Q4 2020 Kelly Services Inc Earnings Call
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Good morning, and welcome to Kelly services fourth quarter and full year earnings conference call all.
All parties will be on listen only until the question and answer portion of the presentation.
Today's call is being recorded at the request of Kelly Services, Inc.
If anyone has any objections you may disconnect at this time.
The fourth quarter and full year 2020 webcast presentation is also available on Kelly website for this morning's call.
I would now like to turn the meeting over to your host Mr. Peter Quigley President and CEO. Please go ahead.
Thank you Alan Hello, everyone and welcome to Kelly services fourth quarter and full year conference call with me today is the Olivier T Rowe, our Chief Financial Officer, who will walk you through our Safe Harbor language.
Peter and good morning, everyone. Let me remind you that any comments made during this call, including the Q&A may include forward looking statements about our expectations for future performance actual results could differ materially from those suggested by the I won't comment.
And we have no obligation to update of the statements made on this call. Please.
Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.
In addition, during the call something that I wouldn't be discussed on the reported and on an adjusted basis discussion of items on the net adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations.
We have also provided the slide deck that we are using on today's call as well as an expanded slide deck with more information on our path for months now.
Website now back to you Peter.
Olivier.
I'll start with a brief look at economic and labor market dynamics to provide context for Kellys Q4, and full year results recap the actions we've taken to weather the pandemic.
And share highlights of our quarterly performance.
While the full recovery is still a ways off several key indicators improved as 2020 drew to a close.
In the U S. The overall temporary labor market.
<unk> to gradually recover with year over year of volumes at minus 8% in December of <unk>.
Marked improvement from minus 30% in April.
Those figures have continued to get progressively better each month and.
And the penetration rate is now just below 2% close to its pre pandemic norm.
The overall U S labor market also improved though some challenges remain.
The unemployment rate improved falling from its April high of 15%.
Down to six 7% in December overall labor participation rates remain low and permanent unemployment levels have plateaued at a high level.
In Europe, where a widespread pandemic mitigation efforts have been put in place in recent months because of subsequent waves of infections and virus variance unemployment was up again in December.
Overall trend since the deepest point of the COVID-19, economic crisis suggest a continued and gradual if at times uneven recovery.
Looking back of Kelly's response to the crisis throughout 2020, it's clear that the steps we took.
The protected the company and positioned us for future growth.
Our actions were guided by a clear set of crisis principles that we've developed at the onset.
These principles included our priority to protect the health and safety of our people.
Maintaining the financial health of the company and support and serve our talent and customers without interruption.
We entered the crisis with a healthy balance sheet, and we acted quickly and decisively with temporary measures to protect it including employee executive and board of director compensation cuts furloughs.
Suspension of the quarterly dividend and reduced capital expenditures among other measures.
These defensive actions, while difficult were taken to protect Kelly's bottom line and liquidity during the most intense stretch of business disruption.
And they prove successful.
The Kelly communities shared sacrifices enabled us to produce positive earnings in each quarter of 2020.
And we ended the year with ample cash and available capacity, which can be used to pursue targeted M&A opportunities in our specialty is most prime for growth <unk>.
A critical element of our growth strategy.
We also have succeeded in holding our GP margin steady from the prior year, thanks to our strategic pre pandemic actions to shift our portfolio toward higher value specialties.
Beyond financial resilience Kelly teams displayed agility as we implemented our new operating model and stood up our five new operating segments based on our chosen the specialties that we told you about previously.
Working primarily from the safety of our homes utilizing recent infrastructure investments Kelly's internal teams offered seamless service to our talent and customers and creatively captured new opportunities on several fronts.
We were proud of every opportunity to connect talent to work at great organizations. During a time when so many people lost employment.
And particularly proud that Kelly employees contributed to essential and life saving work related to the pandemic such as supporting the development of vaccines, producing test kits and face shields taken.
Taking temperatures at local businesses and supporting essential supply chains.
As CEO I am proud of how the entire Kelly community rose to the occasion and how we continue to do so today as the pandemic wears on.
Before I hand, it off to Olivier to provide the details I'll share a few Q4 highlights.
In each of Kelly five operating segments Science Engineering, and technology education professional and industrial OCG and the international we saw sequential improvements in revenue from Q3 2020.
In fact, we've now seen continuous top line improvements each quarter since the crisis started and we're gaining momentum across the board, even surpassing pre COVID-19 revenue levels in our OCG segment.
We're also seeing positive signs that suggest the recovery is beginning to even out for customers of various sizes in the U S.
