Kelly Services (KELYA) 10 Aug 232023 Q2 Earnings call transcript

Good morning and welcome to Kelly Services' Second Quarter Earnings Conference Call. All parties will be in a listen-only mode until the question-and-answer session of the call. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. A second quarter webcast presentation is also available on Kelly's website for this morning's call.

to meeting like host, to now Mr. would turn over the your I and Quigley, CEO. Peter President ahead. go Please,

Thank you, everyone, call. Lois. Hello, quarter Kelly's conference second and welcome to

we safe through be Before in walk which found materials. language, can our presentation our I'll begin, harbor you

made comments refer the comments Please our Q&A from about our this call, for we those differ risk and materially made future future performance. obligation on for suggested have description any may reminder, SEC including forward-looking performance. our include a to during As statements could a call. no by statements filings the factors expectations update the this that company's Actual to of the could influence results actual

reported an to an our items in into and Discussion today of In give basis designed our adjusted of basis. operations. on References operations. organic the XXXX will during addition, call, a certain adjusted on the non-GAAP trends sale in Russian insight data exclude to of growth financial are certain the measures impact discussion on be our discussed

is slide call using deck are our on on we today's the website. Finally, available

We cover lot have a today. to

Kelly's results to moment, details let's Financial May is update an started. initiative Chief margin announced Olivier on transformation We'll accelerate I EBITDA Officer improve the second and the designed So, in Thirot, that our get our our invite I'll time providing quarter. a In profitable to financial growth. spend for of provide rest on significantly the

we've for improvement our margin, expectations EBITDA aggressive Specifically, margin we on will forward. and review taken, their impact actions immediate the going our

turn Olivier. will the to I With over that, call

and good morning, Peter, Thank everybody. you,

the year points XX currency basis of revenue X.X% For the totaled billion, including X.X down second prior impact. favorable from XXXX, of quarter

X.X% for in revenues constant currency. were down quarter So the

impact the resulting Included basis decrease sale of operations our Russia. a XXX XXXX from in of is unfavorable points in that

on X.X% overall revenue our down currency was constant an year-over-year organic So basis.

rates. significant year-over-year education segment, improved customers, to due and growth, wins, look our PTS even revenue our report soften. fill growth continues the continues quarter anniversary up broader a customer revenue acquisition engine growth economic Overall existing net well, segment that perform the to we second education to trends As from by also in business significant continued new as XX% quarter. at our the we demand is double-digit demonstrates strong as

was In segment, the SET revenue X%. by down

the placement During were the Permanent demand for market in of and second deterioration declined also well specialty some continued demand specialties. continuation a we staffing, in our deterioration quarter, slower fees revenue a impacted a saw XX%. as growth as of outcome-based by

OCG and on currency. and In while declined revenue year-over-year year-over-year in X% our primarily our segment, declined a PPO, in were quarter. the in constant declines Industrial nearly were RPO flat. X% Revenue revenues basis X% Professional and MSP reported segment The in

by from Revenue declined the the The outcome-based declined our headwinds, for hiring. fees demand Placement these again of economic solutions. as noticeable continues strong product XX% business impacted which impact reflecting for by are this and value-added lower more solid segment. segment's XX%, growth staffing XX% be of was revenue to market delivered in full-time

on International basis. currency basis and XX% segment a a X% constant down in our Revenue was declined nominal on currency

basis. of on Russian declined constant operations, of organic an our sale impact the revenue currency Excluding the X%

Performance varied depending on geography and product.

offset For France. Italy, but by Portugal, currency an X% permanent quarter, Switzerland, placement constant organic was were up and in Mexico constant that the basis. had and U.K., we on in currency growth International's the revenue good fees declines than more

reported X.X% basis down on in currency. a was gross or X.X% constant Overall profit

Our last second gross XX.X% rate of profit the compared to quarter was XX.X% in year.

basis impacts basis The XX primary These employee-related continued by basis were fees point XX improvement higher point driver was mix. structural from declined XX rate impact by and business lower of GP of in Our unfavorable points. XX point partially costs. overall offset basis term

expenses SG&A million to of X.X charges for Expenses XXXX year-over-year our second related quarter basis. X.X% on include reported of the a ongoing were down transformation efforts.

