SEC Filing | Kelly Services, Inc.

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kelya-20221002

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 2, 2022

☐ 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 October 31, 2022, 34,590,876 shares of Class A and 3,357,146 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.			33

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			51

Item 4. Controls and Procedures.			51

PART II. OTHER INFORMATION			52

Item 1. Legal Proceedings.			52

Item 1A. Risk Factors.			52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			53

Item 3. Defaults Upon Senior Securities.			53

Item 4. Mine Safety Disclosures.			53

Item 5. Other Information.			53

Item 6. Exhibits.			53

SIGNATURES			55

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 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Revenue from services	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4

Cost of services	927.3		966.5		2,970.0		2,986.2

Gross profit	240.6		228.9		761.6		673.2

Selling, general and administrative expenses	231.1		219.9		707.3		639.9

Goodwill impairment charge	30.7		—		30.7		—

Loss on disposal	0.2		—		18.7		—

Gain on sale of assets	—		—		(5.3)		—

Earnings (loss) from operations	(21.4)		9.0		10.2		33.3

Gain (loss) on investment in Persol Holdings	—		35.5		(67.2)		71.8

Loss on currency translation from liquidation of subsidiary	—		—		(20.4)		—

Other income (expense), net	0.2		(0.3)		1.9		(4.0)

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	(21.2)		44.2		(75.5)		101.1

Income tax expense (benefit)	(5.0)		11.1		(13.1)		19.0

Net earnings (loss) before equity in net earnings (loss) of affiliate	(16.2)		33.1		(62.4)		82.1

Equity in net earnings (loss) of affiliate	—		1.7		0.8		2.3

Net earnings (loss)	$	(16.2)	$	34.8	$	(61.6)	$	84.4

Basic earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12
Diluted earnings (loss) per share	$	(0.43)	$	0.87	$	(1.62)	$	2.12

Average shares outstanding (millions):
Basic	37.9		39.4		38.2		39.4
Diluted	37.9		39.5		38.2		39.5

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 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Net earnings (loss)	$	(16.2)	$	34.8	$	(61.6)	$	84.4

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax benefit of $0.1, tax expense of $0.1, $0.0 and $0.5, respectively	(8.8)		(3.5)		(17.4)		(15.1)
Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	—		—		20.4		—
Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	1.9		—		4.6		—
Foreign currency translation adjustments	(6.9)		(3.5)		7.6		(15.1)



Other comprehensive income (loss)	(6.9)		(3.5)		7.6		(15.1)

Comprehensive income (loss)	$	(23.1)	$	31.3	$	(54.0)	$	69.3

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


	October 2, 2022		January 2, 2022
Assets
Current Assets
Cash and equivalents	$	122.4	$	112.7
Trade accounts receivable, less allowances of $12.1 and $12.6, respectively	1,519.9		1,423.2
Prepaid expenses and other current assets	83.1		52.8
Assets held for sale	4.7		—
Total current assets	1,730.1		1,588.7

Noncurrent Assets
Property and equipment:
Property and equipment	168.7		205.1
Accumulated depreciation	(143.8)		(169.8)
Net property and equipment	24.9		35.3
Operating lease right-of-use assets	67.3		75.8
Deferred taxes	300.7		302.8
Goodwill, net	161.4		114.8
Investment in Persol Holdings	—		264.3
Investment in equity affiliate	—		123.4
Other assets	397.5		389.1
Total noncurrent assets	951.8		1,305.5

Total Assets	$	2,681.9	$	2,894.2

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


	October 2, 2022		January 2, 2022
Liabilities and Stockholders’ Equity
Current Liabilities
Short-term borrowings	$	0.1	$	—
Accounts payable and accrued liabilities	735.2		687.2
Operating lease liabilities	14.4		17.5
Accrued payroll and related taxes	321.4		318.4
Accrued workers’ compensation and other claims	24.4		20.8
Income and other taxes	47.5		51.3


Total current liabilities	1,143.0		1,095.2

Noncurrent Liabilities
Operating lease liabilities	55.6		61.4
Accrued payroll and related taxes	—		57.6
Accrued workers’ compensation and other claims	43.4		37.0
Accrued retirement benefits	172.7		220.0
Other long-term liabilities	14.5		86.8
Total noncurrent liabilities	286.2		462.8

Commitments and contingencies (see Contingencies footnote)