Last quarter I touched on the improved demand we saw for talent from our large customers and we're pleased that this trend has continued in Q4.
And while Q3 demand from small and medium enterprises was sluggish by comparison, we began seeing in Q4 early positive signs of improved demand trends from these customers.
As expected education continues to be the operating segment most impacted by COVID-19, we're encouraged though by sequential improvements in revenue from last quarter.
Vaccine programs now beginning to reach educators and the growing local and national focus on reopening schools I'll now turn it over to Olivier to share more details about our Q4 results. Thank you Peter as Peter mentioned, while our Q4 results reflect the continuing impact of the COVID-19 pandemic.
Our results also reflect continued stabilization in the economic activity and demand for our services.
We'll also highlight that 2020 ease of 53 week fiscal year for Covid.
So our fourth quarter results include the extra week and reflect 14 weeks of operating activity compared to 13 weeks in 2019, well the impact the material to understand the underlining business trends I will provide the impact of the addition of weak in 2020 on now all of you.
Year over year comparisons.
The revenue totaled $1 2 billion down seven 2% from the first quarter of the prior year.
The impact of the additional week in our 2024th quarter results added approximately 400 basis points to our revenue growth rate the.
The impact of foreign exchange positively impacted our revenue growth rate by 60 basis points as.
As we mentioned last quarter in Q3, we saw gradual improvement in demand from the low point expense in Q2 box due largely in large accounts and our Q3 exit rate was the year over year decrease of 18% of.
Our Q4 constant currency exit rate all year over year revenue trends for the months of December excluding the impact of the extra week was down 8%.
This reflects a continued trend of gradual improvements of the course of the quarter and that revenue trends in all segments have improved since the third quarter.
And one of the improvement in demand trends. We saw in Q3 came primarily from large accounts in Q4, we saw a more broad based improvement in demand.
Our education segment continues to be particularly impacted as the U S. Could these tweaks return to school in the fall using of via T of delivery models, including <unk> and the hybrid.
Which has had an impact on the demand for our services.
In Q4 schools have continued to modify that on the selection of delivery in response to a resemblance in infection rates.
Revenue in our outcome based product continues to trend well in the quarter with revenue in our professional Andrew and industry of segments outcome based product up double digits as demand has been strong flow.
Our remote contact centers specialty.
And within the AT&T segment, our results of generally tracked with the customers. So the niche specialty science, where we have many life science and clinical customers as being the strongest and engineering with the concentration in the oil and the gas sector has been slower to reach.
All of them.
And finally, our OCG segment as continued to be the most resilient excluding the extra week Q4 revenue for Lucy G, which are.
The key inflection point that is higher than the comparable period of 2019, primarily due to new customer wins in our payroll process outsourcing product.
Permanent placement fees were down 19% year over year, which is an improvement over Q3, especially in the science engineering and technology, but still reflect the continued economic uncertainty that has depressed fulltime hiring in all segments.
Overall gross profit was down eight 5% of.
Our gross profit rate was 18, 1% down 20 basis points compared to the fourth quarter of the pioneer.
On the year over year basis, our GP rate has been negatively impacted by these shifting customer mix as the large accounts the demand has been stronger than small and medium sized business as well as lower from cheese. We also saw a decline in our Q4 of GP rate compared to Q3 2020.
As the demand improved in our P&I and international segments. Since the margins are generally lower in the segments I will overall margin rate is impacted as the revenue recovers in these segments.
SG&A expenses were down 1% year over year on the reported basis.
Included in expenses for the quarter was $4 4 million of restructuring charge.
Excluding the $4 4 million charge expenses for the quarter were down three 6% year over year in constant currency.
The year over year comparisons were also and unfavorable impacted by approximately 300 basis points as a result of the additional week in 2020.
During the quarter, we reversed the majority of the temporary expense mitigation actions taken at the beginning of the pandemic, including eliminating the compensation adjustment. We have mentioned in the past sequentially expense levels. In Q4 have increased as a result in place of.
Of those temporary savings we are actively working on the sustainable cost optimization plans, including the actions, which resulted in the restructuring charges. This quarter and May result in additional charges in the first half of 2021.
Our reported earnings from operations for the fourth quarter was $9 5 million compared to Q4 19 reported earnings of $13 1 million of.
Our Q4 2020 earnings include the $4 4 million of restructuring charge and our Q4 2019 earnings include the $15 8 million noncash impairment charge related to a technology development project. So on the like for like basis Q4 2020.
