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 April ~~3, 2022~~2, 2023

☐ 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 May ~~2, 2022, 34,560,502~~1, 2023, 32,755,700 shares of Class A and ~~3,357,146~~3,342,146 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.			2827

Item 3. Quantitative and Qualitative Disclosures About Market Risk.			4138

Item 4. Controls and Procedures.			4138

PART II. OTHER INFORMATION			4239

Item 1. Legal Proceedings.			4239

Item 1A. Risk Factors.			4239

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			4340

Item 3. Defaults Upon Senior Securities.			4340

Item 4. Mine Safety Disclosures.			4340

Item 5. Other Information.			4340

Item 6. Exhibits.			4340

SIGNATURES			4542

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				13 Weeks Ended
		April 3, 2022		April 4, 2021				April 2, 2023		April 3, 2022
Revenue from services	Revenue from services	$	1,296.4	$	1,205.9		Revenue from services	$	1,268.3	$	1,296.4

Cost of services	Cost of services	1,037.8		992.6			Cost of services	1,014.2		1,037.8

Gross profit	Gross profit	258.6		213.3			Gross profit	254.1		258.6

Selling, general and administrative expenses	Selling, general and administrative expenses	235.2		202.7			Selling, general and administrative expenses	243.4		236.1

Gain on sale of assets							Gain on sale of assets	—		(0.9)

Earnings (loss) from operations	Earnings (loss) from operations	23.4		10.6			Earnings (loss) from operations	10.7		23.4

Gain (loss) on investment in Persol Holdings		(67.2)		30.0
Loss on investment in Persol Holdings							Loss on investment in Persol Holdings	—		(67.2)

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

Other income (expense), net	Other income (expense), net	2.8		(3.4)			Other income (expense), net	2.0		2.8

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	(61.4)		37.2			Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	12.7		(61.4)

Income tax expense (benefit)	Income tax expense (benefit)	(13.0)		10.5			Income tax expense (benefit)	1.8		(13.0)

Net earnings (loss) before equity in net earnings (loss) of affiliate	Net earnings (loss) before equity in net earnings (loss) of affiliate	(48.4)		26.7			Net earnings (loss) before equity in net earnings (loss) of affiliate	10.9		(48.4)

Equity in net earnings (loss) of affiliate	Equity in net earnings (loss) of affiliate	0.8		(1.1)			Equity in net earnings (loss) of affiliate	—		0.8

Net earnings (loss)	Net earnings (loss)	$	(47.6)	$	25.6		Net earnings (loss)	$	10.9	$	(47.6)

Basic earnings (loss) per share	Basic earnings (loss) per share	$	(1.23)	$	0.65		Basic earnings (loss) per share	$	0.29	$	(1.23)
Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	(1.23)	$	0.64		Diluted earnings (loss) per share	$	0.29	$	(1.23)

Average shares outstanding (millions):	Average shares outstanding (millions):						Average shares outstanding (millions):
Basic	Basic	38.6		39.3			Basic	37.1		38.6
Diluted	Diluted	38.6		39.5			Diluted	37.4		38.6

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				13 Weeks Ended
		April 3, 2022		April 4, 2021				April 2, 2023		April 3, 2022
Net earnings (loss)	Net earnings (loss)	$	(47.6)	$	25.6		Net earnings (loss)	$	10.9	$	(47.6)

Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:						Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense of $0.1 and $0.5, respectively		(9.9)		(13.6)
Foreign currency translation adjustments, net of tax expense of $0.0 and $0.1, respectively							Foreign currency translation adjustments, net of tax expense of $0.0 and $0.1, respectively	2.3		(9.9)
Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	Less: Reclassification adjustments included in net earnings (loss) - liquidation of Japan subsidiary	20.4		—			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	Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	2.5		—			Less: Reclassification adjustments included in net earnings (loss) - equity method investment and other	—		2.5
Foreign currency translation adjustments	Foreign currency translation adjustments	13.0		(13.6)			Foreign currency translation adjustments	2.3		13.0

Other comprehensive income (loss)	Other comprehensive income (loss)	13.0		(13.6)			Other comprehensive income (loss)	2.3		13.0

Comprehensive income (loss)	Comprehensive income (loss)	$	(34.6)	$	12.0		Comprehensive income (loss)	$	13.2	$	(34.6)

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


		April 3, 2022		January 2, 2022			April 2, 2023		January 1, 2023
Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and equivalents	Cash and equivalents	$	230.3	$	112.7	Cash and equivalents	$	111.7	$	153.7
Trade accounts receivable, less allowances of $12.2 and $12.6, respectively		1,523.8		1,423.2
Trade accounts receivable, less allowances of $11.0 and $11.2, respectively						Trade accounts receivable, less allowances of $11.0 and $11.2, respectively	1,438.5		1,491.6
Prepaid expenses and other current assets	Prepaid expenses and other current assets	72.2		52.8		Prepaid expenses and other current assets	82.3		69.9

Total current assets	Total current assets	1,826.3		1,588.7		Total current assets	1,632.5		1,715.2

Noncurrent Assets	Noncurrent Assets					Noncurrent Assets
Property and equipment:	Property and equipment:					Property and equipment:
Property and equipment	Property and equipment	201.9		205.1		Property and equipment	166.0		166.8
Accumulated depreciation	Accumulated depreciation	(169.9)		(169.8)		Accumulated depreciation	(137.4)		(139.0)
Net property and equipment	Net property and equipment	32.0		35.3		Net property and equipment	28.6		27.8
Operating lease right-of-use assets	Operating lease right-of-use assets	71.8		75.8		Operating lease right-of-use assets	65.0		66.8
Deferred taxes	Deferred taxes	303.6		302.8		Deferred taxes	301.9		299.7
Goodwill, net	Goodwill, net	155.8		114.8		Goodwill, net	151.1		151.1
Investment in Persol Holdings		—		264.3
Investment in equity affiliate		—		123.4

Other assets	Other assets	396.1		389.1		Other assets	409.5		403.2
Total noncurrent assets	Total noncurrent assets	959.3		1,305.5		Total noncurrent assets	956.1		948.6

Total Assets	Total Assets	$	2,785.6	$	2,894.2	Total Assets	$	2,588.6	$	2,663.8

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions)


		April 3, 2022		January 2, 2022			April 2, 2023		January 1, 2023
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current Liabilities	Current Liabilities					Current Liabilities
Short-term borrowings	Short-term borrowings	$	0.2	$	—	Short-term borrowings	$	—	$	0.7
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	711.6		687.2		Accounts payable and accrued liabilities	684.7		723.3
Operating lease liabilities	Operating lease liabilities	16.1		17.5		Operating lease liabilities	14.3		14.7
Accrued payroll and related taxes	Accrued payroll and related taxes	338.9		318.4		Accrued payroll and related taxes	275.9		315.8
Accrued workers’ compensation and other claims	Accrued workers’ compensation and other claims	20.4		20.8		Accrued workers’ compensation and other claims	23.1		22.9
Income and other taxes	Income and other taxes	109.1		51.3		Income and other taxes	52.9		51.4

Total current liabilities	Total current liabilities	1,196.3		1,095.2		Total current liabilities	1,050.9		1,128.8

Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Operating lease liabilities	Operating lease liabilities	58.7		61.4		Operating lease liabilities	53.4		55.0
Accrued payroll and related taxes		—		57.6

Accrued workers’ compensation and other claims	Accrued workers’ compensation and other claims	36.4		37.0		Accrued workers’ compensation and other claims	41.0		40.7
Accrued retirement benefits	Accrued retirement benefits	205.1		220.0		Accrued retirement benefits	184.6		174.1
Other long-term liabilities	Other long-term liabilities	15.6		86.8		Other long-term liabilities	10.9		11.0
Total noncurrent liabilities	Total noncurrent liabilities	315.8		462.8		Total noncurrent liabilities	289.9		280.8

Commitments and contingencies (see Contingencies footnote)	Commitments and contingencies (see Contingencies footnote)	0		0		Commitments and contingencies (see Contingencies footnote)

Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Capital stock, $1.00 par value	Capital stock, $1.00 par value					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
Class A common stock, 100.0 shares authorized; 35.2 shares issued at 2023 and 35.1 shares issued at 2022						Class A common stock, 100.0 shares authorized; 35.2 shares issued at 2023 and 35.1 shares issued at 2022	35.2		35.1
Class B common stock, 10.0 shares authorized; 3.3 shares issued at 2023 and 3.4 shares issued at 2022						Class B common stock, 10.0 shares authorized; 3.3 shares issued at 2023 and 3.4 shares issued at 2022	3.3		3.4
Treasury stock, at cost	Treasury stock, at cost					Treasury stock, at cost
Class A common stock, 0.6 shares at 2022 and 0.7 shares at 2021		(12.4)		(14.5)
Class A common stock, 1.9 shares at 2023 and 1.0 shares at 2022						Class A common stock, 1.9 shares at 2023 and 1.0 shares at 2022	(34.7)		(19.5)
Class B common stock	Class B common stock	(0.6)		(0.6)		Class B common stock	(0.6)		(0.6)
Paid-in capital	Paid-in capital	22.8		23.9		Paid-in capital	26.4		28.0
Earnings invested in the business	Earnings invested in the business	1,239.9		1,315.0		Earnings invested in the business	1,224.4		1,216.3
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(14.7)		(27.7)		Accumulated other comprehensive income (loss)	(6.2)		(8.5)
Total stockholders’ equity	Total stockholders’ equity	1,273.5		1,336.2		Total stockholders’ equity	1,247.8		1,254.2

Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	2,785.6	$	2,894.2	Total Liabilities and Stockholders’ Equity	$	2,588.6	$	2,663.8

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
April 3,
2022 April 4,
2021
Capital Stock
Class A common stock
Balance at beginning of period $ 36.7 $ 36.7
Conversions from Class B — —
Share retirement (1.6) —
Balance at end of period 35.1 36.7
Class B common stock
Balance at beginning of period 3.4 3.4
Conversions to Class A — —
Balance at end of period 3.4 3.4
Treasury Stock
Class A common stock
Balance at beginning of period (14.5) (16.5)
Net issuance of stock awards 2.1 1.4
Balance at end of period (12.4) (15.1)
Class B common stock
Balance at beginning of period (0.6) (0.6)
Net issuance of stock awards — —
Balance at end of period (0.6) (0.6)
Paid-in Capital
Balance at beginning of period 23.9 21.3
Net issuance of stock awards (1.1) (0.7)
Balance at end of period 22.8 20.6
Earnings Invested in the Business
Balance at beginning of period 1,315.0 1,162.9
Net earnings (loss) (47.6) 25.6
Dividends (1.9) —
Share retirement (25.6) —
Balance at end of period 1,239.9 1,188.5
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period (27.7) (4.2)
Other comprehensive income (loss), net of tax 13.0 (13.6)
Balance at end of period (14.7) (17.8)
Stockholders’ Equity at end of period $ 1,273.5 $ 1,215.7


	13 Weeks Ended
	April 2, 2023		April 3, 2022
Capital Stock
Class A common stock
Balance at beginning of period	$	35.1	$	36.7
Conversions from Class B	0.1		—
Share retirement	—		(1.6)
Balance at end of period	35.2		35.1

Class B common stock
Balance at beginning of period	3.4		3.4
Conversions to Class A	(0.1)		—

Balance at end of period	3.3		3.4

Treasury Stock
Class A common stock
Balance at beginning of period	(19.5)		(14.5)
Net issuance of stock awards and other	3.1		2.1
Purchase of treasury stock	(18.3)		—
Balance at end of period	(34.7)		(12.4)

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

Paid-in Capital
Balance at beginning of period	28.0		23.9
Net issuance of stock awards	(1.6)		(1.1)
Balance at end of period	26.4		22.8

Earnings Invested in the Business
Balance at beginning of period	1,216.3		1,315.0



Net earnings (loss)	10.9		(47.6)
Dividends	(2.8)		(1.9)
Share retirement	—		(25.6)
Balance at end of period	1,224.4		1,239.9

Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(8.5)		(27.7)

Other comprehensive income (loss), net of tax	2.3		13.0
Balance at end of period	(6.2)		(14.7)

Stockholders’ Equity at end of period	$	1,247.8	$	1,273.5

See accompanying unaudited Notes to Consolidated Financial Statements.

