Q4 2019 Earnings Call
Ladies and gentlemen, thank you very standing by welcome to the Kelly services fourth quarter 2019 conference call.
At this time all lines are in a listen only mode. Later, we'll conduct a question and answer session instructions will be given to you at that time.
If you need assistance during the call today, you My press Star and then zero and an operator will assist you offline and as a reminder, today's conference call is being recorded.
I would now like turn the conference over to Mr. Peter Quigley. Please go ahead.
Thank you Cynthia and good morning.
As well as some commentary for me as Kelly's new CEO regarding our current and future state.
Yes.
I will approach this is that I'm going to share. Some Q4 headlines then Olivier will walk us through Kelly's quarterly and full year performance and provide some details on our balance sheet and cash flow. All then share some significant some of the significant actions. We've taken in my first 120 days do address near term prior.
Parties, primarily around growth Olivier will follow up with our short term financial outlook, and finally, I'll turn to whats next including longer term initiatives that position Kelly for its future, including bold plans to accelerate or organic and importantly, our inorganic growth through M&A.
These plants some of which depart from how we approach things in the past.
Short in ambitious course to sustainable profitable growth as a specialty talent solutions provider.
I will also share some ideas about how we can create more clarity regarding our expectations for attracting the financial outcomes of that growth. As these plans are underway before we die then Olivier will take a moment to cover the safe Harbor language. Good morning, everyone. Let me remind you that any comments made during this call in.
Moving to queuing. They may include forward looking statements about our expectations for future performance Act why the reserves.
So materially from those <unk> bioequivalence, and we have no obligation to update the statements made on these calls please we fell to <unk>. She filings for a description of the risk factors that could trend the companys actual future hope that formats.
In addition, during the cold something that I wouldn't be discussed on the reported and then on that on an adjusted basis.
Discussion of items on an adjusted basis non-GAAP financial measures designed to give insight into certain trends in our operations and finally, please note that year over year comparisons are we presented in nominal currency, except our international noted stashing segment, which is in.
Constant currency.
Yeah I've also provided more information on our performance in the fourth quarter slide deck, which is available on our website.
Thanks Olivier.
So when I look at Q4 at a high level, we saw a continuation of many of the dynamics evident in Q3.
We continue to effectively manage costs and we saw better than expected improvements in our gross profit rate due to ongoing structural shifts in our product mix, particularly in our GTF segment.
These positives were outweighed by declines in our staffing business, most notably in our U.S. commercial operation.
Like Q3. These declines were the result of disruption from our Q1 restructuring continued weakness in the U.S. manufacturing sector, historically tight labor markets and some planned exits from several high volume low value accounts and in our international operations economic headwinds in Europe continued to constrain.
Our top line growth there.
I look forward to sharing the recent steps we've taken to respond to the current situation, including how we're promoting growth while continuing to reap the benefits of our leaner more agile operations. These recent actions laid the groundwork for a strategy that includes a more aggressive inorganic and I were inorganic growth plan increased focus on.
Talent.
And greater urgency to building specialty growth platforms that will deliver results for clients talent and shareholders I'll share more details about these changes in a few minutes, but first Olivia is going to take a closer look at Kelly's overall performance for the fourth quarter and the full year second speed or just to provide more color.
As a result of the dynamics that Vito just mentioned our Q4 raise those didn't meet all of the expectations, we laid out as part of the outlook or you know last quarter.
I will keep twofold, <unk> revenue was down 5.4% virtues of 4% to 5% decline in our outlook I will GP rate exceeded our expectations about 30 basis points compared to our expectation also flat year over year GP rate and the expire.
And sees wind it down 2% west shy of our expected fall to fight person year over year addiction.
No I will review our year over year performance in more detail.
Revenues without a 1.3 billion down 5.4% from the fourth quarter over the prior year.
Total company reported results were unfavorably impacted by 20 basis points due to foreign exchange.
Our Q4 performance includes the results of Nexsan and G, which added 210 basis points to our constant currency revenue growth. So on a constant currency and all getting basis, our revenue for the fourth quarter was down seven point sweep of sent over.
On the Q4 constant currency organic revenue trend Weve reflex declines you notice we segments.