Earnings from operations was $13 9 million of decline of 52% versus 2019.
The professional and industrial Science Engineering, and technology International and <unk> segments delivered positive operating earnings for the quarter.
And when excluding all of a structuring charges all segments, including education as positive earnings from operations and again consistent with the performance in Q3, the OCG segment delivered better year over year earnings.
And to quickly comment on our results for the full year.
For the year of 2020 losses from operations as reported were $93 6 million compared to earnings of $81 8 million in 2019.
As of closing our Q1 goodwill impairment charge of.
The charge related to a customer dispute and the rest functioning charges, partially offset by the gain on sale of assets 2020 adjusted earnings from operations were $44 3 million compared to adjusted earnings of $19 8 million in 2019 the decrease of.
<unk> <unk> one per cent.
Our adjusted 2020 results reflect the challenge of the sudden and sharp declines in demand brought on by global pandemic and our response to quickly and decisively to take actions to reduce expense and maintained operating profit each quarter.
Now turning back to the fourth quarter again Kelly's earnings before tax also include the unrealized gains and losses on our equity investment in both solar holdings for the quarter, we recognize a $14 8 million pre tax gain on our personal income and stock comp.
They're two of 700000 pretax gain in the pilot.
These non cash gains and losses are recognized below earnings from operations of <unk>.
A separate line item.
Income tax expense for the fourth quarter was $2 5 million compared with our 2019 income tax benefit of $5 9 million.
Our effective tax rate for the quarter was 10, 6% our tax rate was lower than the statutory rate primarily due to the impact of non taxable gains on company owned life insurance assets.
And finally reported earnings per share for the fourth quarter of 2020 was 59 cents per share compared to 43 cents per share in 2019.
In order to better understand the underlying trend in earnings let me provide you some additional information.
<unk> 2020 earnings per share was favorably impacted by the gain on the peso common stock partially offset by the restructuring charges.
In 2019, EPS was negatively impacted by the non cash impairment charge related to a technology development project.
Adjusting for these items Q4, 2020, EPS was <unk> 41.
Compounded two of 71 cents per share in Q4 2019 of decline of 42%.
Now moving to the balance sheet cash.
Cash totaled $223 million compared to 26 million of Euro debt was nearly zero down from $2 million at yearend 2019, we ended the quarter with no borrowings in our U S credit facilities.
Our higher cash balance reflects the benefit of the deferral of payroll taxes in the U S. Under provisions of the cares Act and to a lesser extent the impact of reductions in working capital given our current lower year over year revenue.
As the recovery from the impact of COVID-19 on our business continues.
Accounts receivable was $1 3 billion and decreased one 5% year over year.
Global DSO was 64 days, an increase of six days of.
The year end 2019.
The increase reflects two trends we felt so beginning in Q2 as a result of the pandemic.
First of <unk>.
Customers are continuing efforts to manage their own cash flows and are taking advantage of therefore, the payment terms with us.
Second.
There's been the shift in our customer mix as the large account demand as we covered the faster and as a result in the grid the proportion of business with large customers, who generally receive longer payment terms.
In the fourth quarter. We also have a limited number of large customers with a significant increase in receivable balances as a result of customer driven administrative issues.
We believe the situation is temporary and does not reflect the deterioration in the quality of our receivables. We continue to monitor our customer payment patterns closely and are confident that our collection teams of the resources necessary to respond to current conditions.
In our cash flow for the quarter, we used $74 million.
Our free cash flow compared to generating $22 million of free cash flow in the same value in 2019.
For the quarter, we use cash to fund working capital as the revenue trends improved and as a result of the increase in days sales outstanding.
On the full year basis, we generated.
$171 million of free cash flow in 2020 compared to 82 million in 2019.
For the year the improvement in free cash flow is primarily due to the ability to defer certain payroll tax payments under the cares act, partially offset by the impact of higher days sales outstanding.
As demonstrated in the quarter if revenue trends continued to improve over the next several quarters will continue to utilize some of our existing cash balances to meet working capital needs.
He will also be required to pay half of the deferred payroll taxes as I mentioned earlier by the end of 2021 and now back to you Peter.
Thanks for those details Olivier <unk>.
I'd summarize our Q4 results reflect the and gradually improving economic and labor market conditions.
Coupled with good traction from the operating model, we implemented mid year 2020, we're encouraged by continued momentum across all of our operating segments, including healthy pipelines and new customer wins.
While constrained talent supply, especially for low to mid skilled positions continues to pose challenges for fulfillment, we expect that dynamic to improve as the vaccine programs accelerate and schools resume in person instructional delivery, enabling more parents to return to work.
