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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 June 30, 2024
OR
☐ 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 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 | ☐ | 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 July 29, 2024, 32,267,505 shares of Class A and 3,300,841 shares of Class B common stock of the Registrant were outstanding.
KELLY SERVICES, INC. AND SUBSIDIARIES
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 | | 26 Weeks Ended |
| June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 |
Revenue from services | $ | 1,057.5 | | | $ | 1,217.2 | | | $ | 2,102.6 | | | $ | 2,485.5 | |
| | | | | | | |
Cost of services | 843.8 | | | 976.6 | | | 1,683.2 | | | 1,990.8 | |
| | | | | | | |
Gross profit | 213.7 | | | 240.6 | | | 419.4 | | | 494.7 | |
| | | | | | | |
Selling, general and administrative expenses | 191.5 | | | 232.0 | | | 382.0 | | | 475.4 | |
| | | | | | | |
Asset impairment charge | 5.5 | | | 2.4 | | | 5.5 | | | 2.4 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(Gain) loss on sale of EMEA staffing operations | 10.0 | | | — | | | (1.6) | | | — | |
| | | | | | | |
Gain on sale of assets | (5.5) | | | — | | | (5.5) | | | — | |
| | | | | | | |
Earnings from operations | 12.2 | | | 6.2 | | | 39.0 | | | 16.9 | |
| | | | | | | |
Gain on forward contract | — | | | — | | | 1.2 | | | — | |
| | | | | | | |
Other income (expense), net | (6.5) | | | (0.6) | | | (4.7) | | | 1.4 | |
| | | | | | | |
Earnings before taxes | 5.7 | | | 5.6 | | | 35.5 | | | 18.3 | |
| | | | | | | |
Income tax expense (benefit) | 1.1 | | | (1.9) | | | 5.1 | | | (0.1) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net earnings | $ | 4.6 | | | $ | 7.5 | | | $ | 30.4 | | | $ | 18.4 | |
| | | | | | | |
Basic earnings per share | $ | 0.13 | | | $ | 0.20 | | | $ | 0.84 | | | $ | 0.49 | |
Diluted earnings per share | $ | 0.12 | | | $ | 0.20 | | | $ | 0.83 | | | $ | 0.49 | |
| | | | | | | |
Average shares outstanding (millions): | | | | | | | |
Basic | 35.5 | | | 36.0 | | | 35.5 | | | 36.5 | |
Diluted | 35.9 | | | 36.4 | | | 35.9 | | | 36.9 | |
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 | | 26 Weeks Ended |
| June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 |
Net earnings | $ | 4.6 | | | $ | 7.5 | | | $ | 30.4 | | | $ | 18.4 | |
| | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments, net of tax expense of $0.0, tax benefit of $0.1, tax expense of $0.0 and tax benefit of $0.1, respectively | (2.0) | | | 2.8 | | | (2.5) | | | 5.1 | |
Less: Reclassification adjustments included in net earnings | — | | | — | | | (0.6) | | | — | |
Foreign currency translation adjustments | (2.0) | | | 2.8 | | | (3.1) | | | 5.1 | |
| | | | | | | |
Pension liability adjustments, net of tax benefit of $0.4 | — | | | — | | | — | | | — | |
Less: Reclassification adjustments included in net earnings | — | | | — | | | 0.4 | | | — | |
Pension liability adjustments | — | | | — | | | 0.4 | | | — | |
| | | | | | | |
Other comprehensive income (loss) | (2.0) | | | 2.8 | | | (2.7) | | | 5.1 | |
| | | | | | | |
Comprehensive income (loss) | $ | 2.6 | | | $ | 10.3 | | | $ | 27.7 | | | $ | 23.5 | |
See accompanying unaudited Notes to Consolidated Financial Statements.
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions) | | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Assets | | | |
Current Assets | | | |
Cash and equivalents | $ | 38.2 | | | $ | 125.8 | |
Trade accounts receivable, less allowances of $7.9 and $10.9, respectively | 1,193.9 | | | 1,160.6 | |
Prepaid expenses and other current assets | 78.7 | | | 48.9 | |
Assets held for sale | — | | | 291.3 | |
Total current assets | 1,310.8 | | | 1,626.6 | |
| | | |
Noncurrent Assets | | | |
Property and equipment: | | | |
Property and equipment | 142.4 | | | 138.1 | |
Accumulated depreciation | (115.6) | | | (113.5) | |
Net property and equipment | 26.8 | | | 24.6 | |
Operating lease right-of-use assets | 53.1 | | | 47.1 | |
Deferred taxes | 302.3 | | | 321.1 | |
Retirement plan assets | 245.9 | | | 230.3 | |
Goodwill, net | 372.6 | | | 151.1 | |
Intangibles, net | 272.3 | | | 137.7 | |
| | | |
Other assets | 44.4 | | | 43.1 | |
Total noncurrent assets | 1,317.4 | | | 955.0 | |
| | | |
Total Assets | $ | 2,628.2 | | | $ | 2,581.6 | |
See accompanying unaudited Notes to Consolidated Financial Statements.
