for more details.

As of the second quarter of 2024, we had $87.0 million of available capacity on our $150.0 million revolving credit facility and $56.5 million of available capacity on our $250.0 million securitization facility.

The revolving credit facility carried $63.0 million of long-term borrowings on the term benchmark line of credit.

The securitization facility carried $147.4 million of long-term borrowings and $46.1 million of standby letters of credit related to workers’ compensation.

On July 17, 2024, we entered into a $50.0 million 12-month and a $50.0 million 18-month interest rate swap that will effectively lock in the variable SOFR component of our interest rate at a fixed rate of 4.772% and 4.468% from the July 17, 2024 effective date through July 17, 2025 and January 17, 2026, respectively.

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 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 believe our cash flow from operations, the availability of liquidity under our credit facilities, including the accordion feature which allows us to increase our borrowing capacity and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements, while maintaining sufficient liquidity for normal operating purposes.

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

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