Looking at each segment on the reported basis. The Americas staffing revenue decline is primarily due to delight, the industrial and Oh fiscally coated products all the promotion of portion of the business, which was down 19% year over year. The decline was partially offset by the kids.
Education practice, which was up five person in the fourth quarter and reflects a return to revenue growth.
The international assessing revenue decline reflects a continuation of the challenging market conditions in Europe.
And finally, G.S., we don't revenue gross up 2% year over year belt, but down slightly on an organic basis.
The gross comps, we structural improvement in our project mix was outcome based so he sees that like business process outsourcing and kidney connect continuing strong growth. The GTS revenue growth rate was moderated by decline seen barrel process outsourcing and suntory didn't even delivered stashing.
The permanent placement fees, well down 18% year over year from continued declines in Americas staffing and that's a national stashing.
Overall gross profit was down 3.7 persons.
Our gross profit rate was 18.3% up 60 basis points when compared to the fourth quarter of the pie all year.
Approximately 20 basis point, there was a g. direct improvement was driven by the acquisition of Nexsan, and G, which Ohio margin specialty businesses.
On an organic basis, the GP rate improved by 10 basis points as improve customer and product mix, whether said by the impact of lower sheets.
[noise] as Ginny expenses were down 2.3% year over year, all down 5% on an organic basis.
The decline in expenses that reflects our ongoing cost management. They fault in response to our topline trends.
I'll, just where the actions inexpensive game from I'm are you guys staffing where expenses were lower primarily due to lower incentive based compensation expense as well as lower salaries. As a result of all Q1, the restructuring actions and international stepson wet expenses decline.
In line with revenue.
In the fourth quarter results.
The fourth quarter results include a 15.8 million bellmon charge related to our U.S. from doses technology development project.
During the quarter would it doesnt mean that we wouldn't know complete this project.
So each we'd have catch that eyes, south antelope and cost and we saw an opportunity to immediately move forward with enhancements to what they can energy platform that he's already deployed in parts of our business.
We completed the roll out of these technology to most of all frontline staff in the U.S. and Canada by mid 2020.
This approach, we will accelerate that well solution implementation and the recognition of the related business benefits, including productivity improvements and improved experience for both our employees and that that and we can they get to work.
Earnings from operations were 16.1 million in the fourth quarter.
Excluding the impairment charge earnings from operation with 28.9 million compared with 2018 earnings of 73.1 million.
Excluding the impairment charge, the overall decline ease searching bus and year over year in Q4.
The largest driver of the decline is the I'm guessing segment, where revenue declines that led to lower year over year earnings from operations. Despite of an improving GP rate and good expense management.
International stuff team was able to deliver on year over year earnings growth in the face of challenging market conditions, and lower revenue and finally GTS. They delivered another quarter of here over the year earnings groups.
Our fourth quarter results, excluding the impairment child reflect the conversion rate or return on gross proceeds of 11.8% down hundred and 20 basis points compared to Q4 2018.
On the full year basis earnings from operations as we bought it was 88 to 1.8 million compared to 87.4 million in 2080.
Excluding the Q1 of US auction challenge the Q2 gain on sale of a vacant land and the Q4 impairment charge 2019 earnings from operation was 90.6 million compared to 87.4 million up 4%.
Our 2019 results reflect the headwinds of declining organic revenues, partially offset by the results of all Nexgen, then GT acquisitions.
We continued focus on improving our GP rate both organically, we fluctuated project mix changes and you're not going any color you through the acquisition of higher margin specialty businesses I don't they executing solid expense going forward.
Putting it all together earnings from operations and conversion rate, including the result of or a recent acquisitions continued to improve on the fully amazing.
Gillies owning before tax also include the unrealized gains and losses on our equity investment in both sort of holdings.
For the water, we recognized a 700000 pretax gain on our bell sort of common stock compared to an 80 sweep point 2 million loss in the Pio you.
For the full year, the gain is 35.8 million compared to loss on Bill So stock of 19.6 96.2 million in 2018.
These noncash gain some of those these are recognized earnings from operations as a separate line item.
Income tax benefit for the fourth quarter was 5.9 million compared with our 2018 income tax benefit of 23.8 million.