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions) | | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
Liabilities and Stockholders’ Equity | | | |
Current Liabilities | | | |
| | | |
Accounts payable and accrued liabilities | $ | 594.8 | | | $ | 646.1 | |
Operating lease liabilities | 12.4 | | | 8.4 | |
Accrued payroll and related taxes | 168.3 | | | 156.2 | |
Accrued workers’ compensation and other claims | 18.7 | | | 22.1 | |
Income and other taxes | 18.1 | | | 17.2 | |
| | | |
Liabilities held for sale | — | | | 169.9 | |
| | | |
Total current liabilities | 812.3 | | | 1,019.9 | |
| | | |
Noncurrent Liabilities | | | |
Long-term debt | 210.4 | | | — | |
Operating lease liabilities | 49.6 | | | 42.9 | |
| | | |
Accrued workers’ compensation and other claims | 34.7 | | | 40.9 | |
Accrued retirement benefits | 232.6 | | | 217.4 | |
Other long-term liabilities | 8.7 | | | 6.8 | |
Total noncurrent liabilities | 536.0 | | | 308.0 | |
| | | |
Commitments and contingencies (see Contingencies footnote) | | | |
| | | |
Stockholders’ Equity | | | |
Capital stock, $1.00 par value | | | |
Class A common stock, 100.0 million shares authorized; 35.2 million shares issued at 2024 and 2023 | 35.2 | | | 35.2 | |
Class B common stock, 10.0 million shares authorized; 3.3 million shares issued at 2024 and 2023 | 3.3 | | | 3.3 | |
Treasury stock, at cost | | | |
Class A common stock, 2.9 million shares at 2024 and 3.2 million shares at 2023 | (51.7) | | | (56.7) | |
Class B common stock | (0.6) | | | (0.6) | |
Paid-in capital | 29.5 | | | 30.6 | |
Earnings invested in the business | 1,266.7 | | | 1,241.7 | |
Accumulated other comprehensive income (loss) | (2.5) | | | 0.2 | |
Total stockholders’ equity | 1,279.9 | | | 1,253.7 | |
| | | |
Total Liabilities and Stockholders’ Equity | $ | 2,628.2 | | | $ | 2,581.6 | |
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 | | 26 Weeks Ended |
| June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 |
Capital Stock | | | | | | | |
Class A common stock | | | | | | | |
Balance at beginning of period | $ | 35.2 | | | $ | 35.2 | | | $ | 35.2 | | | $ | 35.1 | |
Conversions from Class B | — | | | — | | | — | | | 0.1 | |
| | | | | | | |
Balance at end of period | 35.2 | | | 35.2 | | | 35.2 | | | 35.2 | |
| | | | | | | |
Class B common stock | | | | | | | |
Balance at beginning of period | 3.3 | | | 3.3 | | | 3.3 | | | 3.4 | |
Conversions to Class A | — | | | — | | | — | | | (0.1) | |
| | | | | | | |
Balance at end of period | 3.3 | | | 3.3 | | | 3.3 | | | 3.3 | |
| | | | | | | |
Treasury Stock | | | | | | | |
Class A common stock | | | | | | | |
Balance at beginning of period | (52.5) | | | (34.7) | | | (56.7) | | | (19.5) | |
Net issuance of stock awards and other | 0.8 | | | 0.5 | | | 5.0 | | | 3.6 | |
Purchase of treasury stock | — | | | (16.5) | | | — | | | (34.8) | |
Balance at end of period | (51.7) | | | (50.7) | | | (51.7) | | | (50.7) | |
| | | | | | | |
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 | 27.1 | | | 26.4 | | | 30.6 | | | 28.0 | |
Net issuance of stock awards | 2.4 | | | 2.6 | | | (1.1) | | | 1.0 | |
Balance at end of period | 29.5 | | | 29.0 | | | 29.5 | | | 29.0 | |
| | | | | | | |
Earnings Invested in the Business | | | | | | | |
Balance at beginning of period | 1,264.8 | | | 1,224.4 | | | 1,241.7 | | | 1,216.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net earnings | 4.6 | | | 7.5 | | | 30.4 | | | 18.4 | |
Dividends | (2.7) | | | (2.8) | | | (5.4) | | | (5.6) | |
| | | | | | | |
Balance at end of period | 1,266.7 | | | 1,229.1 | | | 1,266.7 | | | 1,229.1 | |
| | | | | | | |
Accumulated Other Comprehensive Income (Loss) | | | | | | | |
Balance at beginning of period | (0.5) | | | (6.2) | | | 0.2 | | | (8.5) | |
| | | | | | | |
Other comprehensive income (loss), net of tax | (2.0) | | | 2.8 | | | (2.7) | | | 5.1 | |
Balance at end of period | (2.5) | | | (3.4) | | | (2.5) | | | (3.4) | |
| | | | | | | |
Stockholders’ Equity at end of period | $ | 1,279.9 | | | $ | 1,241.9 | | | $ | 1,279.9 | | | $ | 1,241.9 | |
See accompanying unaudited Notes to Consolidated Financial Statements.
KELLY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions of dollars) | | | | | | | | | | | |
| 26 Weeks Ended |
| June 30, 2024 | | July 2, 2023 |
Cash flows from operating activities: | | | |
Net earnings | $ | 30.4 | | | $ | 18.4 | |
Adjustments to reconcile net earnings to net cash from operating activities: | | | |
Asset impairment charge | 5.5 | | | 2.4 | |
| | | |
| | | |
Gain on sale of EMEA staffing operations | (1.6) | | | — | |
Gain on sale of assets | (5.5) | | | — | |
Depreciation and amortization | 17.6 | | | 17.2 | |
Operating lease asset amortization | 4.6 | | | 8.4 | |
Provision for credit losses and sales allowances | (0.2) | | | 0.4 | |
Stock-based compensation | 5.2 | | | 5.6 | |
Gain on sale of equity securities | — | | | (2.0) | |
Gain on forward contract | (1.2) | | | — | |
Other, net | (1.1) | | | 0.5 | |
Changes in operating assets and liabilities, net of acquisition | (21.5) | | | (27.5) | |
Net cash from operating activities | 32.2 | | | 23.4 | |
| | | |
Cash flows from investing activities: | | | |
Capital expenditures | (6.7) | | | (9.3) | |
Proceeds from sale of EMEA staffing operations, net of cash disposed | 77.1 | | | — | |
Proceeds from sale of assets | 4.4 | | | — | |
Acquisition of company, net of cash received | (427.4) | | | — | |
Payment for settlement of forward contract | (2.4) | | | — | |
| | | |
Proceeds from equity securities | — | | | 2.0 | |
Other investing activities | 1.9 | | | (0.4) | |
Net cash used in investing activities | (353.1) | | | (7.7) | |
| | | |
Cash flows from financing activities: | | | |
Net change in short-term borrowings | — | | | (0.7) | |
Proceeds from long-term debt | 378.6 | | | — | |
Payments on long-term debt | (168.2) | | | — | |
Financing lease payments | — | | | (0.5) | |
Dividend payments | (5.4) | | | (5.6) | |
Payments of tax withholding for stock awards | (2.1) | | | (1.3) | |
Buyback of common shares | — | | | (34.8) | |
Contingent consideration payments | — | | | (2.5) | |
Other financing activities | (1.3) | | | — | |
Net cash from (used in) financing activities | 201.6 | | | (45.4) | |
| | | |
Effect of exchange rates on cash, cash equivalents and restricted cash | (2.7) | | | 1.8 | |
| | | |
Net change in cash, cash equivalents and restricted cash | (122.0) | | | (27.9) | |
| | | |
Cash, cash equivalents and restricted cash at beginning of period | 167.6 | | | 162.4 | |
| | | |
Cash, cash equivalents and restricted cash at end of period (1) | $ | 45.6 | | | $ | 134.5 | |
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: | | | | | | | | | | | |
| 26 Weeks Ended |
| June 30, 2024 | | July 2, 2023 |
Reconciliation of cash, cash equivalents and restricted cash: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 38.2 | | | $ | 124.8 | |
| | | |
Restricted cash included in prepaid expenses and other current assets | 0.6 | | | 0.7 | |
Noncurrent assets: | | | |
Restricted cash included in other assets | 6.8 | | | 9.0 | |
Cash, cash equivalents and restricted cash at end of period | $ | 45.6 | | | $ | 134.5 | |
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 December 31, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 20, 2024 (the 2023 consolidated financial statements). There were no changes in accounting policies as disclosed in the Form 10-K. The Company’s second fiscal quarter ended on June 30, 2024 and July 2, 2023, each of which contained 13 weeks. The corresponding June year-to-date periods for 2024 and 2023 each contained 26 weeks.
