KELLY SERVICES INC

Previous wording

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.

Current wording

EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin (EBITDA divided by revenue from services) are measures used for understanding our 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.

Previous wording

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.

Current wording

Revenue from services in the first quarter increased 11.5%, which is primarily driven by the acquisition of MRP in May 2024. Excluding the impact from the acquisition, revenue from services was flat year-over-year with increases in the Education segment mostly offset by decreases in the SET segment. Compared to the first quarter of 2024 and excluding the impact from the acquisition, revenue from staffing services and outcome-based services were flat to the prior year. Revenue from talent solutions increased 3.0% and permanent placement revenue decreased 31.4% from the prior year, excluding the impact from the acquisition.

Previous wording

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.

Current wording

Gross profit increased 15.0% largely driven by the acquisition of MRP. Excluding the impact from the acquisition, gross profit decreased 1.1%. The gross profit rate increased 60 basis points to 20.3% primarily due to a 90 basis point increase due to the acquisition of MRP, partially offset by a 20 basis point decrease related to lower permanent placement fees and a 10 basis point decrease related to business mix and other. 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 the ETM and SET segments excluding the acquisition and increased in the Education segment.

Previous wording

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.

Current wording

The gain on sale of EMEA staffing operations relates to the completion of the sale in January 2024 in which we had recognized a gain of $11.6 million as of first quarter-end 2024.

Previous wording

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.

Current wording

The increase in SET revenue from services was primarily driven by the acquisition of MRP staffing and outcome-based solutions businesses. Excluding the acquisition, revenue from services decreased 7.2% primarily driven by declines in hours volume in our staffing specialties including the impact of changes in demand related to U.S. federal government. Excluding the acquisition, revenue in our outcome-based services decreased 3.4%. Permanent placement fees decreased, reflecting continued lower market demand.

Previous wording

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.

Current wording

The increase in Education revenue from services was driven by increased demand for our services as compared to a year ago, reflecting the impact of fill rate improvement and higher bill rates, partially offset by the impact of weather-related school closures.

Previous wording

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.

Current wording

The SET gross profit increased primarily as a result of the acquisition of the MRP staffing and outcome-based solutions businesses. The SET gross profit rate increased 70 basis points driven by a 100 basis point increase due to the MRP acquisition, which generates higher gross profit rates, and 50 basis points reflecting favorable business mix and employee-related costs, partially offset by an 80 basis point decrease as a result of lower permanent placement fees.

Previous wording

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.

Current wording

Gross profit for the Education segment increased on higher revenue volume. The gross profit rate increased 50 basis points due primarily to favorable employee-related costs.

Previous wording

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.

Current wording

The increase in ETM SG&A expenses excluding depreciation and amortization is primarily due to the acquisition of Sevenstep, the MRP talent solutions business. Excluding the acquisition, expenses decreased 0.6% from the prior year primarily due to lower employee-related costs as a result of expense management actions in response to lower revenue volume compared to the prior year, partially offset by integration and realignment charges.

Previous wording

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.

Current wording

The increase in Education SG&A expenses excluding depreciation and amortization primarily related to increased year-over-year revenue levels.

Previous wording

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.

Current wording

SET reported profit includes $3.8 million of business unit profit from the acquisition of MRP. Excluding the acquisition, the decrease in profit was due primarily to lower revenue and gross profit.

Previous wording

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.

Current wording

Education reported profit of $19.3 million compared to profit of $18.1 million a year ago. The change was primarily driven by higher revenue and gross profit, partially offset by an increase in SG&A expenses.

Previous wording

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.

Current wording

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, 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.

Previous wording

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.

Current wording

Cash, cash equivalents and restricted cash totaled $34.5 million at the end of the first quarter of 2025 and $45.6 million at year-end 2024. As further described below, we generated $23.9 million of cash from operating activities, generated $3.2 million of cash from investing activities and used $39.5 million of cash for financing activities.

Previous wording

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.

Current wording

In the first three months of 2025, we generated $23.9 million of net cash from operating activities, as compared to using $25.5 million in the first three months of 2024, primarily due to decreased working capital requirements as compared to the same period of the prior year.