Q4, 2018 income tax benefit includes 25.4 million related to the noncash tax benefit on the loss on person stock.
And finally reported earnings per share for the fourth quarter of 2019 was 43 cents per share compared to a loss of 62 cents per share in 2018.
No there to better understanding the under underlying trends in trends you know earnings.
Let me provide you. Some addition that information.
2019 earnings per share was unfavorably impacted by the impairment charge, partially offset by the Favourability impact also gain on both sort of common stock net of tax in 2018 as was negatively impacted by your loss until sort of stuck.
Adjusting for all these items and including the results of the recent acquisition Q4, EPS was 71 cents compared to 87 cents per share in Q4 2018.
And for the full you reported diluted earnings per share with two thought out an 84 cents compared to 58 cents fall 2018.
Full year earnings per share for 2019 were impacted by the gain on sale of assets and the impairment as well as of us functioning charges.
Gains and losses on pursuit of common stock impacted both years.
Adjusting for these items and including the results of the 2019 acquisitions do you see the owning spill share west to that out on 68 cents in 2019 compared to two though and 27 cents in 2018, a fight person increase.
Now moving to the balance sheet.
Cash totaled 26 million compared to 65 million a year ago that was 2 million consistent with year end 2018.
<unk> receivable was 1.3 billion and decreased 1% year over year.
Blowback ideas. So was 58 days an increase of three days over yearend 2018, the increase in India. So reflect both increasing pressure from our global customers and the timing of custom the payments.
Right.
In our cash flow for the full year, we generated 82 million of free cash flow compared to sell to 6 million of free cash flow in 2018.
With our improved level of free cash flow generation, we paid down the debt used to fund the 86 million acquisitions of Nexgen and G. You said Cheesman gives us added confidence as we accelerate you know any component of our specialty tenants Hudson G, including the early 2020.
Acquisition of insight, which we announced last months.
Inside is a provider of K 12 education staffing in complement the remarket to our existing education business in the U.S.
And cash paid at closing was 38 million.
Oh Chase will start to be reflected in our Q1 2020 financial results.
Thanks, Olivier I'd like to turn to our near term priorities and what we've accomplished since I became CEO I'll start with our top operational priority growth when we restructured our U.S. operations last year, we had two primary goals to drive efficiency and to drive growth. We're pleased with our pro.
Gross with efficiency in fact, we're ahead of plans, we have not yet delivered on our topline growth expectations.
And I made returning to growth a top priority. During my first 120 days and we're instituting aggressive changes to get us there.
We're reallocating sales and marketing resources to drive increased demand and we're seeing positive momentum in our pipeline.
Where centralizing support functions to allow our front lines to have greater focus on sales and recruiting a move that should provide growth as well as expense savings.
We are rolling out new front office technology that will improve our recruiters effectiveness and make it easier for talent to work with us through a modern tech enabled process.
This rollout will give our commercial in education teams, New front office technology for the first time, and almost 20 years and resolves uncertainty about front office implementation timing and delivery.
We are using centralized recruiting to support certain large customers and we're already seeing improvements in fill rates. The centralized model has the added benefit of allowing other recruiters to focus on higher margin business.
And we are accelerating our shift to a more responsive tech enabled delivery model that allows us to target resources to the fastest growing markets and aligns with the preferences of the modern workforce and customers across the U.S.
While returning to growth has been and we'll continue to be our top priority, we're acting with urgency to take care of business elsewhere in the company.
In December we announced plans to sell our HQ campus and leaseback, our main building, bringing employees together into locations.
This arrangement enables our progressive work from anywhere HQ program and reinforces Kelly's intense focus on growth by freeing up capital for investments that accelerate our specialty strategy.
Bolivia mentioned, we made one of those investments early this year, our purchase of insight a fast growing provider of education solutions advances, our specialty strategy and further strengthens Kelly educations, leading position in the U.S. market. It's an exciting addition to our high performing education growth platform and we.
We're thrilled to have insights operational founders join the Kelly education team.
I also announced the appointment of Kelly's first ever Chief growth officer to place, even greater emphasis on our growth mandate. Among other responsibilities. This role will ensure there were allocating the right people processes and technology resources to achieve our growth goals within and across our specialties.
