SEC Filing | Kelly Services, Inc.

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kelya-20211003

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-1088

KELLY SERVICES, INC.

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(Exact name of registrant as specified in its charter)


Delaware						38-1510762
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

999 West Big Beaver Road, Troy, Michigan 48084

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(Address of principal executive offices) (Zip Code)

(248) 362-4444

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(Registrant’s telephone number, including area code)

No Change

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(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Class A Common	KELYA	NASDAQ Global Market
Class B Common	KELYB	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At November 1, 2021, 36,030,919 shares of Class A and 3,358,521 shares of Class B common stock of the Registrant were outstanding.

KELLY SERVICES, INC. AND SUBSIDIARIES


			Page Number

PART I. FINANCIAL INFORMATION			4

Item 1. Financial Statements (unaudited).			4

Consolidated Statements of Earnings			4

Consolidated Statements of Comprehensive Income (Loss)			5

Consolidated Balance Sheets			6

Consolidated Statements of Stockholders' Equity			8

Consolidated Statements of Cash Flows			9

Notes to Consolidated Financial Statements			11

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.			29

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			47

Item 4. Controls and Procedures.			47

PART II. OTHER INFORMATION			48

Item 1. Legal Proceedings.			48

Item 1A. Risk Factors.			48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			49

Item 3. Defaults Upon Senior Securities.			49

Item 4. Mine Safety Disclosures.			49

Item 5. Other Information.			49

Item 6. Exhibits.			49

SIGNATURES			51

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)

(In millions of dollars except per share data)


	13 Weeks Ended				39 Weeks Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Revenue from services	$	1,195.4	$	1,038.2	$	3,659.4	$	3,274.6

Cost of services	966.5		847.2		2,986.2		2,671.1

Gross profit	228.9		191.0		673.2		603.5

Selling, general and administrative expenses	219.9		193.4		639.9		591.0

Goodwill impairment charge	—		—		—		147.7

Gain on sale of assets	—		—		—		(32.1)

Earnings (loss) from operations	9.0		(2.4)		33.3		(103.1)

Gain (loss) on investment in Persol Holdings	35.5		16.8		71.8		(31.4)

Other income (expense), net	(0.3)		(0.7)		(4.0)		3.6

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	44.2		13.7		101.1		(130.9)

Income tax expense (benefit)	11.1		(1.2)		19.0		(36.5)

Net earnings (loss) before equity in net earnings (loss) of affiliate	33.1		14.9		82.1		(94.4)

Equity in net earnings (loss) of affiliate	1.7		1.8		2.3		(1.0)

Net earnings (loss)	$	34.8	$	16.7	$	84.4	$	(95.4)

Basic earnings (loss) per share	$	0.87	$	0.42	$	2.12	$	(2.43)
Diluted earnings (loss) per share	$	0.87	$	0.42	$	2.12	$	(2.43)

Average shares outstanding (millions):
Basic	39.4		39.3		39.4		39.3
Diluted	39.5		39.4		39.5		39.3

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In millions of dollars)


	13 Weeks Ended				39 Weeks Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net earnings (loss)	$	34.8	$	16.7	$	84.4	$	(95.4)

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense of $0.1, $0.4, $0.5 and $0.0, respectively	(3.5)		5.1		(15.1)		0.4
Less: Reclassification adjustments included in net earnings (loss)	—		(1.5)		—		(1.5)
Foreign currency translation adjustments	(3.5)		3.6		(15.1)		(1.1)



Other comprehensive income (loss)	(3.5)		3.6		(15.1)		(1.1)

Comprehensive income (loss)	$	31.3	$	20.3	$	69.3	$	(96.5)

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


	October 3, 2021		January 3, 2021
Assets
Current Assets
Cash and equivalents	$	43.5	$	223.0
Trade accounts receivable, less allowances of $12.3 and $13.3, respectively	1,423.9		1,265.2
Prepaid expenses and other current assets	71.0		61.4

Total current assets	1,538.4		1,549.6

Noncurrent Assets
Property and equipment:
Property and equipment	208.2		222.3
Accumulated depreciation	(172.1)		(181.3)
Net property and equipment	36.1		41.0
Operating lease right-of-use assets	79.3		83.2
Deferred taxes	304.0		282.0
Goodwill, net	114.8		3.5
Investment in Persol Holdings	222.6		164.2
Investment in equity affiliate	122.0		118.5
Other assets	386.3		319.9
Total noncurrent assets	1,265.1		1,012.3