Stockholders’ Equity
Capital stock, $1.00 par value
Class A common stock, 100.0 shares authorized; 35.1 shares issued at 2022 and 36.7 shares issued at 2021	35.1		36.7
Class B common stock, 10.0 shares authorized; 3.4 shares issued at 2022 and 2021	3.4		3.4
Treasury stock, at cost
Class A common stock, 0.6 shares at 2022 and 0.7 shares at 2021	(11.8)		(14.5)
Class B common stock	(0.6)		(0.6)
Paid-in capital	26.6		23.9
Earnings invested in the business	1,220.1		1,315.0
Accumulated other comprehensive income (loss)	(20.1)		(27.7)
Total stockholders’ equity	1,252.7		1,336.2

Total Liabilities and Stockholders’ Equity	$	2,681.9	$	2,894.2

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 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021
Capital Stock
Class A common stock
Balance at beginning of period	$	35.1	$	36.7	$	36.7	$	36.7
Conversions from Class B	—		—		—		—
Share retirement	—		—		(1.6)		—
Balance at end of period	35.1		36.7		35.1		36.7

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

Balance at end of period	3.4		3.4		3.4		3.4

Treasury Stock
Class A common stock
Balance at beginning of period	(11.9)		(14.7)		(14.5)		(16.5)
Net issuance of stock awards	0.1		0.1		2.7		1.9
Balance at end of period	(11.8)		(14.6)		(11.8)		(14.6)

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	24.9		22.3		23.9		21.3
Net issuance of stock awards	1.7		0.9		2.7		1.9
Balance at end of period	26.6		23.2		26.6		23.2

Earnings Invested in the Business
Balance at beginning of period	1,239.2		1,212.5		1,315.0		1,162.9



Net earnings (loss)	(16.2)		34.8		(61.6)		84.4
Dividends	(2.9)		(2.0)		(7.7)		(2.0)
Share retirement	—		—		(25.6)		—
Balance at end of period	1,220.1		1,245.3		1,220.1		1,245.3

Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(13.2)		(15.8)		(27.7)		(4.2)

Other comprehensive income (loss), net of tax	(6.9)		(3.5)		7.6		(15.1)
Balance at end of period	(20.1)		(19.3)		(20.1)		(19.3)

Stockholders’ Equity at end of period	$	1,252.7	$	1,274.1	$	1,252.7	$	1,274.1

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 2, 2022		October 3, 2021
Cash flows from operating activities:
Net earnings (loss)	$	(61.6)	$	84.4
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Goodwill impairment charge	30.7		—
Deferred income taxes on goodwill impairment charge	(5.3)		—
Loss on disposal	18.7		—
Depreciation and amortization	24.7		22.0
Operating lease asset amortization	14.2		16.0
Provision for credit losses and sales allowances	1.7		0.8
Stock-based compensation	5.9		4.0
(Gain) loss on investment in Persol Holdings	67.2		(71.8)
Loss on currency translation from liquidation of subsidiary	20.4		—
Gain on foreign currency remeasurement	(5.5)		—
Gain on sale of assets	(5.3)		—
Equity in net (earnings) loss of PersolKelly Pte. Ltd.	(0.8)		(2.3)
Other, net	3.5		4.6
Changes in operating assets and liabilities, net of acquisitions	(220.2)		(26.7)
Net cash (used in) from operating activities	(111.7)		31.0

Cash flows from investing activities:
Capital expenditures	(5.6)		(7.5)
Proceeds from sale of assets	4.5		—
Acquisition of companies, net of cash received	(143.1)		(213.0)
Cash disposed from sale of Russia, net of proceeds	(6.0)		—
Proceeds from company-owned life insurance	1.5		10.4
Proceeds from sale of Persol Holdings investment	196.9		—
Proceeds from sale of equity method investment	119.5		—
Proceeds related to loans with equity affiliate	—		5.8
Proceeds from equity securities	—		5.0
Other investing activities	—		0.9
Net cash from (used in) investing activities	167.7		(198.4)

Cash flows from financing activities:
Net change in short-term borrowings	0.2		(0.2)
Financing lease payments	(1.2)		(1.3)
Dividend payments	(7.7)		(2.0)
Payments of tax withholding for stock awards	(0.9)		(0.6)
Buyback of common shares	(27.2)		—
Contingent consideration payments	(0.7)		(1.6)
Other financing activities	0.1		—
Net cash used in financing activities	(37.4)		(5.7)