quarter. So performance-based expenses related adjusted Contributing our the incentive to the on the to by efforts. constant levels see our positive declined lower impact we compensation decline early an also X.X% was lower in to currency and gross transformation basis, profit started of have

as underutilized comprehensive As million our Peter transformation-related recognize leased will in we early with will $X.X of also conjunction In related efforts, to taken on July, today. noted impairment space. additional costs shortly provide SG&A office we an transformation and in in more our our part have review QX. restructuring activities recognized we transformation of release non-cash we in additional actions information QX the charge

On basis, million X.X was quarter from XXXX. to X.X million for operations earnings in compared our a reported the of QX second

our the charges results XXXX of to transformation related activities. include our noted, $X As QX million

on operation So operations adjusted similar XXXX of X% the of related non-cash Russian also sale prior to reminder, XXXX of impact the July margin assets. was And sale XXXX a to a as were the adjusted earnings to EBITDA million from million from Kelly of charge some QX in $X.X QX impairment include XXXX $XX.X and as earnings gain the their well our of in operations as QX.

expense was tax million income the for of quarter benefit compared $X.X million. with Income our second $X.X tax XXXX

benefit. quarter $X.XX per for share $X.XX XXXX share finally, Our the was earnings XXXX. effective the per share was And to reported compared tax of second rate in quarter for per XX.X%

of and was Adjusted XXXX $X.XX of excluding adjusting of was EPS the XXXX assets, after the related net for net gain tax on charges tax, for the impairment and second sale charges, of asset the EPS transformation XXXX, $X.XX. quarter QX

by declined EPS basis, like-for-like a XX%. on So

balance the Now moving to sheet.

of of $XXX our our the at we with Consistent and compared capacity million debt. facilities the XXXX. to our capital of end balances, end in no ample and substantially XXXX million million to available available $XXX end deploy. of QX, With on second to have no credit cash debt As second the we as at continue of $XXX the totaled XXXX of ended the quarter, with end cash quarter the of

receivable on par of decrease with was As than year-over-year X% DSO year-over-year, a XXXX. of and second the and days XX decrease decreased Global a lower reflecting revenue. DSO quarter billion year-end accounts $X.X the XXXX in was two in days of as well as end QX,

For XXXX, $XX cash generated totals the second cash free free million. $XX million flow of now and flow we quarter of year-to-date

have we maintain continued quarter, as MSP and with receivable are A the lower funded portion receivables payables. related those are accounts favorable For trends. supplier to of programs DSO balances, result to our primarily of a

a flow has the impact lower on position So generation. net free limited cash

the November total million repurchases We XXX,XXX million million program date. share against last bringing to year. XX repurchase announced that to have of quarter, approximately to also the execute $XX.X we continued for $XX.X in in of Buying the program shares

back now, to And you, Peter.

Thanks for those details, Olivier.

important I'll outlook These amount provide we expectations and to impact differ exercise Olivier a than moment, invite as of cost transformation. a of note actions we've aggressive our half they quarter, that trends. demand actions part reflect the implemented second taken second-half date to our In in fundamentally the near-term the in XXXX. to more to It's reported our management cost-out to actions we response which first of from for the

our represent already and do marking recent necessary the a forward it, profitable journey are shift on to we producing Kelly they how we've to structural and The a accelerate growth do results. work within step we steps taken

back our turn Olivier. to more details balance of on For the the for expectations year, it I'll

Peter. Thank you,

half market assume continuation XXXX Our of the for of current second of expectations the current year, a the for conditions. rest

For second XX be of nominal half year-over-year. expect the XXXX, up to flat basis revenue we to points

ARPU. for our demand improvement, maintain the hiring, full-time to but in continue compress because benefit expect will XX% structural business We above continued GP permanent to softness fees mix rate and of of placement our we

expect in, second rate our XX be by XX.X%. basis down to points, XXXX All we about GP half