Total Assets	$	2,803.5	$	2,561.9

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


	October 3, 2021		January 3, 2021
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings	$	—	$	0.3
Accounts payable and accrued liabilities	645.2		536.8
Operating lease liabilities	18.4		19.6
Accrued payroll and related taxes	334.9		293.0
Accrued workers’ compensation and other claims	21.1		22.7
Income and other taxes	58.4		53.2

Total current liabilities	1,078.0		925.6

Noncurrent Liabilities
Operating lease liabilities	64.1		67.5
Accrued payroll and related taxes	58.2		58.5
Accrued workers’ compensation and other claims	39.1		42.2
Accrued retirement benefits	213.5		205.8
Other long-term liabilities	76.5		59.3
Total noncurrent liabilities	451.4		433.3

Commitments and contingencies (see Contingencies footnote)

Stockholders’ Equity
Capital stock, $1.00 par value
Class A common stock, 100.0 shares authorized; 36.7 shares issued at 2021 and 2020	36.7		36.7
Class B common stock, 10.0 shares authorized; 3.4 shares issued at 2021 and 2020	3.4		3.4
Treasury stock, at cost
Class A common stock, 0.7 shares at 2021 and 0.8 shares at 2020	(14.6)		(16.5)
Class B common stock	(0.6)		(0.6)
Paid-in capital	23.2		21.3
Earnings invested in the business	1,245.3		1,162.9
Accumulated other comprehensive income (loss)	(19.3)		(4.2)
Total stockholders’ equity	1,274.1		1,203.0

Total Liabilities and Stockholders’ Equity	$	2,803.5	$	2,561.9

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In millions of dollars)


	13 Weeks Ended				39 Weeks Ended
	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Capital Stock
Class A common stock
Balance at beginning of period	$	36.7	$	36.6	$	36.7	$	36.6
Conversions from Class B	—		—		—		—
Balance at end of period	36.7		36.6		36.7		36.6

Class B common stock
Balance at beginning of period	3.4		3.5		3.4		3.5
Conversions to Class A	—		—		—		—
Balance at end of period	3.4		3.5		3.4		3.5

Treasury Stock
Class A common stock
Balance at beginning of period	(14.7)		(16.7)		(16.5)		(20.3)
Net issuance of stock awards	0.1		0.1		1.9		3.7
Balance at end of period	(14.6)		(16.6)		(14.6)		(16.6)

Class B common stock
Balance at beginning of period	(0.6)		(0.6)		(0.6)		(0.6)
Net issuance of stock awards	—		—		—		—
Balance at end of period	(0.6)		(0.6)		(0.6)		(0.6)

Paid-in Capital
Balance at beginning of period	22.3		20.5		21.3		22.5
Net issuance of stock awards	0.9		0.1		1.9		(1.9)
Balance at end of period	23.2		20.6		23.2		20.6

Earnings Invested in the Business
Balance at beginning of period	1,212.5		1,122.8		1,162.9		1,238.6


Cumulative-effect adjustment, net of tax, from adoption of ASU 2016-13, Credit Losses	—		—		—		(0.7)
Net earnings (loss)	34.8		16.7		84.4		(95.4)
Dividends	(2.0)		—		(2.0)		(3.0)
Balance at end of period	1,245.3		1,139.5		1,245.3		1,139.5

Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(15.8)		(20.5)		(4.2)		(15.8)

Other comprehensive income (loss), net of tax	(3.5)		3.6		(15.1)		(1.1)
Balance at end of period	(19.3)		(16.9)		(19.3)		(16.9)

Stockholders’ Equity at end of period	$	1,274.1	$	1,166.1	$	1,274.1	$	1,166.1

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)


	39 Weeks Ended
	October 3, 2021		September 27, 2020
Cash flows from operating activities:
Net earnings (loss)	$	84.4	$	(95.4)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Goodwill impairment charge	—		147.7
Deferred income taxes on goodwill impairment charge	—		(23.0)
Depreciation and amortization	22.0		18.0
Operating lease asset amortization	16.0		15.9
Provision for credit losses and sales allowances	0.8		10.7
Stock-based compensation	4.0		2.9
(Gain) loss on investment in Persol Holdings	(71.8)		31.4
Gain on sale of assets	—		(32.1)
Equity in net (earnings) loss of PersolKelly Pte. Ltd.	(2.3)		1.0
Other, net	4.6		1.8
Changes in operating assets and liabilities, net of acquisitions	(26.7)		137.6