Certain reclassifications have been made to the prior year's consolidated financial statements to conform to the current year's presentation. Specifically, as discussed in the Segment Disclosures footnote, the Company has made a change to its reportable segments during the first quarter of 2024. We have also reclassified the presentation of our retirement plan assets, which represents our investment in life insurance contracts, and intangibles, net from the other assets line item to separate line items within our consolidated balance sheet.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
2. Revenue
Revenue Disaggregated by Service Type
In 2024, Kelly has four operating segments: Professional & Industrial (“P&I”), Science, Engineering & Technology (“SET”), Education, and Outsourcing & Consulting Group ("Outsourcing & Consulting," "OCG"). Prior to 2024, the Company also had an International operating segment (see Segment Disclosures footnote). Following the sale of the Company's EMEA staffing operations in January 2024 (see Acquisition and Disposition footnote), the Mexico operations, which were previously in our International segment, are now included in our P&I segment. The 2023 P&I segment information has been recast to conform to the new structure. Other than OCG, each segment delivers talent through staffing services, permanent placement or outcome-based services. Our OCG and SET segments, following the acquisition of Motion Recruitment Partners, LLC which is included in the SET segment (see Acquisition and Disposition footnote), deliver talent solutions including managed service provider ("MSP"), payroll process outsourcing ("PPO"), recruitment process outsourcing ("RPO"), and talent advisory services.
The following table presents our segment revenues disaggregated by service type (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | June Year to Date |
| | 2024 | | 2023 | | 2024 | | 2023 |
Professional & Industrial | | | | | | | | |
Staffing services | | $ | 233.3 | | | $ | 255.3 | | | $ | 464.5 | | | $ | 523.9 | |
Permanent placement | | 2.3 | | | 3.7 | | | 5.0 | | | 8.3 | |
Outcome-based services | | 122.1 | | | 131.8 | | | 246.6 | | | 261.2 | |
Total Professional & Industrial | | 357.7 | | | 390.8 | | | 716.1 | | | 793.4 | |
| | | | | | | | |
Science, Engineering & Technology | | | | | | | | |
Staffing services | | 219.2 | | | 201.2 | | | 414.4 | | | 403.5 | |
Permanent placement | | 5.8 | | | 4.3 | | | 10.0 | | | 9.8 | |
Outcome-based services | | 103.2 | | | 95.9 | | | 193.1 | | | 194.5 | |
Talent solutions | | 4.0 | | | — | | | 4.0 | | | — | |
Total Science, Engineering & Technology | | 332.2 | | | 301.4 | | | 621.5 | | | 607.8 | |
| | | | | | | | |
Education | | | | | | | | |
Staffing services | | 248.5 | | | 204.1 | | | 537.3 | | | 451.7 | |
Permanent placement | | 2.6 | | | 2.3 | | | 3.7 | | | 4.1 | |
Total Education | | 251.1 | | | 206.4 | | | 541.0 | | | 455.8 | |
| | | | | | | | |
Outsourcing & Consulting | | | | | | | | |
Talent solutions | | 117.0 | | | 113.7 | | | 225.0 | | | 228.3 | |
Total Outsourcing & Consulting | | 117.0 | | | 113.7 | | | 225.0 | | | 228.3 | |
| | | | | | | | |
International | | | | | | | | |
Staffing services | | — | | | 200.5 | | | — | | | 390.7 | |
Permanent placement | | — | | | 5.4 | | | — | | | 11.0 | |
| | | | | | | | |
Total International | | — | | | 205.9 | | | — | | | 401.7 | |
| | | | | | | | |
Total Intersegment | | (0.5) | | | (1.0) | | | (1.0) | | | (1.5) | |
| | | | | | | | |
Total Revenue from Services | | $ | 1,057.5 | | | $ | 1,217.2 | | | $ | 2,102.6 | | | $ | 2,485.5 | |
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. In 2023, our International segment included our staffing operations in Europe as well as Mexico, which is included in the Americas region.
