KELLY SERVICES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Executive Overview As the year progresses, challenging staffing market dynamics continued as employers in most sectors maintained a cautious approach to managing their workforces, deferring hiring decisions, managing existing headcount through attrition, and in some cases choosing not to backfill open roles amid ongoing economic uncertainty. These dynamics put pressure on our business, but we remain focused on capturing growth where it exists and positioning our resources to take advantage of opportunities when conditions improve. We remain focused on the future and are building on the aggressive actions we took in 2023 as part of our transformation journey. We continue to build on the goals of our transformation activities to improve Kelly’s profitability and accelerate growth over the long term. Our business unit and enterprise function teams, together with the Transformation Management Office, continue to make progress on multiple initiatives to drive organizational efficiency and effectiveness. We are also committed to finding new avenues of growth. This includes a refreshed go-to-market strategy with a comprehensive approach to delivering the full suite of Kelly solutions to our large enterprise customers that is intended to capture a greater share of wallet as we move through 2024. We also remain committed to delivering the highest quality of service to all customers regardless of spend or size. In our P&I segment, for example, we have enhanced our local delivery model and rolled out our Kelly Now mobile application across the U.S. to meet the needs of clients and talent. We completed the sale of our European staffing operations on January 2, 2024 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 solutions 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 is expected to 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. Financial Measures Reported percentage changes were computed based on actual amounts in thousands of dollars. EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding the Company's ability to generate cash flow and for judging overall operating performance. EBITDA measures are non-GAAP (Generally Accepted Accounting Principles) measures and are used to supplement measures in accordance with GAAP. Our non-GAAP measures may be calculated differently from those provided by other companies, limiting their usefulness for comparison purposes. Non-GAAP measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer. NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero. 32 Results of Operations Total Company (Dollars in millions) Third Quarter September Year to Date 2024 2023 % Change 2024 2023 % Change Revenue from services $ 1,038.1 $ 1,118.0 (7.1) % $ 3,140.7 $ 3,603.5 (12.8) % Gross profit 221.7 228.5 (3.0) 641.1 723.2 (11.4) SG&A expenses excluding restructuring, depreciation, and amortization 204.7 203.0 0.8 557.4 646.5 (13.8) Restructuring charges (0.2) 15.4 (101.4) 6.4 27.6 (76.9) Total SG&A expenses excluding depreciation and amortization 204.5 218.4 (6.4) 563.8 674.1 (16.3) Depreciation and amortization 14.5 10.0 45.2 37.2 29.7 25.0 Total SG&A expenses 219.0 228.4 (4.1) 601.0 703.8 (14.6) Gain on sale of EMEA staffing operations — — NM (1.6) — NM Loss (gain) on sale of assets 0.1 — NM (5.4) — NM Asset impairment charge — — NM 5.5 2.4 124.1 Earnings from operations 2.6 0.1 NM 41.6 17.0 144.5 Gain on forward contract — — NM 1.2 — NM Other income (expense), net (4.4) 1.6 (375.9) (9.1) 3.0 (405.5) Earnings (loss) before taxes (1.8) 1.7 NM 33.7 20.0 68.3 Income tax expense (benefit) (2.6) (4.9) 46.5 2.5 (5.0) 149.4 Net earnings $ 0.8 $ 6.6 (88.4) % $ 31.2 $ 25.0 24.6 % Gross profit rate 21.4 % 20.4 % 1.0 pts. 20.4 % 20.1 % 0.3 pts. Third Quarter Results Revenue from services in the third quarter decreased 7.1%, which primarily reflects the January 2, 2024 sale of our EMEA staffing operations, partially offset by an increase related to the acquisition of MRP in May 2024. Excluding the impact from the sale and the acquisition, revenue from services was flat year-over-year with decreases in the Science, Engineering & Technology and Professional & Industrial segments offset by increases in the Education and Outsourcing & Consulting segments. Compared to the third quarter of 2023 and excluding the impact from the sale and acquisition, revenue from staffing services was flat to the prior year and revenue from outcome-based services decreased 2.2%. In addition, revenue from talent solutions increased 6.0% and permanent placement revenue decreased 30.8% from the prior year, excluding the impact from the sale and the acquisition. Gross profit decreased 3.0% largely driven by the sale of our EMEA staffing operations, partially offset by 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 increased 100 basis points to 21.4% 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 140 basis points. These decreases are due primarily to 