Net cash from operating activities	31.0		216.5

Cash flows from investing activities:
Capital expenditures	(7.5)		(12.3)
Proceeds from sale of assets	—		55.5
Acquisition of companies, net of cash received	(213.0)		(36.4)
Proceeds from company-owned life insurance	10.4		2.3
Proceeds from sale of Brazil, net of cash disposed	—		1.2
Proceeds from loans with equity affiliate	5.8		—
Proceeds from (investment in) equity securities	5.0		(0.2)
Other investing activities	0.9		0.2

Net cash (used in) from investing activities	(198.4)		10.3

Cash flows from financing activities:
Net change in short-term borrowings	(0.2)		(1.5)
Financing lease payments	(1.3)		(1.0)
Dividend payments	(2.0)		(3.0)
Payments of tax withholding for stock awards	(0.6)		(1.2)
Contingent consideration payments	(1.6)		—
Other financing activities	—		(0.1)

Net cash used in financing activities	(5.7)		(6.8)

Effect of exchange rates on cash, cash equivalents and restricted cash	(3.9)		3.4

Net change in cash, cash equivalents and restricted cash	(177.0)		223.4

Cash, cash equivalents and restricted cash at beginning of period	228.1		31.0

Cash, cash equivalents and restricted cash at end of period (1)	$	51.1	$	254.4

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(UNAUDITED)

(In millions of dollars)

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash to the amounts reported in our consolidated balance sheets:


	39 Weeks Ended
	October 3, 2021		September 27, 2020
Reconciliation of cash, cash equivalents and restricted cash:
Current assets:
Cash and cash equivalents	$	43.5	$	248.2
Restricted cash included in prepaid expenses and other current assets	1.0		0.9
Noncurrent assets:
Restricted cash included in other assets	6.6		5.3
Cash, cash equivalents and restricted cash at end of period	$	51.1	$	254.4

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Kelly Services, Inc. (the “Company,” “Kelly,” “we” or “us”) have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the results of the interim periods, have been made. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. The unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended January 3, 2021, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 18, 2021 (the 2020 consolidated financial statements). The Company’s third fiscal quarter ended on October 3, 2021 (2021) and September 27, 2020 (2020), each of which contained 13 weeks. The corresponding September year to date periods for 2021 and 2020 each contained 39 weeks.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2. Revenue

Revenue Disaggregated by Service Type

Kelly has five specialty segments: Professional & Industrial (“P&I”), Science, Engineering & Technology (“SET”), Education, Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG") and International. Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services. Our OCG segment delivers talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services. International also delivers RPO talent solutions within its local markets.

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


	Third Quarter				September Year to Date
	2021		2020		2021		2020
Professional & Industrial
Staffing services	$	344.7	$	341.3	$	1,057.0	$	1,033.1
Permanent placement	6.9		2.3		17.1		7.0
Outcome-based services	101.0		102.9		312.6		306.6
Total Professional & Industrial	452.6		446.5		1,386.7		1,346.7

Science, Engineering & Technology
Staffing services	214.0		181.6		613.1		562.3
Permanent placement	6.5		3.1		17.4		9.0
Outcome-based services	85.7		59.3		228.6		190.2
Total Science, Engineering & Technology	306.2		244.0		859.1		761.5

Education
Staffing services	65.7		27.4		280.6		194.9
Permanent placement	0.9		0.1		3.5		0.2
Total Education	66.6		27.5		284.1		195.1

Outsourcing & Consulting
Talent solutions	113.4		87.9		320.0		261.0
Total Outsourcing & Consulting	113.4		87.9		320.0		261.0

International
Staffing services	247.1		228.8		784.7		697.9
Permanent placement	5.4		3.6		16.3		12.7
Talent solutions	4.3		—		9.1		—
Total International	256.8		232.4		810.1		710.6

Total Intersegment	(0.2)		(0.1)		(0.6)		(0.3)

Total Revenue from Services	$	1,195.4	$	1,038.2	$	3,659.4	$	3,274.6

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

Revenue Disaggregated by Geography

Our operations are subject to different economic and regulatory environments depending on geographic location. Our P&I and Education segments operate in the Americas region, our SET segment operates in the Americas and Europe regions, and OCG operates in the Americas, Europe and Asia-Pacific regions. The International segment includes Europe and our Brazil and Mexico operations, which are included in the Americas region. Our Brazil staffing operations were sold in August 2020 (see Acquisitions and Disposition footnote).