Accelerate our inorganic growth plans ramp up our use of innovation and market research to identify new growth platforms, and ensure kelly's pricing and channel development strategies aligned with our goals for growth.
And finally, we have made excellent progress in establishing an operating model that optimizes Kelly structure capabilities governance accountability and ways of working.
These strategic steps taken over the last four months are addressing the need to stabilize our U.S. operations accelerate growth effectively manage cost and drive further specialisation with these actions behind us, let's have Olivier walk us through our outlook for the year ahead. Thanks, Peter please not that the outlook fell 22.
20 does include the impact of the recently announced acquisition of insight for the full you. We expect our reporting revenue grows to be three to four persons and we don't expect the impact of FX on the revenue to be significant.
We currently expect insight to contribute approximately 100 basis points to our revenue growth right. We do anticipate that our organic revenue growth will improve progressively during the year, but Q1 revenues are likely to reflect a yield of the decline due to the gross challenges.
We we still face in America staffing.
We expect that these space overall revenue growth will be supported by the initiatives that Peter laid out for the Americas.
We expect the gross profit rate to be up slightly on the year over year basis, why do we may continue to expand some volatility in the GP rate on a quarterly basis as we have seen in the past structural changes in business makes for an hour shift to higher margin specialty solutions I expected to positively impact our GP.
For the full year.
And we anticipate SGN expenses to be up 2% to 3% on the reported basis.
This includes increased incentive compensation expenses, which we the on they'd be paid upon achievement of performance objectives.
Nude spending on technology and the impact of our recent acquisition. We also expect that the Monday on Monday on musician and efficiency actions just because today will provide cost savings, we have including an estimate of the cost savings.
Outlook when excluding the expected onetime close of such actions with shell the dates of both the cost savings and the onetime costs during our next update.
So all in we'll continue to make investments in several key areas of our business in 2020, and we expect to Delever, you'll have a yield improvement in our conversion rate.
He's done with our prior discussions the outlook provided does not reflect any gains and losses until sort of stock. Although we do believe that should show unrealized gains and losses, resulting from changes in market price could be mentality or.
The outlook also excludes the impact of our recently announced agreement to sell and leaseback I'll call for at Compass, including the aspect expected gain on sale.
Proceeds of the say are expected to be approximately 51 million net of tax and transaction expenses and we ended up can be done to invest in our specialty growth platforms.
And finally, our 2020 and why the income tax rate is expected to be in the low to mid teens syringe disease does include the impact of the work opportunity tax credit, which was reinstated for 2020, I and I would tell me back over to Peter for his concluding thoughts.
Thanks, Olivier it should be clear that we're acting with urgency to deliver progress in 2020.
At the same time, we're looking further down the road to a day when the full potential of Kelly is realized we have a lot to build on.
We have one of the best brands in the industry, we have a solid balance sheet fortified over many years, we have an exceptional blue chip client base, we put to work thousands upon thousands of people looking for what's next in their work life journey and importantly, we have the most dedicated and passionate employees.
Anywhere.
Our long term goal is to unlock the potential of these valuable assets by deploying them differently, enabling them with technology differently and supporting them with an operating model differently than we have in the past.
Over the course of 2020 I will have much more to share about how we will do this and the changes we will make some of which frankly our overdue.
For today, there are three significant changes that I want to share with you.
First we intend to accelerate our efforts to drive our top and bottom line performance through acquisition of inorganic growth platforms, making smart buys that align with Kelly's focus on specializations.
Here's why I'm confident in this organic growth strategy and why it has the full support of Kelly's Board of directors, we had the benefit of a rock solid balance sheet with ample financing capabilities under terms, which reflect that strength and we're just renewed in December last year.
We have a strong track record of improving our free cash flow generation, we have our we have proven our ability to quickly and efficiently integrate new acquisitions that deliver meaningful growth for Kelly and we have shown that we can finance these acquisitions and de leverage quickly in fact, we have no debt remaining for many of our acquisition.
Yeah.
Our future capital allocation will be focused entirely on growth, both organic and inorganic in our chosen specialties.
