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 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. If anyone has any objections you may disconnect at this time.

A fourth quarter and full year 'twenty and 'twenty webcast presentation is also available on Kelly's website the.

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 Olivier T. Rowe, our Chief Financial Officer, who will walk you through our Safe Harbor language. Thank you Peter and good morning, everyone. Let me remind you that any comments made during.

This call and cleaning the Q&A may include forward looking statements about the our expectations for future performance actual results could differ materially from those suggested by our comments and we have no obligation to update of the statements made on this call.

Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance in.

In addition, during the call certain data will be discussed on the reported and on and adjusted basis discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. We have also provided the <unk>.

<unk> deck that we're using on today's score as well as and expanded slide deck with more information on our performance on our website now back to you Peter.

You 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 a full recovery is still a ways off.

Several key indicators improved as 'twenty and 'twenty drew to a close.

In the U S. The overall temporary labor market.

Continued to gradually recover with year over year volumes at minus 8% in December.

A marked improvement from minus 30% in April.

Those figures have continued to get progressively better each month.

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.

While the unemployment rate improved falling from its April high of 15% down.

Down to six 7% and 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 and Kelly's response to the crisis throughout 'twenty and 'twenty, it's clear that the steps we took.

Both 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.

Maintain 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 bottomline and liquidity during the most intense stretch of business disruption and.

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 and our specialty is most prime for growth of.

A critical element of our growth strategy we.

We also have succeeded and holding our GP margin steady from the prior year.

And 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.

And each of Kelly five operating segments Science Engineering, and technology education, and professional and industrial OCG and the international we saw sequential improvements and revenue from Q3 2020.

In fact, we've now seen continuous topline improvements each quarter since the crisis started and we're gaining momentum across the board, even surpassing pre COVID-19 revenue levels and 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 and 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 and 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 and economic activity and demand for our services and.

And we'll also highlight that 'twenty and 'twenty 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 and 2019, where the impact the material to understand the underlining business trend and I will provide the impact of the additional week in 2020 an hour.

Year over year comparisons.

The revenue totaled $1 2 billion down seven 2% from the first quarter of the prior year the.

The impact of the addition, and weak and 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 and demand from the low point expense in Q2, particularly in large accounts and our Q3 exit rate was the year over year decrease of 18%.

Our Q4 constant currency exit rate of 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 while the improvement and demand trends. We saw in Q3 came primarily from large accounts in Q4, we saw a more broad based improvement and demand.

Our education segment continues to be particularly impacted as the U S School districts return to school and the fall using of via T of delivery models, including virtual and hybrid.

Which has had an impact on the demand for our services in.

In Q4 schools have continued to modify their on the sectional delivery in response to our resilience in the infection rates.

Revenue in our outcome based products continues to trend well in the quarter with revenue in our professional and and industry of segments outcome based product up double digits as demand has been strong for our remote contact centers and specialty.

And within the <unk> segment, our results of generally tracked with the customers served and each specialty science, where we have many life science and clinical work customers has been the strongest and engineering with the concentration in the oil and the gas sector has been slower to <unk>.

And finally, our OCG segment has continued to be the most resilient exclude.

Excluding the extra week Q4 revenue for OCG reached a key a key inflection point that is higher than the comparable period of 2019, primarily due to new customer wins and 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% 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 shifting customer mix as large accounts and demand has been stronger than small and medium sized the business as well as lower Perm fees. We also saw a decline and our Q4 GP rate compared to Q3 2020.

The demand improved and our P&I and international segments. Since the margins are generally lower and these segments. Our overall margin rate is impacted as 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 expenses mitigation actions taken at the beginning of the pandemic, including eliminating the compensation adjustments. We have mentioned in the past sequentially expense levels in Q4 and increased as a result in place of those.

<unk> savings were actively working on the sustainable cost optimization plans, including the actions, which resulted in a 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.

Our Q4, 'twenty and 'twenty earnings include the $4 4 million of our structuring charge and our Q4 2019 and earnings include the $15 8 million noncash impairment charge related to a technology development project. So on the like for like basis, Q4, 'twenty and 'twenty.

Earnings from operations was $13 9 million of decline of 52% versus 2019.

The professional and industrial Science engineering, and technology, and international and <unk> segments delivered positive operating earnings for the quarter and.

And when excluding restructuring charges, all segments, including education as positive earnings from operations and again consistent with our performance in Q3, the OCG segment deliver better year over year earnings.