Looking ahead, we are optimistic we will see continued momentum in 2021, particularly in the second half of the year when a higher percentage of the population is expected to be vaccinated against COVID-19.
Welcome back Olivier to provide additional thoughts on 2021. Thank you Peter for the past two quarters, we of not providing an outlook as economic conditions and the resulting impact on demand for our services was highly uncertain.
Any of the fourth quarter, we have completed our annual planning cycle, which gives us additional visibility and we are encouraged that the trends pointing to a steady recovery in demand continued.
As a result will return to provide you an outlook for the full year and will consider of providing more detailed quarterly expectations as the year progresses.
As we have seen the early stages of the crisis will continue to evaluate a variety of demand scenarios and assess the tool available to us in response, we consider the impact of the scenarios on the earnings cash flows and debt covenant metrics and we remain confident that we have.
Adequate financial resources and liquidity to emerge from the crisis and to capitalize on the recovery.
We are also taking steps to advance our strategy and in the quarter. We completed the purchase of Wynwood Asher to expand the reach of our education segment. We continue to evaluate the opportunities to evidence of our inorganic strategy in the specialties, where we choose to focus to accelerate the loan growth.
Given the likelihood that value spending mitigation measures are likely to continue well into 2021 hour of use on the first cell for the year or for a continuation of the current trend of gradual and steady increases in demand with an opportunity for a more substantial recovery in.
The second half of 2021.
More specifically, we continue to expect revenue trends to reflect year over year declines until we anniversary of the economic impact of the crisis in March 2021 for.
For the full year, we expect revenue to be up 7% to 11%.
The range is larger than usual to reflect the improved but still uncertain environment, especially in the first half of the year. We expect that the time to reach pre COVID-19 levels of activity could be up to two years, depending on the geography and history of concentration and products of each operating segment.
And we will continue to launch additional targeted growth initiatives that are intended to accelerate revenue growth.
We expect our GP rate for the full year to be around 18% consistent with our pre COVID-19 margins. This is down slightly from our 2020 GP rate, which included approximately 20 basis points from Covid related wage subsidies.
Our outlook also reflects that's why the all new specialty strategy is intended to drive growth in higher margin specialties.
So we expect the recovery in lower margin specialties to keep our GP rate relatively flat in 2021.
And as discussed we have taken some definitive steps with respect to sustainable SG&A cost reductions in Q4 of 2020 that will drive meaningful cost savings intended to partially offset the impact of the expiry of <unk> of our temporary cost actions.
We expect that will take additional actions in the first sales of 2021 in line with our goal to achieve sustainable cost reductions, we expect the savings we low lows to moderate expense growth as the revenue increase so all in we expect the SG&A expense to be up full.
Two four in the half percent for 2021.
And finally, we expect an effective income tax rate in the mid teens, which includes the impact of the work opportunity credit, which was recently extended until 2025.
We expect that is the recovery in demand continues we will review our capital allocation strategy, including our dividend policy with our board of directors in the course of 2021 now back to you Peter Thank you Olivier.
Kelly as founder Russ Kelly, probably couldnt have imagined the kellys 75th year in business would be spent recovering from one of the most intense and prolonged challenges and in history.
October 2021 will Mark this milestone anniversary for us and I am hopeful that by them, we will be close to considering the COVID-19 crisis to be part of our past of difficult chapter in our history that has both tested and strengthened us I am confident we will emerge more agile more.
Creative more resilient and even more driven to fulfill our purpose of connecting people to work in ways that enrich their lives.
The Kelly spirit is even stronger than before and we are applying it in 2021 to continuing our strategic journey and steadfastly pursuing growth.
As Olivier mentioned, we ended 2020 with the acquisition of Greenwood Asher of Premier Specialty Education Executive search firm. This move further expands Kelly has reached into the higher education space of natural adjacency for us.
And this month, we're launching of new tutoring product another natural adjacency and an opportunity to generate new revenue streams, while helping students closed COVID-19 learning gaps.
We're applying a disciplined focus to boldly pursuing other organic and inorganic growth opportunities among Kelly of specialties in 2021, and we look forward to the shareholder value. We believe it will create.
At the same time, we're tackling inequities in the world of work at large on.
On the heels of the 2020 launch of our equity at work initiative. We will continue into 2021, the sustained ongoing effort. It will take to make a meaningful dent in the many systemic and equities that prevent more people from attaining enriching work. The interest in this initiative has been tremendous.