The second change stems from the fact that our growth plans are ambitious and I don't believe achieving this kind of growth will happen within Kelly's current structure, which is too complex to enable our specialty talent strategy.
Today, I'm announcing an important change design to intensify Kelly's focus and accelerate our growth.
We have proven that in areas, where we specialize in line with demand, we perform well and we have made clear that our growth is tied to our success as a specialty talent solutions provider.
Moving forward, we will combine our assets and resources in five business units each defined by clear strategies and measurable targets that will inform our M&A strategy and guide how we allocate our resources.
The new structure will include these five specialties commercial which we are renaming professional and industrial education stem, which includes our science.
And engineering solutions oversee Gi and international.
Each specialty will be led by a business unit President reporting to me, who will be laser focused on driving growth within their specialty the five leaders will work with our new chief growth officer, who will identify growth opportunities across the business units help Mac maximize efficient support systems and drive profitable color.
Aberration.
Together this leadership team will move our specialty growth strategy forward in a meaningful and measurable way taking responsibility for both organic and inorganic opportunities while meeting customers needs for talent and connecting talent with great opportunities all at a more accelerated pace.
We expect this new way of working will allow us to allocate our corporate functions to be justice focused on growth as our operations are will be transitioning into the new structure over the next few quarters as well as rolling out refreshed logos that signal Kellys specialty focus.
Finally, the third changes a commitment to bringing new transparency to our goals for growth I'm pleased to share what we're calling a growth math that outlines the goals were aiming to hit.
For three specific financial areas here is what will be tracking revenue growth, including parameters for both organic and inorganic growth as we execute our more acquisitive plans.
Gross profit margin, which we see as the appropriate measure of progress on our journey toward higher value specialization.
EBITDA margin and update to our previous conversion rate measure as we fix our sights on more inorganic growth platforms, we will be sharing more details about our growth map next week. After we present at the noble capital Investor Conference, you'll be able to view a webcast of our presentation and access all supporting the Tim.
Aerials on our Investor website.
Starting later this year, we will begin reporting on these metrics and our goals to help gauge our progress we will be refreshing. These goals regularly. So that you have line of sight to the next period on a rolling basis, we hope you'll see this added transparency as a valuable and positive change from our past practices.
I'm excited about what's next for Kelly the last 120 days set a new stage and pays for growth our new operating model is designed to accelerate specialty growth and profitability by playing to our strengths and focusing on specialties that align with market needs.
The acquisitions, we've made in the last three years are just the start of an ambitious program to use inorganic growth to drive our financial performance, we're addressing key structural issues and modernizing our operations to adapt our infrastructure and take care take advantage of the latest technology, we understand talent and are becoming more ads.
Well to meet them and our customers, where they are and we're doing it all while creating a more fulfilling experience for the customers and talent, we have the privilege to connect.
Putting kelly onto a higher growth trajectory isn't going to happen overnight, but I believe we are already laying the foundation and moving ahead with a renewed sense of urgency and purpose to realize the full potential of our great company. We look forward to reporting the results of our efforts each quarter as Kelly's transformation unfolds.
In the meantime, Olivier and I will be happy to answer your questions. Cynthia the call can now be open for questions.
And ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your Touchtone phone.
We'll hear tone, indicating that you had been placing Q you may removed himself from queue by pressing that same one there. He will command once again for any questions or comments press, one and then zero on your Touchtone phone.
And one moment please.
And our first question will come from the line of Josh Vogel with Sidoti Your line is open.
Thank you.
Good morning, Peter and Olivier how are you guys. Good morning, Josh. We're good how are you I'm great. Thank you I got a couple couple of questions I guess the first one.
Just about one of your a initiatives here I'm assuming that you.
Already have the president of each specialty in place or use or is this something you're going to be looking to add.
Well, we'll be announcing.
The presidents Josh so yes.
But we'll be announcing them in probably in the next by the end of the quarter.
Okay, Great and and then with the.
The announcement I think it was last week of Tim do freeze your CEO.
Do you feel that you have your executive team round it out.
Yes.
I would say that the with the B and presidents and the.
Current leadership team, including Tim we have.
Complement of of leaders that are.
We're ready to deliver on our strategy, that's not to say that we won't add talent, where where it's necessary but.