We same actions of taken additional the year. we be transformation-related expect reduction this year have taken reflects align with year. of the actions trends, second-half expect This down lower the X% to than cost adjusted optimization in workforce to and July, SG&A the actions we to expenses last complete to impact topline period X% throughout

in Given actions, to adjusted to the X%. margin of year expect reflecting of second about the exit these a half X.X% XXXX be of X.X%, the rate timing EBITDA we

adjusted a of X.X%. year expected topline we of basis full in our savings and to benefit full-year normalized the the of expect margin a with would perspective a EBITDA transformation-related range additional expectations, reach X.X% to For QX on

now comments. to over it back additional turn Peter And for I

insights, those for Olivier. Thanks

our adjusted improvement and and EBITDA and put has average that margin XXX to context, XXX between margin consider profit gross ability time convert X.X% Kelly's EBITDA significant revenue into approximately to X.X% basis long To improvement to earnings. mark at expectations been a our in a of very for X% points will

profitable And as Olivier the multiple efficiency our and They environment. on no are progress growth. current made driven the macroeconomic change we've sustained initiatives accelerate expectations drive by assume entirely to substantial to mentioned,

to management model with restructuring In that operations, business July, review announced the and and follow enhance efficiency These our consultant. strategic office the from operating actions effectiveness. transformation actions comprehensive by led optimize organizational further our world-class transformation a of company's functional support we

As terms secure our agility. the organizational that to going streamlined match agreements contracts and to renegotiated we part of increase structure We restructuring, complexity real reduce and our estate needs forward. supplier

align management performance of workforce exit in others to plan deliver a working. drive rate new made EBITDA implement These the to with our on decision to behaviors our structural a difficult among X% will to these sustain process revamped We reduction improvements, are ways we track that and resources actions our margin XXXX.

future, quickly necessary the switching EBITDA With further and rigorous established expenses provide structural serve of our financial clear the the forward. sustaining phase we've enterprise. are to to actions for creating and These gears made into these going expansion committed controls foundation our changes growth. designed are driving across longevity We're invest transformation ensure our visibility we margin resources to having measures that of headroom the to the the next in efficiency efficiencies as

and initiatives To underpin of that profitable as growth the initiatives term. over well end, scope our organic operations these undertaken and go-to-market we strategy, that have the will opportunities. systems growth The technology as inorganic several long our accelerate encompasses that

innovative and include to a identifying additional strategy developing to go-to-market with examples Committing our capture investments high-margin, accounts. inorganic of enterprise a wallet high-growth Some share offerings large greater with comprehensive targets.

focus these additive the will for structural are expected cash efficiency, expectations to incentive we've sharpening Aligning to drive The EBITDA flow. which their and our initiatives for basis are made initiatives to drive improvement. our programs be growth undertaking changes DSO free margin and the on we outcomes to

both third-quarter will call specialty top unlock conference our will you growth. initiatives in on bottom more Together, of accelerate and I they share November. potential and growth about strategy our details line earnings with the our

delivering more say past is Different XX Reflecting months terms in can the with is speed out I confidence The change on is precision within of impact. transformation and this importantly several than during our longer any and of that company. hypothetical. This years set than depth the the the transformation with Kelly different analysis, we most create of work, effort other results. with been the executing, we're which I've to no fundamentally

I'm And will far, forward while team propel determined achieved deliver pleased will work it strength the ahead. continue on past with months, our lies XX resilience collective our as Kelly us and our we've over success every the progress that important I has the indeed confidence have that ability journey last thus years. the to on the to of by be few

our As to and them to commitment and we shareholders Board of navigate this grateful and to I'm of remains the this period recognizing our of for value-creating customers steadfast. potential change Directors our together, company. talent

to the questions. you open now can call Lois,

from [Operator Research. Northcoast ahead. Instructions] is Our Mehta first Please from go Kartik question

to margins. on at be of will be When Just side. said EBITDA the that? normalized year transformation I rate end achieve just interested know coming exit timing expect out I'd the trying you you this do in the X. of

that So your are you sometime can margins in by EBITDA you achieve XXXX? normalized assuming

to is full-year it The Yes, transformation. rate I and we on the mean early we on are now to have especially assuming a economic again the top-line improvement in X.X trends environment. laid impact the current And X.X make the full-year current clear out this it's XXXX. of based GP basis

and pure that anything right? initiatives - does XXXX. was the and it our transformation, Peter impact which growth, efficiency really It's include So should about the point for talking be the Phase starting this basically about that of not is about X of

initiatives? that about to But these talked as that like businesses any there a de-emphasize you'd growth. you've all are result businesses you Obviously, might Yes. accelerate of

we efficiency transformation that the identified business no of to portfolio improve that the Well, of - continuously result we line and identified expect is each a have reviewing immediately. create we have to to benefits our ways But There ensure were see of are operational value. we've the to that activities. specific starting our as businesses opportunity in