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 excluding the sale and the acquisition. Total SG&A expenses decreased 4.1%, primarily due to the sale of our EMEA staffing operations, partially offset by the acquisition of MRP. Excluding these impacts, SG&A expenses decreased 7.0%. SG&A expenses in the third quarter of 2024 include $6.1 million of integration costs related to initiatives to integrate MRP and aligning Company processes and $3.1 million of transaction-related costs arising from the sale of our EMEA staffing operations and acquisition of MRP. Included in SG&A expenses in the third quarter of 2023 were $15.4 million of transformation and restructuring charges. Actions taken in the third quarter of 2023 were a continuation of the actions that were announced in the second quarter of 2023 as part of the 33 comprehensive transformation initiative. In addition, excluding the impact from the sale and acquisition, as well as transaction, integration, transformation, and restructuring charges, SG&A expenses decreased 4.2% primarily due to proactive resource management and lower variable, performance-based incentive compensation expenses in response to lower revenue volume. Earnings from operations for the third quarter of 2024 totaled $2.6 million, compared to $0.1 million in the third quarter of 2023. The increase is primarily related to the impact of lower SG&A and partially offset by lower revenue compared to the prior year. Income tax benefit was $2.6 million for the third quarter of 2024 compared to $4.9 million for the third quarter of 2023. The change primarily relates to the benefit of a deferred tax valuation allowance release in 2023 partially offset by the impact of non-taxable income related to company-owned life insurance assets in 2024. The net earnings for the period were $0.8 million, compared to $6.6 million for the third quarter of 2023. September Year-to-Date Results Revenue from services in the first nine months of 2024 decreased 12.8%, which primarily reflects the January 2, 2024 sale of our EMEA staffing operations, partially offset by an increase related to the acquisition of MRP in May 2024. Excluding the impact from the sale and the acquisition, revenue from services decreased 0.8%. This decline reflects a revenue decline in the Professional & Industrial and Science, Engineering & Technology segments, partially offset by increases in the Education and Outsourcing & Consulting segments excluding the acquisition. Compared to the first nine months of 2023 and excluding the impact from the sale and acquisition, revenue from staffing services was flat to the prior year and revenue from outcome-based services decreased 5.1%. In addition, revenue from talent solutions increased 1.1% and permanent placement revenue decreased 28.5% from the prior year, excluding the impact from the sale and the acquisition. Gross profit decreased 11.4% largely driven by the sale of our EMEA staffing operations, partially offset by 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 increased 30 basis points to 20.4% 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 120 basis points. These decreases are due primarily to 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 excluding the sale and the acquisition. Total SG&A expenses decreased 14.6%, primarily due to the sale of our EMEA staffing operations, partially offset by the acquisition of MRP. Excluding these impacts, SG&A expenses decreased 9.2%. Included in SG&A expenses in the first nine months of 2024 and 2023 were $6.4 million and $27.6 million of restructuring charges, respectively. Actions taken in both periods were a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative. In addition, restructuring 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. SG&A expenses in 2024 also include $10.3 million of transaction-related costs arising from the sale of our EMEA staffing operations and acquisition of MRP and $6.1 million of integration costs related to initiatives to integrate MRP and aligning Company processes. Excluding the impact from the sale and acquisition, as well as transaction, integration, and restructuring charges, SG&A expenses decreased 8.8% primarily due to structural workforce reductions as part of our transformation initiatives, as well as proactive resource management and lower variable, 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 nine months of 2024. The gain on sale of assets represents the sale of the Company's Ayers Group in the second quarter of 2024 in which we recognized a gain of $5.4 million in the first nine months of 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 third 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 nine months of 2024 totaled $41.6 million, compared to $17.0 million in the first nine months of 2023. The increase is primarily related to the impact of lower SG&A compared to the prior year, the gain on sale of Ayers Group and the gain on sale of our EMEA staffing operations, partially offset by higher asset impairment charges and the impact of lower revenue compared to the prior year. 34 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 $2.5 million for the first nine months of 2024 compared to an income tax benefit of $5.0 million for the first nine months of 2023. The change primarily relates to changes in pre-tax income and the impact of a deferred tax valuation allowance release in 2023. The net earnings for the period were $31.2 million, compared to $25.0 million for the first nine months of 2023. 