I think we're ready to.
You know.
Deliver on this plan as I've laid it out.
Okay great.
With your outlook for 2020 and all these.
Initiatives and strategies in place I was pretty surprised but certainly encouraged by your full year revenue growth guidance.
I understand in Q1 will be down year over year and there is the 100 basis points contribution from from insight.
Right.
What gives you the confidence that you could put up.
Mid single digit gains later this year and can you maybe I'm, even more for Olivier kind of give us just like a sense of I know there will be progressive improvements throughout the year, but.
If you just give anymore insight or details and how you see.
Revenue trajectory playing out this year.
Yeah, I mean, the as a we did mention we believe that Q1 is going to be too challenging on on the no vending basis because of what is going on you know a U.S. operations commercial but I think we have a blend plays and we start to see some progress naming.
One of them the pipeline.
And we feel that we are going to start to see some traction that would enable us to show facility to be tough a challenging Q1 bed some improvement in our overall organic growth trajectory, we live cools and improvement of further improvement as we move to the remain.
Yeah, I think deals are seeing is our recent acquisition Nixon and GA. When you look at what's good you to achieving 2019. So gross platform that grew at about 22, burleson topline, providing a release and to reaching value profile at 27% Mike.
Gene and very good bottom line. The these two acquisition well read the equity of as soon as Q1 of 2019 on generating 22 cents.
Of as for the full year, we see and continuing to see traction in our education business.
You have seen that's we did mentioned the return to grows from minus one in Q3, two plus Pfizer in Q4, and we see further traction as we enter into 29 2020.
We see a you know good traction also in our outcome based business as we have seen.
In 2019.
So with that went out of a I would say dynamics that are in play.
That give us confidence that.
Especially if we continue to make progress.
Ill now will use operation commercial stuffing, we should we should progressively improve our organic capabilities during the year and again, we plan to other both hundred basis points of.
Extra boost on our organic growth coming from inside which is an excellent Joe greff complement to our existing K 12 substitute teacher business in the U.S.
That's really helpful. Thank you and.
Im sorry did you say that Nexion and G. T a grew 22%.
Last year versus their 2018 numbers that is correct and you will see that Inditex. When you have access to the 10-K, because we have a pro forma and their disease that is showing they used to these bragging rights and through our earnings a.
Really the 8-K, where we show some analysts about that as well.
Okay wonderful wonderful.
Focusing on.
Your inorganic strategy can you just talk a little bit about the pipeline of opportunities.
You are seeing today.
Knowing that.
You can't discuss any future potential deals, but just curious what the pipeline looks like and maybe from a specialty perspective.
Yes, a couple of comments, Josh I think because we have.
As compared to past periods been more acquisitive in the last few years.
Relatively speaking we have been.
Included on a number of transactions that.
We may not have been.
Prior periods. So we're encouraged by the fact that were being seen as a company that is playing in the M&A space more aggressively and I think with today's.
You know my laying out our plan for the future.
We would expect that to continue we are developing.
Not only a reactive.
Pipeline strategy, but also a proactive pipeline strategy.
Where we are identifying growth platforms that exist within Kelly or we think would be complements to growth platforms, and Kelly and using a variety of resources to try to generate.
Additional.
Targets for acquisition and.
I would say that that as a work in process.
But it's.
Clearly more robust than it has been in the past.
Okay, Great and just one last one and I'll hop back in the Q.
It was a nice way to unlock capital through the corporate headquarter sale and leaseback I guess is quick to partner how much can you remind me how much you have available on your current facility and then just also.
You still have these attractive assets on on the books related to parcel and I personally feel that the street doesn't seem to give enough attention to that I'm. Just curious is there any plans to potentially monetize or liquidate a portion of those investments and put that capital to work elsewhere.
Yeah, I I'm going to stop than the end Peter are you going to complement especially when it comes to commenting on the our.
JV or a bad assets as well as I will share or I will shares we spouse or so we have a renewed.
Our financing capabilities that are in December of flat here.
So the overall capacity, Switzerland 50 million.
115 is through securitization program and the raised we use a touched on that or we have over we see as bill mentioned that we have but capacities basically to execute and accelerate to now or you know again IEC initiatives.