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions of dollars)
13 Weeks Ended
April 3,
2022 April 4,
2021
Cash flows from operating activities:
Net earnings (loss) $ (47.6) $ 25.6
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Depreciation and amortization 7.5 5.9
Operating lease asset amortization 5.0 5.2
Provision for credit losses and sales allowances 0.8 (0.1)
Stock-based compensation 2.1 1.4
(Gain) loss on investment in Persol Holdings 67.2 (30.0)
Loss on currency translation from liquidation of subsidiary 20.4 —
Gain on foreign currency remeasurement (5.5) —
Equity in net (earnings) loss of PersolKelly Pte. Ltd. (0.8) 1.1
Other, net 0.8 1.3
Changes in operating assets and liabilities, net of acquisitions (156.0) 0.1
Net cash (used in) from operating activities (106.1) 10.5
Cash flows from investing activities:
Capital expenditures (1.7) (2.7)
Acquisition of companies, net of cash received (58.3) —
Proceeds from company-owned life insurance — 10.4
Proceeds from sale of Persol Holdings investment 196.9 —
Proceeds from sale of equity method investment 119.5 —
Other investing activities 0.7 0.2
Net cash from investing activities 257.1 7.9
Cash flows from financing activities:
Net change in short-term borrowings 0.2 0.8
Financing lease payments (0.3) (0.2)
Dividend payments (1.9) —
Payments of tax withholding for stock awards (0.8) (0.5)
Buyback of common shares (27.2) —
Contingent consideration payments (0.7) —
Net cash (used in) from financing activities (30.7) 0.1
Effect of exchange rates on cash, cash equivalents and restricted cash (1.7) (1.4)
Net change in cash, cash equivalents and restricted cash 118.6 17.1
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)
$ 238.1 $ 245.2


	13 Weeks Ended
	April 2, 2023		April 3, 2022
Cash flows from operating activities:
Net earnings (loss)	$	10.9	$	(47.6)
Adjustments to reconcile net earnings (loss) to net cash from operating activities:



Depreciation and amortization	8.4		7.5
Operating lease asset amortization	4.3		5.0
Provision for credit losses and sales allowances	0.4		0.8
Stock-based compensation	3.1		2.1
Gain on sale of equity securities	(2.0)		—
Loss on investment in Persol Holdings	—		67.2
Loss on currency translation from liquidation of subsidiary	—		20.4
Gain on foreign currency remeasurement	—		(5.5)
Gain on sale of assets	—		(0.9)
Equity in net (earnings) loss of PersolKelly Pte. Ltd.	—		(0.8)
Other, net	(0.3)		1.7
Changes in operating assets and liabilities, net of acquisitions	(38.3)		(156.0)
Net cash used in operating activities	(13.5)		(106.1)

Cash flows from investing activities:
Capital expenditures	(4.4)		(1.7)
Proceeds from sale of assets	—		0.9
Acquisition of companies, net of cash received	—		(58.3)


Proceeds from sale of Persol Holdings investment	—		196.9
Proceeds from sale of equity method investment	—		119.5

Proceeds from equity securities	2.0		—
Other investing activities	0.2		(0.2)
Net cash (used in) from investing activities	(2.2)		257.1

Cash flows from financing activities:
Net change in short-term borrowings	(0.7)		0.2
Financing lease payments	(0.4)		(0.3)
Dividend payments	(2.8)		(1.9)
Payments of tax withholding for stock awards	(1.2)		(0.8)
Buyback of common shares	(18.3)		(27.2)
Contingent consideration payments	(1.4)		(0.7)

Net cash used in financing activities	(24.8)		(30.7)

Effect of exchange rates on cash, cash equivalents and restricted cash	(0.8)		(1.7)

Net change in cash, cash equivalents and restricted cash	(41.3)		118.6

Cash, cash equivalents and restricted cash at beginning of period	162.4		119.5

Cash, cash equivalents and restricted cash at end of period (1)	$	121.1	$	238.1

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:


		13 Weeks Ended					13 Weeks Ended
		April 3, 2022		April 4, 2021			April 2, 2023		April 3, 2022
Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	230.3	$	239.4	Cash and cash equivalents	$	111.7	$	230.3

Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	0.4		0.2		Restricted cash included in prepaid expenses and other current assets	0.5		0.4
Noncurrent assets:	Noncurrent assets:					Noncurrent assets:
Restricted cash included in other assets	Restricted cash included in other assets	7.4		5.6		Restricted cash included in other assets	8.9		7.4
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	238.1	$	245.2	Cash, cash equivalents and restricted cash at end of period	$	121.1	$	238.1

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,~~1, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February ~~17,~~16, 2023 (the 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.~~10-K. The Company’s first fiscal quarter ended on April ~~3, 2022 (2022)~~2, 2023 and April ~~4, 2021 (2021),~~3, 2022, each of which contained 13 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):


		First Quarter				First Quarter
		2022		2021				2023		2022
Professional & Industrial	Professional & Industrial						Professional & Industrial
Staffing services	Staffing services	$	334.9	$	352.5		Staffing services	$	271.5	$	334.9
Permanent placement	Permanent placement	10.2		4.9			Permanent placement	4.3		10.2
Outcome-based services	Outcome-based services	99.2		110.2			Outcome-based services	114.0		99.2
Total Professional & Industrial	Total Professional & Industrial	444.3		467.6			Total Professional & Industrial	389.8		444.3

Science, Engineering & Technology	Science, Engineering & Technology						Science, Engineering & Technology
Staffing services	Staffing services	220.6		186.2			Staffing services	202.3		220.6
Permanent placement	Permanent placement	8.0		4.8			Permanent placement	5.5		8.0
Outcome-based services	Outcome-based services	88.5		63.7			Outcome-based services	98.6		88.5
Total Science, Engineering & Technology	Total Science, Engineering & Technology	317.1		254.7			Total Science, Engineering & Technology	306.4		317.1

Education	Education						Education
Staffing services	Staffing services	171.9		110.8			Staffing services	247.6		171.9
Permanent placement	Permanent placement	1.5		0.8			Permanent placement	1.8		1.5
Total Education	Total Education	173.4		111.6			Total Education	249.4		173.4

Outsourcing & Consulting	Outsourcing & Consulting						Outsourcing & Consulting
Talent solutions	Talent solutions	109.1		99.3			Talent solutions	114.6		109.1
Total Outsourcing & Consulting	Total Outsourcing & Consulting	109.1		99.3			Total Outsourcing & Consulting	114.6		109.1

International	International						International
Staffing services	Staffing services	241.7		265.6			Staffing services	205.6		241.7
Permanent placement	Permanent placement	6.9		5.5			Permanent placement	5.9		6.9
Talent solutions	Talent solutions	4.2		1.8			Talent solutions	0.3		4.2
Total International	Total International	252.8		272.9			Total International	211.8		252.8

Total Intersegment	Total Intersegment	(0.3)		(0.2)			Total Intersegment	(3.7)		(0.3)

Total Revenue from Services	Total Revenue from Services	$	1,296.4	$	1,205.9		Total Revenue from Services	$	1,268.3	$	1,296.4

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~~Our International segment includes our staffing operations in Europe ~~and our~~as well as Mexico, ~~operations,~~ which ~~are~~is included in the Americas region.

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


		First Quarter				First Quarter
		2022		2021				2023		2022
Americas	Americas						Americas
United States	United States	$	956.6	$	858.5		United States	$	959.2	$	956.6
Canada	Canada	39.1		34.1			Canada	44.9		39.1
Puerto Rico	Puerto Rico	27.6		24.2			Puerto Rico	26.9		27.6
Mexico	Mexico	10.3		34.6			Mexico	16.7		10.3

Total Americas Region	Total Americas Region	1,033.6		951.4			Total Americas Region	1,047.7		1,033.6

Europe	Europe						Europe
Switzerland	Switzerland	55.0		52.7			Switzerland	52.9		55.0
France	France	54.6		54.3			France	47.8		54.6
Portugal	Portugal	41.9		43.7			Portugal	44.4		41.9
Italy							Italy	16.9		19.5

Russia	Russia	29.7		32.6			Russia	—		29.7
Italy		19.5		18.1
United Kingdom		15.0		17.0

Other	Other	36.3		27.8			Other	47.7		51.3
Total Europe Region	Total Europe Region	252.0		246.2			Total Europe Region	209.7		252.0

Total Asia-Pacific Region	Total Asia-Pacific Region	10.8		8.3			Total Asia-Pacific Region	10.9		10.8

Total Kelly Services, Inc.	Total Kelly Services, Inc.	$	1,296.4	$	1,205.9		Total Kelly Services, Inc.	$	1,268.3	$	1,296.4

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):


		First Quarter				First Quarter
		2022		2021				2023		2022
Science, Engineering & Technology	Science, Engineering & Technology						Science, Engineering & Technology
Americas	Americas	$	313.8	$	253.2		Americas	$	302.1	$	313.8
Europe	Europe	3.3		1.5			Europe	4.3		3.3
Total Science, Engineering & Technology	Total Science, Engineering & Technology	$	317.1	$	254.7		Total Science, Engineering & Technology	$	306.4	$	317.1

Outsourcing & Consulting	Outsourcing & Consulting						Outsourcing & Consulting
Americas	Americas	$	92.3	$	84.8		Americas	$	94.1	$	92.3
Europe	Europe	6.0		6.2			Europe	9.6		6.0
Asia-Pacific	Asia-Pacific	10.8		8.3			Asia-Pacific	10.9		10.8
Total Outsourcing & Consulting	Total Outsourcing & Consulting	$	109.1	$	99.3		Total Outsourcing & Consulting	$	114.6	$	109.1

International	International						International
Americas	Americas	$	10.1	$	34.3		Americas	$	16.0	$	10.1
Europe	Europe	242.7		238.6			Europe	195.8		242.7
Total International	Total International	$	252.8	$	272.9		Total International	$	211.8	$	252.8

Deferred Costs

Deferred fulfillment costs, which are included in prepaid expenses and other current assets in the consolidated balance sheet, were ~~$1.7~~$1.9 million as of first quarter-end ~~2022~~2023 and ~~$1.3~~$2.7 million as of year-end ~~2021.~~2022. Amortization expense for the deferred costs ~~for~~in the first quarter of ~~2022~~2023 was ~~$1.9~~$2.4 million and in the first quarter of ~~2021~~2022 was ~~$6.8 million.~~$1.9 million.

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):


		First Quarter					First Quarter
		2022		2021			2023		2022
Allowance for credit losses:	Allowance for credit losses:					Allowance for credit losses:
Beginning balance	Beginning balance	$	9.4	$	9.8	Beginning balance	$	7.7	$	9.4

Current period provision	Current period provision	0.4		(0.2)		Current period provision	0.8		0.4
Currency exchange effects	Currency exchange effects	(0.1)		(0.2)		Currency exchange effects	0.1		(0.1)
Write-offs	Write-offs	(1.2)		(0.3)		Write-offs	(0.8)		(1.2)
Ending balance	Ending balance	$	8.5	$	9.1	Ending balance	$	7.8	$	8.5

Write-offs are presented net of recoveries, which were not material for first quarter-end ~~2022 and 2021.~~

2023 or 2022.

We were engaged in litigation with a customer over a disputed accounts receivable balance for certain services rendered more than five years ago, which was recorded as a long-term receivable in other assets in the consolidated balance sheet as of first quarter-end 2021. The related allowance for credit losses on this long-term customer receivable was $10.9 million and represented the likelihood of collection as of first quarter-end 2021. Based on a final ruling in the case in favor of the customer, we wrote off the entire receivable balance in the third quarter of 2021. No other allowances related to other receivables were material ~~for~~as of first quarter-end 2023 or year-end 2022.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

4. Acquisitions and Disposition

Acquisitions

In the second quarter of 2022, Kelly Services USA, LLC ("KSU"), a wholly owned subsidiary of the Company, acquired Pediatric Therapeutic Services ("PTS"), as detailed below. In the first quarter of 2022, the Company acquired Rocket Power Holdings LLC and Rocket Power Ops LLC (collectively, "RocketPower"), as detailed below.

Pediatric Therapeutic Services

On May 2, 2022, KSU acquired 100% of the membership interests of PTS for a purchase price of $82.1 million. PTS is a specialty firm that provides and manages various state and federally mandated in-school therapy services. This acquisition expands Education's K-12 solution offering in the education staffing market and serves as an entry point into the therapeutic services market. Under terms of the purchase agreement, the purchase price was adjusted for cash held by PTS at the closing date and estimated working capital adjustments resulting in the Company paying cash of $85.7 million. Total consideration included $1.1 million of additional consideration that is payable to the seller related to employee retention credits and is recorded in accounts payable and accrued liabilities in the consolidated balance sheet. In the ~~second~~third quarter of ~~2021,~~2022, the Company ~~acquired Softworld, Inc. ("Softworld"),~~paid $0.1 million of the employee retention credits and the remainder is expected to be paid by second quarter-end 2023. The total consideration was as ~~detailed below.~~follows (in millions of dollars):


Cash consideration paid	$	85.7
Additional consideration payable	1.1
Total consideration	$	86.8

As of May 2023, the purchase price allocation for this acquisition is final. PTS's results of operations are included in the Education segment. Our consolidated revenues and earnings from operations for the first quarter of 2023 included $15.8 million and $2.7 million, respectively, from PTS. Goodwill generated from the acquisition was primarily attributable to expected synergies from combining operations and expanding market potential and was assigned to the Education operating segment. All of the goodwill is expected to be deductible for tax purposes.

RocketPower

On March 7, 2022, the Company acquired 100% of the issued and outstanding membership interests of RocketPower for a purchase price of $59.3 million. RocketPower is a ~~leading~~ provider of RPO and other outsourced talent solutions to customers including U.S. ~~high-tech~~technology companies. This acquisition ~~will expand~~expands OCG's RPO solution and delivery ~~offering and enhance the specialty RPO strategy and expertise within the high-tech industry.~~offering. Under terms of the purchase agreement, the purchase price was adjusted for cash held by RocketPower at the closing date and estimated working capital adjustments resulting in the Company paying cash of $61.8 million. Total consideration ~~includes~~included $1.1 million of additional consideration that is payable to the seller in 2023 related to employee retention credits and contingent consideration with an initial estimated fair value of $0.6 million related to an earnout payment with a maximum potential cash payment of $31.8 million in the event certain financial metrics are met per the terms of the agreement. The initial fair value of the earnout was established using a Black Scholes model, ~~(see~~see the Fair Value Measurements ~~footnote). The earnout is expected to be paid in 2023 and 2024 after each earn-out year pursuant to the terms of the purchase agreement.~~footnote for information regarding subsequent reassessments. The total consideration iswas as follows (in millions of dollars):


Cash consideration paid	$	61.8
Additional consideration payable	1.1
Contingent consideration	0.6
Total consideration	$	63.5

~~Due to the limited amount~~As of ~~time that has passed since acquiring RocketPower,~~first quarter-end 2023, the purchase price allocation for this acquisition is ~~preliminary and could change.~~

~~The following table summarizes the estimated fair values~~final. RocketPower's results of ~~the assets acquired and liabilities assumed as of the date of the acquisition (in millions of dollars):~~


~~Cash~~	$	~~3.5~~
~~Trade accounts receivable~~	~~6.9~~
~~Prepaid expenses and other current assets~~	~~1.8~~
~~Net property and equipment~~	~~0.1~~


~~Goodwill~~	~~41.0~~
~~Intangibles~~	~~15.8~~

~~Accounts payable and accrued liabilities, current~~	~~(2.9)~~

~~Accrued payroll and related taxes, current~~	~~(1.5)~~

~~Other long-term liabilities~~	~~(1.2)~~

~~Total consideration, including working capital adjustments~~	$	~~63.5~~

~~The fair value of the acquired receivables represents the contractual value. Included~~operations are included in the ~~assets purchased in~~OCG segment. Our consolidated revenues for the first quarter of 2023 included $2.6 million from RocketPower ~~acquisition was $15.8~~and our consolidated earnings from operations for the first quarter of 2023 included a loss of $2.6 million of intangible assets, made up of $7.5 million in customer relationships, $6.6 million associated with RocketPower's trade names and $1.7 million for non-compete agreements. Customer relationships will be amortized over three years with no residual value, trade names will be amortized over 10 years with no residual value, and the non-compete agreements will be amortized over six years with no residual value.from RocketPower. Goodwill generated from the acquisition was primarily attributable to expected synergies from combining operations and expanding market potential and was assigned to the OCG operating ~~segment (see Goodwill footnote).~~segment. The amount of goodwill expected to be ~~deductible for tax purposes is approximately $28.0 million.~~

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~RocketPower's results~~deductible for tax purposes is approximately $27.5 million. In the third and fourth quarters of ~~operations will be included~~2022, changes in market conditions triggered interim impairment tests for both long-lived assets and goodwill, resulting in the ~~OCG segment in 2022 on~~Company recording a ~~one-month lag. Accordingly, for the first quarter-end 2022, our consolidated revenues and net earnings did not include any results from RocketPower. Pro forma results~~goodwill impairment charge of ~~operations for this acquisition have not been presented as it is not material to the consolidated statements of earnings.~~$41.0 million.