The below table presents our revenues disaggregated by geography (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | June Year to Date |
| | 2024 | | 2023 | | 2024 | | 2023 |
Americas | | | | | | | | |
United States | | $ | 944.2 | | | $ | 892.4 | | | $ | 1,877.8 | | | $ | 1,851.6 | |
Canada | | 46.4 | | | 46.4 | | | 91.8 | | | 91.3 | |
Puerto Rico | | 28.2 | | | 27.7 | | | 53.1 | | | 54.6 | |
Mexico | | 15.4 | | | 20.0 | | | 34.3 | | | 36.7 | |
| | | | | | | | |
Total Americas Region | | 1,034.2 | | | 986.5 | | | 2,057.0 | | | 2,034.2 | |
| | | | | | | | |
Europe | | | | | | | | |
Switzerland | | 1.0 | | | 56.0 | | | 2.1 | | | 108.9 | |
France | | — | | | 50.2 | | | — | | | 98.0 | |
Portugal | | — | | | 49.3 | | | — | | | 93.7 | |
Italy | | — | | | 16.5 | | | — | | | 33.4 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other | | 9.8 | | | 47.6 | | | 19.5 | | | 95.3 | |
Total Europe Region | | 10.8 | | | 219.6 | | | 21.6 | | | 429.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total Asia-Pacific Region | | 12.5 | | | 11.1 | | | 24.0 | | | 22.0 | |
| | | | | | | | |
Total Kelly Services, Inc. | | $ | 1,057.5 | | | $ | 1,217.2 | | | $ | 2,102.6 | | | $ | 2,485.5 | |
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The below table presents revenues from our SET, OCG and former International segment, which previously included our Mexico operations, disaggregated by geographic region, (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | June Year to Date |
| | 2024 | | 2023 | | 2024 | | 2023 |
Science, Engineering & Technology | | | | | | | | |
Americas | | $ | 329.4 | | | $ | 297.3 | | | $ | 615.6 | | | $ | 599.4 | |
Europe | | 2.8 | | | 4.1 | | | 5.9 | | | 8.4 | |
Total Science, Engineering & Technology | | $ | 332.2 | | | $ | 301.4 | | | $ | 621.5 | | | $ | 607.8 | |
| | | | | | | | |
Outsourcing & Consulting | | | | | | | | |
Americas | | $ | 96.5 | | | $ | 93.0 | | | $ | 185.3 | | | $ | 187.1 | |
Europe | | 8.0 | | | 9.6 | | | 15.7 | | | 19.2 | |
Asia-Pacific | | 12.5 | | | 11.1 | | | 24.0 | | | 22.0 | |
Total Outsourcing & Consulting | | $ | 117.0 | | | $ | 113.7 | | | $ | 225.0 | | | $ | 228.3 | |
| | | | | | | | |
International | | | | | | | | |
| | | | | | | | |
Europe | | $ | — | | | $ | 205.9 | | | $ | — | | | $ | 401.7 | |
Total International | | $ | — | | | $ | 205.9 | | | $ | — | | | $ | 401.7 | |
Deferred Costs
Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were $1.6 million as of second quarter-end 2024 and $3.4 million as of year-end 2023. Amortization expense for the deferred costs in the second quarter and June year-to-date 2024 was $1.7 million and $4.1 million, respectively. Amortization expense for the deferred costs in the second quarter and June year-to-date 2023 was $1.4 million and $3.8 million, respectively.
3. Credit Losses
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): | | | | | | | | | | | |
| June Year to Date |
| 2024 | | 2023 |
Allowance for credit losses: | | | |
Beginning balance | $ | 8.0 | | | $ | 7.7 | |
Current period provision | 0.4 | | | 0.9 | |
| | | |
Currency exchange effects | (0.2) | | | 0.2 | |
Disposition of EMEA staffing operations | (2.4) | | | — | |
Write-offs | (0.6) | | | (1.1) | |
Ending balance | $ | 5.2 | | | $ | 7.7 | |
Write-offs are presented net of recoveries, which were not material for second quarter-end 2024 or 2023. As of second quarter-end 2024, the Company has a receivable of $16.8 million related to the sale of our EMEA staffing operations (see Acquisition and Disposition footnote). The Company has determined that no credit loss provision is required on this receivable as it is considered collectible. No other allowances related to other receivables were material as of second quarter-end 2024 or 2023.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
4. Acquisition and Disposition
Acquisition
On May 31, 2024, the Company indirectly acquired 100% of the equity interests in Motion Recruitment Partners, LLC ("MRP") 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"). MRP is a parent company to a group of leading global talent solutions providers and the acquisition will strengthen the scale and capabilities of Kelly's solutions portfolio. Under terms of the merger agreement, the $425.0 million 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 (see Debt footnote). Total consideration includes $3.4 million of contingent consideration related to an earnout payment with a maximum potential cash payment of $60.0 million in the event certain financial metrics are met 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, defined as the 12 months ending March 31, 2025, and any necessary payment is due to the seller in the second quarter of 2025. The initial fair value of the earnout was established using a Monte Carlo simulation model and will be reassessed on a quarterly basis (see Fair Value Measurements footnote). The merger agreement contains representations and warranties and covenants customary for a transaction of this nature. The total consideration is as follows (in millions of dollars):
| | | | | |
Cash consideration paid | $ | 425.0 | |
Estimated cash acquired | 13.6 | |
Estimated net working capital adjustment | 1.4 | |
Total cash consideration | 440.0 | |
Additional consideration payable | 3.4 | |
Total consideration | $ | 443.4 | |
The purchase price allocation for this acquisition is preliminary and could change.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):
| | | | | |
Cash and equivalents | $ | 12.6 | |
Trade accounts receivable | 89.1 | |
Prepaid expenses and other current assets | 8.5 | |
Net property and equipment | 3.1 | |
Operating lease right-of-use assets | 11.9 | |
| |
Goodwill, net | 221.5 | |
Intangibles, net | 145.9 | |
Other assets, noncurrent | 10.6 | |
Accounts payable and accrued liabilities, current | (12.1) | |
Operating lease liabilities, current | (4.0) | |
Accrued payroll and related taxes, current | (15.9) | |
Income and other taxes, current | (0.5) | |
Operating lease liabilities, noncurrent | (9.0) | |
Other long-term liabilities | (18.3) | |
Total consideration, including working capital adjustments | $ | 443.4 | |
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The fair value of the acquired receivables represents the contractual value net of the allowance for potentially uncollectible accounts. Included in the assets purchased in the MRP acquisition was $145.9 million of intangible assets, made up of $88.1 million in customer relationships, $56.5 million associated with MRP's trade names, and $1.3 million for non-compete agreements. The customer relationships will be amortized over 15 years with no residual value, the trade names will be amortized over 10-15 years with no residual value, and the non-compete agreements will be amortized over four years with no residual value. Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue and operational synergies and was assigned to the SET operating segment (see Goodwill footnote). None of the goodwill generated from the acquisition is expected to be deductible for tax purposes.