We did mention today that basically our balance sheet, a DNS 20, ninetys completely a almost de leverage out what that is 2 million.
So we see consulting, but now I will significant improvement in free cash flow generation that we can use these friend when seating capacity wise, making sure that we can de leverage with our free cash flow, which is of course very important, especially for a cyclical industry like.
Our industry.
Yes, Josh in with respect to.
Other other assets of the company.
You know were regularly evaluating.
How best to combine resources and how do.
Consider resources to create value.
And.
There isn't any asset a resource it's off the table in that regard, but we have no.
Nothing to announce with respect to any specific asset other than the ones we've mentioned today.
So it's a it's a regular part of our review of how we're allocating resources and how we're using our capital to to drive growth.
Well. Thank you guys for taking my questions are looking forward to see and watching our 2020 play out yes, thanks, Josh really thanks, yet ash.
Thank you next they'll go to line.
Oh no.
No bulk capital your line is open.
Good morning, and thanks for taking the questions Hi, Joe Good morning.
So I just wanted to circle back about the outlook for 2020 and I understand.
Some of the.
The next Gen and education returning to growth.
But a lot of this.
You look at relatively.
Large decline the U.S. staffing business in the fourth quarter and.
And some of the issues you outlined today and in previous calls what gives you confidence ethic us commercial business is going to stabilize.
In the near term.
Yes, Thanks, Joe.
So.
What gives us confidence is that the initiatives that I have instituted since becoming CEO are.
You know in large measure beginning to show results.
And I think as Olivier mentioned.
We believe that they us commercial is stabilized.
We clearly have work to do on on returning to growth, but the initiatives that we've instituted in.
Including.
The reallocating resources to drive demand.
Acting on our.
Shared services and centralized.
Delivery models to allow greater.
Focus on higher margin business.
We like what we say we again we're not.
Comfortable.
With the results are pleased with the results because we have to get back to growth but.
When we look at the pipeline than some other things or you know we see.
Signs that the initiatives weve taken or are beginning to take hold.
Okay, Thanks for that and.
Yes, if you could provide a little more color or detail on the the technology development project and why you guys put the stop in took the charge there I mean look a little more insight into that would be appreciated.
Yeah.
We are about to two years and ahead of Segui stopped and should achieve on the front end middle of fees for our you as business.
We played basically an old.
In house, a developed yeah Pea that was 20 plus years old.
And we realize that.
As recently as Q4 that there were some uncertainties on when we can get these are new front and middle of fees being delivered a and we saw an opportunity basically.
To move.
We are something that we out much family always because we are using a this is them. We are now implementing all expanding we have use eat overtime. So we saw that.
We did the uncertainty around the timing of the delivery Colm combined with the risk of.
For opening phone than me, though to fees, we had on the booking GE to really accelerate as it did easily of this new platform as we speak we have already and put them into these new system for shy of 300 people. So that was basically is a trade off I mean giddings are paying off.
I would say the asset impairment of 15.8 million in exchange ways, we can get something now as we speak and implement quickly enhanced this is Dan to get simulation been if she is then what we are expecting with our initiative.
And we expect the as soon as a second that it for 2020 get to additional productivity and other make tweaks being enhance and improve through the says he's them. So the tradeoff was really the pain of you know a these licensing them investors use making sure.
We get the benefit.
Of these new system as quickly as placebo or a which is what what we see no. I mean again, we have implemented already a this is tend to shy of 300 people buy me. Those 2020, we are going to be fully.
In place and we are going to start to see basically what benefits were expecting a post implementation as opposed to significant uncertainty with the first option on when we.
We are going to be able to de lever on these project and Joe I would just I would just add relative to your question about confidence for the back half of the year.
In terms of growth that.
We're introducing new technology as I mentioned for the first time and almost 20 years and we believe that our US commercial teams will be a significant beneficiary of this modern.
Latest technology in their recruiting.
Okay.
And then you could provide a little color on what you guys see.
In the European market in 2020.
What what's going on there, where you where do you see.
Some positives where do you see some challenges.
Well you know, it's it's a it's a tough call because there are so many disparate.
Economic issues in the region.
You know there continues to be uncertainty regarding Brexit or as a result of the Brexit.