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


	Third Quarter				September Year to Date
	2021		2020		2021		2020
Americas
United States	$	851.7	$	740.6	$	2,604.8	$	2,369.2
Canada	43.3		30.3		116.9		88.7
Puerto Rico	25.5		18.4		76.6		56.1
Mexico	14.4		27.4		82.1		78.6
Brazil	—		1.8		—		17.0
Total Americas Region	934.9		818.5		2,880.4		2,609.6

Europe
France	56.3		48.8		168.1		141.2
Switzerland	54.5		49.6		161.2		141.2
Portugal	36.6		31.7		120.9		99.1
Russia	33.0		27.2		99.3		88.6
Italy	18.5		14.5		56.0		42.5
United Kingdom	17.2		16.4		51.9		56.5
Germany	9.0		7.0		24.6		22.1
Ireland	7.4		4.9		18.8		14.0

Other	17.3		12.0		49.9		38.7
Total Europe Region	249.8		212.1		750.7		643.9







Total Asia-Pacific Region	10.7		7.6		28.3		21.1

Total Kelly Services, Inc.	$	1,195.4	$	1,038.2	$	3,659.4	$	3,274.6

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

The below table presents our SET, OCG and International segment revenues disaggregated by geographic region (in millions of dollars):


	Third Quarter				September Year to Date
	2021		2020		2021		2020
Science, Engineering & Technology
Americas	$	304.3	$	242.8	$	854.1	$	757.3
Europe	1.9		1.2		5.0		4.2
Total Science, Engineering & Technology	$	306.2	$	244.0	$	859.1	$	761.5

Outsourcing & Consulting
Americas	$	97.5	$	72.9	$	274.9	$	215.9
Europe	5.2		7.4		16.8		24.0
Asia-Pacific	10.7		7.6		28.3		21.1
Total Outsourcing & Consulting	$	113.4	$	87.9	$	320.0	$	261.0

International
Americas	$	14.1	$	28.9	$	81.2	$	94.9
Europe	242.7		203.5		728.9		615.7
Total International	$	256.8	$	232.4	$	810.1	$	710.6

Deferred Costs

Deferred sales commissions, which are included in other assets in the consolidated balance sheet, were $0.9 million as of third quarter-end 2021 and $1.0 million as of year-end 2020. Amortization expense for the deferred costs for the third quarter and September year to date 2021 was $0.2 million and $0.6 million, respectively. Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $0.2 million and $0.8 million, respectively.

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $2.6 million as of third quarter-end 2021 and $4.1 million as of year-end 2020. Amortization expense for the deferred costs for the third quarter and September year to date 2021 was $4.3 million and $16.4 million, respectively. Amortization expense for the deferred costs for the third quarter and September year to date 2020 was $5.3 million and $14.9 million, respectively.

3. Credit Losses

On December 30, 2019, we adopted Accounting Standards Codification ("ASC") Topic 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures, as applicable.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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


	September Year to Date
	2021		2020
Allowance for credit losses:
Beginning balance	$	9.8	$	9.7
Impact of adopting ASC 326	—		0.3
Current period provision	0.8		1.2
Currency exchange effects	(0.4)		(0.2)
Write-offs	(0.7)		(1.6)
Ending balance	$	9.5	$	9.4

Write-offs are presented net of recoveries, which were not material for September year to date 2021 and 2020.

We have been engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered more than five years ago, which was recorded as a long-term receivable in other assets in the consolidated balance sheet. In September 2020, a ruling was issued in favor of the customer, which we appealed. Upon receiving the ruling, we increased our allowance for credit losses by $9.2 million in the third quarter of 2020 to reflect the likelihood of collection, which was recorded in other assets in the consolidated balance sheet. In September 2021, a final ruling in the case was entered in favor of the customer. As a result, in the third quarter of 2021, we wrote off the entire receivable balance with this customer, including $0.6 million not previously reserved. The unreserved portion was recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings.

The rollforward of our allowance for credit losses related to the long-term customer receivable, which was recorded in other assets in the consolidated balance sheet, is as follows (in millions of dollars):


	September Year to Date
	2021		2020
Allowance for credit losses:
Beginning balance	$	10.9	$	1.0
Impact of adopting ASC 326	—