35 Operating Results By Segment (Dollars in millions) Third Quarter September Year to Date 2024 2023 % Change 2024 2023 % Change Revenue from Services: Professional & Industrial $ 370.4 $ 378.0 (2.0) % $ 1086.5 $ 1,171.4 (7.3) % Science, Engineering & Technology 405.2 295.7 37.1 1026.7 903.5 13.6 Education 142.1 128.1 10.9 683.1 583.9 17.0 Outsourcing & Consulting 121.0 114.1 6.0 346.0 342.4 1.1 International — 203.0 (100.0) — 604.7 (100.0) Less: Intersegment revenue (0.6) (0.9) 29.2 (1.6) (2.4) 30.3 Consolidated Total $ 1,038.1 $ 1,118.0 (7.1) % $ 3,140.7 $ 3,603.5 (12.8) % Third Quarter Results Professional & Industrial revenue from services decreased 2.0%. The decrease was due primarily to a 2.7% decline in revenue from staffing services resulting from lower hours volume, partially offset by higher bill rates. Revenue from outcome-based services was flat year-over-year while revenue from permanent placement fees declined 24.1% as a result of continued lower market demand. Science, Engineering & Technology revenue from services increased 37.1%. The revenue increase was primarily driven by the acquisition of MRP. Excluding the acquisition, revenue from services decreased 5.1%, primarily due to declines in hours volume in our staffing specialties, partially offset by higher bill rates. Excluding the acquisition, revenue in our outcome-based services decreased 4.9% and permanent placement fees decreased 30.5%, reflecting continued lower market demand. Education revenue from services increased 10.9%, driven by increased demand for our services as compared to a year ago, reflecting the impact of net new customer wins and the impact of higher fill rates. Outsourcing & Consulting revenue from services increased 6.0% as revenue increased in PPO, partially offset by declines in MSP and RPO. 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. September Year-to-Date Results Professional & Industrial revenue from services decreased 7.3%. The decrease was due primarily to an 8.5% decline in staffing services resulting from lower hours volume, partially offset by higher bill rates. Revenue from outcome-based services decreased 3.8% due to lower demand for our call-center solutions. Revenue from permanent placement fees declined 35.3% as a result of continued lower market demand. Science, Engineering & Technology revenue from services increased 13.6%. The increase was primarily driven by the acquisition of MRP in May 2024. Excluding the acquisition, revenue from services decreased 4.6%, primarily due to declines in hours volume in our staffing specialties, partially offset by higher bill rates. Excluding the acquisition, permanent placement fees were down 24.6% reflecting continued lower market demand and revenues from outcome-based services decreased 6.7%. Education revenue from services increased 17.0%, 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 increased 1.1% as revenue increased in PPO, partially offset by declines in RPO and MSP. 36 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. 37 Operating Results By Segment (continued) (Dollars in millions) Third Quarter September Year to Date 2024 2023 Change 2024 2023 Change Gross Profit: Professional & Industrial $ 66.5 $ 69.1 (3.8) % $ 192.7 $ 209.8 (8.2) % Science, Engineering & Technology 99.1 68.0 45.5 240.8 207.4 16.1 Education 19.7 19.8 (0.2) 98.7 91.6 7.8 Outsourcing & Consulting 36.4 41.5 (12.2) 108.9 124.4 (12.5) International — 30.1 (100.0) — 90.0 (100.0) Consolidated Total $ 221.7 $ 228.5 (3.0) % $ 641.1 $ 723.2 (11.4) % Gross Profit Rate: Professional & Industrial 17.9 % 18.3 % (0.4) pts. 17.7 % 17.9 % (0.2) pts. Science, Engineering & Technology 24.4 23.0 1.4 23.4 23.0 0.4 Education 13.9 15.5 (1.6) 14.5 15.7 (1.2) Outsourcing & Consulting 30.1 36.4 (6.3) 31.5 36.3 (4.8) International — 14.8 (14.8) — 14.9 (14.9) Consolidated Total 21.4 % 20.4 % 1.0 pts. 20.4 % 20.1 % 0.3 pts. Third Quarter Results Gross profit for the Professional & Industrial segment decreased on lower revenue volume. In comparison to the prior year, the gross profit rate decreased by 40 basis points primarily due to declines in permanent placement revenues and business mix which were 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 increased 190 basis points due to the acquisition of MRP which generates higher gross profit rates. This impact was partially offset by a 50 basis point decrease in the gross profit rate in other SET specialties reflecting lower permanent placement