Effect of exchange rates on cash, cash equivalents and restricted cash	(7.4)		(3.9)

Net change in cash, cash equivalents and restricted cash	11.2		(177.0)

Cash, cash equivalents and restricted cash at beginning of period	119.5		228.1

Cash, cash equivalents and restricted cash at end of period (1)	$	130.7	$	51.1

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 2, 2022		October 3, 2021
Reconciliation of cash, cash equivalents and restricted cash:
Current assets:
Cash and cash equivalents	$	122.4	$	43.5

Restricted cash included in prepaid expenses and other current assets	0.8		1.0
Noncurrent assets:
Restricted cash included in other assets	7.5		6.6
Cash, cash equivalents and restricted cash at end of period	$	130.7	$	51.1

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 2, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 17, 2022 (the 2021 consolidated financial statements). There were no changes in accounting policies as disclosed in the Form 10-K, with the exception of those described in the New Accounting Pronouncements footnote. The Company’s third fiscal quarter ended on October 2, 2022 (2022) and October 3, 2021 (2021), each of which contained 13 weeks. The corresponding September year-to-date periods for 2022 and 2021 each contained 39 weeks.

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

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

2. Revenue

Revenue Disaggregated by Service Type

Kelly has five operating 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
	2022		2021		2022		2021
Professional & Industrial
Staffing services	$	297.9	$	344.7	$	942.3	$	1,057.0
Permanent placement	6.1		6.9		24.0		17.1
Outcome-based services	104.6		101.0		302.4		312.6
Total Professional & Industrial	408.6		452.6		1,268.7		1,386.7

Science, Engineering & Technology
Staffing services	220.6		214.0		664.3		613.1
Permanent placement	7.1		6.5		23.6		17.4
Outcome-based services	93.6		85.7		274.8		228.6
Total Science, Engineering & Technology	321.3		306.2		962.7		859.1

Education
Staffing services	103.0		65.7		427.4		280.6
Permanent placement	1.3		0.9		5.8		3.5
Total Education	104.3		66.6		433.2		284.1

Outsourcing & Consulting
Talent solutions	118.5		113.4		352.0		320.0
Total Outsourcing & Consulting	118.5		113.4		352.0		320.0

International
Staffing services	205.8		247.1		684.7		784.7
Permanent placement	5.3		5.4		17.8		16.3
Talent solutions	4.4		4.3		13.4		9.1
Total International	215.5		256.8		715.9		810.1

Total Intersegment	(0.3)		(0.2)		(0.9)		(0.6)

Total Revenue from Services	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4

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 our Mexico operations, which are included in the Americas region, and Europe.

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


	Third Quarter				September Year to Date
	2022		2021		2022		2021
Americas
United States	$	861.0	$	851.7	$	2,746.5	$	2,604.8
Canada	43.3		43.3		122.7		116.9
Puerto Rico	28.3		25.5		84.8		76.6
Mexico	10.9		14.4		32.4		82.1

Total Americas Region	943.5		934.9		2,986.4		2,880.4

Europe
Switzerland	55.2		54.5		165.5		161.2
France	45.8		56.3		150.8		168.1
Portugal	41.9		36.6		125.8		120.9
Italy	16.4		18.5		54.3		56.0
United Kingdom	14.2		17.2		45.2		51.9
Russia	5.0		33.0		63.4		99.3



Other	35.6		33.7		107.6		93.3
Total Europe Region	214.1		249.8		712.6		750.7







Total Asia-Pacific Region	10.3		10.7		32.6		28.3

Total Kelly Services, Inc.	$	1,167.9	$	1,195.4	$	3,731.6	$	3,659.4

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
	2022		2021		2022		2021
Science, Engineering & Technology
Americas	$	317.2	$	304.3	$	951.4	$	854.1
Europe	4.1		1.9		11.3		5.0
Total Science, Engineering & Technology	$	321.3	$	306.2	$	962.7	$	859.1

Outsourcing & Consulting
Americas	$	103.1	$	97.5	$	302.5	$	274.9
Europe	5.1		5.2		16.9		16.8
Asia-Pacific	10.3		10.7		32.6		28.3
Total Outsourcing & Consulting	$	118.5	$	113.4	$	352.0	$	320.0