Outcome.
There are challenges.
Economic headwinds throughout the region, although and I'll ask alleviate a comment as well, but I think there are.
Some.
At least signs that the deterioration has not except or is not accelerating.
And there are.
Pockets pockets of growth and pockets of development that.
We expect to benefit from but we're not such a.
Huge player in the region.
We're going to.
The bellwether of what's going on there but.
We do expect the.
Sort of current state or to be what we should expect for 2020, yes, I would just add on that that our life science specialties to doing well, where we are specialize on these a area.
Eastern Europe, specifically, Russia, we have to the us seeing some traction like we have seen in 2019, we are going to continue to run the business a in a meaningful way managerial resources, making sure that we continued to stabilize I won't mileage in as we did a alone 20.
19, but we don't expect a topline.
Really being very dynamic I see is going to be kind of similar to what we've seen 2019, but squeeze no sign of further.
Downside I would say and whenever they are book into football season, we see all of them sometime in many countries in some very specific specialties. We are usually good at capturing them very quickly and get some benefits, but the overall environment I would say not very favorable but not going down further.
Okay, great. Thank you very much.
Thank you again, Jeff Thank you.
Thank you next we will go to line up John Healy with North.
Both research your line is open I.
Thank you.
Peter just wanted to get a little bit more thoughts just about the the future M&A strategy and how it may be deployed.
Is there way you could kind of help us conceptualize.
Maybe the amount of capital that you in Florida.
For potential M&A and additionally.
The mostly domestic oriented as you try to get more targeted.
Within certain verticals or do you think international M&A will also be.
The tool kit.
Yeah. Thanks, John.
So without giving specifics I I would say that you know if you consider the 150 plus million that weve.
Spent in the past three years that when I talk about a acceleration and I'm more ambitious M&A planted it.
It's probably reasonable to think about it as a multiple of that.
And you know as as we go forward, we'll we'll do our best to try to frame it for you and more.
Specific terms, but I think right now thats, probably how I would.
Think about the.
The quantification of it.
And in terms of the.
The areas that were.
Focused on I would think that we will clearly be overweighted in North America versus.
Versus our international operations.
Not to say that we would preclude if there was something opportunistic, but we see huge.
You know huge opportunity in North America, it's the largest staffing market in the world we see.
Significant opportunities and outcome based our outcome based organic platforms are growing nicely.
So complementing.
Those areas here, we think is probably where our capital as best allocated.
Great and.
Trying to get a little bit more detail.
2020 seems like I say, a year of a lot of unknowns in terms of where the industry is headed.
Especially with the election later this fall.
Does that make you kind of pause your M&A pursuits for this year and in May 2020 kind of a.
Due diligence here in 2021, maybe a year of action because maybe you're able to get prices that are very different or do you think that you'll be active in terms of.
Closing transactions in 2020.
Well John we're you know it's a great question, we're very aware of where we are in the cycle and so.
We're going to be.
You know diligent about making smart acquisitions, if we're going to make acquisitions, but.
We think that there are opportunities to pick your targets even in this this year.
Recognizing as I said that we're not going to.
You know over overpay for properties.
Or you know get into markets that were not comfortable our long term.
Growth platforms.
Just to add on that next week.
If you don't mention that we have again to be even but speaking to a noble kept that.
Event, and we are going to share more details about our exploration most catch that location strategy.
Great and then just one final question for me.
On the balance sheet, obviously theres a property held for sale was 21 million is that related to the headquarters or is there something else that.
Kind of in non transaction that you are correct. That's basically the at quite Roes that we have mentioned.
It's a 20, a 12 roughly 21 million I didn't mention that the the net proceeds net of tax and transaction costs. He is going to be around 51 million. So basically we are going to recognize in Q1, because we are going to secure the deals in Q1, a so coming in.
Basically a kept again.
And then proceed.
Meaning the 51 million net of tax and transaction costs will happen before the end of Q1.
Thank you.
Thank you. Thank you. Thank you and at the final reminder, for any other questions or comments press, one and in the wrong on the Touchtone phone once again for any questions or comments press, one and then.
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Okay. Cynthia Thank you very much thank you very much.
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