fees and business mix, partially offset by lower employee-related costs. Gross profit for the Education segment was flat year-over-year despite higher revenue volume. The gross profit rate decreased 160 basis points due primarily to lower permanent placement fees, customer mix, and higher employee-related costs. The Outsourcing & Consulting gross profit decreased with a decrease in the gross profit rate. The gross profit rate decreased 630 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 MSP and RPO, 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. September 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 20 basis points primarily due to declines in permanent placement revenue and business mix which were partially offset by 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 components of the segment. The gross profit rate increased 110 basis points due to the acquisition of MRP which generates higher gross profit rates. This impact was partially offset by a 70 basis point decrease in 38 the gross profit rate in other components of SET reflecting business mix and lower permanent placement fees, partially offset by lower employee-related costs. Gross profit for the Education segment increased on higher revenue volume. The gross profit rate decreased 120 basis points due primarily to lower permanent placement fees, customer mix, and higher employee-related costs. The Outsourcing & Consulting gross profit decreased with a decrease in the gross profit rate. The gross profit rate decreased 480 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. 39 Operating Results By Segment (continued) (Dollars in millions) Third Quarter September Year to Date 2024 2023 % Change 2024 2023 % Change SG&A Expenses (excluding depreciation and amortization): Professional & Industrial $ 56.3 $ 63.4 (11.2) % $ 169.7 $ 201.8 (15.9) % Science, Engineering & Technology 74.1 47.3 56.6 173.1 150.2 15.3 Education 23.0 22.3 3.3 71.2 69.4 2.6 Outsourcing & Consulting 34.1 40.0 (14.8) 105.4 120.8 (12.7) International — 28.7 (100.0) — 89.3 (100.0) Corporate expenses 17.0 16.7 1.5 44.4 42.6 4.2 Consolidated Total $ 204.5 $ 218.4 (6.4) % $ 563.8 $ 674.1 (16.3) % Third Quarter Results Total SG&A expenses excluding depreciation and amortization in Professional & Industrial decreased 11.2% 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. Total SG&A expenses excluding depreciation and amortization in Science, Engineering & Technology increased 56.6% primarily as a result of the acquisition of MRP. Excluding the acquisition, expenses decreased 5.9% from the prior year primarily due to lower employee-related costs reflecting the response to lower revenue volume compared to the prior year. Total SG&A expenses excluding depreciation and amortization in Education increased 3.3% 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 14.8% from the prior year, primarily due to lower employee-related expenses as compared to the prior year including lower employee compensation costs and cost management in response to lower revenue volume in the MSP and RPO solutions. 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% compared to the prior year, or decreased 6.5% excluding $9.2 million of transaction and integration costs in the third quarter of 2024 and restructuring and transformation charges of $ 8.3 million in the third quarter of 2023. September Year-to-Date Results Total SG&A expenses excluding depreciation and amortization in Professional & Industrial decreased 15.9% from the prior year, or 12.9% excluding restructuring charges of $ 0.4 million in the first nine months of 2024 and $ 7.3 million in the first nine 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 increased 15.3%. Excluding the impact from the acquisition of MRP, expenses decreased 9.6% 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 2.6% from the prior year. Costs related to increased year-over-year revenue levels were partially offset by the impact of transformation-related actions. 40 Total SG&A expenses excluding depreciation and amortization in Outsourcing & Consulting decreased 12.7% from the prior year, primarily due to lower employee-related costs including employee compensation costs as well as the result of transformation-related actions. 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 4.2% compared to the prior year, or decreased 16.9% excluding transaction and integration costs of $16.4 million and restructuring and transformation charges of $ 5.2 million in the first nine months of 2024 and restructuring and transformation charges of $ 15.2 million in the first nine months of 2023. This decrease primarily reflects lower legal settlement costs and employee compensation costs. 