And to quickly comment on our results for the full year.

For the year of 2020 loves this form of operations as reported were $93 6 million compared to earnings of $81 8.002 million 19 and.

Excluding our Q1 goodwill impairment charge of.

The charge related to a customer dispute analysts lecturing charges, partially offset by the gain on sale of assets 2020 adjusted earnings from operations were $44 3 million compared to adjusted earnings of $98 million in 2019, a decrease of.

51 per cent.

Our adjusted 2020 results, we flagged 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 and Bell Solar holdings for the quarter, we recognize a $14 8 million pre tax gain on our pursuit of common stock comp.

They're two of 700000 pretax gain and the pilot.

These non cash gains and losses are recognized below earnings from operations of <unk>.

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.

2020 year on the 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 the items Q4, 2020, EPS was <unk> 41.

Compound two of 71 cents per share in Q4 2019 of decline of 42%.

Now moving to the balance sheet cash.

Cash totaled 21, and 23 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 and the U S. Under provisions of the cares Act and to a lesser extent the impact of rejections and working capital given our current lower year over year revenue.

As the recovery from the impact of COVID-19, and our business continues.

Accounts receivable was $1 3 billion and decreased one 5% year over year.

Global DSO was 64 days and increase of six days over year end 2019.

The increase reflects two trends we felt so beginning in Q2 as a result of the pandemic.

First customers are continuing efforts to manage their own cash flows and are taking advantage of their full payment terms with us.

And there's been the shift in our custom the mix is the large account demand as we covered faster and as a result, and a greater proportion of business with lots of 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 clear and conditions.

In our cash flow for the quarter.

We used $74 million of.

Free cash flow compared to generating $22 million of free cash flow in the same period in 2019.

For the quarter, we use cash to fund working capital as revenue trends improved and as a result of the increase in days sales outstanding.

On the full year basis, we generated one.

$171 million of free cash flow in 2020 compared to 82 million in 2019 for.

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.

And 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 work and get their needs.

And we will also be required to pay half of the deferred payroll taxes and I mentioned earlier by the end of 2021 and now back to you Peter.

For those details Olivier <unk>.

And I'd summarize our Q4 results reflect 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 the constrained talent supply, especially for low to mid skilled positions continues to pose challenges for fulfillment, we expect that dynamic to improve as 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.

And welcome back Olivier to provide additional thoughts and 2021. Thank you Peter for the past two quarters, we are not providing an outlook as economic conditions and the resulting impact on demand for our services was highly uncertain.

And even the fourth quarter, we have completed our annual planning cycle, which gives us additional visibility and we're encouraged that the trends pointing to a steady recovery and demand continues.

As a result will returned to providing an outlook for the full year and we 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 and 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 the 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 renewed Asher to expand the reach of our education segment.

We continue to evaluate opportunities to advance our inorganic strategy and the the specialties, where we choose to focus to accelerate the loan growth.

Given the likelihood that values pandemic and mitigation measures are likely to continue well into 2021, our views on the first half of 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 system.

And now for 2021.

More specifically, we continue to expect revenue trends to reflect year over year declines until we anniversary and 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.

And depending on the geography and history of concentration and products of each operating segment and 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 while I won't use specialty strategy is intended to drive growth in higher margin specialties. We also expect of the recovery and 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 and 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 self of 2021 in line with our goal to achieve sustainable cost reductions. We expect that these savings we low lows to moderate expense growth as the revenue increase so all in we expect the SG&A expense to be up.

Three to four and a half per cent for 2021.

And finally, we expect and 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 a recovery and 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 <unk>.

75th year and business would be spent recovering from one of the most intense and prolonged challenges and its history.

October 2021 will Mark this milestone anniversary for us and I am hopeful that buy them, we'll 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.

And I'm confident we'll emerge more agile more creative more resilient and even more driven to fulfill our purpose of connecting people to work and ways that enrich their lives.

And the Kelly spirit is even stronger than before and we are applying it in 2021 to continuing our strategic journey and steadfastly pursuing growth.

And as Olivier mentioned, we ended 2020 with the acquisition of Greenwood Asher of Premier Specialty Education Executive search firm. This move further expands kelly's reach into the higher education space and natural adjacency for us and.

And this month, we're launching of new tutoring product, another natural adjacency and and 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 and 2021, and we look forward to the shareholder value. We believe it will create.

At the same time, we're tackling and equities in the world of work at large.

