Kelly Services(KELYA) - 2021 Q4 - Annual Report

PART I ITEM 1. BUSINESS. Kelly Services, Inc. is a global specialty talent solutions company founded in 1946, evolving from traditional office staffing to a portfolio of specialty services including scientific, engineering, IT, finance, and education staffing, as well as outcome-based services like recruitment outsourcing and payroll processing. The company operates across the Americas, Europe, and Asia-Pacific, serving a diverse customer base including 75 Fortune 100™ companies. In 2020, Kelly assigned nearly 370,000 temporary employees globally and realigned its business into five specialty segments to focus on high-demand, high-growth areas. - Kelly Services, Inc. was founded in 1946 and has evolved from traditional office staffing to a creative, insightful, and agile talent company delivering expertise in a portfolio of specialty services[13] - The company provides workforce solutions globally, serving 75 of the Fortune 100™ companies across the Americas, Europe, and Asia-Pacific regions[16] - In 2020, Kelly assigned nearly 370,000 temporary employees worldwide[17] - Kelly realigned its business into five specialty business units (Professional & Industrial, Science, Engineering & Technology, Education, Outsourcing & Consulting, International) in 2020 to focus on robust demand and growth opportunities[19][20][21][22] History and Development of Business The company, founded in 1946, pioneered the staffing industry and has since transitioned to a specialty talent company offering outcome-based services. - Founded in 1946 by William Russell Kelly, the company pioneered the staffing industry, initially empowering women in the workforce and later adapting to technological advancements by providing skills training[13] - Kelly has transitioned from a traditional office staffing business to a specialty talent company, increasingly offering outcome-based services with specialized talent and operational management[13] - The company is a leading provider in scientific, clinical, engineering, IT, finance, and K-12 educational staffing, also offering recruitment outsourcing, payroll processing, and talent advisory services[14] Geographic Breadth of Services Headquartered in the U.S., Kelly Services delivers workforce solutions globally, serving a broad customer base including Fortune 100™ companies. - Headquartered in the U.S., Kelly Services provides workforce solutions across the Americas, Europe, and Asia-Pacific regions[16] - The customer base includes 75 of the Fortune 100™ companies[16] - In 2020, approximately 370,000 temporary employees were assigned globally[17] Description of Business Segments In 2020, Kelly realigned its business into five specialty units to focus on high-demand, high-growth areas. - In 2020, Kelly realigned its business into five reportable specialty business units[19] - Professional & Industrial: Staffing, outcome-based, and direct-hire services for office, professional, light industrial, and contact center in the U.S. and Canada - Science, Engineering & Technology: Staffing, outcome-based, and direct-hire services for science, clinical research, engineering, IT, and telecommunications, primarily in the U.S. and Canada - Education: Staffing, direct-hire, and executive search for K-12, early childhood, and higher education markets in the U.S - Outsourcing & Consulting: Managed Service Provider (MSP), Recruitment Process Outsourcing (RPO), Payroll Process Outsourcing (PPO), and Talent Advisory Services globally - International: Staffing and direct-hire services in 15 countries in Europe and Mexico[20][21] - The new operating structure aims to focus on specialties with robust demand, promising growth opportunities, and areas where Kelly excels in attracting and placing talent[22] Business Objectives Kelly aims to positively impact people, businesses, and communities by connecting qualified talent and promoting an equitable labor market. - Kelly aims to positively impact people, businesses, and communities by connecting customers with qualified talent and adopting innovative business practices and technologies[24] - The company helps businesses utilize contingent labor, consultants, and project-based work, recognizing the growing independent workforce[24] - In 2020, Kelly launched its Equity@Work platform to address systemic barriers to employment and promote an equitable and accessible U.S. labor market[25] Business Operations Kelly's operations are influenced by seasonality, working capital needs, customer concentration, and a highly competitive, fragmented industry. - Kelly's quarterly operating results are affected by seasonality, with demand generally lower in the first quarter, except for the Education segment which sees lowest revenue in Q3 due to summer breaks[29] - Working capital requirements are driven by employee payroll (paid weekly/monthly) and customer accounts receivable (64 days DSO as of Jan 3, 2021), increasing during growth periods and decreasing during slowdowns[30] - In 2020, Kelly's largest 100 customers accounted for approximately 53% of total revenue, with the largest single customer contributing about 5%[31] - The workforce solutions industry is highly competitive and fragmented, with major competitors including Randstad, Adecco Group, ManpowerGroup Inc., Recruit Holdings, and Allegis Group[33] - Key success factors are quality of service, price, and breadth of service, including the ability to manage staffing suppliers[34] - As of January 3, 2021, Kelly employed approximately 7,100 internal staff members globally and placed nearly 370,000 individuals with customers in 2020, retaining employer of record responsibility for temporary talent[43][49] - The company is committed to competitive total rewards, an inclusive and diverse environment (majority female U.S. workforce), and community involvement through initiatives like Equity@Work[41][44][45][46] ITEM 1A. RISK FACTORS. Kelly Services faces significant risks from macroeconomic conditions, particularly the impact of the COVID-19 pandemic which caused substantial revenue declines and necessitated cost management actions. The company operates in a highly competitive and regulated industry, facing threats from technological advancements like automation and potential liabilities from employment-related claims. Strategic and operational risks include the successful execution of its business strategy, dependence on third parties, and integration of acquisitions. Global operations expose Kelly to currency fluctuations and anti-corruption laws. The company's capital structure is influenced by its controlling stockholder and specific financial covenants in debt facilities. - Demand for staffing services is significantly affected by general economic conditions, with downturns disproportionately impacting staffing industry volumes[56] - The COVID-19 pandemic negatively impacted economies and customer demand, leading to a substantial decline in Kelly's revenues in 2020, especially in the Education segment due to school closures[57][58][59] - Kelly implemented cost management actions in response to revenue declines, including compensation reductions, furloughs, hiring freezes, and dividend suspension, with some actions continuing into the future[60] - The staffing services market is highly competitive with low barriers to entry, and Kelly competes with larger firms and faces threats from online staffing platforms and technological advancements like automation[63][65] - The company is subject to extensive government regulation, which can restrict service offerings or increase costs through new benefit, licensing, or tax requirements[69] - Risks related to strategy and execution include the ability to develop new service offerings, potential loss of major customers, and additional risks from expanding into business process outsourcing and independent work services[73][74][75][80] - Global operations expose Kelly to risks such as currency exchange rate fluctuations, varying economic/political conditions, and compliance with anti-corruption laws[88][89][92] - Human capital risks include the ability to attract and retain qualified permanent and temporary personnel, and exposure to employment-related claims and lawsuits[93][94][95][96] - Cybersecurity and data privacy risks involve potential damage to data centers, failure to maintain privacy of information (e.g., GDPR, CCPA), and cyberattacks, which could lead to significant adverse consequences[97][98][99][100] - The Terence E. Adderley Revocable Trust K is the controlling stockholder, holding approximately 91.6% of Class B common stock, which is the only class with voting rights, allowing it to elect or remove all directors[101][102] - The company's bank credit facilities contain financial covenants (e.g., interest coverage, debt-to-total capital) that, if not met, could restrict financial and operating flexibility[111] [ITEM 1B. UNRESOLVED STAFF