And inspiring.
In closing I'd like to thank the Kelly community, our full time employees, who made significant personal sacrifices during last year with Kelly as best interest and long term strength in mind, our temporary employees, who entrusted us the connect them with work during these challenging times, while making there.
Safety a top priority.
Our customers turn to us for the talent they needed to keep their businesses going are net of crisis, and our board of directors and shareholders, whose confidence and Kelly enabled us to protect our company and position it for brighter days ahead.
I'm grateful to all of you and thank you for your ongoing support.
Alan you can now open the call to questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad.
You may withdraw your question at any time by repeating the one day zero command.
If youre using a speakerphone please pick up the handset before pressing any numbers one.
Again, if you have questions you May press, one then zero at this time.
The first question will go to the line of Joe Gomes with Noble capital go ahead.
Good morning, Good morning, Joe Good morning, Joe.
So just a couple of quick questions here.
One on the <unk>.
The Greenwood Asher.
How is that integration going does that.
Indicating the potential out of it doesn't provide you the potential opportunity to do more.
More in that space in terms of the acquisitions or is this kind of more of a one off type of an acquisition in that space.
Thanks for the question Joe.
The integration is going very well, it's only been a couple of months, but some.
Some very promising.
The indications of the synergies created between.
Greenwood <unk> presence in higher Ed and Kelly as existing presence in higher head higher Ed and we think there is opportunity to further grow that we have no current plans to.
Invest further in the executive search among higher Ed.
As indicated earlier in my comments about our <unk>.
Tutoring product, we're always looking for a promising adjacencies in our.
Our specialty lines of business that the.
Produce.
Synergies and our growth opportunities.
Okay, Thanks for that and one day.
You mentioned it briefly I was wondering if you might be able to go in a little more detail here.
The candidate pool.
Especially on the lower end of the the wage scale and you know what what are you. What are you seeing there one of what steps is the company taking to hopefully enlarge that pool are you concerned if they pass some more of the somebody display share that at all.
Reduce people incentives to return to to work.
And any more detail there would be appreciated.
Reflecting back on 2020.
We expected the talent shortages that we were seeing in Q2 and beginning of Q3 to the.
Lesson when the stimulus package expired in the summer and that didn't translate into a wave of available talent.
Our best guess Joe is that.
The two biggest levers.
Our wages.
And our schools reopening the difficulties that working parents have when their children of our at home.
Our significant particularly when you see the.
Number of women that have left the labor force during the pandemic and we have seen clear.
Correlation between wage increases and the availability of talent. So our focus is working with our customers to ensure that they understand that dynamic and I would say relative to earlier parts of the pandemic we are.
Seeing more and more customers willing to raise wages in order to attract talent.
Just to add on that on the on the wage inflation.
If you look at P&I staffing, which really addressing you know the point about.
Jobs in manufacturing or what we call light industrial if we look at our own perspective.
Wage inflation in Q1 was about 4%, which is the kind of story we have pre.
Pre Covid and then we did move from the 4% in Q1, 2022, plus 8% sales of double in Q2, Q3 and Q4.
So that's I think of good sign of the.
The supply.
The edge and challenges, we have but also showing our capabilities to really push some of our customers two of basically the.
More competitive in the marketplace and thus improve.
Improve of the pay raise the can offer.
Okay. Thanks for that insight one more from me I get back in.
In Q, So you talked about.
Revenues for next year being optimal seven or 11% range.
What does that assume for education that just seems to be a.
As you guys mentioned, a hot topic here.
Trying to get the school's per fully reopened.
So what is what is your guidance there assume about the the education segment.
Well first of all of them in reflecting on the.
2020, I mean, we have seen after the big the big drop of Q2.
The improvement in the education as well as we have seen in the all of our operating segments of course, it is still a challenging environment because of majority of the schools are now basically.
Either of running.
So what we call of hybrid model of remote model.
And the minority of them are I would say fully reopen.
What we expect for.
2021 is clearly.
Does that sings are going to be very close to back to normal or at the time. The other the next school year, meaning in the course of <unk>.
Late July early August of 2021 before that we believe is going to be still.
And the improvement, but close to the current environment, we have seen especially in Q4 of 2020 and Joe. We are encouraged by the fact as I mentioned earlier I think people realize the correlation between.
Opening schools and participation in the labor market. So we're encouraged by the fact that educators are being moved up the line in terms of getting vaccinations. Kelly has done some excellent work to ensure that our employees of substitute teachers are included.
In those programs and we're encouraged by the.