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 and 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 and 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 business and is going are net of crisis.

And our board of directors and shareholders, who has confidence and Kelly enabled us to protect our company and position it for brighter days ahead and.

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 then zero of man.

If youre using a speakerphone please pick up the handset before pressing any numbers. Once again, if you have questions you May press, one and zero at this time.

The first question will go to the line of Joe Gomes with Noble capital go ahead.

Good morning.

And Joe Good morning, Joe.

So just a couple of quick questions here.

On the <unk>.

And 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 and that's us.

Space and in terms of the acquisitions or is and it's kind of more of a one off type of an acquisition and that space.

And thanks for the question Joe in.

The integration is going very well and it's only been a couple of months, but.

And some very promising in.

Indications of the synergies created between.

Greenwood <unk> presence in higher Ed and Kelly as existing presence and 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.

And as indicated earlier in my comments about our tool.

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 and a little more detail here and <unk>.

The candidate pool.

Especially on the lower end of the the wage scale and what what are you. What are you seeing there and when it what's the absence of the company taking to hopefully and large that pool are you concerned if they pass some more of the legislation and that it will.

Reduce people incentives to return to to work.

And any more detail there would be appreciated yeah, reflecting back on 'twenty and 'twenty one.

We expected the talent shortages that we were seeing and Q2 and beginning of Q3 to the.

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.

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 wage inflation.

If you look at P&I testing, which is really addressing you know the point about.

Jobs in manufacturing of what we call light industrial if we look at our own best Big teeth.

The inflation in Q1 was about 4%, which is the kind of history we have.

Pre Covid and then we did move from the 4% and Q1 and 2022 plus eight <unk>.

And so the double in Q2, Q3, and Q4, so thats I think of good sign of Nos of supply.

<unk> edge and challenges, we have but also showing our capabilities to really push some of our customers to basically.

And be more competitive in the marketplace and thus.

Improve the pay rate they can offer.

Okay. Thanks for that and say one more familiar and get back in.

And Q, so you talked about.

Revenues for this year being up in the seven or 11% range.

And what does that assume for education and that seems to be a.

As you guys mentioned, a hot topic here.

Trying to get the <unk>.

Schools of only reopen the what.

And what is your.

Guidance, there assume about the the education segment.

First of all of them and reflecting on the.

2020, I mean, we have seen after the big the big drop of Q2 and.

And improvement and education as well as we have seen in all of our operating segments of course, it is still a challenging environment because the majority of the schools are now basically.

Either of running.

And what we call the hybrid model of remote model.

And the minority of them are I would say fully reopen.

What we expect for.

2021 is clearly.

And that things are going to be very close to back to normal or at the time the of the next school year, meaning and of course of late.

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.

And opening schools and participation and 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.

And those programs and we're encouraged by the.

Local and national focus of the administration and focus on.

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 Peter and Olivier and good morning, how are you guys. Good how are you.

Great. Thank you and wanted to build off that last question, a little bit given the and <unk>.

Initiative around the tutoring and teachers of tomorrow and the acquisition.

And you exited.

2019 at about 100, and just under $140 million quarterly run rate and education and once.

What are the hosts.

Pandemic quarterly expectations now that we think about the new initiatives and the recent act.

Acquisition, what should be a good run rate, we should think about for that business and the understanding that there are quarterly fluctuations yes.

I mean needs of highly seasonal business. What we can tell you is that when you look at you know green.

Greenwood Asher that we did acquire and Q4 of last heal the Q1 insight acquisition and the multiple initiatives we have around.

Organic growth, including.

And what Peter was mentioning around two during and also.

Really a very healthy pipeline of new wins and new deals I think as soon as we get into a better environment I would think we should be able to catch up.

And very very quickly.

And decisively revenue wise and at least come back quickly to where we were pre COVID-19, but of course with the.

And 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 that Peter was mentioning.

Yes, Josh that the dynamic of the.

The the instructors is one that <unk> and the.

And the significant changes that are occurring both in higher Ed as well of K 12, So the number of teachers that of retiring the.

Of the teachers, graduating from from colleges, we think positions us well to support school districts and colleges and universities with the workforce challenges that we have and the Greenwood Asher acquisition as well as the items that Olivier just mentioned are all intended to.

The 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 and the supply side to make sure that we have the right pool of.

Subsea chose to.

<unk> basically of the race.

Potentially a very quick recovery and demand in the course of 2021.