MRP's results of operations are included in the SET segment. For the second quarter and June year-to-date 2024, our consolidated revenues and net earnings include $40.0 million and $1.6 million from MRP, respectively.
Pro Forma Information
The following unaudited pro forma information presents a summary of the operating results as if the MRP acquisition had been completed as of January 2, 2023 (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | June Year to Date |
| 2024 | | 2023 | | 2024 | | 2023 |
Pro forma revenues | $ | 1,147.4 | | | $ | 1,357.5 | | | $ | 2,323.0 | | | $ | 2,769.9 | |
Pro forma net earnings (loss) | $ | — | | | $ | 5.4 | | | $ | 23.2 | | | $ | 12.4 | |
The pro forma results for the periods above include adjustments to amortization expense for the intangible assets, reversal of MRP's interest expense on credit facilities that were settled upon completion of the acquisition, interest expense and associated amortization of debt issuance costs for financing the acquisition, reclassification of transaction expenses to the appropriate period, and applicable taxes. The unaudited pro forma information presented has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisition occurred on the assumed date, nor is it necessarily an indication of future operating results.
Disposition of EMEA Staffing Operations
On January 2, 2024, the Company completed the sale of its EMEA staffing operations ("disposal group"), which was included in the Company's International operating segment, to Gi Group Holdings S.P.A. ("Gi"). Upon closing, the Company received cash proceeds of $110.6 million, or $77.1 million net of cash disposed, which is included in investing activities in the consolidated statements of cash flows. The Company expects to receive additional net cash proceeds 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. In the first quarter of 2024, the Company recorded a euro-denominated receivable from Gi of $26.9 million representing the adjustments that were determinable and expected to be received. In the second quarter of 2024, the Company recorded negative working capital and other adjustments of $10.1 million, which reduced the net receivable from Gi to $16.8 million. The Company expects to finalize all adjustments to the transaction proceeds and settle the net receivable from Gi by the end of 2024. The receivable is included in prepaid expenses and other current assets in the consolidated balance sheet and included in the gain on the transaction. The total gain on the transaction through second quarter-end 2024 is $1.6 million, which is recorded in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings.
The disposal group did not meet the requirements to be classified as discontinued operations as the sale did not have a material effect on the Company's operations and did not represent a strategic shift in the Company's strategy. Our consolidated earnings from operations for the second quarter 2023 and June year-to-date 2023 included a loss of $0.6 million and $1.9 million, respectively, from the EMEA staffing operations.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The major classes of divested assets and liabilities were as follows (in millions of dollars):
| | | | | | | | |
Assets divested | | |
Cash and equivalents | | $ | 33.5 | |
Trade accounts receivable, net | | 202.8 | |
Prepaid expenses and other current assets | | 29.0 | |
Property and equipment, net | | 4.2 | |
Operating lease right-of-use assets | | 14.2 | |
Deferred taxes | | 4.1 | |
Other assets | | 5.4 | |
Assets divested | | 293.2 | |
| | |
Liabilities divested | | |
Accounts payable and accrued liabilities | | (24.5) | |
Operating lease liabilities, current | | (5.7) | |
Accrued payroll and related taxes | | (91.6) | |
Income and other taxes | | (32.9) | |
Operating lease liabilities, noncurrent | | (8.9) | |
Accrued retirement benefits | | (1.7) | |
Other long-term liabilities | | (4.6) | |
Liabilities divested | | (169.9) | |
| | |
Disposal group, net | | $ | 123.3 | |
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
5. Fair Value Measurements
Trade accounts receivable, short-term borrowings, accounts payable, accrued liabilities and accrued payroll and related taxes approximate their fair values due to the short-term maturities of these assets and liabilities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present assets and liabilities measured at fair value on a recurring basis as of second quarter-end 2024 and year-end 2023 in the consolidated balance sheet by fair value hierarchy level, as described below.
Level 1 measurements consist of unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 measurements include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 measurements include significant unobservable inputs.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of Second Quarter-End 2024 |
Description | | Total | | Level 1 | | Level 2 | | Level 3 |
| | (In millions of dollars) |
Money market funds | | $ | 7.7 | | | $ | 7.7 | | | $ | — | | | $ | — | |
Foreign currency forward contract, net | | 0.2 | | | — | | | 0.2 | | | — | |
| | | | | | | | |
Total assets at fair value | | $ | 7.9 | | | $ | 7.7 | | | $ | 0.2 | | | $ | — | |
| | | | | | | | |
Brazil indemnification | | $ | (2.6) | | | $ | — | | | $ | — | | | $ | (2.6) | |
EMEA staffing indemnification | | (2.0) | | | — | | | — | | | (2.0) | |
MRP earnout | | (3.4) | | | — | | | — | | | (3.4) | |
Total liabilities at fair value | | $ | (8.0) | | | $ | — | | | $ | — | | | $ | (8.0) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of Year-End 2023 |
Description | | Total | | Level 1 | | Level 2 | | Level 3 |
| | (In millions of dollars) |
Money market funds | | $ | 42.5 | | | $ | 42.5 | | | $ | — | | | $ | — | |
| | | | | | | | |
Total assets at fair value | | $ | 42.5 | | | $ | 42.5 | | | $ | — | | | $ | — | |
| | | | | | | | |
Brazil indemnification | | $ | (3.0) | | | $ | — | | | $ | — | | | $ | (3.0) | |
Foreign currency forward contract, net | | (3.6) | | | — | | | (3.6) | | | — | |
| | | | | | | | |
Total liabilities at fair value | | $ | (6.6) | | | $ | — | | | $ | (3.6) | | | $ | (3.0) | |
Money market funds
Money market funds represent investments in money market funds that hold government securities, of which $7.7 million as of second quarter-end 2024 and $8.0 million as of year-end 2023 are restricted as to use and are included in other assets in the consolidated balance sheet. The money market funds that are restricted as to use account for the majority of our restricted cash balance and represents cash balances that are required to be maintained to fund disability claims in California. The remaining money market funds as of year-end 2023 are included in cash and equivalents in the consolidated balance sheet. The valuations of money market funds are based on quoted market prices of those accounts as of the respective period end.