~~Softworld~~Disposition

On ~~April 5, 2021,~~July 20, 2022, the Company ~~acquired 100%~~completed the sale of the shares of Softworld for a purchase price of $215.0 million. Softworld is a leading technology staffing and workforce solutions firm that serves clients across several end-markets, including financial services, life sciences, aerospace, defense, insurance, retail and IT consulting. This acquisition is intended to expand our capabilities, scale and solution set in our technology specialty. Under terms of the purchase agreement, the purchase priceits Russia operations, which was ~~adjusted for cash held by Softworld at the closing date and estimated working capital adjustments resulting~~included in the Company paying cash of $220.4 million. Total consideration includes $2.6 million of additional consideration that is payable to the seller in 2022. In the third quarter of 2021, the Company received cash for a post-close working capital adjustment of $6.0 million. The total consideration is as follows (in millions of dollars):


~~Cash consideration paid~~	$	~~220.4~~
~~Additional consideration payable~~	~~2.6~~
~~Net working capital adjustment~~	~~(6.0)~~
~~Total consideration~~	$	~~217.0~~

As of first quarter-end 2022, the purchase price allocation for this acquisition is final. Our consolidated revenue from services and earnings from operations for the first quarter of 2022 included $37.9 million and $3.5 million, respectively, from Softworld. Goodwill generated from the acquisition was primarily attributable to expanding market potential and the expected revenue synergies and was assigned to the SETCompany's International operating ~~segment (see Goodwill footnote). All of the goodwill is expected to be deductible for tax purposes.~~segment.

5. Investment in Persol Holdings

Prior to February 2022, the Company had a yen-denominated investment through the Company's subsidiary, Kelly Services Japan, Inc., in the common stock of Persol Holdings Co., Ltd. ("Persol Holdings"), the 100% owner of Persol Asia Pacific Pte. Ltd., the Company’s joint venture partner in PersolKelly Pte. Ltd. (the "JV"). In February 2022, the Company's board approved a series of transactions that ended the cross-shareholding agreement with Persol Holdings.

On February 14, 2022, the Company repurchased 1,576,169 Class A and 1,475 Class B common shares held by Persol Holdings for $27.2 million. The purchase price was based on the average closing price of the last five business days prior to the transaction. The shares were subsequently retired and returned to an authorized, unissued status. In accordance with the Company's policy, the amount paid to repurchase the shares in excess of par value of $25.6 million was recorded to earnings invested in the business onin the consolidated balance sheet at the time of the share retirement.

On February 15, 2022, Kelly Services Japan, Inc. sold the investment in the common stock of Persol Holdings in an open-market transaction for proceeds of $196.9 million, net of transaction fees. As our investment was a noncontrolling interest in Persol Holdings, the investment was recorded at fair value based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange through the date of the ~~transaction (see Fair Value Measurements footnote).~~transaction. The $67.2 million loss in the first quarter of 2022 recorded in ~~gain (loss)~~loss on investment in Persol Holdings in the consolidated statements of earnings included $52.4 million for losses related to changes in fair value up to the date of the transaction and $14.8 million for the discount from the market price on the date of the sale and transaction costs. ~~The gain on the investment of $30.0 million in the first quarter 2021 was recorded in gain (loss) on investment in Persol Holdings in the consolidated statements of earnings.~~

Subsequent to the transaction discussed above, the Company commenced the dissolution process of its Kelly Services Japan, Inc. subsidiary, which was considered substantially liquidated as of first quarter-end 2022. As a result, the Company recognized a $20.4 million cumulative translation adjustment loss in the first quarter of 2022, which iswas recorded in loss on currency translation from liquidation of subsidiary in the consolidated statements of earnings. The Company also recognized a $5.5 million foreign exchange gain related to U.S.-denominated cash equivalents held by Kelly Services Japan, Inc. following the sale of the Persol Holdings shares and prior to a dividend payment to the Company in the first quarter of 2022. The foreign exchange gain iswas recorded in other income (expense), net in the consolidated statements of earnings. The dissolution of the Kelly Services Japan, Inc. subsidiary was completed in the fourth quarter of 2022.

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

6. Investment in PersolKelly Pte. Ltd.

Prior to February 2022, the Company had a 49% ownership interest in the JV (see Investment in Persol Holdings footnote above), a staffing services business operating in 10ten geographies in the Asia-Pacific region. On February 14, 2022, the Company entered into an agreement to sell 95% of the Company's shares in the JV to Persol Asia Pacific Pte. Ltd. On March 1, 2022, the Company received cash proceeds of $119.5 million. The carrying value of the shares sold was $117.6 million. In addition, the Company had $1.9 million of accumulated other comprehensive income representing the Company's share of the JV's other comprehensive income over time related to the shares sold that was realized upon the sale, offsetting the $1.9 million gain that resulted from the proceeds in excess of the carrying value.

The operating results of the Company’s interest in the JV were accounted for on a one-quarter lag under the equity method and were reported in equity in net earnings (loss) of affiliate in the consolidated statements of earnings through the date of the sale. Such amounts were earnings of $0.8 million in the first quarter of 2022, ~~and a loss~~representing the results through the date of ~~$1.1 million in~~ the ~~first quarter of 2021.~~sale.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

After the sale, the Company has a 2.5% ownership interest in the JV and ~~has~~ discontinued its use of equity method accounting. The remaining investment ~~will be~~is accounted for as an equity investment without a readily determinable fair value (see Fair Value Measurements footnote). The equity investment, included in other assets on the Company’s consolidated balance sheet, totaled $6.4 million as of first quarter-end ~~2022~~2023 and ~~the investment in equity affiliate on the Company's consolidated balance sheet totaled $123.4 million as of~~ year-end ~~2021.~~2022.

7. 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 first quarter-end ~~2022~~2023 and year-end ~~2021~~2022 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 First Quarter-End 2022									As of First Quarter-End 2023
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
		(In millions of dollars)									(In millions of dollars)
Money market funds	Money market funds	$	122.3	$	122.3	$	—	$	—	Money market funds	$	54.1	$	54.1	$	—	$	—
Investment in Persol Holdings		—		—		—		—

Total assets at fair value	Total assets at fair value	$	122.3	$	122.3	$	—	$	—	Total assets at fair value	$	54.1	$	54.1	$	—	$	—

Brazil indemnification	Brazil indemnification	$	(2.9)	$	—	$	—	$	(2.9)	Brazil indemnification	$	(3.5)	$	—	$	—	$	(3.5)
Greenwood/Asher earnout		(2.3)		—		—		(2.3)
RocketPower earnout		(0.6)		—		—		(0.6)

Total liabilities at fair value	Total liabilities at fair value	$	(5.8)	$	—	$	—	$	(5.8)	Total liabilities at fair value	$	(3.5)	$	—	$	—	$	(3.5)

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~


		As of Year-End 2021									As of Year-End 2022
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
		(In millions of dollars)									(In millions of dollars)
Money market funds	Money market funds	$	96.3	$	96.3	$	—	$	—	Money market funds	$	108.3	$	108.3	$	—	$	—
Investment in Persol Holdings		264.3		264.3		—		—

Total assets at fair value	Total assets at fair value	$	360.6	$	360.6	$	—	$	—	Total assets at fair value	$	108.3	$	108.3	$	—	$	—

Brazil indemnification	Brazil indemnification	$	(2.4)	$	—	$	—	$	(2.4)	Brazil indemnification	$	(3.4)	$	—	$	—	$	(3.4)
Greenwood/Asher earnout	Greenwood/Asher earnout	(4.6)		—		—		(4.6)		Greenwood/Asher earnout	(3.3)		—		—		(3.3)

Total liabilities at fair value	Total liabilities at fair value	$	(7.0)	$	—	$	—	$	(7.0)	Total liabilities at fair value	$	(6.7)	$	—	$	—	$	(6.7)

Money market funds represent investments in money market funds that hold government securities, of which ~~$7.3~~$8.8 million as of first quarter-end ~~2022~~2023 and ~~$6.5~~$8.6 million as of year-end ~~2021,~~2022 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 first quarter-end ~~2022~~2023 and year-end ~~2021~~2022 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.

On February 15, 2022, Kelly Services Japan, Inc. sold the investment in the common stock of Persol Holdings in an open-market transaction. The valuation of the investment was based on the quoted market price of Persol Holdings stock on the Tokyo Stock Exchange as of year-end 2021, and the related changes in fair value were recorded in the consolidated statements of earnings (see Investment in Persol Holdings footnote). The cost of this yen-denominated investment, which fluctuated based on foreign exchange rates, was $18.0 million at year-end 2021.

As of first quarter-end ~~2022 and year-end 2021,~~2023, the Company had an indemnification liability ~~of $2.9~~totaling $3.5 million with $0.3 million in accounts payable and ~~$2.4~~accrued liabilities and $3.2 million ~~respectively,~~ in other long-term liabilities, onand $3.4 million at year-end 2022, with $0.3 million in accounts payable and accrued liabilities and $3.1 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

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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 the first quarter of 2023 and 2022, the Company recognized an increase of $0.1 million and $0.5 million, respectively, to the indemnification liability related to exchange rate fluctuations in other income (expense), net in the consolidated statements of earnings.

The Company recorded an earnout liability relating to the 2020 acquisition of Greenwood/Asher, ~~totaling $2.3~~with a remaining liability of $3.3 million at ~~first quarter-end~~year-end 2022 in accounts payable and accrued ~~liabilities and $4.6 million at year-end 2021 with $2.3 million in accounts payable and accrued liabilities and $2.3 million in other long-term~~ liabilities in the consolidated balance sheet. The initial valuation of the earnout liability was established using a Black Scholes model and represented the fair value and iswas 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, with the remainder flowing through operating activities. There is no remaining earnout liability as of first quarter-end 2023. During the first quarter of 2022, the Company paid the year one portion of the earnout totaling $2.3 million. In the consolidated statements of cash flows, $0.7 million of the payment is reflected as a financing activity representing the initial fair value of the earnout, with the remainder flowing through operating activities.

The Company recorded an initial earnout liability relating to the 2022 acquisition of RocketPower, totaling $0.6 million, ~~at first quarter-end 2022~~ with $0.5 million in accounts payable and accrued liabilities and $0.1 million in other long-term liabilities in the consolidated balance sheet as of first quarter-end 2022 (see Acquisitions and Disposition footnote). 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. In the third quarter of 2022, we reassessed the value of the earnout liability and determined that the fair value was zero. There have been no changes to the value as a result of first quarter 2023 assessments and there is no related liability as of first quarter-end 2023. The maximum total cash payments which may be due related to the earnout liability is ~~$31.8 million. The initial valuation of the earnout liability was established using a Black Scholes model and~~$12.9 million, which represents the ~~fair value and~~second year earnout period. There is ~~considered~~no longer a ~~Level 3 liability.~~maximum cash payment or liability associated with the first year earnout as the corresponding period has concluded.

~~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 the JV (see Investment in PersolKelly Pte. Ltd. footnote), with the remaining 2.5% interest now being 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 sale of the shares of the JV represented an observable transaction requiring the Company to calculate the current fair value based on the purchase price of the shares, in which the resulting adjustment was not material. The investment totaled $6.4 million as of first quarter-end ~~2022,~~2023, representing total cost plus observable price changes to date.

Prior to April 2021, the Company had a minority investment in Business Talent Group, LLC, which was included in other assets in the consolidated balance sheet. The investment was also measured using the measurement alternative for equity investments without a readily determinable fair value as described above. In the second quarter of 2021, BTG entered into a merger agreement which resulted in all of the Company's shares of BTG being automatically canceled upon approval of the merger and resulted in the receipt of $5.0 million in cash, which was equal to the carrying value and purchase price of the BTG investment.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

8. Restructuring

2023 Actions

Prior to March 2021, the Company had a minority investment in Kenzie Academy Inc., which was included in other assets in the consolidated balance sheet. The investment was also measured using the measurement alternative for equity investments without a readily determinable fair value as described above. On March 8, 2021, Kenzie entered into a transaction to sell its assets. As of the date of the sale, the investment had a carrying value of $1.4 million, representing total cost plus observable price changes to date. In the first quarter of ~~2021,~~2023, the ~~asset was written down as~~Company undertook restructuring actions to further our cost management efforts in response to the current demand levels and reflect a ~~result~~repositioning of our P&I staffing business to better capitalize on opportunities in local markets. Restructuring costs incurred in the ~~sale~~first quarter of 2023 totaled $5.7 million and ~~the loss of $1.4 million was~~were recorded entirely in ~~other income (expense), net~~selling, general and administrative ("SG&A") expenses in the consolidated statements of ~~earnings.~~earnings, as detailed below (in millions of dollars):


	Severance Costs		Lease Termination and Other Costs		Total

Professional & Industrial	$	2.7	$	0.3	$	3.0
Science, Engineering & Technology	0.4		0.1		0.5
Education	0.1		—		0.1
Outsourcing & Consulting	0.6		—		0.6
International	0.6		—		0.6
Corporate	0.2		0.7		0.9
Total	$	4.6	$	1.1	$	5.7

~~8. Restructuring~~

2022 Actions

In the first quarter of 2022, the Company took restructuring actions designed to increase efficiency. ~~There were no restructuring charges incurred in the first quarter of 2021.~~

Restructuring costs incurred in the first quarter of 2022 totaled $1.7 million and were recorded entirely in SG&A expenses in the consolidated statements of earnings, as detailed below (in millions of dollars):


	Severance Costs		Lease Termination Costs		Total

Professional & Industrial	$	0.1	$	0.2	$	0.3

Education	0.4		—		0.4
Outsourcing & Consulting	0.2		—		0.2

Corporate	0.8		—		0.8
Total	$	1.5	$	0.2	$	1.7

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

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 ~~2021~~2022	$	~~2.9~~0.3
Additions charged to Professional & Industrial	~~0.3~~3.0
Additions charged to Science, Engineering & Technology	0.5
Additions charged to Outsourcing & Consulting	~~0.2~~0.6
Additions charged to Education	~~0.4~~0.1
Additions charged to International	0.6
Additions charged to Corporate	~~0.8~~0.9

Reductions for cash payments related to all restructuring activities	~~(2.0)~~(1.0)
Balance as of first quarter-end ~~2022~~2023	$	~~2.6~~5.0

The remaining balance of ~~$2.6~~$5.0 million as of first quarter-end ~~2022~~2023 primarily represents severance costs, and the majority is expected to be paid by ~~second quarter-end 2022.~~year-end 2023. No material adjustments are expected to be recorded.