41 Operating Results By Segment (continued) (Dollars in millions) Third Quarter September Year to Date 2024 2023 % Change 2024 2023 % Change Business Unit Profit (Loss) Professional & Industrial $ 10.2 $ 5.7 78.4 % $ 23.0 $ 7.7 198.4 % Science, Engineering & Technology 25.0 20.7 20.3 67.7 57.1 18.3 Education ( 3.3 ) ( 2.5 ) (30.7) 27.5 22.2 24.0 Outsourcing & Consulting 2.3 1.5 58.4 3.5 1.6 112.5 International — 1.4 (100.0) — 0.7 (100.0) Business Unit Profit (Loss) 34.2 26.8 27.6 121.7 89.3 36.1 Corporate ( 17.0 ) ( 16.7 ) 1.5 ( 44.4 ) ( 42.6 ) 4.2 Asset impairment charge — — NM ( 5.5 ) — NM Gain on sale of EMEA staffing operations — — NM 1.6 — NM Gain (loss) on sale of assets ( 0.1 ) — NM 5.4 — NM Depreciation and amortization ( 14.5 ) ( 10.0 ) 45.2 ( 37.2 ) ( 29.7 ) 25.0 Consolidated Total Earnings from Operations $ 2.6 $ 0.1 NM % $ 41.6 $ 17.0 144.5 % Third Quarter Results Professional & Industrial reported profit of $ 10.2 million for the quarter, compared to $ 5.7 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 $ 25.0 million for the quarter, including $6.0 million of business unit profit from the acquisition of MRP, compared to $20.7 million a year ago. Excluding the acquisition impact, the decrease in earnings was primarily due to declines in revenue and gross profit partially offset by lower SG&A expenses. Education reported a loss of $ 3.3 million for the quarter, compared to a loss of $ 2.5 million a year ago. The change was primarily driven by flat gross profit despite revenue growth and an increase in SG&A expenses. Outsourcing & Consulting reported a profit of $ 2.3 million for the quarter, compared to $ 1.5 million a year ago. The increase is primarily due to increased revenue and lower SG&A expenses partially offset by declines in gross profit. 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 remained consistent with the prior year. September Year-to-Date Results Professional & Industrial reported profit of $ 23.0 million for the first nine months of 2024, compared to $ 7.7 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 $ 67.7 million for the first nine months of 2024, including $8.9 million of business unit profit from the acquisition of MRP, compared to $57.1 million a year ago. 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 $ 27.5 million for the first nine months of 2024, compared to $ 22.2 million a year ago. The change was primarily due to higher revenue and gross profit. 42 Outsourcing & Consulting reported profit of $ 3.5 million for the first nine months of 2024, compared to $ 1.6 million a year ago. The change was primarily due to lower SG&A expenses and an increase in revenue, partially offset by a decline in gross profit. 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 $1.8 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. 43 Financial Condition Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period. As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted cash, operating activities, investing activities and financing activities. Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash totaled $40.4 million at the end of the third quarter of 2024 and $126.5 million at year-end 2023. As further described below, we generated $11.9 million of cash from operating activities, used $355.5 million of cash for investing activities and generated $217.3 million of cash from financing activities. Operating Activities In the first nine months of 2024, we generated $11.9 million of net cash from operating activities, as compared to generating $33.4 million in the first nine months of 2023, primarily due to decreased working capital requirements. Trade accounts receivable totaled $1.2 billion at the end of the third quarter of 2024. Global DSO was 64 d ays at the end of the third quarter of 2024 and 59 days at year-end 2023, including amounts held for sale, and 63 days at the end of the third quarter of 2023. Our working capital position (total current assets less total current liabilities) was $516.5 million at the end of the third quarter of 2024 including the impact of our acquisition of MRP, a decrease of $90.2 million from year-end 2023, excluding amounts held for sale as of year-end 2023. Excluding the decrease in cash, working capital increased $2.8 million from year-end 2023. The current ratio (total current assets divided by total current liabilities) was 1.6 at the end of the third quarter of 2024 and at year-end 2023. Investing Activities In the first nine months of 2024, we used $355.5 million of cash for investing activities, as compared to using $10.8 million in the first nine months of 2023. Included in cash used from investing activities in the first nine months of 2024 is $427.4 million of cash used for the acquisition of MRP in May 2024, net of cash received, $9.1 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 and $4.3 million of proceeds from the sale of the Ayers Group. I ncluded in the cash used from investing activities in the first nine months of 2023 is $12.4 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 generated $217.3 million of cash from financing activities in the first nine months of 2024, as compared to using $56.6 million in the first nine months of 2023. The cash generated from financing activities in the first nine months of 2024 is driven by the net borrowings of $228.2 million on the Company's credit facilities in connection with the acquisition of MRP. The cash used for financing activities in the first nine 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 three 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 15.1% at the end of the third quarter of 2024 and 0.0% at year-end 2023. 