June how of saw one maybe different Olivier. then if in - And than question, more kind last they were? July, they what Trends differ you

real Well, not we think change. the revenue are in to I similar see rate would of market say, what no at No would say, when I because the start QX surprise, what they would I I a beginning QX. QX, of in exit pretty say, is look conditions and were improvement, term the which to I in big

of have because seasonality say, quarter year. of education need QX, at to with high we peak low situation than in and is to only I about you I the basically specifically would would QX seasonality, QX the that when started thing QX in pretty course QX. So, you is of something season that know a And consider the course school with QX. that all mention again is because look you like of The similar

second expect to of standpoint, would FX the just, be year? this then And in an apologize, half I you neutral from FX

talking revenue impact of basis seen is a about HX flat points. far on I expectation what XXX Well, let's say have X.X, positive FX when nominal we based so was XXX, now between

you appreciate Thank I much. very it.

you. Thank

you. Thank

Thank from And the you. Noble Capital. from ahead. next Please, question Joe Gomes go is

Good Joe. morning,

Good morning.

trying from chosen got this redesigned to operating profitable head in looking was I - pardon aligns in and on there, you've just whole presentation operating program. specialties. your to I the model me, morning wrap around me, Page drive the our model to specialties, So, be the excuse growth in XX the chart my

segments the really the back went revenues trying presentations be same. to graph, of and it's one of says and looking here? I really the chart your same the then each is different to everything figure the I'm or And and exactly basically, older some at what out I'm and different same going

investments. I mean, kind of relatedly talk tech about more doing

over accomplish? what of to past years drive done a the needs order looking really what in more get tech done lot You've or investment to two tech to investment you're so,

both hasn't the but Joe, affected in I that July. market, changes which I'd we Well, way the also part structure the of - May going number in the while of in changed transformation in then our we're announced units, say of the terms and business as made to the

nice that the moved We're we structurally stopped. we've of taking reducing out closer and initiatives spans decision-making Non-core to decision we resources have targeted to work slow making way complexity have the layers business. and and

operating improved the not only - also substantial we expense we or So optimized achieve the savings, but have model.

technology, to AI ongoing, competitive, other going order it's or continue be that driven, is digital we stay to create to technology The differentiation. an in advances tools have to make in only market investments whether not but to

changing reception Our Helix game to solution in in state-of-the-art will we require technology. has our terms in That of like in that. customers' investment and OCG solutions practice continue been invest

for Okay, thanks that.

I getting quick program quarter is maybe workers about feedback. On program we that again, that your side the positive some and talked new said you unfolding? on last tech how digital point, you're your little a was at give wondering, update

work customers it's how their of operations, it would I lot that to in provides opportunities understanding I still we can increase review getting would benefit, from could and the a have that of with ancillary work digital number future their potentially would done if continues the worker but interest say, expressed generating help the how it's it's it's work. conversation say outcome customers because early, in and business they're customers based not of the around then our that benefit

last one And I Okay. if one from may. me,

the buybacks, I think, $XX million stab might was again approved in stuff. does How buyback You Board has the the understand said would that model? the $XX you you're quarter Is I are hi, that dollars and kind the now something think on - a million about program. you that But those that would looking continue into new be in maybe - of our at, should Olivier model? better does you unfolding to new fit invested or how

regularly. as with of let November repurchase Olivier are, future we capital of I'll we conversations share will is finish - that with Joe. the Yes. and but we're share part extent part have able program repurchase the announced - Board included where to conversations Board. to it, to the we our the the update going deployment last with We're the

$XX about program to I we when are mean, $XX you almost million, Yes, think where million date.

track, look program anniversary that on I think we're at to November. think program this in we when complete as I you this

year QX what it If we the have million last Persol we of have $XX you of combine with done with million. of amount shares a Cross in for shareholding, about $X.X bought total

number on impact reduction has shares. the of it of of EPS our a So the meaningful because