Local and national focus of the administration focused on.
The making opening schools one of their key economic priorities.
Thank you very much thanks.
Thanks, Joe Thanks, Joe.
We will go next to the line of Josh Vogel with Sidoti go ahead.
Thank you joining theater and Olivier Good morning, how are you guys. Good how are you.
Okay, great. Thank you and wanted to build off that last question a little bit given the.
Initiative around the tutoring and teachers of tomorrow in the acquisition.
Yeah the exited.
2019 at about 100, and just under $140 million quarterly run rate and education once.
What are the hosts.
The pandemic quarterly expectations now that we think about the new initiatives in the recent act.
Acquisition, what should be a good run rate, we should think about for that business and understanding that there are quarterly fluctuations yes.
I mean, it's a highly seasonal business what we can tell you is that when you look at you know green.
Green with the Asher that we did the acquired in Q4 of last year with Q1 insight acquisition the multiple initiatives we have around.
Organic growth, including.
What Peter was mentioning around two during and also.
Of really a very healthy pipeline of new wins and new deals I think as soon as we get into a better environment I would say, we should be able to catch up.
Very very quickly.
And decisively revenue wise and can you just come back quickly to where we were pre COVID-19, but of course with.
The boost coming from our two recent acquisitions of boost coming from a very healthy pipeline and the boost coming from multiple organic initiatives, including catering debt Peter was mentioning.
Yes, Josh the the dynamic of the.
The the instructors is one that in the.
The significant changes that are occurring both in higher Ed as well of K 12, So the number of teachers that of retiring the lack of the teachers, graduating from from colleges, we think positions us well to support school districts and colleges and universities with the work for.
The challenges that we have and the Greenwood Asher acquisition as well as the items that Olivier just mentioned are all intended to position us to take advantage of the the dynamics that are frankly, only being accelerated by the pandemic.
And we are also actively working Josh on the supply side to make sure that we have the right pool of.
Sub teachers.
Two basically of the race.
Potentially of really quick.
Covering demand in the course of 2021.
And as a reminder, ladies and gentlemen, if you do have questions. Please taken the opportunity now of the press. One then zero on your Touchtone phone.
We will go next to the line of Kevin Stankey with Barrington Research go ahead. Please.
Good morning, Good morning, Kevin Good morning, Kevin.
I wanted to do.
You ask about the professional industrial on the one of the slides in your presentation you give.
The adjusted Q.
Q4 'twenty.
Revenue trends and then the December exit rates.
And really professional industrial.
So one of the most meaningful improvements of all.
All of your segments in terms of the December exit rate.
You know we've been talking about some of the challenges there with talent supply. So what what are you seeing in professional industrial that's been able to drive the.
The improvement.
The December exit rate versus kind of the full quarter for <unk>.
Well, Kevin I think it's a number of of.
The factors I think the.
Customers are becoming more accustomed to operating in this uncertain environment.
So they are figuring out.
How to.
The operate and even expand in certain segments of the.
So the demand is significant and I think on the supply side, while there are challenges.
I think in our new operating model, where we have a.
Keen focus on the professional and industrial space, we've been able to make some inroads in terms of working with customers on wages with.
Different recruiting strategies that allow us to tap into the additional sources of talent and.
Take advantage when when we're able to of the.
The unemployment that frankly, usually would would result in a plus.
Plethora of talent.
Would probably add more things one is when you get the P&I staffing as Peter of Ne we did mention during our <unk>.
Our prepared remarks, we have seen a lot of good traction in our large customers as soon as.
I would say early Q3, we started to see more traction coming from.
Our smaller customers in England equal of SME of SMB businesses, which of course is also in the explanation of why our exit rate in December was was improving the sequencing I would mention in the I briefly talk about it again. This morning is our <unk>.
Outcome based business and P&I is trending extremely well, especially around cash connect all of our call center of business.
And Thats of course, you know knowing it is still trending at a double digit rate of growth is very helpful.
On the pure.
The attraction of around the revenue, but also in them of our I would say GP rate profile because of these businesses.
Having a higher margin than the pure assessing we havent P&I.
Okay. That's all the very helpful color. Thank you.
You talked about starting to see signs of recovery among your smaller customer base any any more insight into.
Maybe what's enabling them to two.
Kind of emerge from.
The downturn here I know they've been slower to recover the larger customers, but any insight on what youre seeing in the market, that's maybe helping smaller customers get back.
Up and running.
Yeah, Kevin I think the two primary factors are one they're figuring out how to operate in this environment.