Forward contracts
On February 8, 2024, the Company entered into a foreign currency forward contract with a notional amount of €17.0 million to manage the foreign currency risk associated with the additional expected proceeds in the third quarter of 2024 related to the sale of our EMEA staffing operations (see Acquisition and Disposition footnote). The expected proceeds are recorded as a euro-denominated receivable which is remeasured each period. The forward contract was designated as a fair value hedge, with the mark-to-market changes of the forward contract offsetting the mark-to-market changes of the receivable in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings. The contract was valued using observable inputs,
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
such as foreign currency exchange rates, and is considered a level 2 liability. In the first six months of 2024, the Company has recorded an unrealized gain of $0.2 million with a net receivable associated with the forward contract of $0.2 million recorded in prepaid expenses and other current assets on the consolidated balance sheet as of second quarter-end 2024.
On November 2, 2023, the Company entered into a foreign currency forward contract with a notional amount of €90.0 million to manage the foreign currency risk associated with the sale of our EMEA staffing operations, which was completed on January 2, 2024. This contract was not designated as a hedging instrument; therefore, it was marked-to-market and the changes in fair value were recognized in earnings. The Company's foreign currency forward contract was valued using observable inputs, such as foreign currency exchange rates, and is considered a level 2 liability. The Company recorded an unrealized loss of $3.6 million for the year ended 2023 and had a net liability associated with the forward contract of $3.6 million as of year-end 2023. The Company settled the forward contract on January 5, 2024 for $2.4 million of cash. Accordingly, the Company recognized a gain of $1.2 million in the first quarter of 2024 in gain on forward contract on the consolidated statements of earnings, which partially offsets the $3.6 million loss recognized in 2023, for a total loss of $2.4 million on the contract.
Indemnification liabilities
As of second quarter-end 2024, the Company had an indemnification liability totaling $2.0 million relating to the sale of our EMEA staffing operations in January 2024. The liability is included in other long-term liabilities in the consolidated balance sheet and the associated expense is included in the (gain) loss on sale of EMEA staffing operations in the consolidated statements of earnings. As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences for an indefinite term. The Company's maximum exposure under these indemnifications is not estimable at this time due to uncertainties to potential outcomes and the facts and circumstances involved in the agreement. Management believes the risk of material exposure is remote. The initial valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital. The valuation, which represents the fair value, is considered a level 3 liability, and is measured on a recurring basis. During the second quarter of 2024, the Company recognized a decrease of $0.1 million to the indemnification liability related to exchange rate fluctuations.
As of second quarter-end 2024, the Company had an indemnification liability totaling $2.6 million with $0.1 million in accounts payable and accrued liabilities and $2.5 million in other long-term liabilities, and $3.0 million at year-end 2023, with $0.1 million in accounts payable and accrued liabilities and $2.9 million in other long-term liabilities in the consolidated balance sheet related to the 2020 sale of the Brazil operations. As part of the sale, the Company agreed to indemnify the buyer for losses and costs incurred in connection with certain events or occurrences initiated within a six-year period after closing. The aggregate losses for which the Company will provide indemnification shall not exceed $8.8 million. The valuation of the indemnification liability was established using a discounted cash flow methodology based on probability weighted-average cash flows discounted by weighted-average cost of capital. The valuation, which represents the fair value, is considered a level 3 liability, and is being measured on a recurring basis. During June year-to-date 2024 and 2023, the Company recognized a decrease of $0.3 million and an increase of $0.3 million, respectively, to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.
Earnout liabilities
The Company recorded an earnout liability relating to the 2024 acquisition of MRP totaling $3.4 million in accounts payable and accrued liabilities in the consolidated balance sheet (see Acquisition and Disposition footnote). The valuation of the earnout liability was initially established using the Monte Carlo simulation model and represented the fair value and is considered a level 3 liability. The maximum total cash payment which may be due related to the earnout liability is $60.0 million.
The Company had previously recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher. The initial valuation of the earnout liability was established using a Black Scholes model and represented the fair value and was considered a level 3 liability. During the first quarter of 2023, the Company paid the remaining earnout liability totaling $3.3 million, representing the year two portion of the earnout. In the consolidated statements of cash flows, $1.4 million of the payment is reflected as a financing activity representing the initial fair value of the earnout liability, with the remainder flowing through operating activities.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Equity Investment Without Readily Determinable Fair Value
On March 1, 2022, the Company sold the majority of its investment in PersolKelly Pte. Ltd. (the "JV"). Prior to February 2022, the Company had a 49% ownership interest in the JV, a staffing services business currently operating in ten geographies in the Asia-Pacific region. The Company holds a 2.5% interest in the JV, which is measured using the measurement alternative for equity investments without a readily determinable fair value. The measurement alternative represents cost, less impairment, plus or minus observable price changes. The investment totaled $6.4 million as of second quarter-end 2024, representing total cost plus observable price changes to date.