But Peter little it it are think whether was the is basis. But regular impact are that's Peter and focus Board say, something always meaningful, that steps focus next we as on million does capital we a is again detrimental discussing not that, of which our what where we're we and toward to overall reflect as or the bit to saying, out mentioned, million is and on said it the organic going allocation, to it's is need this is core on I our growth, capital growth. do it $XX with can our Because something we reality inorganic. our but not putting $XX a

get Okay, thanks I'll in you. Thank for that. queue. back

Thanks Joe.

you. Thank

Steinke Kevin Our go Research. is Barrington next question from from ahead. Please

morning. Kevin. Hi, Good

Good morning.

much the can get sense expectations Just speak as XXXX for revenue for a it. as wanted to you to

outlook? margin currency and to half to think X.X% just it for had You EBITDA XXXX, revenue what into modest directionally you what directionally, in expecting declines you're similar talked margin or about X.X% or a are flattish slight assuming constant second you for we of that XXXX should just current the XXXX about goal conditions, economic XXXX organic the incorporating

it's not right? current the it if margin, is of you transformation, with To would It we make trends whether gross our XXXX to about X.X% more X.X%. or say, margin full-year impact think X.X% - outlook, clear, to no go to or change, Yes. for we current revenue the is a X.X%

But is for margin full-year of if transformation EBITDA more an margin we assuming to well, rate us the have and in move X.X% the would again, it as basically, future. from well XXXX, it current to continues have this impact X.X%. environment to are outlook gross revenue, as we is the current The trend lead not this - similar X%

better just is XXXX, is about probably and are early thinking to for call waiting what a happen Now where not actively environment. to it's we too working going economic

As on should of to that specific help us efficiency, market of saying initiatives top have market the gain Peter a environment. in any without economic lot change growth was and we share assuming current

Okay.

Just I I thing margin, to a specific. mean you'd was bake have presumably revenue that weren't was but sort I that some expectation getting at, of you only understand the providing into

it clear. SG&A Yes, X.X% it Kevin. to to of XXXX, year to the I talking get margin was keeping impact very for what of take about then and X.X%, the adjusting transformation. of make we the based year expectation full second did annualized, the our mean on half basically was I GP the Basically, the our

basically going X.X And X.X. to if to that, Okay. do the get you you're

you. visibility in on expenses trajectory monitor slowly perfect. growing when XX, resource will control controls that something closely just what talking Page is in it margin very and changed that past, are more of of revenue where expenses. that expansion. they about or the just to about specifically assumed us start than mean, with Is a going leverage in as expenses helpful. And in clear talk and expansion. more margin transformation future the growing I'm That's your the you I to in wondering, more provide more future a again Okay, have if revenue out grow you able accelerate foundation being Thank EBITDA does slide future? maybe has here to growth this for your the transformation laying get establishing then

and to Yes, and we've governance to a the forward. primary outside going manage fundamental the that that back. to That's ensure actions those aggressive is outcome a our It expenses consultant in work the transformation the from and growth the we our control initiatives by come expense future definitely. create part make with is expenses line a made ensuring process transformation significant on don't and advantaged and done the of

need growing resources. Of in course, business we quickly, where add a when - we're to we're

disciplined producing are are other in We it's to and no-revenue going expenses that making with governance. example education, we're with adding tightly But because bring for that the very any be right now. other we we doing growing so sure kind resources certainly managing even strong very in resources of GP back, a

a back would sustainable I just transformation. add to

to is we is How better expect to convert to rate One conversion about the criteria KPI called the continue rates the was of much make incremental GP significantly we conversion past. the rate. growth what are is our can is have seen the XX% revenue. improve our XX%. to to of the in and transformation incremental use significantly that Part on going we Historically, than conversion sure in future of

Okay, great. That's very helpful.

seeing Just been thinking about kind that seeing. environment slowdown, slowdown terms here also if cutting terms new trends? more in what's mix the of the the it of, Is existing pipeline you demand that of provide back in the business seeing you're you've weighted current or customers towards

But taking would our are course pipeline. people headwinds just decision not to much a reflect making, people I overall Yes, in it's is would and the cases, the or cautiousness fluctuations we're of and pipeline in longer are industry and pipeline Kevin, that's on that in have that the cautiousness develop. hiring and to I is the just as planning is reflected their customers as leads you decisions. what volume - that there say the a demand seeing, And significant among impact depending overall, it necessarily customers demand say on feeling both for, some

thank you. Okay,

queue. in be about of second similar margins? growth in a margin think growth of jump the we kind terms quarterly terms there relatively Just in would - the cadence is lastly, the or half the of to of just rates that back and them the in expect progression in Is I'll should you

this is of and progress margin much outcome, should we first time path EBITDA more going Peter are gate quick And which November, to the of margin. the XXXX. transformation. speaking significant rate growth EBITDA on on improvement you are But at mentioned, inform in making to continue we as to as spend was be be least the leaving at beyond think of X%, going financially going saying, Peter this are exit to the I Well, we

Okay.