44 New Accounting Pronouncements See New Accounting Pronouncements footnote in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a description of new accounting pronouncements. Critical Accounting Estimates For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K. Contractual Obligations and Commercial Commitments There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K. We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities. Liquidity 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 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 third 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. On January 2, 2024, the Company completed the sale of its EMEA staffing operations to Gi Group Holdings S.P.A. and received cash proceeds of $110.6 million or $77.1 million net of cash disposed. The foreign currency forward contract that the Company entered into on November 2, 2023 to manage the foreign currency risk associated with the transaction was settled on January 5, 2024. A total loss of $2.4 million was realized upon settlement on the contract. The Company expects to receive additional cash proceeds related to the sale to reflect the cash-free, debt-free transaction basis, as well as working capital and other adjustments. The Company does not expect to receive any proceeds from the contingent consideration opportunity associated with the transaction. As of third quarter-end 2024, the Company has recorded a net receivable of $17.6 million. The Company is actively reconciling the receivable in accordance with the purchase agreement and expects it to be settled upon completion of this process. 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. The Company has recorded a net payable associated with this forward contract of $0.6 million as of third quarter-end 2024. 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 45 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. In the third quarter of 2024, the Company recorded a payable for a post-close net working capital adjustment of $1.4 million, which will be paid in the fourth quarter of 2024. See the Acquisition and Disposition footnote in the notes to our consolidated financial statements for more details. As of the end of the third quarter of 2024, we had $ 110.0 million of available capacity on our $150.0 million revolving credit facility and $ 15.7 million of available capacity on our $250.0 million securitization facility. The revolving credit facility carried $ 40.0 million of long-term borrowings on the term benchmark line of credit. The securitization facility carried $ 188.2 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 interest rate swap and a $50.0 million 18-month interest rate swap that effectively locked in the variable SOFR component of our interest rate for a portion of the long-term borrowings on the Securitization Facility 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. As of third quarter-end 2024, the Company recorded a liability totaling $ 0.8 million related to the mark-to-market fair value change of the interest rate swaps. See the Fair Value Measurements footnote and the Debt footnote in the notes to our consolidated financial statements for more details. 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. 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 third 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. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash. Forward-Looking Statements Certain statements contained in this report and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we have no specific intention to update these statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, (i) changing market and economic conditions, (ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, loss of large corporate customers and government contractor requirements, (iii) the impact of laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, (v) litigation and other legal liabilities (including tax liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business development, results of operations and financial condition, (viii) damage to our brands, (ix) dependency on third parties for the execution of critical functions, (x) conducting business in foreign countries, including foreign currency fluctuations, (xi) availability of temporary workers with appropriate skills required by customers, (xii) cyberattacks or other breaches of network or information technology security, and (xiii) other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes 46 in the Company’s expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.