6. Restructuring and Transformation Activities
2024 Actions
The Company incurred restructuring charges and transformation fees of $4.3 million in the second quarter of 2024 and $6.6 million in June year-to-date 2024 as a continuation of the actions that were announced in the second quarter of 2023 as part of the comprehensive transformation initiative. The transformation activities include severance charges of $2.4 million and $3.5 million for the second quarter and June year-to-date 2024, respectively, and costs to execute the transformation including the use of an external consultant of $1.9 million and $3.1 million for the second quarter and June year-to-date 2024, respectively. The severance and transformation costs are recorded in selling, general and administrative ("SG&A") expenses in the consolidated statements of earnings. Additionally, in the second quarter of 2024, the Company recognized an impairment charge of $5.5 million for certain right-of-use assets related to our leased headquarters facility reflecting adjustments as to how we are utilizing the building as a part of our ongoing transformation efforts. The impairment charge related to the right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings.
The restructuring and transformation costs included in SG&A are detailed below for the second quarter and June year-to-date 2024 (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter 2024 | | June Year to Date 2024 |
| Severance Costs | | Transformation Costs | | Total | | Severance Costs | | Transformation Costs | | Total |
| | | | | | | | | | | |
Professional & Industrial | $ | 0.3 | | | $ | — | | | $ | 0.3 | | | $ | 0.4 | | | $ | — | | | $ | 0.4 | |
Science, Engineering & Technology | 0.3 | | | — | | | 0.3 | | | 0.3 | | | — | | | 0.3 | |
| | | | | | | | | | | |
Outsourcing & Consulting | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | |
Corporate | 1.8 | | | 1.9 | | | 3.7 | | | 2.2 | | | 3.1 | | | 5.3 | |
Total | $ | 2.4 | | | $ | 1.9 | | | $ | 4.3 | | | $ | 3.5 | | | $ | 3.1 | | | $ | 6.6 | |
2023 Actions
In the second quarter of 2023, the Company announced a comprehensive transformation initiative that includes actions that will further streamline the Company's operating model to enhance organizational efficiency and effectiveness. The total costs incurred related to these transformation activities in the second quarter of 2023 totaled $8.0 million. The transformation activities included $4.5 million of costs to execute the transformation initiatives through the use of an external consultant, a $2.4 million impairment charge for right-of-use assets related to an unoccupied office space lease and additional severance of $1.1 million, net of adjustments. The impairment charge related to the right-of-use assets is recorded in the asset impairment charge in the consolidated statements of earnings. The costs to execute and severance are included in the $5.6 million of restructuring costs incurred in the second quarter of 2023, net of prior period adjustments, and are recorded in SG&A expenses in the consolidated statements of earnings, as detailed further below.
In the first quarter of 2023, the Company undertook restructuring actions to further our cost management efforts in response to the current demand levels and reflect a repositioning of our P&I staffing business to better capitalize on opportunities in local markets. Restructuring costs incurred in the first quarter of 2023 totaled $6.6 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The restructuring and transformation costs included in SG&A are detailed below for the second quarter and June year-to-date 2023 (in millions of dollars):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Second Quarter 2023 | | June Year to Date 2023 |
| Severance Costs | | Lease Termination Costs, Transformation and Other | | Total | | Severance Costs | | Lease Termination Costs, Transformation and Other | | Total |
| | | | | | | | | | | |
Professional & Industrial | $ | 0.3 | | | $ | — | | | $ | 0.3 | | | $ | 3.0 | | | $ | 0.3 | | | $ | 3.3 | |
Science, Engineering & Technology | — | | | — | | | — | | | 0.4 | | | 0.1 | | | 0.5 | |
Education | 0.3 | | | — | | | 0.3 | | | 0.4 | | | — | | | 0.4 | |
Outsourcing & Consulting | (0.1) | | | — | | | (0.1) | | | 0.5 | | | — | | | 0.5 | |
International | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | |
Corporate | 0.6 | | | 4.5 | | | 5.1 | | | 0.8 | | | 6.1 | | | 6.9 | |
Total | $ | 1.1 | | | $ | 4.5 | | | $ | 5.6 | | | $ | 5.7 | | | $ | 6.5 | | | $ | 12.2 | |
Accrual Summary
A summary of the global restructuring balance sheet accrual, included in accrued payroll and related taxes and accounts payable and accrued liabilities in the consolidated balance sheet, is detailed below (in millions of dollars):
| | | | | |
Balance as of year-end 2023 | $ | 15.1 | |
Accruals | 2.3 | |
| |
| |
| |
| |
| |
| |
Reductions for cash payments | (11.0) | |
Disposition of EMEA staffing operations | (1.5) | |
Accrual adjustments | (0.2) | |
Balance as of first quarter-end 2024 | 4.7 | |
Accruals | 4.3 | |
Reductions for cash payments | (4.4) | |
| |
Balance as of second quarter-end 2024 | $ | 4.6 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
The remaining balance of $4.6 million as of second quarter-end 2024 primarily represents the costs to execute the transformation initiatives and severance costs, and the majority is expected to be paid by the end of 2024. No material adjustments are expected to be recorded.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
7. Goodwill
The changes in the carrying amount of goodwill through June year-to-date 2024 are included in the table below. The goodwill resulting from the acquisition of MRP during the second quarter of 2024 was allocated to the SET reportable segment (see Acquisition and Disposition footnote).
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| | | | | | | | |
| | As of Year-End 2023 | | Additions to Goodwill | | Impairment Adjustments | | As of Second Quarter-End 2024 |
Science, Engineering & Technology | | $ | 111.3 | | | $ | 221.5 | | | $ | — | | | $ | 332.8 | |
Education | | 39.8 | | | — | | | — | | | 39.8 | |
| | | | | | | | |
Total | | $ | 151.1 | | | $ | 221.5 | | | $ | — | | | $ | 372.6 | |
| | | | | | | | |
8. Debt
Revolving Credit Facility
On May 29, 2024, the Company entered into an agreement with its lenders to amend and restate its existing $200.0 million, five-year revolving credit facility (the "Facility"), with a termination date of May 29, 2029. The amendment (i) decreased the current borrowing capacity to $150.0 million, (ii) added the ability to increase the borrowing capacity to an aggregate of $300.0 million and (iii) changed certain of the terms and conditions. The Facility is available to be used to fund working capital, acquisitions and general corporate needs. The Facility is secured by certain assets of the Company, excluding U.S. trade accounts receivable.
