Kelly Services (KELYA) 8-K/ACompletion of Acquisition or Disposition of Assets

The Company’s condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying condensed consolidated financial statements include the accounts of MRP Topco, Inc., and its wholly owned subsidiaries, MRP Acquisition Co. Inc., MRP Holdco, Inc., Motion Recruitment Partners LLC, MRP Recruiting Inc., Motion Recruitment Partners Pty Ltd., Motion Recruitment Partners Limited, The Goal, and Matrix. All significant intercompany transactions have been eliminated in consolidation. The Marcy 31, 2024 Unaudited Condensed Consolidated Balance Sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report should be read in connection with our Annual Report for the year ended December 31, 2023, which includes all disclosures required by GAAP. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in our opinion, all the adjustments of a normal, recurring nature that are necessary for the fair statement of the Company's financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results expected for the full year or any other period.

From time to time, new accounting pronouncements are issued and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial statements upon adoption.

Property and equipment, net, consists of the following as of March 31, 2024 and December 31, 2023:

Total depreciation expense for the three months ended March 31, 2024 and 2023 was $669 and $520, respectively.

Our goodwill is associated with three reporting units and the Company evaluates goodwill for impairment at the reporting unit level. Our three reporting units are IT Staffing and Consulting, Federal IT Staffing, and Recruit Process Outsourcing and Managed Service Provider and the goodwill associated with each reporting unit as of March 31, 2024 and December 31, 2023 is as follows:

The Company’s intangible assets as of March 31, 2024 and December 31, 2023 are as follows:

Aggregate amortization expense for intangible assets was $269 and $269 for the three months ended March 31, 2024 and 2023, respectively.

Estimated future amortization expense of intangible assets recorded as of March 31, 2024 is as follows:

Accrued expenses consist of the following at March 31, 2024 and December 31, 2023:

On December 20, 2019, the Company entered into a new six-year term loan agreement (Term Loan) with an initial principal balance of $127,100.

On September 30, 2020, a waiver and additional amendment to the Term Loan was executed modifying certain requirements and increasing the commitment fee to 1% per annum through September 30, 2021.

The Term Loan is a Eurodollar loan. The loan bears interest at a rate per annum equal to the Eurodollar Rate determined for such day plus 6.75% in 2024 and 6.50% to 6.75% in 2023 depending on the Company’s total leverage ratio, as defined. The interest rate as of March 31, 2024 was 12.06% and at December 31, 2023, was 12.14%.

A third amendment to the credit agreement was made as of February 26, 2021 where the borrower requested the lenders to fund Delayed Draw Term loans in an aggregate principal amount equal to $7,500 in connection with the acquisition of The Goal.

A fourth amendment to the credit agreement was executed on December 23, 2021 in conjunction with the acquisition of Matrix for an additional term loan principal of $108,000.

The Term Loan, as amended, requires the Company to meet a total leverage ratio and establishes certain limitations on other indebtedness.

A total of $3,933 of debt issuance costs were incurred and capitalized in connection with both amendments. As of March 31, 2024 and December 31, 2023, the Company was in compliance with all covenants.

During the year ended December 31, 2023, the Company made quarterly principal payments of $606 for the quarters ended March 31, 2023 and June 30, 2023. As required under the term loan agreement, on a quarterly basis, the Company determines if it is required to make an excess cash flow payment, as defined. In August 2023, the Company was required to make an additional principal payment of $5,741 as a result of the excess cash flow payment calculation for quarter ended June 30, 2023. The additional principal payment exceeded all of the future minimum quarterly payments that are required under the term loan agreement. As such, the remaining balance of the term loan has been classified as long-term

debt as of December 31, 2023. The Company will continue to perform the required calculations to determine if future excess cash flow payments are required.

Long-term debt consisted of the following at March 31, 2024 and December 31 2023:

The remaining payments are as follows:

In connection with the December 20, 2019 Term Loan transaction, the Company entered into a new asset based revolving line of credit (LOC) for up to $20,000 to fund working capital requirements and business operating expenses. As of March 31, 2024 and December 31, 2023, the Company had $3,000 and $6,000 outstanding under this facility, respectively.

Interest rate cap agreements are used to manage interest rate risk associated with floating-rate borrowings under its Term Loan (Note 5). The interest rate cap (“Cap”) agreement utilized by the Company effectively modifies the Company’s exposure to interest rate risk by converting a portion of the Company’s floating-rate debt to a fixed rate basis through the expiration date of the interest rate cap agreement, thereby reducing the impact of interest rate changes on future interest expense.

On September 30, 2023, the Company purchased a Cap for a total of $315. The Cap has a strike rate of 5.75% and a maturity date of September 30, 2025. The fair value of the Cap at March 31, 2024 and December 31, 2023 was $49, which was determined by using observable inputs other than quoted market prices, a Level 2 measurement under ASC 820. The notional amount of the debt subject to the interest rate cap at March 31, 2024 and December 31, 2023 was $150,000.

Income tax (benefit) expense for the three months ended March 31, 2024 and 2023 was $(42) and $192 respectively.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has more than a 50% likelihood of being realized upon ultimate resolution. The Company will also recognize, if applicable, interest and penalties related to uncertain tax positions in income tax expense in the appropriate period.

The Company has reviewed its positions as of March 31, 2024 and December 31, 2023 and has concluded that no tax positions are uncertain and, therefore, no reserve for unrecognized tax liability is deemed necessary. No interest or penalties were incurred in the three months ended March 31, 2024 and the year ended December 31, 2023.

The Company is not currently under examination by any taxing jurisdiction.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following:

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is

greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company has identified six distinct revenue streams, as follows: Permanent placement, Contracting, RPO, MSP, Professional Services and Telecom. The Company recognizes revenue at a point in time for Permanent placement (upon start date of the placed employee) and over time for Contracting, RPO, Professional Services, Telecom and MSP services.

From time to time, the Company is a party to legal actions that management considers to be incidental to its business, and the outcome of which will not have a material impact on the consolidated financial statements.

Under the terms of the agreement, the Company paid a related party fee for various management services totaling $80 and $59 for the three months ended March 31, 2024 and 2023, respectively.

The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements on July 1, 2024.

On May 2, 2024, Kelly Services, Inc. (“Kelly”), MRP Merger Sub, Inc. (“Merger Sub”), a newly-formed, wholly-owned subsidiary of Kelly, the Company and Littlejohn Fund V, L.P. (“Littlejohn”), in its capacity as the securityholders’ representative, entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby Kelly would indirectly acquire 100% of the equity interests in the Company by way of a merger of Merger Sub with and into the Company, with the Company surviving the merger (the “Merger”). Littlejohn is the majority owner of the Company.

On May 31, 2024 the merger was completed for a cash purchase price of $425 million. In addition, further cash consideration of up to $60 million may be due in the second quarter of 2025 if certain conditions are satisfied during an earn-out period ending on March 31, 2025.