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~9. Goodwill~~

The changes in the carrying amount of goodwill as of first quarter-end 2022 are included in the table below. The goodwill resulting from the acquisition of RocketPower during the first quarter of 2022 (see Acquisitions footnote) was allocated to the OCG reportable segment.

As of
Year-End 2021 Additions to Goodwill Impairment Adjustments As of First
Quarter-End 2022
(In millions of dollars)
Science, Engineering & Technology $ 111.3 $ — $ — $ 111.3
Education 3.5 — — 3.5
Outsourcing & Consulting — 41.0 — 41.0
Total $ 114.8 $ 41.0 $ — $ 155.8

~~10.~~9. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the first quarter ~~2022~~2023 and ~~2021~~2022 are included in the table below. Amounts in parentheses indicate debits. ~~Reclassification adjustments out of accumulated other comprehensive income (loss) related to the liquidation of the Japan subsidiary, as shown in the table below, were~~


	First Quarter
	2023		2022
	(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance	$	(7.4)	$	(25.0)
Other comprehensive income (loss) before reclassifications	2.3		(9.9)
Amounts reclassified from accumulated other comprehensive income (loss) - liquidation of Japan subsidiary	—		20.4		(1)
Amounts reclassified from accumulated other comprehensive income (loss) - equity method investment and other	—		2.5		(2)
Net current-period other comprehensive income (loss)	2.3		13.0
Ending balance	(5.1)		(12.0)









Pension liability adjustments:
Beginning balance	(1.1)		(2.7)
Other comprehensive income (loss) before reclassifications	—		—
Amounts reclassified from accumulated other comprehensive income (loss)	—		—
Net current-period other comprehensive income (loss)	—		—
Ending balance	(1.1)		(2.7)

Total accumulated other comprehensive income (loss)	$	(6.2)	$	(14.7)

(1)Amount was recorded in the loss on currency translation from liquidation of subsidiary ~~line item~~ in the consolidated statements of earnings. Reclassification adjustments out of accumulated other comprehensive income (loss) related to the equity method investment and other, as shown in the table below, which includes $1.9 million related to the investment in PersolKelly Pte. Ltd., were recorded in the other income (expense), net line item in the consolidated statement of earnings. See Investment in PersolKelly Pte. Ltd. footnote for more details.

First Quarter
2022 2021
(In millions of dollars)
Foreign currency translation adjustments:
Beginning balance $ (25.0) $ (0.8)
Other comprehensive income (loss) before reclassifications (9.9) (13.6)
Amounts reclassified from accumulated other comprehensive income (loss) - liquidation of Japan subsidiary 20.4 —
Amounts reclassified from accumulated other comprehensive income (loss) - equity method investment and other 2.5 —
Net current-period other comprehensive income (loss) 13.0 (13.6)
Ending balance (12.0) (14.4)
Pension liability adjustments:
Beginning balance (2.7) (3.4)
Other comprehensive income (loss) before reclassifications — —
Amounts reclassified from accumulated other comprehensive income (loss) — —
Net current-period other comprehensive income (loss) — —
Ending balance (2.7) (3.4)
Total accumulated other comprehensive income (loss) $ (14.7) $ (17.8)

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

~~11.~~(2)Of the amount included in this line item, $1.9 million was recorded in the other income (expense), net in the consolidated statement of earnings related to the investment in PersolKelly Pte. Ltd., (see Investment in PersolKelly Pte. Ltd. footnote for more details).

10. Earnings (Loss) Per Share

The reconciliation of basic and diluted earnings (loss) per share on common stock for the first quarter ~~2022~~2023 and ~~2021~~2022 follows (in millions of dollars except per share data):
First Quarter
2022 2021
Net earnings (loss) $ (47.6) $ 25.6
Less: earnings allocated to participating securities — (0.2)
Net earnings (loss) available to common shareholders $ (47.6) $ 25.4
Average shares outstanding (millions):
Basic 38.6 39.3
Dilutive share awards — 0.2
Diluted 38.6 39.5
Basic earnings (loss) per share $ (1.23) $ 0.65
Diluted earnings (loss) per share $ (1.23) $ 0.64


	First Quarter
	2023		2022
Net earnings (loss)	$	10.9	$	(47.6)
Less: earnings allocated to participating securities	(0.2)		—
Net earnings (loss) available to common shareholders	$	10.7	$	(47.6)

Average shares outstanding (millions):
Basic	37.1		38.6
Dilutive share awards	0.3		—
Diluted	37.4		38.6

Basic earnings (loss) per share	$	0.29	$	(1.23)
Diluted earnings (loss) per share	$	0.29	$	(1.23)

~~Potentially dilutive shares outstanding~~Dilutive share awards are ~~primarily~~ related to deferred common stock related to the non-employee directors deferred compensation plan and performance shares for the first quarter of ~~2021.~~2023 (see Stock-Based Compensation footnote for a description of performance shares). Due to our net loss in the first quarter of 2022, potentially dilutive shares primarily related to deferred common stock associated with the non-employee directors deferred compensation plan of 0.2 million shares had an anti-dilutive effect on diluted earnings per share and were excluded from the computation for the first quarter of 2022. Dividends paid per share for Class A and Class B common stock were ~~$0.05~~$0.075 for the first quarter ~~2022~~2023 and ~~$0.00~~$0.050 for the first quarter ~~2021.~~2022.

In connection with our $50.0 million Class A share repurchase program authorized by the Company's board of directors in November 2022, the Company repurchased 1,099,728 shares for $18.3 million during the first quarter of 2023. A total of $23.9 million remains available under the share repurchase program. The repurchase program expires in November 2023.

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~12.~~11. Stock-Based Compensation

For the first quarter of 2023, the Company recognized stock compensation expense of $3.1 million and a related tax benefit of $0.3 million. For the first quarter of 2022, the Company recognized stock compensation expense of $2.1 million and a related tax benefit of $0.3 million. ~~For the first quarter of 2021, the Company recognized stock compensation expense of $1.4 million, and a related tax benefit of $0.1 million.~~

~~Performance Shares~~

During the first quarter of ~~2022,~~2023, the Company granted performance share awards associated with the Company’s Class A common stock to certain senior officers. The payment of performance share awards ~~which will be satisfied with the issuance of shares out of treasury stock,~~ is contingent upon the achievement of specific revenue growth and earnings before interest, taxes, depreciation and amortization ("EBITDA") margin performance goals ("financial measure performance share awards") over a stated period of time. The maximum number of performance shares that may be earned is 200% of the target shares originally granted. These awards have three one-year performance periods: ~~2022,~~ 2023, 2024 and ~~2024,~~2025, with the payout for each performance period based on separate financial measure goals that are set in February of each of the three performance periods. Earned shares during each performance period will cliff vest in February ~~2025~~2026 after approval of the financial results by the Compensation Committee, if not forfeited by the recipient. No dividends are paid on these performance shares.

On February 14, 2023, the Compensation Committee approved the actual performance achievement of one of the financial goals related to the 2021 retention-based grant. At the same meeting, the Compensation Committee approved a modification to accelerate the vesting for the goal earned, where half of these awards vested immediately upon approval of the results and the remaining half will vest in August 2023, if not forfeited by the recipient. We accounted for this change as a Type I

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

modification under ASC 718 as the expectation of vesting remained probable-to-probable post modification. The Company did not record any incremental stock compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification. The Company will recognize the remaining stock compensation expense over the remaining portion of the modified service requisite period.

A summary of the status of all nonvested performance shares at target as of first quarter-end ~~2022~~2023 and changes during this period is presented as follows below (in thousands of shares except per share data). The vesting adjustment in the table below represents the 2019 and a portion of the 2021 financial measure performance shares that did not vest because actual achievement was below the threshold level and resulted in no payout.


		Financial Measure Performance Shares			Financial Measure Performance Shares
		Shares	Weighted Average Grant Date Fair Value				Shares	Weighted Average Grant Date Fair Value
Nonvested at year-end 2021		708	$	20.03
Nonvested at year-end 2022						Nonvested at year-end 2022	692	$	19.41
Granted	Granted	186	21.19			Granted	246	15.18
Vested	Vested	(48)	22.55			Vested	(108)	19.76
Forfeited	Forfeited	(6)	16.81			Forfeited	—	—
Vesting adjustment		(142)	24.45
Nonvested at first quarter-end 2022		698	$	19.39

Nonvested at first quarter-end 2023						Nonvested at first quarter-end 2023	830	$	17.38

Restricted Stock

A summary of the status of nonvested restricted stock as of first quarter-end ~~2022~~2023 and changes during this period is presented as follows below (in thousands of shares except per share data).


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value
Nonvested at year-end 2021		403	$	21.24
Nonvested at year-end 2022					Nonvested at year-end 2022	607	$	20.27
Granted	Granted	259	21.74		Granted	407	17.26
Vested	Vested	(96)	22.34		Vested	(140)	21.54
Forfeited	Forfeited	(22)	22.43		Forfeited	(15)	20.97
Nonvested at first quarter-end 2022		544	$	21.24
Nonvested at first quarter-end 2023					Nonvested at first quarter-end 2023	859	$	18.62

12. Sale of Assets

In January 2022, the Company sold a property for a purchase price of $0.9 million, subject to final closing adjustments. The Company received cash proceeds of $0.9 million in the first quarter of 2022. As of the date of the sale, the property had an immaterial carrying value; as such, the resulting gain on the sale of the property was $0.9 million, which was recorded in gain on sale of assets in the consolidated statements of earnings.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

13. Other Income (Expense), Net

Included in other income (expense), net for the first quarter ~~2022~~2023 and ~~2021~~2022 are the following:


		First Quarter					First Quarter
		2022		2021					2023		2022
		(In millions of dollars)				(In millions of dollars)
Interest income	Interest income	$	0.1	$	0.1			Interest income	$	1.4	$	0.1
Interest expense	Interest expense	(0.6)		(0.6)				Interest expense	(0.8)		(0.6)

Foreign exchange gains (losses)	Foreign exchange gains (losses)	4.7		(0.2)				Foreign exchange gains (losses)	(0.7)		4.7
Other	Other	(1.4)		(2.7)				Other	2.1		(1.4)
Other income (expense), net	Other income (expense), net	$	2.8	$	(3.4)			Other income (expense), net	$	2.0	$	2.8

Included in Other for the first quarter of 2023 is a gain of $2.0 million for the receipt of final proceeds in connection with our investment in Business Talent Group, LLC that was sold in 2021. Included in foreign exchange gains (losses) for the first quarter of 2022 is a $5.5 million foreign exchange gain on a U.S. dollar-denominated cash balance held by the Company's Japan entity (see Investment in Persol Holdings footnote). Included in Other for the first quarter of 2021 is a loss from the sale of the assets related to our minority investment in Kenzie Academy (see Fair Value Measurements footnote) and transaction-related expenses from the April 2021 acquisition of Softworld (see Acquisitions footnote).

14. Income Taxes

Income tax expense was $1.8 million for the first quarter of 2023 and income tax benefit was $13.0 million for the first quarter of ~~2022 and income tax expense was $10.5 million for the~~2022. The quarterly amounts are impacted by changes in earnings from operations. The first quarter ~~of 2021. These~~2022 amounts were also impacted by changes in the fair value of the Company's investment in Persol Holdings, which resulted in a benefit of $18.4 ~~million and a charge of $9.2 million for the first quarter of 2022 and 2021, respectively. The quarterly amounts are also impacted by changes in earnings from operations.~~million.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of ~~tax exempt~~tax-exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, the tax effects of stock compensation and, prior to February 2022, changes in the fair value of the Company's investment in Persol Holdings, which ~~are~~were treated as discrete since they ~~cannot~~could not be estimated.

The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. ~~At this time, we have no~~Sustained profitability of our German business makes release of its $5.7 million valuation allowance ~~against our Mexican deferred tax asset of $3.9 million, though it is~~ possible ~~this may change as we continue to assess~~in the ~~impacts of the new labor laws effective as of the third quarter of 2021 on our Mexican business operations throughout the remainder of the year.~~near term.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

15. Contingencies

The Company is continuously engaged in litigation, threatened litigation, claims, audits or investigations arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters which could result in a material adverse outcome.

We record accruals for loss contingencies when we believe it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet. At first quarter-end ~~2022~~2023 and year-end ~~2021,~~2022, the gross accrual for litigation costs amounted to ~~$1.8~~$4.7 million and ~~$1.4~~$2.3 million, respectively.