At the end of the second quarter of 2024, there were $63.0 million of long-term borrowings on the term benchmark line under the Facility and a remaining borrowing capacity of $87.0 million. The rate for these borrowings, which varies based on the Company's leverage ratio as defined in the agreement, includes either (i) the Prime rate plus the applicable margin for the floating line or (ii) a term Secured Overnight Financing Rate ("SOFR") for 1-, 3-, or 6-months dependent on the interest election plus a 0.10% margin and the applicable margin for the term benchmark line. At year-end 2023, there were no borrowings under the Facility and a remaining borrowing capacity of $200.0 million. To maintain availability of the funds, we pay a facility fee on the full amount of the Facility, regardless of usage. The facility fee varies based on the Company’s leverage ratio as defined in the agreement. The Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, had a facility fee of 15.0 basis points at the end of the second quarter of 2024 and year-end 2023. The Facility’s financial covenants and restrictions are described below, all of which were met at the end of the second quarter of 2024:
•We must maintain a certain minimum interest coverage ratio of earnings before interest, taxes, depreciation, amortization (“EBITDA”) and certain cash and non-cash charges that are non-recurring in nature to interest expense as of the end of any fiscal quarter.
•We must maintain a certain maximum ratio of total indebtedness to the sum of net worth and total indebtedness at all times.
•Dividends, stock buybacks and similar transactions are limited to certain maximum amounts.
•We must adhere to other operating restrictions relating to the conduct of business, such as certain limitations on asset sales and the type and scope of investments.
Securitization Facility
On May 29, 2024, the Company and Kelly Receivables Funding, LLC, a wholly owned bankruptcy remote special purpose subsidiary of the Company (the “Receivables Entity”), amended the Receivables Purchase Agreement related to its $150.0 million, three-year, securitization facility (the “Securitization Facility”). The amendment (i) increased the current borrowing capacity to $250.0 million, (ii) includes the ability to increase the borrowing capacity to an aggregate of
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
$350.0 million and (iii) changed certain of the terms and conditions. The Receivables Purchase Agreement will terminate May 28, 2027, unless terminated earlier pursuant to its terms.
Under the Securitization Facility, the Company will sell certain trade receivables and related rights (“Receivables”), on a revolving basis, to the Receivables Entity. The Receivables Entity may from time to time sell an undivided variable percentage ownership interest in the Receivables. The Securitization Facility, which contains a cross-default clause that could result in termination if defaults occur under our other loan agreements, also allows for the issuance of standby letters of credit (“SBLC”) and contains certain restrictions based on the performance of the Receivables.
At the end of the second quarter of 2024, the Securitization Facility had $147.4 million of long-term borrowings, SBLCs of $46.1 million related to workers’ compensation and a remaining capacity of $56.5 million. The rate for these borrowings includes the adjusted daily SOFR plus a 0.10% margin and a 1.10% utilization rate on the amount of our borrowings. The rate for the SBLCs of 1.10% represents a utilization rate on the outstanding balance. In addition, we pay a commitment fee of 40 basis points on the unused capacity. At year-end 2023, the Securitization Facility had no borrowings, SBLCs of $49.4 million related to workers’ compensation at a utilization rate of 0.90% and a remaining capacity of $100.6 million. In addition, we paid a commitment fee of 40 basis points on the unused capacity in 2023.
The Receivables Entity’s sole business consists of the purchase or acceptance through capital contributions of trade accounts receivable and related rights from the Company. As described above, the Receivables Entity may retransfer these receivables or grant a security interest in those receivables under the terms and conditions of the Receivables Purchase Agreement. The Receivables Entity is a separate legal entity with its own creditors who would be entitled, if it were ever liquidated, to be satisfied out of its assets prior to any assets or value in the Receivables Entity becoming available to its equity holders, the Company. The assets of the Receivables Entity are not available to pay creditors of the Company or any of its other subsidiaries, until the creditors of the Receivables Entity have been satisfied. The assets and liabilities of the Receivables Entity are included in the consolidated financial statements of the Company.
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
9. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component, net of tax, for the second quarter and June year-to-date 2024 and 2023 are included in the table below. Amounts in parentheses indicate debits.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | | June Year to Date |
| 2024 | | 2023 | | | 2024 | | 2023 |
| (In millions of dollars) |
Foreign currency translation adjustments: | | | | | | | | |
Beginning balance | $ | (0.5) | | | $ | (5.1) | | | | $ | 0.6 | | | $ | (7.4) | |
Other comprehensive income (loss) before reclassifications | (2.0) | | | 2.8 | | | | (2.5) | | | 5.1 | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | — | | | | (0.6) | | | — | |
Net current-period other comprehensive income (loss) | (2.0) | | | 2.8 | | | | (3.1) | | | 5.1 | |
Ending balance | (2.5) | | | (2.3) | | | | (2.5) | | | (2.3) | |
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Pension liability adjustments: | | | | | | | | |
Beginning balance | — | | | (1.1) | | | | (0.4) | | | (1.1) | |
Other comprehensive income (loss) before reclassifications | — | | | — | | | | — | | | — | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | — | | | | 0.4 | | | — | |
Net current-period other comprehensive income (loss) | — | | | — | | | | 0.4 | | | — | |
Ending balance | — | | | (1.1) | | | | — | | | (1.1) | |
| | | | | | | | |
Total accumulated other comprehensive income (loss) | $ | (2.5) | | | $ | (3.4) | | | | $ | (2.5) | | | $ | (3.4) | |
| | | | | | | | |
KELLY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
10. Earnings Per Share
The reconciliation of basic and diluted earnings per share on common stock for the second quarter and June year-to-date 2024 and 2023 follows (in millions of dollars except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | June Year to Date |
| 2024 | | 2023 | | 2024 | | 2023 |
Net earnings | $ | 4.6 | | | $ | 7.5 | | | $ | 30.4 | | | $ | 18.4 | |
Less: earnings allocated to participating securities | (0.1) | | | (0.2) | | | (0.7) | | | (0.4) | |
Net earnings available to common shareholders | $ | 4.5 | | | |