Early in the pandemic the their focus.
I believe was primarily on their full time work force and trying to retain the employment of as many of their full time employees as possible which is not.
Uncommon in the downturn.
And I think now they've figured out how to operate in and see demand for their goods and services and so they need additional talent.
So they are coming back to Kelly.
Kelly.
For purposes of helping that I also think that they were the last.
The segment to recognize the importance of wages to attracting talent our large accounts were.
More willing in the.
You know.
Pandemic to raise wages because they recognize the.
That was the key ingredient to attracting talent and I think the small and medium sized businesses are now.
The beginning to accept that as a reality of the current environment.
Yes, I mean, just to clarify one single point I mean here, we are really referring to our U S business, we don't see.
Some sign of tangible sign of recovery around the SME small and medium sized businesses.
Outside of <unk> of the U S, namely foreign sales in Europe, that's not kids as the.
The location in Europe.
Okay, alright, well, thanks for that and.
So I wanted to ask about within the science and Engineering Science Engineering and technology, you had talked last quarter, just about a little bit of.
Flow down in the Pelican the.
Telecommunications space.
Specifically, the Nextgen and GTA businesses within the due to some.
Some merger activity in the the Pelican.
The telecommunications space, what are you seeing in that piece of that business now is that picking up and.
How do you see the trending in 2021.
Well we are.
We expect it to be improving as we go through 2021.
One of the.
One of the issues in the rollout of of five G has been the.
The number of projects that are dependent on certifications or permits or.
Reviews of the work product and municipalities and other.
Regional.
Authorizing the entities have been.
Affected significantly by the pandemic in terms of the number of people.
Pulling permits.
The access.
And so that's been a additional.
Headwind for.
The telecom business, but as the economy begins to open up as.
The municipalities and the.
The.
Regulatory organizations get back to normal.
And of the industry activity around the M&A and the.
That we mentioned in Q3 as that begins to further refine itself. We expect the the telecom business will continue to improve throughout 2021.
Yes, we have seen okay.
The improvement in Q4 of.
Of 2020, but keep the stage.
The stage.
Okay, Okay got it.
And then.
Just you know we've been talking about.
Some of the segments here.
Don't know if you want to go to this level of detail, but can you maybe talk broadly about.
By segment, what sort of trends.
Do you expect in each of those segments to build up to the.
7% to 11% revenue growth target for this year.
Well I'll comment generally Kevin I'll, let Olivier I get to the details.
And we're seeing.
The momentum across all of the business units and.
As Olivier mentioned, even in education that the.
A number of new wins with school districts is.
Significantly exceeds pre pandemic levels.
And I would say that that is true in all of our.
Segments, when we look at both new customer wins and pipelines. So I think.
The 7% of 11% of it will be there will be contributions from all of our business units Yeah, No I think it's.
Okay and then just.
Lastly from me.
You mentioned, the three to four 5% SG&A growth expected in 2021.
Neither implementing some cost savings actions can you give us a sense for the.
Size of cost savings you would expect this year from those actions you're taking.
Just two.
To remind you of a little bit of.
What we have done in 2020.
Mitra remember that we had.
Our Q1 of our structuring.
That was basically.
The intent was basically to get us ready for our new operating model of new operating segments.
At that time, we have.
Disclosed.
The fact that.
The expectations of.
We're basically to say that $20 million of cost.
The 2020 on the full year basis, and looking at 2020 I can tell you that.
We have delivered on the 20 million savings.
The Q4 initiatives that we have down in 2020 and debt I was referring to.
In our prepared remarks.
The intent is basically to add on top of an additional $10 million of savings that would of course, knowing that this initiative was late in 2020 would basically.
Impact fully in positively.
<unk> thousand 21 by about $10 million.
And the self point I would like to mention ease and I think I mentioned it.
In the in again in the in my remarks was we are continuing to look at sustainable cost reductions.
<unk> in the first half of 2021.
And that's also.
I would say included in the guidance, including of course potentially some cost to execute on these additional cost saving initiatives.
But what we are trying to do is to ensure sustainable optimization of <unk>.
Our cost base and also we look at towards the call.
Our allocation of resources.
Okay. Thanks for all the color very helpful. That's all I had thank you. Thanks, Kevin Thank you.
We have a follow up question from the line of Josh Vogel go ahead. Please.
Hey, guys, sorry, I think I alluded before.
<unk>.
Aye.
I just had a couple of follow ups here on the the outlook for 'twenty, one and when we're thinking about SG&A.
Can you quantify.
The restructuring actions of active.