The Company maintains insurance coverage which may cover certain losses. When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet. At both first quarter-end 2023 and year-end 2022, the related insurance receivables amounted to $0.6 million. ~~At year-end 2021, there were no related insurance receivables.~~

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

The Company estimates the aggregate range of reasonably possible losses, in excess of amounts accrued, is ~~$0.5~~$0.1 million to ~~$9.1~~$2.8 million as of first quarter-end ~~2022.~~2023. This range includes matters where a liability has been accrued but it is reasonably possible that the ultimate loss may exceed the amount accrued and for matters where a loss is believed to be reasonably possible, but a liability has not been accrued. The aggregate range only represents matters in which we are currently able to estimate a range of loss and does not represent our maximum loss exposure. The estimated range is subject to significant judgment and a variety of assumptions and only based upon currently available information. For other matters, we are currently not able to estimate the reasonably possible loss or range of loss.

While the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of any such proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)

16. Segment Disclosures

The Company’s operating segments, which also represent its reporting segments, are based on the organizational structure for which financial results are regularly evaluated by the Company’s chief operating decision-maker ("CODM", the Company’s CEO) to determine resource allocation and assess performance. The Company’s 5five reportable segments, (1) Professional & Industrial, (2) Science, Engineering & Technology, (3) Education, (4) Outsourcing & Consulting, and (5) International, reflect the specialty services the Company provides to customers and represent how the business is organized internally. Intersegment revenue represents revenue earned between the reportable segments and is eliminated from total segment revenue from services.

The following tables present information about the reported revenue from services and gross profit of the Company by reportable segment, along with a reconciliation to earnings (loss) before taxes and equity in net earnings (loss) of affiliate, for the first quarter ~~2022~~2023 and ~~2021.~~2022. Asset information by reportable segment is not presented, since the Company does not produce such information internally nor does it use such information to manage its business.


		First Quarter					First Quarter
		2022		2021					2023		2022
		(In millions of dollars)				(In millions of dollars)
Revenue from Services:	Revenue from Services:							Revenue from Services:

Professional & Industrial	Professional & Industrial	$	444.3	$	467.6			Professional & Industrial	$	389.8	$	444.3
Science, Engineering & Technology	Science, Engineering & Technology	317.1		254.7				Science, Engineering & Technology	306.4		317.1
Education	Education	173.4		111.6				Education	249.4		173.4
Outsourcing & Consulting	Outsourcing & Consulting	109.1		99.3				Outsourcing & Consulting	114.6		109.1
International	International	252.8		272.9				International	211.8		252.8

Less: Intersegment revenue	Less: Intersegment revenue	(0.3)		(0.2)				Less: Intersegment revenue	(3.7)		(0.3)

Consolidated Total	Consolidated Total	$	1,296.4	$	1,205.9			Consolidated Total	$	1,268.3	$	1,296.4

2425

KELLY SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(UNAUDITED)


		First Quarter					First Quarter
		2022		2021					2023		2022
		(In millions of dollars)				(In millions of dollars)
Earnings (loss) from Operations:	Earnings (loss) from Operations:							Earnings (loss) from Operations:

Professional & Industrial gross profit	Professional & Industrial gross profit	$	83.1	$	75.9			Professional & Industrial gross profit	$	69.8	$	83.1
Professional & Industrial SG&A expenses	Professional & Industrial SG&A expenses	(71.4)		(69.4)				Professional & Industrial SG&A expenses	(67.5)		(71.4)
Professional & Industrial earnings (loss) from operations	Professional & Industrial earnings (loss) from operations	11.7		6.5				Professional & Industrial earnings (loss) from operations	2.3		11.7

Science, Engineering & Technology gross profit	Science, Engineering & Technology gross profit	73.8		53.2				Science, Engineering & Technology gross profit	71.3		73.8
Science, Engineering & Technology SG&A expenses	Science, Engineering & Technology SG&A expenses	(53.2)		(35.7)				Science, Engineering & Technology SG&A expenses	(52.8)		(53.2)
Science, Engineering & Technology earnings (loss) from operations	Science, Engineering & Technology earnings (loss) from operations	20.6		17.5				Science, Engineering & Technology earnings (loss) from operations	18.5		20.6

Education gross profit	Education gross profit	26.6		17.2				Education gross profit	39.3		26.6
Education SG&A expenses	Education SG&A expenses	(18.6)		(14.2)				Education SG&A expenses	(23.8)		(18.6)
Education earnings (loss) from operations	Education earnings (loss) from operations	8.0		3.0				Education earnings (loss) from operations	15.5		8.0

Outsourcing & Consulting gross profit	Outsourcing & Consulting gross profit	37.3		31.3				Outsourcing & Consulting gross profit	41.6		37.3
Outsourcing & Consulting SG&A expenses	Outsourcing & Consulting SG&A expenses	(34.3)		(28.4)				Outsourcing & Consulting SG&A expenses	(40.5)		(34.3)

Outsourcing & Consulting earnings (loss) from operations	Outsourcing & Consulting earnings (loss) from operations	3.0		2.9				Outsourcing & Consulting earnings (loss) from operations	1.1		3.0

International gross profit	International gross profit	37.8		35.7				International gross profit	32.1		37.8
International SG&A expenses	International SG&A expenses	(33.2)		(33.1)				International SG&A expenses	(32.4)		(33.2)
International earnings (loss) from operations	International earnings (loss) from operations	4.6		2.6				International earnings (loss) from operations	(0.3)		4.6

Corporate	Corporate	(24.5)		(21.9)				Corporate	(26.4)		(24.5)

Consolidated Total	Consolidated Total	23.4		10.6				Consolidated Total	10.7		23.4
Gain (loss) on investment in Persol Holdings		(67.2)		30.0
Loss on investment in Persol Holdings								Loss on investment in Persol Holdings	—		(67.2)
Loss on currency translation from liquidation of subsidiary	Loss on currency translation from liquidation of subsidiary	(20.4)		—				Loss on currency translation from liquidation of subsidiary	—		(20.4)
Other income (expense), net	Other income (expense), net	2.8		(3.4)				Other income (expense), net	2.0		2.8

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	$	(61.4)	$	37.2			Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	$	12.7	$	(61.4)

Depreciation and amortization expense included in SG&A expenses by segment above are as follows:

First Quarter
2022 2021
(In millions of dollars)
Depreciation and amortization:
Professional & Industrial $ 1.1 $ 1.4
Science, Engineering & Technology 3.1 1.0
Education 0.8 1.0
Outsourcing & Consulting 0.2 0.2
International 0.5 0.5

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~17.~~ ~~New Accounting Pronouncements~~

~~Recently Adopted~~

In October 2021, the FASB issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations that occur after the effective date. We early adopted this standard in the first quarter of 2022 and the adoption did not have a material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was effective for the Company in the first quarter of fiscal 2021. The adoption of this standard did not have a material impact to our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01 which clarifies the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. The guidance clarifies how to account for the transition into and out of the equity method of accounting when considering observable transactions under the measurement alternative. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did not have a material impact to our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes. The guidance removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. The adoption of this standard did not have a material impact to our consolidated financial statements.

~~Not Yet Adopted~~

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.


	First Quarter
	2023		2022
	(In millions of dollars)
Depreciation and amortization:

Professional & Industrial	$	0.8	$	1.1
Science, Engineering & Technology	3.2		3.1
Education	1.5		0.8
Outsourcing & Consulting	1.0		0.2
International	0.4		0.5

~~KELLY SERVICES, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(UNAUDITED)~~

~~18. Subsequent Events~~

On May 2, 2022, the Company acquired 100% of the membership interests of Pediatric Therapeutic Services for $82.1 million of cash, subject to working capital adjustments. Pediatric Therapeutic Services is a specialty firm that provides and manages various state and federally mandated in-school therapy services and will be included in our Education segment. The related acquisition costs incurred through the end of the first quarter, which are included in other income (expense), net in the consolidated statements of earnings, were $0.3 million. The initial accounting for the business combination is incomplete at the time of this filing due to the limited amount of time since the acquisition date and the ongoing status of the valuation. Therefore, it is impracticable for the Company to provide the major classes of assets acquired and liabilities assumed or pro forma revenue and earnings.

Subsequent to the end of the first quarter, Management initiated plans to actively explore an orderly transition of our operations in Russia in full compliance with International and Russian law. Such a transition may result in a loss up to the carrying value of our net assets in Russia.

As of the end of the first quarter of 2022, assets in Russia totaled $28.4 million, liabilities totaled $13.0 million and accumulated other comprehensive loss totaled $10.1 million. For the year ended January 2, 2022, revenue in Russia was $132.2 million and earnings from operations were $5.3 million.

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

Executive Overview

~~Kelly’s strategy and actions are guided by our simple yet powerful Noble Purpose: “We connect people to work in ways that enrich their lives.”~~ We ~~are~~entered 2023 committed to ~~being a leading talent solutions provider among~~continuing our pursuit of profitable growth, despite the ~~talent with whom~~ongoing macroeconomic and labor market headwinds. As is typical during times of economic uncertainty, some segments of the economy are proving more resilient than others. Likewise, Kelly’s specialty solutions—where we ~~choose to specialize and~~have intentionally focused our growth strategy—are proving more resilient than others.

Our specialty growth strategy paid off in several areas in the ~~global markets in which we choose to compete. As we navigate the post-pandemic landscape, we will continue to demonstrate our expected behaviors and actions:~~first quarter.

•~~Employ a talent-first mentality~~

Our Education segment continued to report significant top-line growth on improving fill rates and new customer wins.

•~~Relentlessly deliver for~~Our higher margin outcome-based solutions in P&I and SET continued to demonstrate resilient revenue and gross profit growth as customers

continue to demand our value-added solutions.

•~~Grow through discipline~~Our favorable organic business mix and ~~focus~~

higher-margin acquisitions continued to drive improvements in our gross profit rate.

•~~Deliver efficiency and effectiveness~~We proactively managed expenses, balancing cost management with ongoing investment in ~~everything we do~~

By aligning ourselves with our Noble Purpose and executing against these behaviors, we are becoming a more agile and focused organization, prepared to achieve new levels of growth and profitability as we develop and reshape our portfolio of businesses.

~~The Talent Solutions Industry~~

Even before the COVID-19 pandemic, labor markets were in the midst of change due to automation, secular shifts in labor supply and demand and skills gaps. Global demographic trends are reshaping and redefining the way in which companies find and use talent, and the COVID-19 pandemic changed where and how companies expect work to be performed—a shift we expect will carry over into the future. In response, the talent solutions industry is adjusting how it sources, recruits, trains and places talent.

Our industry is evolving to meet businesses’ growing demand for specialized talent, whether delivered as a single individual or as part of a total workforce solution. Companies in our industry are using novel sourcing approaches—including gig platforms, independent contractors and other talent pools—to create customized workforce solutionsbusinesses that are ~~flexible and responsive to the labor market.~~

In addition, today’s companies are elevating their commitment to talent, with the growing realization that meeting the changing needs and requirements of talent is essential to remain competitive. The ways in which people view, find and conduct work are undergoing fundamental shifts. And as the demand for skilled talent continues to climb, workers’ changing ideas about the integration of work into life are becoming more important. 2021 saw record-breaking employee resignations in the U.S. as workers opted out of jobs that did not align with their needs. In this increasingly talent-driven market, a diverse set of workers, empowered by technology, is seeking to take even greater control over their career trajectories. Kelly is proud to be a career partner of choice for workers in search of a better way to work.

~~Our Business~~

Kelly is a talent and global workforce solutions company serving customers of all sizes in a variety of industries. We offer innovative outsourcing and consulting services, as well as staffing on a temporary and direct-hire basis. In 2020, we adopted a new operating model and realigned our business into five specialty business units, which are also our reportable segments.

delivering strong revenue growth.

•~~Professional & Industrial – delivers staffing, outcome-based and direct-hire services focused on office, professional, light industrial and contact center specialties in~~In the ~~U.S. and Canada, including our KellyConnect and Skilled Professional Solutions products~~

•Science, Engineering & Technology – delivers staffing, outcome-based and direct-hire services focused on science and clinical research, engineering, technology and telecommunications specialties predominantly in the U.S. and Canada and includes our NextGen and Global Technology Associates subsidiaries, as well as Softworld, a technology staffing and workforce solutions company acquired in 2021

•Education – delivers staffing, direct-hire and executive search services across the full education spectrum from early childhood to higher education in the U.S., and includes Teachers On Call and Greenwood/Asher & Associates

•~~Outsourcing & Consulting – delivers Master Service Provider ("MSP"), Recruitment Process Outsourcing ("RPO"), which includes our March 2022 acquisition~~face of ~~RocketPower, Payroll Process Outsourcing ("PPO") and Talent Advisory Services to customers on a global basis~~

•~~International – delivers staffing, RPO and direct-hire services in 15 countries in Europe, as well as services in Mexico delivered in accordance with recent changes in labor market regulations~~

~~In addition, we hold a minority interest in PersolKelly Pte. Ltd. ("PersolKelly"), which provides staffing and direct hire services to customers in the Asia-Pacific region.~~

We earn revenues from customers that procure the services of our temporary employees on a time and materials basis, that use us to recruit permanent employees, and that rely on our talent advisory and outsourcing services. Our working capital requirements are primarily generated from temporary employee payroll and customer accounts receivable. The nature of our business is such that trade accounts receivable are our most significant asset. Average days sales outstanding varies within and outside the U.S. and was 62 days on a global basis as of the end of the first quarter of 2022 and 60 days as of the end of the first quarter of 2021. Since receipts from customers generally lag temporary employee payroll, working capital requirements increase substantially in periods of growth and decline in periods of economic contraction.

~~Our Perspective and Outlook on Growth~~

We entered 2022 having shifted from recovery from the COVID-19 pandemic to growth. Even with the economic uncertainty created by events in Ukraine and a continuation of inflation, particularly in the U.S.,decreased demand for ~~our~~staffing services, ~~remains strong. Our permanent placement fee growth points toward our customers’ investments in their future workforce, and increased demand in our~~we took action to reposition P&I staffing ~~and outcome-based businesses reflects strong~~to capitalize on local market demand for the specialty solutions we provide. Our business is arranged around specialties that target these areas of strong demand, promising growth opportunities, and Kelly’s proven ability to win. Our segments also reflect our intent to shift our portfolio toward high-margin, higher-value specialties that deliver a competitive edge and increased shareholder value. We believe that an aggressive inorganic growth strategy will accelerate the achievement of these goals.opportunities.