And as a reminder, ladies and gentlemen, if you do have questions. Please taken of the opportunity and now the press one and then zero on your Touchtone phone.

We'll go next to the line of Kevin Stankey with Barrington Research go ahead. Please.

Good morning, good morning.

Good morning, Kevin.

I wanted to do.

I ask about the.

Professional industrial on the one of the slides in your presentation and you get.

The adjusted Q.

Q4 20 <unk>.

Revenue trends and then the December exit rates.

And really professional and industrial.

Showed one of the most meaningful improvements.

All of your segments in terms of the December exit rate.

Yeah, we've been talking about some of the challenges there with talent supply. So what what are you seeing and and professional and industrial that's been able to drive.

And the improvement you know in the.

The December exit rate versus kind of the full quarter for <unk>.

Well, Kevin and I think it's a number of of.

Factors I think the.

Customers are becoming more accustomed to operating and in this uncertain environment. So.

And so they're figuring out.

How to.

The operate and even expand and 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.

The different recruiting strategies that allow us to tap into.

Additional sources of talent and.

Take advantage when and when we're able to of the.

The unemployment that frankly, usually would would result in a.

Plethora of talent.

And would probably add a few more things one is when you look at P&I staffing as the Peter and I did mention during our <unk>.

Our prepared remarks, we have seen a lot of good traction in our large customers as soon as.

And I would say early Q3, we stopped and now to see more traction coming from.

Our smaller customers and English equal of SME of and 70 businesses, which of course is also on the explanation of why our exit rate in December was was improving the second thing I would mention and I briefly talk about it again. This morning is our.

Outcome based business and P&I is trending extremely well, especially around Kelly connect all of our call center of business.

And Thats of course, you know knowing it is still trending at the 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 setting we haven't and C&I.

Okay. That's that's all the very helpful color. Thank you and.

And 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 kind of emerge from.

The downturn here and I know they've been slower to recover the larger customers, but any insight on what youre seeing and the market, that's maybe helping smaller customers get back.

Up and running.

Yes, 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.

And I believe was primarily on their full time workforce 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 and and see demand for their goods and services and and so they need additional talent.

So they're coming back to the 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.

The more willing in the.

<unk>.

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.

Beginning to accept that as the reality of the current environment.

Yes.

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 the of the U S, namely <unk> and Europe, that's not kids as the.

The location in Europe.

Okay, alright, well, thanks for that and <unk>.

And I also I wanted to ask about within the science and engineering and Science Engineering and technology, you had talked last quarter, just about a little bit of.

Slowdown and the Pelican telecommunication.

Telecommunications space.

And the specifically the Nextgen and GTA businesses within the two.

And some merger activity and the.

The telecommunications space, what are you seeing and that piece of the 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 the.

One of the.

One of the issues in the rollout of five G has been.

The number of projects that are dependent on certifications or permits or.

The reviews of the work product and municipalities and other.

The regional <unk>.

Rising and.

Entities have been.

Affected significantly by the pandemic in terms of the number of people.

<unk>.

Pulling permits the.

The access and so that's been a additional.

The headwind for us.

And the telecom business, but as the economy begins to open up as.

The municipalities and the.

And.

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.

Yeah, we have seen okay.

Improvements in Q4 of.

2020 EBIT.

Rich.

Okay, Okay got it.

And then.

Just you know we've been talking about.

Some of the segments here and I don't.

Now if you want to go to this level of detail, but can you maybe talk broadly about.

By segment.

And what sort of trends.

You expect and each of those segments to buildup of the.

7% to 11% revenue growth target for this year.

Well I'll comment generally Kevin I'll, let Olivier and I get to the details but.

And we're seeing momentum across all of the business units and as Olivier mentioned, even in education that the.

The number of new wins with school districts is.

Significantly exceeds pre pandemic levels and.

And I would say that that is true and in all of our.

The segments, where and when we look at both new customer wins and pipelines and so I think.

The 7% of 11% and will be there will be contributions from all of our business units, Yes, I think so.

Okay, and then just lastly for me.

You mentioned, the three to four and 5% SG&A growth expected in 2021.

And either implementing some cost savings actions can you give us a sense for the.

Size of the cost savings you would expect this year from a low.

Those actions you're taking.

Just two.

To remind you of little bit of what we have done 2020.

You might remember that we had.

Our Q1 of our structuring.

That was basically.

The intend was basically to get us ready for our new operating model and new operating segments.