How much I can add the estrogen in 'twenty one.
Yeah.
The stage, because basically Josh I mean, what we are doing now as we speak and have said that we are really focusing on.
Executing on additional actions in the first sales of 2021 is basically on the extension of what we have started.
In the financing of 2020, we know that the I'm going to be probably some cost to execute further.
I think it's a little bit too early to.
These clues anything about it.
What I can tell you is that basically the cost to execute easy.
<unk> is included in the guidance is not a cause of that is.
Basically out of the SG&A cost base.
The outlook, we have provided two day.
Okay.
To be able to give you a much precise of data on that Josh at the end of Q1, where we are okay great.
In those niche.
Is that again, the an extension of what we have started in the funnel of 2020.
Okay, and just the making looking at it right. When we think about the three to four 5% year over year increase, which which number is that off of the reported $806 million or the adjusted $783 million or does it take out that customer dispute that 900 net.
Looking at the right number.
It's a very good question because that was something I was careful the discussing it to make sure that we give we give.
Something that is clear based on what is the starting point. So the starting point he is going to be I would say our SG&A.
Adjusted.
So excluding <unk>.
2020 restructuring cost and also excluding what we refer to as.
The write off of some receivables coming from.
Litigation with the customer in Mexico.
So if you look at the base adjusted for SG&A that would be a good starting point to look at 2021.
Okay.
At 783 million number that's in the press release.
Yes.
Okay.
Yeah.
And I know.
Peter you're talking about.
There was the question about the 7% of 11% revenue guidance.
Generally expect.
All of specialties to be up, but maybe just a little bit more thoughts of alone.
As you know of more pronounced and P&I and international should we potentially see outsized recoveries there versus the other segments of that is that your assumption maybe when we think about 'twenty, one so Josh I would offer.
Our assumption is.
Sort of colored by the fact that education is expected to return to a pre.
Pre tax pre pandemic.
Levels.
Growth in the second half of the year.
So that would be one internationally is likely to be slower to recover.
Given the the challenge is that it has in terms of the.
The ongoing.
The economic environment in the geographies in which we operate.
We are already at pre pandemic levels for OCG and.
While that is a.
The business that is at times.
Depending on when we're implementing large programs where customers can.
The.
Have some variability in it on the whole for 2021, we expect that.
The growth.
Continue.
And then.
He and I and our set business, we continue to see momentum.
Across those businesses.
We've seen that.
Through the pandemic and we don't have any reason to believe absent some.
<unk>.
Event, where we don't foresee in terms of the resurgence or the very end of that.
We don't expect we expect the set and then P&I businesses to continue there.
Nice progression and momentum that we see both in.
Existing customers.
New wins, but also in the pipeline.
I appreciate the detail there and the just two more quick ones from me.
Just to make sure I'm looking at a rate of Olivier.
The total.
Oh tax deferral and what is expected to be paid back. The split 50 50 of this year and next year.
Yeah, I mean, we we have benefited from exactly $117 million of.
The cares Act.
Exactly.
Split almost evenly between Q2 Q3 Q4 of last year of a little bit more in Q4 of those of course.
Our revenue is in our level of activities of moving up.
The due date.
Basically have sort of 58 in the.
58, and a half million dollars at the far end of 'twenty 'twenty, one and the other half at the end of 2022.
Great and then just lastly bound.
Balance sheet and Green cheap you continue to generate positive cash flow are there any thoughts around.
Dividend plans.
And in the statement.
Well we're the.
Board is regularly.
Revisiting the dividend policy in light of the environment that we're in.
<unk>.
That will.
The topic of discussion.
For 2021.
So that is.
Nothing nothing.
Declared of today, Josh but that is something that the board will continue to make sure that as we.
Continue to see progress in our.
Financial health of that we are taking into account the.
Sharing the the value with our shareholders debt.
We really need to look at how we are trending in Q1 and Q2.
Of 2021.
And I think based on that I think moving.
I'm going to have.
The much more clarity on the <unk>.
Timing and.
And the other considerations related to dividends.
We really need to look at how Q1 and Q2 are looking.
So I would say the first step is really.
Kind of midyear, our assessment of the situation.
Yes, it makes sense well. Thank you for all of the detail and for taking my question guys stay safe out there, yes. Thanks, Josh Thank you Josh.
And if there are any additional questions. Please take this opportunity now the press one of them zero and you touched on the phone.
Yeah.
Gentlemen, we have no further questions in queue. You May proceed alright. Thank you Alan Thank you very much.
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