As we ~~continue~~approach the three-year anniversary of Kelly’s operating model, it’s clear we have made progress on our ~~strategic~~ growth ~~journey~~journey. We have grown gross profit and improved our gross margin percentage by shifting to a higher-margin, higher-growth business mix; unlocked value by monetizing non-core assets; and reinvested that capital in future growth through our inorganic and organic investments.

Now it is time for our progress to start yielding meaningful improvement to the ~~year ahead,~~bottom line. To that end, we have initiated a comprehensive transformation initiative to optimize our business and functional operations in a sustainable manner; unlock additional value-creating opportunities; and accelerate profitable growth.

Specific milestones and targets will ~~also invest in key value drivers.~~be established, and we are already underway:

•We are ~~mapping~~sharpening our ~~digital transformation journey, building a technology foundation to optimize our business, personalize the talent journey~~focus on reducing organizational complexity and improve the client experience. For example, in 2021 we launched Helix UX, an industry-leading talent management tool that is enabling our customers to better manage their global workforce across temporary, full-timeinefficiencies, and ~~cloud-based talent pools.~~

finding new avenues of growth.

•We ~~are consistently striving~~have formed a Transformation Management Office and appointed a Chief Transformation Officer to ~~better understand~~identify value-creating opportunities across the enterprise and ~~support our talent and their shifting needs. We have reallocated resources~~drive the necessary changes to be solely focused on the temporary worker experience, and our Equity@Work initiative is designed to break down long-standing, systemic barriers that make it difficult for many people to participate in the labor market.realize these opportunities.

•We ~~are investing in the talent experience of~~have engaged an outside consulting firm that brings deep business transformation expertise, world-class data and analytics capabilities, and a tested model to inform our full-time employees, taking action to ensure we have the people coaches and performance management systems that will help our employees thrive in their Kelly careers. We know that our success is powered by our people, and we are aiming for industry-leading results.efforts.

AsThe business transformation initiative is a top priority in the year ahead and we ~~execute our specialty growth strategy, we are focused on both the speed and scope of change. To that end, in February 2022 we completed transactions that have allowed us~~expect to ~~strategically re-deploy resources to accelerate our growth in high-margin, high-growth specialties. Specifically, we unwound our cross-ownership with Persol Holdings and reduced our ownership interest~~see improvement in our ~~APAC joint venture, PersolKelly. Monetizing~~EBITDA margin in the near term. Our goal is to build on the progress we’ve made in the last three years to create long-term structural improvements that will benefit our ~~investments in Persol Holdings~~employees, the talent we place, our customers, and PersolKelly provides us with additional capital, which we have already begun to use to accelerate our specialty growth strategy. In March 2022, we completed the acquisition of RocketPower, a business that diversifies and strengthens Kelly’s RPO business and opens new access to the fast-growing high-tech market. And in May 2022, we completed the acquisition of Pediatric Therapeutic Services, a specialty firm that expands our K-12 leadership position and provides in-school services for occupational, physical, speech and behavioral health therapies. Both acquisitions expand Kelly’s presence in high-growth, high margin specialties. As we move forward, we will continue to look for opportunities to grow both organically and inorganically in 2022 and beyond.shareholders.

Financial Measures

The constant currency (“CC”) change amounts refer to the year-over-year percentage changes resulting from translating ~~2022~~2023 financial data into U.S. dollars using the same foreign currency exchange rates used to translate financial data for ~~2021.~~2022. We believe that CC measurements are a useful measure, indicating the actual trends of our operations without distortion due to currency fluctuations. We use CC results when analyzing the performance of our segments and measuring our results against those of our competitors. Additionally, substantially all of our foreign subsidiaries derive revenues and incur cost of services and selling, general and administrative (“SG&A”) expenses within a single country and currency which, as a result, provides a natural hedge against currency risks in connection with their normal business operations.

CC 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.

Reported and CC percentage changes were computed based on actual amounts in thousands of dollars.

Return on sales (earnings from operations divided by revenue from services) and conversion rate (earnings from operations divided by gross profit) are ratios used to measure the Company’s operating efficiency.

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.

NM (not meaningful) in the following tables is used in place of percentage changes where: the change is in excess of 500%, the change involves a comparison between earnings and loss amounts, or the comparison amount is zero.

Days sales outstanding (“DSO”) represents the number of days that sales remain unpaid for the period being reported. DSO is calculated by dividing average net sales per day (based on a rolling three-month period) into trade accounts receivable, net of allowances at the period end. Although secondary supplier revenues are recorded on a net basis (net of secondary supplier expense), secondary supplier revenue is included in the daily sales calculation in order to properly reflect the gross revenue amounts billed to the customer.

3028

Results of Operations

Total Company

(Dollars in millions)

First Quarter
2022 2021 % Change
Revenue from services $ 1,296.4 $ 1,205.9 7.5 %
Gross profit 258.6 213.3 21.2
Total SG&A expenses 235.2 202.7 16.0
Earnings (loss) from operations 23.4 10.6 120.5
Gain (loss) on investment in Persol Holdings (67.2) 30.0 NM
Loss on currency translation from liquidation of subsidiary (20.4) — NM
Other income (expense), net 2.8 (3.4) 181.7
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate (61.4) 37.2 NM
Income tax expense (benefit) (13.0) 10.5 (223.9)
Equity in net earnings (loss) of affiliate 0.8 (1.1) NM
Net earnings (loss) $ (47.6) $ 25.6 NM %
Gross profit rate 19.9 % 17.7 % 2.2 pts.


	First Quarter
	2023			2022			% Change
Revenue from services	$	1,268.3		$	1,296.4		(2.2)	%
Gross profit	254.1			258.6			(1.7)
SG&A expenses excluding restructuring charges	237.7			234.4			1.4


Restructuring charges	5.7			1.7			238.2
Total SG&A expenses	243.4			236.1			3.1


Gain on sale of assets	—			(0.9)			NM
Earnings (loss) from operations	10.7			23.4			(54.4)
Loss on investment in Persol Holdings	—			(67.2)			NM
Loss on currency translation from liquidation of subsidiary	—			(20.4)			NM
Other income (expense), net	2.0			2.8			(27.5)
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate	12.7			(61.4)			NM
Income tax expense (benefit)	1.8			(13.0)			113.5
Equity in net earnings (loss) of affiliate	—			0.8			NM
Net earnings (loss)	$	10.9		$	(47.6)		NM	%

Gross profit rate	20.0		%	19.9		%	0.1	pts.

First Quarter Results

Revenue from services in the first quarter ~~increased 7.5%~~decreased 2.2% on a reported basis and ~~9.0%~~1.4% on a constant currency basis, and reflects revenue ~~increases in Education, Science, Engineering & Technology, and Outsourcing & Consulting operating segments, partially offset by~~ declines in Professional & Industrial, International, and ~~International~~Science, Engineering & Technology segments, partially offset by increases in Education and Outsourcing & Consulting segments. Our ~~acquisition~~2022 acquisitions of ~~Softworld,~~RocketPower, an RPO solutions provider, and PTS, a ~~technology staffing and solutions~~specialty firm ~~in the second quarter of 2021,~~that provides in-school therapy services, added approximately ~~310~~140 basis points to the revenue growth ~~rate.~~rate, while the sale of our Russian operations in July 2022 resulted in a 230 basis points year-over-year decline in constant currency. Compared to the first quarter of ~~2021,~~2022, revenue from staffing services ~~increased 5.9%~~decreased 4.3% and revenue from outcome-based services increased ~~7.9%~~13.3%. ~~Permanent~~In addition, revenue from talent solutions increased 1.4% and permanent placement revenue ~~which is included in revenue from services, increased 66.2%~~decreased 34.2% from the prior year.

Gross profit ~~increased 21.2%~~decreased 1.7% on a reported basis and ~~22.6%~~0.8% on a constant currency ~~basis on higher revenue volume, combined with an increase in the gross profit rate.~~basis. The gross profit rate increased ~~220~~10 basis points due primarily to ~~the impact of higher~~favorable product mix partially offset by a decrease in permanent placement income and the acquisition of Softworld, which generates higher gross profit rates, coupled with lower employee-related costs and favorable product mix. The gross profit rate increased in all operating segments, with the exception of Education, which declined slightly. Included in gross profit for the first quarter of 2022 is a one-time permanent placement fee from a large customer, as well as an adjustment to prior periods worker’s compensation expenses, resulting in 40 basis points of favorable impact.revenue. Permanent placement revenue ~~which is included in revenue from services and~~ has very low direct costs of services and has a disproportionate impact on gross profit rates. The acquisitions of RocketPower and PTS, which generate higher margins, contributed to the favorable product mix. Increases in the gross profit rate for Outsourcing & Consulting and Education were partially offset by a decrease in the gross profit rate in Professional & Industrial.

Total SG&A expenses increased ~~16.0%~~3.1% on a reported basis and ~~17.2%~~3.8% on a constant currency basis. Included in SG&A expenses in the first quarter of 2023 was $5.7 million of restructuring charges. Actions were taken to further our cost management efforts in response to current demand levels and to reposition our P&I staffing business to better capitalize on opportunities in local markets. Excluding restructuring, SG&A expenses increased 1.4% on a reported basis and 2.1% on a constant currency basis. SG&A expenses related to ~~Softworld,~~RocketPower and PTS, including intangible asset amortization ~~of intangibles~~expense and other operating expenses, accounted for approximately ~~500~~220 basis points of the year-over-year increase. The increase in SG&A expenses ~~also reflects increases~~was partially offset by decreases in performance-based incentive compensation expenses and ~~higher salary and related costs.~~lower expenses resulting from the sale of our Russian operations in 2022.

Earnings from operations for the first quarter of ~~2022~~2023 totaled ~~$23.4~~$10.7 million, compared to earnings of ~~$10.6~~$23.4 million in the first quarter of ~~2021. Included in total earnings from operations in the first quarter of 2022~~2022. The decline is ~~approximately $3.5 million~~primarily related to ~~Softworld earnings from operations, inclusive~~the impact of ~~amortization~~our 2023 restructuring charge and the impact of ~~intangibles.~~lower revenue compared to the prior year.

The loss on investment in Persol Holdings and loss on currency translation from liquidation of subsidiary in ~~the first quarter of~~ 2022 ~~represented the $52.4 million loss resulting from~~are non-cash charges related to changes in the ~~market price~~fair value of our investment in the common stock of Persol Holdings, ~~up until~~ the ~~date~~completion of ~~the transaction and the $14.8 million loss on sale, including transaction costs from~~ the sale of the investment in ~~an open-market transaction. The gain on the investment in Persol Holdings in~~ the first quarter of ~~2021 resulted from changes in~~2022 and the ~~quoted market price of the Persol Holdings common stock.~~

~~Loss on currency translation from liquidation of subsidiary represents the impact of the substantial~~ liquidation of our ~~Kelly Japan~~Japanese subsidiary following the ~~sale of the company’s investment in Persol Holdings and the return of capital through a dividend payment to its U.S-based parent, Kelly Services, Inc.~~sale.

~~The change in Other income (expense), net is primarily the result of $5.5~~Income tax expense was $1.8 million of foreign exchange gains related to U.S.-denominated cash equivalents held by our Kelly Japan subsidiary following the sale of the Persol Holdings shares and prior to its dividend payment to the U.S. parent infor the first quarter of ~~2022.~~

~~Income~~2023 and income tax benefit was $13.0 million for the first quarter of 2022. The variance primarily relates to the 2022 ~~and income tax expense was $10.5 million for the first quarter of 2021. These amounts were impacted by changes in the fair value of the Company's~~loss on investment in Persol ~~Holdings, which resulted in a benefit of $18.4 million and a charge of $9.2 million for the first quarter of 2022 and 2021, respectively.~~Holdings.

Our tax expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of ~~tax exempt~~tax-exempt investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets and the tax effects of stock compensation, ~~and changes in the fair value of the Company’s investment in Persol Holdings,~~ which are treated as discrete since they cannot be estimated.

The net ~~loss~~earnings for the period ~~was $47.6~~were $10.9 million, compared to a net ~~earnings~~loss of ~~$25.6~~$47.6 million ~~from~~for the first quarter of ~~2021. This change was due to~~2022. The 2023 net earnings includes the restructuring charges, net of tax, and 2022 includes a loss on the sale of Persol Holdings ~~investment, including the first quarter 2022 sale~~ and related ~~impacts, partially offset by improved operating earnings in the first quarter~~loss on currency translation from liquidation of ~~2022.~~

~~During the first quarter~~subsidiary, net of 2022 events in Ukraine have contributed to additional economic uncertainty in Europe. The Company does not have operations in Ukraine and we did not experience any material impact on our revenues or earnings in the first quarter. Subsequent to the end of the first quarter, Management initiated plans to actively explore an orderly transition of our operations in Russia in full compliance with International and Russian law. We expect that revenues and earnings in the International segment will be unfavorably impacted beginning in the second quarter of 2022 and that we may recognize a loss upon the completion of a transition.tax.

3230

Operating Results By Segment

(Dollars in millions)

First Quarter
2022 2021 % Change
Revenue from Services:
Professional & Industrial $ 444.3 $ 467.6 (5.0) %
Science, Engineering & Technology 317.1 254.7 24.5
Education 173.4 111.6 55.4
Outsourcing & Consulting 109.1 99.3 9.8
International 252.8 272.9 (7.4)
Less: Intersegment revenue (0.3) (0.2) 60.3
Consolidated Total $ 1,296.4 $ 1,205.9 7.5 %


	First Quarter
	2023		2022		% Change
Revenue from Services:
Professional & Industrial	$	389.8	$	444.3	(12.3)	%
Science, Engineering & Technology	306.4		317.1		(3.4)
Education	249.4		173.4		43.9
Outsourcing & Consulting	114.6		109.1		5.0
International	211.8		252.8		(16.2)
Less: Intersegment revenue	(3.7)		(0.3)		NM
Consolidated Total	$	1,268.3	$	1,296.4	(2.2)	%

First Quarter Results

Professional & Industrial revenue from services decreased ~~5.0%~~12.3%. The decrease was due primarily to a ~~9.9%~~18.9% decline in revenue from ~~outcome-based services due to lower demand for our call center specialty, partially offset by growth in other specialties. Revenue from~~ staffing services ~~also declined by 3.5%~~ resulting from lower hours volume, partially offset by higher bill rates. Revenue from outcome-based services increased by 14.9% as all specialties experienced an increase in demand.