At that time, we have.

<unk> disclosed.

The fact that.

And the expectations.

We're basically to say that $20 million of cost.

And that's 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 that I was referring to.

In our prepared remarks.

The intent is basically to add on top and the decision.

$10 million of savings.

That would of course, knowing that this initiative was late 'twenty and 'twenty would basically.

Impact fully and positively.

2021, and valuable 10 million.

And the point I would like to mention ease and I think I mentioned it and.

And again in the in my remarks was we are continuing to look at sustainable cost reductions.

Especially 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. We have what we are trying to do is to ensure sustainable optimization of.

Our cost base and also we look at towards the call.

And our allocation of resources.

Okay. Thanks for all of that color very helpful and that's all I had thank you.

Kevin and 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.

Aye.

And 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 and factor.

How much I can add to STI and the 'twenty one.

Yeah.

At the stage, because basically Josh I mean, what we are doing now as we speak and I would say that we are really focusing on.

Executive.

The additional actions and the first self of 2021 is basically and extension of what we have started.

In the far end 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 that is made.

Basically out of the SG&A cost base.

Our outlook, we have provided today.

Okay and.

To be able to give you a much precise of date on that Josh at the end of Q1, where we are okay great.

And those.

Initiatives that again are an extension of what we have started and the final 2020.

Okay and.

Just to make and looking at it right. When we think about the three to four and 5% year over year increase which which number is that off of visit the reported 806 million or the adjusted $783 million.

Or does it take out that customer dispute that nine of them.

And then looking at the right number it's a very good question because that was something I was careful the discussing and to make sure that we give we give.

Something that is clear based on.

And what is the starting point so the starting point he is going to be I would say our SG&A.

<unk>.

So excluding.

2020 restructuring cost and also excluding <unk>.

And what we refer to as.

The write off of some receivables coming from.

The litigation with the customer in Mexico.

So if you look at the <unk>.

<unk> 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.

<unk>.

And I know Peter.

Peter you're talking about.

And there was the question about the 7% of 11% revenue guidance and.

Generally you expect.

All of specialties to be up, but maybe just a little bit more thoughts of alone.

And more pronounced and P&I and international should we potentially see outsized recoveries there versus the other segments and 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.

The levels and.

And growth and the second half of the year.

So that would be one internationally is likely to be slower to recover.

And given the the challenge is that it has in terms of the ongoing.

Economic environment in the geographies and which we operate.

We are already at pre pandemic levels for OCG and.

And while that is a business that is at times.

Depending on when we're implementing large programs where customers can.

And.

And have some variability and it on the whole for 2021, we expect that.

The growth to continue.

And then Pete.

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.

Event, where you don't foresee in terms of a resurgence or the very end of it.

We don't expect we expect the set and and P&I businesses to continue their nice progression and momentum that we see both in existing.

Customers.

New wins, but also and the pipeline.

I appreciate the detail there and and just two more quick ones for me.

Just to make sure I'm looking at a rate of alleviate.

The total.

Payroll tax deferral and what is expected to be paid back and split 50 50, this year and next year.

Yeah, I mean, we we have benefited from exactly $117 million of the cares Act.

Basically.

Split almost evenly between Q2 Q3 Q4 of last year of a little bit more in Q4 of those of course.

And our revenue is and our level of activities of moving up.

And the due date.

And basically have sort of 58, and a 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 just lastly bound.

Balance sheet and Green cheap you continue to generate positive cash flow or are there any thoughts around.

Dividend plans.

And of the statement.

Well we're the.

Board is regularly.

Revisiting the dividend policy in light of the environment that we're in and.

And.

And that 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 and our.

The financial health that we are taking into account the.

Sharing the the value with our shareholders.

And we really need to look at how we are trending in Q1 and Q2.

Of 2021.

And I think based on that I think when we aren't going to have.

And much more clarity.

Timing and.

And the other considerations related to dividends.

And we really need to look at how Q1 and Q2 are looking.

So I would say the first step is really.

And kind of mid year, our assessment of the situation.

Yes makes sense well. Thank you for all of the detail and for taking my question guys stay safe out there, yes. Thanks here to Josh Thank you Josh.

And if there are any additional questions. Please take this opportunity now the press one of them zero on your Touchtone phone.

Yeah.

Yeah.

And gentlemen, we have no further questions in queue. You May proceed alright.

Alright. Thank you Alan Thank you very much.

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