So when for like that you X% say X%, exit the for fourth does rate full quarter? imply

specific Yes, would December it's I QX. is a December use it, month. not because do to

to really exit is for So rate going be the entire QX.

All right, great, thank you.

Thank you.

Thank you, Kevin.

next Ramgopal Our from question Please Instructions] go [Operator is Mitra from ahead. Sidoti.

good taking Thanks for hi, Yes, the questions. morning.

Good morning.

Hi, for of good a morning. couple Olivier, first questions you.

in think your $X charge restructuring XQ about I was million.

year Just should half and of QX second even heading additional we QX, about - how it for we do 'XX? charges as into think the expect you the

On, charges. you transformation charges plus mean restructuring

Yes.

million further are something cost. but But and event we would know potentially mean, have initiatives if create transformation have of X.X QX I we of next July. in course you that million Yes. end to QX year. of costs the at the said underway of as trigger you of That because July in that's course, X.X comments, and of that my in seeing, disclosed - I we costs half in will first restructuring additional far already the have this

Yes.

quarter, a for benefit And thanks. about think remainder tax the you how tax we that know but in this had of Okay, should the terms I the year? of rate,

is I keen effective are teens. a impacting tax our to rate have on bit high to effective difficult say little forecast. I Yes, And of mid-teens time on would say rate. would I basis, explainable, it's tax mean, course, a normalized - some we but a really are we our of rate, that lot events tax

benefit QX, charge have some when providing program our tax There market some because conditions and of insurance program. inside upside. the basically where technically of investment tax are take I MSP and If effective good the got program, is through a basically why the and basically example rate basically of - is some are of XX.X, we've MSP deductible we

But that's something say rate. income until tax in basis, tax a to and a tax between a XX% benefit was effective why more reason got on our we've our the Basically, would - suggesting normalized credit. rate on basically QX basically XX% main I

mentioned And medium, near that great. in at, is Peter, that's now you're a longer you of term you to vision more transformation the continue that Okay, the but extensive light opportunities inorganic doing term? look something of in

the are willing areas develop companies little right market many inside we'll based and now that assets there's not cautious, term But Engineering, - is on continue Well, current or right OCG. the opportunities, market proactive of in high-quality that that the to to a as identified off pipeline Education, unit, inside inquiries. business on sidelines our Technology inside we've come we Science, that the think now

to we the high-quality, for high-margin, complement will continue add We initiatives the look to to assets that that organic portfolio growth high-growth, can we're undertaking.

taking Okay. Thanks for the questions.

Thank you.

Thank you.

Please go And we do Kevin ahead. have a from Steinke. follow-up question

Yes, thank you.

you initiative? you're is with have inorganic opportunities. with the on think mentioned more - you related targeting? might working even is on do about or about Continuing expect in transformation, follow-up. be more question the as transformation acquisitions part mean, what this types it businesses of opportunities, to seeking you're I aggressive changed As inorganic that strategic about one initiatives of to you Just the

commented, as Well, Olivier Kevin.

the more and don't high-margin, and to ample we in Again, properties I aggressively capacity number portfolio. past progress it think growth already companies the few of with more than We a pleased would high I have contribute. for aggressive, already we're look acquired we're will describe We've to years. that have as Kelly comparatively the acting continuing we're we're

attributes not don't and to I satisfy don't we're but - great going I settle deal we're and that with we're going for the don't to a acting urgency - overspend of not I that mentioned. properties excitement, but

Thank perfect. very That's you much. Okay.

Thanks, Kevin.

Thank you.

are And at time queue. Please further questions no there continue. this in

if are think end there questions, I the we no further can Lois, call.

your And for that Thank and for Thank ladies you. today. participation for using your conference AT&T Teleconference. conclude does and gentlemen, you

may disconnect. now You