Science, Engineering & Technology revenue from services ~~increased 24.5% on a reported basis, which includes revenues from the acquisition of Softworld in the second quarter of 2021. On an organic basis, the~~decreased 3.4%. The revenue ~~growth was 9.6%, which~~decline was driven by ~~increases~~declines in ~~our outcome-based services as well as increases in bill rates and permanent placement income~~hours volume in our staffing ~~business.~~specialties and lower permanent placement fees, partially offset by higher outcome-based services revenue and higher bill rates in our staffing specialties.

Education revenue from services increased ~~55.4%~~43.9%, reflecting ~~the return to in-school instruction, resulting in~~an increased demand for our services as compared to a year ago, as well as the impact of the acquisition of PTS in May 2022. On an organic basis, revenue increased 34.8% reflecting the impact of higher fill rates, new customer wins and an increased ~~fill rate of the~~ demand offrom existing customers.

Outsourcing & Consulting revenue from services increased ~~9.8% due primarily to strong demand for RPO services coupled with~~5.0% on a reported basis, which includes the revenue from the acquisition of RocketPower in March 2022. On an organic basis, revenue increased 2.6% in nominal currency and 4.0% in constant currency, as revenue growth in higher margin RPO and MSP products were partially offset by declines in PPO revenue.

International revenue from services decreased ~~7.4%~~16.2% on a reported basis and decreased ~~1.0%~~13.8% in constant currency. The decrease was primarily the result of the sale of our Russian operations in July 2022. Excluding this impact, revenue ~~declines in Mexico due to the impact of legislation enacted in the third quarter of 2021, which placed restrictions on the staffing industry. Revenue in Europe increased 1.7%~~decreased 5.1% on a reported basis and ~~increased 9.0%~~2.3% in constant currency, ~~with~~reflecting overall lower hours volume primarily in France and Switzerland, partially offset by revenue growth in ~~most geographies.~~Mexico, Portugal and Germany.

3331

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter
2022 2021 Change
Gross Profit:
Professional & Industrial $ 83.1 $ 75.9 9.4 %
Science, Engineering & Technology 73.8 53.2 38.8
Education 26.6 17.2 54.8
Outsourcing & Consulting 37.3 31.3 19.0
International 37.8 35.7 6.0
Consolidated Total $ 258.6 $ 213.3 21.2 %
Gross Profit Rate:
Professional & Industrial 18.7 % 16.2 % 2.5 pts.
Science, Engineering & Technology 23.3 20.9 2.4
Education 15.3 15.4 (0.1)
Outsourcing & Consulting 34.2 31.5 2.7
International 15.0 13.1 1.9
Consolidated Total 19.9 % 17.7 % 2.2 pts.


	First Quarter
	2023			2022			Change
Gross Profit:
Professional & Industrial	$	69.8		$	83.1		(15.9)	%
Science, Engineering & Technology	71.3			73.8			(3.5)
Education	39.3			26.6			47.8
Outsourcing & Consulting	41.6			37.3			11.4
International	32.1			37.8			(14.9)

Consolidated Total	$	254.1		$	258.6		(1.7)	%

Gross Profit Rate:
Professional & Industrial	17.9		%	18.7		%	(0.8)	pts.
Science, Engineering & Technology	23.3			23.3			—
Education	15.8			15.3			0.5
Outsourcing & Consulting	36.3			34.2			2.1
International	15.2			15.0			0.2
Consolidated Total	20.0		%	19.9		%	0.1	pts.

First Quarter Results

Gross profit for the Professional & Industrial segment ~~increased due to an increase~~decreased on lower revenue volume and a decrease in the gross profit ~~rate, partially offset by lower revenue volume.~~rate. In comparison to the prior year, the gross profit rate ~~increased 250~~decreased 80 basis points. This ~~increase~~decrease reflects ~~higher~~lower permanent placement ~~income, including one-time conversion fees for staffing talent hired directly by a large customer, lower~~revenues and higher employee-related costs, ~~and~~partially offset by improved ~~business~~product mix.

The Science, Engineering & Technology gross profit ~~increased~~decreased on ~~higher~~lower revenue ~~volume and an increase in the gross profit rate.~~volume. The gross profit rate ~~increased 240 basis points due~~was flat to ~~increased~~prior year. Improved product mix was offset by lower permanent placement ~~income~~revenues and ~~improved specialty mix, including the acquisition of Softworld which generates higher gross profit margins, partially offset by~~ higher employee-related costs.

Gross profit for the Education segment increased on higher revenue ~~volume.~~volume, combined with an increase in the gross profit rate. The gross profit rate ~~decreased 10~~increased 50 basis points due primarily to ~~unfavorable customer mix,~~the acquisition of PTS which generates higher margins, partially offset by ~~higher permanent placement income and lower employee-related costs.~~unfavorable customer mix.

The Outsourcing & Consulting gross profit increased on higher revenue volume, combined with an increase in the gross profit rate. The gross profit rate increased ~~270~~210 basis points primarily due to a change in product mix within this segment. Growth in RPO, including the acquisition of RocketPower, and MSP with higher margins, was coupled with decreased revenues in our PPO product, which generates lower profit margins.

International gross profit ~~increased due to an increase~~decreased 14.9% on a reported basis and 12.2% in constant currency. The decrease was primarily the ~~gross profit rate, partially offset by~~result of the sale of our Russian operations in July 2022, and lower revenue ~~volume. In comparison to the prior year, the gross profit rate increased 190 basis points primarily due to customer mix~~volume in France and ~~higher permanent placement income.~~

Switzerland.

3432

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter
2022 2021 % Change
SG&A Expenses:
Professional & Industrial $ 71.4 $ 69.4 2.8 %
Science, Engineering & Technology 53.2 35.7 49.0
Education 18.6 14.2 31.2
Outsourcing & Consulting 34.3 28.4 20.5
International 33.2 33.1 0.4
Corporate expenses 24.5 21.9 11.9
Consolidated Total $ 235.2 $ 202.7 16.0 %


	First Quarter
	2023		2022		% Change
SG&A Expenses:
Professional & Industrial	$	67.5	$	71.4	(5.4)	%
Science, Engineering & Technology	52.8		53.2		(0.9)
Education	23.8		18.6		28.2
Outsourcing & Consulting	40.5		34.3		18.0
International	32.4		33.2		(2.3)

Corporate expenses	26.4		25.4		4.3
Consolidated Total	$	243.4	$	236.1	3.1	%

First Quarter Results

Total SG&A expenses in Professional & Industrial ~~increased 2.8%~~decreased 5.4% from the prior year, or 9.2% excluding restructuring charges of $3.0 million. The decrease excluding restructuring charges is primarily due to ~~higher~~cost management in response to lower revenue volume compared to the prior year as well as lower performance-based incentive compensation expenses.

Total SG&A expenses in Science, Engineering & Technology decreased 0.9% from the prior year, primarily due to lower performance-based incentive compensation expenses.

Total SG&A expenses in Education increased ~~49.0%~~28.2% from the prior year and includes the impact of the acquisition of ~~Softworld~~PTS in May 2022. Excluding the ~~second quarter~~impact of ~~2021. On an organic basis,~~the PTS acquisition, SG&A expenses increased ~~20.4%~~17.0% from the prior ~~year. The increase in organic SG&A expenses are~~year, due primarily to higher ~~performance-based incentive compensation expense and higher~~ salary-related ~~costs from increasing headcount.~~

~~Total SG&A expenses in Education increased 31.2% from the prior year, primarily due to higher salary related~~ expenses as headcount has increased as revenues have ~~grown.~~grown as well as increased performance-based incentive compensation expenses.

Total SG&A expenses in Outsourcing & Consulting increased ~~20.5%~~18.0% from the prior year and includes the impact of the acquisition of RocketPower in March 2022. Excluding the impact of the RocketPower acquisition, SG&A expenses increased 9.2% from the prior year, primarily due to higher salary-related expenses as a result of headcount related to higher RPO and ~~salary increases.~~MSP revenue.

Total SG&A expenses in International ~~increased 0.4%~~decreased 2.3% on a reported basis and increased ~~6.6%~~0.5% on a constant currency basis. ~~This~~The constant currency increase was mainly due to higher salary-related expenses, ~~driven~~partially offset by ~~an increase~~the impact of the sale of our Russian operations in ~~headcount, reflecting improving revenue in Europe.~~July 2022.

Corporate expenses increased ~~11.9%~~4.3% compared to the prior year primarily due to ~~higher performance-based incentive compensation expense.~~litigation-related costs.

3533

Operating Results By Segment (continued)

(Dollars in millions)

First Quarter
2022 2021 % Change
Earnings (Loss) from Operations:
Professional & Industrial $ 11.7 $ 6.5 79.6 %
Science, Engineering & Technology 20.6 17.5 18.0
Education 8.0 3.0 166.1
Outsourcing & Consulting 3.0 2.9 4.3
International 4.6 2.6 75.2
Corporate (24.5) (21.9) (11.9)
Consolidated Total $ 23.4 $ 10.6 120.5 %


	First Quarter
	2023		2022		% Change
Earnings (Loss) from Operations:
Professional & Industrial	$	2.3	$	11.7	(80.0)	%
Science, Engineering & Technology	18.5		20.6		(10.2)
Education	15.5		8.0		93.6
Outsourcing & Consulting	1.1		3.0		(63.7)
International	(0.3)		4.6		NM
Corporate	(26.4)		(25.4)		(4.3)

Gain on sale of assets	—		0.9		NM
Consolidated Total	$	10.7	$	23.4	(54.4)	%

First Quarter Results

Professional & Industrial reported earnings of ~~$11.7~~$2.3 million for the quarter, ~~a 79.6% increase~~an 80.0% decrease from a year ago. The ~~increase~~decrease in earnings was primarily due to ~~improved~~lower revenue and gross profit, ~~including conversion fees related to a large customer.~~partially offset by lower SG&A expense.

Science, Engineering & Technology reported earnings of ~~$20.6~~$18.5 million for the quarter, ~~an 18.0% increase~~a 10.2% decrease from a year ago. The ~~increase~~decrease in earnings was primarily due to ~~the impact of the Softworld acquisition. Increases~~declines in ~~organic staffing~~revenues and ~~permanent placement revenues~~gross profit in most of our specialties within the SET business unit that were partially offset by ~~increases in certain expenses, including those related to additional full-time employees and increased performance-based incentive compensation.~~lower expenses.

Education reported earnings of ~~$8.0~~$15.5 million for the quarter, compared to earnings of ~~$3.0~~$8.0 million a year ago. The change was primarily due to the increase in revenue ~~reflecting the return to in-school instruction,~~ resulting ~~in increased~~from improved demand for our services as compared to a year ago, coupled with good ~~cost management.~~operating leverage. 2023 results also include earnings of $2.7 million from PTS acquired in May 2022.

Outsourcing & Consulting reported earnings of $3.0 million for the quarter, a 4.3% increase from a year ago. The increase in earnings was primarily due to the impact of increased revenue volumes within the segment, partially offset by increased costs related to additional full-time employees.

~~International reported earnings of $4.6~~$1.1 million for the quarter, compared to earnings of $3.0 million a year ago, due primarily to increasing costs, partially offset by higher revenue and gross profit. 2023 results also include a loss of $2.6 million from RocketPower acquired in March 2022.

International reported a loss of $0.3 million for the quarter, compared to earnings of $4.6 million a year ago. The ~~increase~~decrease in earnings was primarily due to ~~improving revenue~~lower hours volume in ~~Europe.~~higher margin countries, higher salary-related expenses and the sale of our Russian operations in July 2022.

3634

Financial Condition

Historically, we have financed our operations through cash generated by operating activities and access to credit markets. Our working capital requirements are primarily generated from temporary employee payroll, which is generally paid weekly or monthly, and customer accounts receivable, which is generally outstanding for longer periods. Since receipts from customers lag payroll to temporary employees, working capital requirements increase substantially in periods of growth. Conversely, when economic activity slows, working capital requirements may substantially decrease. This may result in an increase in our operating cash flows; however, any such increase would not be sustainable in the event that an economic downturn continued for an extended period. The impact of the COVID-19 crisis on our business began in March 2020. While we have yet to return to pre-crisis revenue levels, we have experienced improving demand for our services and expect a sustained recovery throughout 2022.

As highlighted in the consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: cash, cash equivalents and restricted cash, operating activities, investing activities and financing activities.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash, totaled ~~$238.1~~$121.1 million at the end of the first quarter of ~~2022~~2023 and ~~$119.5~~ $162.4 million at year-end ~~2021.~~2022. As further described below, we used ~~$106.1~~$13.5 million of cash for operating activities, ~~generated $257.1~~used $2.2 million of cash ~~from~~for investing activities and used ~~$30.7~~$24.8 million of cash for financing activities.

Operating Activities

In the first three months of ~~2022,~~2023, we used ~~$106.1~~$13.5 million of net cash for operating activities, as compared to ~~generating $10.5~~using $106.1 million in the first three months of ~~2021,~~2022, primarily due to ~~increased~~decreased working capital ~~requirements as revenue levels continue to recover or surpass pre-COVID levels~~requirements. Accounts receivable have decreased in ~~certain segments and~~the first quarter of 2023 as a result of lower revenue and lower DSO. In addition, we paid $29.5 million related to deferred U.S. payroll taxes in ~~increasing days sales outstanding due to customer payment terms.~~the first quarter of 2022.

Trade accounts receivable totaled ~~$1.5~~$1.4 billion at the end of the first quarter of ~~2022.~~2023. Global DSO was 6259 days at the end of the first quarter of ~~2022, 60~~2023, 61 days at year-end ~~2021~~2022 and 6062 days at the end of the first quarter of ~~2021.~~2022.