Previous wording

Trade accounts receivable totaled $1.2 billion at the end of the third quarter of 2024. Global DSO was 64 days 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.

Current wording

Trade accounts receivable totaled $1.3 billion at the end of the first quarter of 2025. Global DSO was 61 days at the end of the first quarter of 2025 and 59 days at year-end 2024.

Previous wording

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.

Current wording

Our working capital position (total current assets less total current liabilities) was $528.1 million at the end of the first quarter of 2025 including the impact of our acquisition of MRP, a decrease of$10.9 million from year-end 2024. Excluding the decrease in cash, working capital decreased $0.1 million from year-end 2024. The current ratio (total current assets divided by total current liabilities) was 1.6 at the end of the first quarter of 2025 and 1.7 at year-end 2024.

Previous wording

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. Included 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.

Current wording

In the first three months of 2025, we generated $3.2 million of cash from investing activities, as compared to generating $72.1 million in the first three months of 2024. Included in cash from investing activities in the first three months of 2025 is $6.4 million of cash from the sale of the PersolKelly investment, partially offset by $2.5 million of cash used for capital expenditures. Included in the cash from investing activities in the first three months of 2024 is$77.1 million of proceeds from sale of EMEA staffing operations, net of cash disposed, partially offset by $3.7 million of cash used for capital expenditures and a$2.4 million payment for the settlement of forward contracts.

Previous wording

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.

Current wording

We used $39.5 million of cash for financing activities in the first three months of 2025, as compared to using $4.7 million in the first three months of 2024. The change in cash used for financing activities is driven by net repayments of $34.8 million on our credit facilities in the first three months of 2025. Divi dends paid per common share were $0.075 in each of the first three months of 2025 and 2024.

Previous wording

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.

Current wording

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 14.2% at the end of the first quarter of 2025 and 16.2% at year-end 2024.

Previous wording

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.

Current wording

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 also include an accordion feature to increase our combined borrowing capacity by $250.0 million. 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.

Previous wording

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.

Current wording

We assess and monitor our liquidity and capital resources globally. We use the Cash Pool, intercompany loans, dividends, capital contributions, 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 our overall capital structure. As of the end of the first quarter of 2025, 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, we continue 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.

Previous wording

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.

Current wording

On January 2, 2024, we completed the sale of our 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. We expect 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. As of first quarter-end 2025, we have recorded a net receivable of $17.0 million. We are actively reconciling the receivable in accordance with the purchase agreement and expects it to be settled upon completion of this process. We will not receive any proceeds from the contingent consideration opportunity associated with the transaction. See the Acquisitions and Disposition footnote in the notes to our consolidated financial statements for more details.

Previous wording

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. 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.

Current wording

On May 31, 2024, we indirectly acquired 100% of the equity interests in MRP for a purchase price of $425.0 million. Under terms of the agreement, the purchase price was adjusted for estimated cash held by MRP at the closing date and estimated working capital adjustments, resulting in us paying cash of $440.0 million, funded with cash on hand and available credit facilities. Per the terms of the agreement, there was an earnout with a maximum potential cash payment of $60.0 million due to the seller in the second quarter of 2025. As of first quarter-end 2025, the fair value of the earnout remained at zero, and no liability is recorded. See the Acquisitions and Disposition footnote in the notes to our consolidated financial statements for more details.

Previous wording

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.

Current wording

As of first quarter-end 2025, we had $120.0 million of available capacity on our $150.0 million revolving credit facility and $32.8 million of available capacity on our $250.0 million securitization facility. The revolving credit facility carried $30.0 million of long-term borrowings on the term benchmark line of credit. The securitization facility carried $174.6 million of long-term borrowings and $42.6 million of standby letters of credit related to workers’ compensation. On July 17, 2024, we entered into interest rate swaps that effectively locked in the variable Secured Overnight Financing Rate (“SOFR” component of our interest rate for a portion of the long-term borrowings on the Securitization Facility. As of first quarter-end 2025, we recorded a liability totaling $0.3 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.

Previous wording

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.

Current wording

Together, the revolving credit and securitization facilities provide us 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 first quarter-end 2025, we met the debt covenants related to our revolving credit facility and securitization facility.