Our working capital position (total current assets less total current liabilities) was ~~$630.0~~$581.6 million at the end of the first quarter of ~~2022, an increase~~2023, a decrease of ~~$136.5~~$4.8 million from year-end ~~2021.~~2022. Excluding the ~~increase~~decrease in cash, working capital increased ~~$18.9~~$37.2 million from year-end ~~2021.~~2022. The current ratio (total current assets divided by total current liabilities) was ~~1.5~~1.6 at the end of the first quarter of ~~2022~~2023 and 1.5 at year-end ~~2021.~~2022.

Investing Activities

In the first three months of ~~2022,~~2023, we ~~generated $257.1~~used $2.2 million of cash ~~from~~for investing activities, as compared to generating ~~$7.9~~$257.1 million in the first three months of 2022. Included in cash used for investing activities in the first three months of 2023 is $4.4 million of cash used for capital expenditures primarily related to technology programs and IT infrastructure, partially offset by $2.0 million for the receipt of the final payment in connection with an investment that was sold in 2021. Included in cash generated from investing activities in the first three months of 2022 is $196.9 million of proceeds from the sale of the investment in Persol Holdings and $119.5 million of proceeds from the sale of almost all of the Company's shares in our equity investment in PersolKelly Pte. Ltd. This was partially offset by $58.3 million of cash used for the acquisition of RocketPower in March 2022, net of cash received. ~~Included in~~

Financing Activities

We used $24.8 million of cash ~~generated from investing~~for financing activities in the first three months of ~~2021 is $10.4 million of proceeds from company-owned life insurance.~~

~~Financing Activities~~

~~In the first three months of 2022, we used $30.7 million of cash for financing activities,~~2023, as compared to ~~generating $0.1~~using $30.7 million in the first three months of ~~2021.~~2022. The change in cash used for financing activities was primarily related to the year-over-year change in the buyback of the Company's common shares and the year-over-year change in dividend payments. In the first quarter of 2023, the buyback of $18.3 million represents repurchases of the Company's Class A common stock as part of the share repurchase program. In the first quarter of 2022, the $27.2 million represents the buyback of the Company's common shares held by Persol ~~Holdings for $27.2 million~~Holdings. Dividends paid per common share were $0.075 in the first three months of ~~2022~~2023 and ~~the year-over-year change in dividend payments. Dividends paid per common share were~~ $0.05 in the first three months of ~~2022 and $0.00 in first three months of 2021.~~2022.

Changes in net cash used for financing activities are also impacted by short-term borrowing activities. There was no debt at the end of the first quarter of 2023 and debt totaled $0.7 million at year-end 2022, which represented local borrowings. The ~~change~~changes in short-term borrowings in the first three months of 2023 and 2022 ~~and the first three months of 2021 was~~were primarily due to payments and borrowings on local lines of ~~credit. Debt totaled $0.2 million at the end of the first quarter of 2022, which represented local borrowings, compared to no debt at year-end 2021.~~ credit, respectively.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 0.0% at the end of the first quarter of ~~2022~~2023 and 0.1% at year-end ~~2021.~~

2022.

3735

New Accounting Pronouncements

~~See New Accounting Pronouncements footnote in the Notes to Consolidated Financial Statements~~Management has evaluated recently issued accounting pronouncements and does not believe that any of ~~this Quarterly Report~~these pronouncements will have a significant impact on ~~Form 10-Q for a description of new accounting pronouncements.~~our consolidated financial statements and related disclosures.

Critical Accounting Estimates

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K.

Contractual Obligations and Commercial Commitments

There were no significant changes to our contractual obligations and commercial commitments from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K. We have no material unrecorded commitments, losses, contingencies or guarantees associated with any related parties or unconsolidated entities.

38Liquidity

~~Liquidity~~

We expect to meet our ongoing short-term and long-term cash requirements principally through cash generated from operations, available cash and equivalents, securitization of customer receivables and committed unused credit facilities. Additional funding sources could include ~~asset-based lending,~~ 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. During 2020, cash generated from operations was supplemented by the deferral of payments of the Company's U.S. social security taxes as allowed by the Coronavirus Aid, Relief, and Economic Security Act. The remaining deferrals of $57.6 million are required to be repaid by January 3, 2023.

We utilize intercompany loans, dividends, capital contributions and redemptions to effectively manage our cash on a global basis. 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 first quarter of ~~2022,~~2023, these reviews have not resulted in specific plans to repatriate ~~foreign subsidiary cash.~~a majority of our international cash balances. We expect much of our international cash will be needed to fund working capital growth in our local operations as working capital needs, primarily trade accounts receivable, increase during periods of growth. A cash pooling arrangement (the “Cash Pool”) is available to fund general corporate needs internationally. The Cash Pool is a set of cash accounts maintained with a single bank that must, as a whole, maintain at least a zero balance; individual accounts may be positive or negative. This allows countries with excess cash to invest and countries with cash needs to utilize the excess cash.

As of the first quarter of ~~2022,~~2023, we had $200.0 million of available capacity on our $200.0 million revolving credit facility and ~~$97.0~~$100.6 million of available capacity on our $150.0 million securitization facility. The securitization facility carried no short-term borrowings and ~~$53.0~~$49.4 million of standby letters of credit related to workers’ compensation. 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. While we believe these facilities will cover our working capital needs over the short term, if economic conditions or operating results change significantly from our current expectations, we may need to seek additional sources of funds. As of the end of the first quarter of ~~2022,~~2023, we met the debt covenants related to our revolving credit facility and securitization facility.

We have historically managed our cash and debt closely to optimize our capital structure. As our cash balances build, we tend to pay down debt as appropriate. Conversely, when working capital needs grow, we tend to use corporate cash and cash available in the Cash Pool first, and then access our borrowing facilities. We expect our working capital requirements to increase ~~over the next several quarters~~ if demand for our services ~~continues~~increases. We also expect to ~~increase and to pay~~use $23.9 million of cash for repurchases of the ~~deferred payroll tax balances, of which $29.5 million was paid on January 3, 2022 and another $57.6 million is due on January 3, 2023.~~

In February 2022, we completed transactions to monetize a substantial portion of our assets in the Asia-Pacific region which will allow us to strategically redeploy resources to accelerate our growth. Specifically, we unwound our cross-shareholding arrangement with Persol Holdings and reduced our ownership interest in PersolKelly, our APAC joint venture. We sold our investment in Persol HoldingsCompany's Class A common stock ~~in an open-market transaction. We repurchased the 1.6 million Kelly Class A and 1,475 Kelly Class B common shares owned by Persol Holdings at a price based on the last five trading days prior~~during 2023 pursuant to the transaction. We sold almost all of our ownership interest in PersolKelly to our joint venture partner. The payment of income taxes due as a result of the sale of the Persol Holdings shares of approximately $50$50.0 million ~~will be made~~plan approved by the ~~end~~Company's board of directors on November 9, 2022.

We monitor the credit ratings of our ~~major~~ banking partners on a regular basis and have regular discussions with them. Based on our reviews and communications, we believe the risk of one or more of our banks not being able to honor commitments is insignificant. We also review the ratings and holdings of our money market funds and other investment vehicles regularly to ensure high credit quality and access to our invested cash.

3936

Forward-Looking Statements

Certain statements contained in this report and in our investor conference call related to these results are “forward-looking” statements within the meaning of the applicable securities laws and regulations. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or variations or negatives thereof or by similar or comparable words or phrases. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by us that may be provided by management, including oral statements or other written materials released to the public, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about our Company and economic and market factors in the countries in which we do business, among other things. These statements are not guarantees of future performance, and we have no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changing market and economic conditions, the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers’ compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our ~~brand,~~brands, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with certain equity investments, including with strategic partners, risks associated with conducting business in foreign countries, including foreign currency fluctuations, risks associated with violations of ~~anticorruption,~~anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this report and in our other filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Certain risk factors are discussed more fully under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.

4037

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to foreign currency risk primarily related to our foreign subsidiaries. Exchange rates impact the U.S. dollar value of our reported earnings, our investments in and held by subsidiaries, local currency denominated borrowings and intercompany transactions with and between subsidiaries. Our foreign subsidiaries primarily derive revenues and incur expenses within a single country and currency which, as a result, provide a natural hedge against currency risks in connection with normal business operations. Accordingly, changes in foreign currency rates vs. the U.S. dollar, euro or Swiss franc generally do not impact local cash flows. Intercompany transactions which create foreign currency risk include services, royalties, loans, contributions and distributions.

In addition, we are exposed to interest rate risks through our use of the multi-currency line of credit and other borrowings. A hypothetical fluctuation of 10% of market interest rates would not have had a material impact on ~~2022~~2023 first quarter earnings.

We are exposed to market risk as a result of our obligation to pay benefits under our nonqualified deferred compensation plan and our related investments in company-owned variable universal life insurance policies. The obligation to employees increases and decreases based on movements in the equity and debt markets. The investments in mutual funds, as part of the Company-owned variable universal life insurance policies, are designed to mitigate, but not eliminate, this risk with offsetting gains and losses.

Item 4. Controls and Procedures.

Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective at a reasonable assurance level.

On March 7, 2022, we completed the acquisition of RocketPower (see Acquisitions footnote). Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. Accordingly, we intend to exclude the acquired RocketPower business from our assessment and report on internal control over financial reporting for the year ending January 1, 2023. We are in the process of integrating RocketPower into our system of internal control over financial reporting.

~~Except as noted above, there~~There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

4138

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is continuously engaged in litigation, threatened ligation, claims, audits or investigations arising in the ordinary course of its business, such as matters alleging employment discrimination, wage and hour violations, claims for indemnification or liability, violations of privacy rights, anti-competition regulations, commercial and contractual disputes, and tax-related matters which could result in a material adverse outcome. We record accruals for loss contingencies when we believe it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Such accruals are recorded in accounts payable and accrued liabilities and in accrued workers’ compensation and other claims in the consolidated balance sheet. The Company maintains insurance coverage which may cover certain claims. When claims exceed the applicable policy deductible and realization of recovery of the claim from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount, which are included in prepaid expenses and other current assets and other assets in the consolidated balance sheet.

While the outcome of these matters currently pending cannot be predicted with certainty, we believe that the resolution of any such proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.

In January 2018, the Hungarian Competition Authority initiated proceedings against ~~the Company, along with~~ a local industry trade association and its members, due to alleged infringement of national competition regulations. The Authority announced its decision on December 18, 2020, levying a fine against the trade association with joint and several secondary ~~liabilities~~liability placed on the 20 member companies. Our apportioned secondary liability as a member company is approximately $300,000. The matter is still pending. Certain member companies exercised their right to challenge the decision, which could impact the apportionment. The Company does not believe that resolution of this matter will have a material adverse effect upon the Company’s competitive position, results of operations, cash flows or financial position.

Item 1A. Risk Factors.

There have been no material changes in the Company's risk factors previously disclosed in Part I, Item 1A of the Company's Annual Report filed on Form 10-K for the year ended January ~~2, 2022.~~1, 2023.

4239

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

(a) Sales of Equity Securities Not Registered Under the Securities Exchange Act of 1933

None.

During the first quarter of ~~2022,~~2023, we reacquired shares of our common stock as follows:
Period Total Number
of Shares
(or Units)
Purchased
(1)
Average
Price Paid
per Share
(or Unit)
Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs (2)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under the
Plans or Programs
(in millions of dollars)
January 3, 2022 through February 6, 2022 1,881 $ 18.39 — $ —
February 7, 2022 through March 6, 2022 34,757 20.78 1,577,614 $ —
March 7, 2022 through April 3, 2022 3,496 21.38 — $ —
Total 40,134 $ 20.72 1,577,614


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs (in millions of dollars)
January 2, 2023 through February 5, 2023	314,017	$	17.35	312,514	$	36.8

February 6, 2023 through March 5, 2023	306,582	17.30		245,750	$	32.5

March 6, 2023 through April 2, 2023	544,713	16.09		541,464	$	23.9

Total	1,165,312	$	16.75	1,099,728

~~(1)~~On November 9, 2022, the Company's board of directors approved a plan for the Company to repurchase shares of its Class A common stock with a market value not to exceed $50.0 million through transactions executed in the open market within one year. We may also reacquire shares outside the program in connection with shares sold to cover employee tax withholdings due upon the vesting of restricted stock ~~and performance shares~~ held by employees. Accordingly, ~~40,134~~65,584 shares were reacquired in transactions outside the repurchase program during the ~~quarter.~~

(2) On February 14, 2022, the Board of Directors of the Company authorized a stock repurchase from Persol Holdings as part of a publicly announced plan between the Company and Persol Holdings to mutually discontinue their cross-shareholding. 1,576,139 shares of the Company's Class A common stock and 1,475 shares of its Class B common stock were repurchased in an open-market transaction on February 14, 2022 and subsequently retired and returned to unauthorized status.Company’s first quarter 2023.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

See Index to Exhibits required by Item 601, Regulation S-K, set forth on page 4441 of this filing.

4340

INDEX TO EXHIBITS

REQUIRED BY ITEM 601,

REGULATION S-K


Exhibit No.						Description
10.8*						~~Employment Agreement between Kelly Services Management Sarl and Olivier Thirot.~~

31.1						Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

31.2						Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended.

32.1						Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File (embedded within the Inline XBRL document).

*Indicates a management contract or compensatory plan or arrangement.

4441

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			KELLY SERVICES, INC.

Date: May ~~12, 2022~~11, 2023

			/s/ Olivier G. Thirot
			Olivier G. Thirot

			Executive Vice President and
			Chief Financial Officer
			(Principal Financial Officer)


Date: May ~~12, 2022~~11, 2023

			/s/ Laura S. Lockhart
			Laura S. Lockhart

			Vice President, Corporate Controller
			and Chief Accounting Officer
			(Principal Accounting Officer)

4542


	As of Year-End 2021		Additions to Goodwill		Impairment Adjustments		As of First Quarter-End 2022
	(In millions of dollars)
Science, Engineering & Technology	$	111.3	$	—	$	—	$	111.3
Education	3.5		—		—		3.5
Outsourcing & Consulting	—		41.0		—		41.0
Total	$	114.8	$	41.0	$	—	$	155.8