Q1 2021 Kelly Services Inc Earnings Call
Yeah.
Good morning, and welcome to Kelly services first quarter 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.
I would now like to turn the meeting over to your host Mr. Peter Quigley, President and CEO, Sir you may begin.
Thank you Tani and Hello, everyone and welcome to Kelly services first quarter Conference call.
With me today is Olivier T Rowe, our Chief Financial Officer, who will walk you through our safe Harbor language, which can be found in our presentation materials. Thank you Peter and good morning, everyone. Let me remind us and any comments made during this call, including the Q&A may include forward looking statements about our expectations.
<unk> helps to jump at for months.
Actual results could differ materially from those suggested by our comments and we have no obligation to update the statements made on this call.
And we felt to our SEC filings for a description of the risk factors.
That could any free on the companion actuarial true Joe before us.
In addition, during the call certain debt that will be discussed on a reported and on an adjusted basis and discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends and our operations. We have also provided a slide deck that we're using on today's call.
And as well as an expense slide deck with more information on our performance. Although website now back to you Peter Thank you Olivier more than a year. After the COVID-19 pandemic began we're entering a new and promising phase of the recovery and the U S. The temporary labor labor market has.
<unk> recovered unemployment is down and demand for staffing and other workforce solutions is building across small medium and large enterprises, while we haven't left COVID-19 completely behind us.
Our entering what appears to be a solid sustainable recovery that will likely gather momentum throughout 2021.
And Kelly, we are well positioned to capture growth and the recovery.
Our actions in 2020 protected our balance sheet and capital and in 2021, we are executing against our well defined specialization strategy.
We are investing in organic growth to help accelerate that strategy, bringing new high potential solutions to market for.
For example, the tutoring product that we launched in March will help close pandemic induced K 12 learning gaps.
And unlock new revenue streams, and our education segment.
At the same time, we are pursuing inorganic growth at an unprecedented pace as.
As you May recall in February 2020, shortly before the pandemic hit we laid out plans to pursue a bolder approach to driving growth through targeted M&A.
We're acting on these plans to accelerate our specialization strategy, including two acquisitions in the education segment last year.
Now we're excited to have reached a new M&A milestone our purchase of software World and April 2021.
The largest acquisition and Kelly history, the deal significantly expands our market presence and the technology staffing and solutions space and helps to continue to shift to kellys portfolio towards fast growing high value specialties.
Olivier will share what this means for future revenue and GB GP growth and a few minutes, but in the meantime, I know our soft world colleagues are listening today and I'd like to publicly welcome them for the Camel Kelly family. We're thrilled to have you on this journey with us.
Before I hand, it off to Olivier to provide details on Kelly's first quarter performance I will share a few highlights.
All of our operating segments professional and industrial Science Engineering, and technology Education, OCG and international were profitable in Q1, and excluding the 50 <unk> week in the fourth quarter last year, all delivered sequential improvements and either revenue dollars or revenue growth.
Rates, while three delivering improvements against both measures OCG education and international.
Specifically, our OCG segment continues to thrive and surpassed its pre COVID-19 revenue levels for the second quarter and a row, while delivering better year over year earnings.
We were pleased to see our education segment, which has been and this segment most impacted by COVID-19, and exceed our expectations in Q1, as we placed 30000 and substitute teachers in March the best month since the pandemic began.
The U S education system is still a long way from normal but schools are starting to reopen and we have added new win and store portfolio and our sales pipeline is healthy and growing.
Kelly International delivered better year over year earnings as our teams captured growth from sustained demand among life sciences customers and saw increased demand and manufacturing facilities reopened.
Our <unk> segment delivered sequential top line growth notwithstanding a slight deceleration in growth rates during the quarter stemming from some headwinds among certain verticals and industries.
We continue to meet strong demand and our science specialty and captured significant fee growth.
And our professional and and industrial segment, our outcome based businesses continued to perform well and our staffing business delivered strong fee growth.
And while our staffing business is trending up and demand for our staffing solutions returned to pre pandemic levels and the quarter. We did not convert enough of this new demand for top line revenue in line with our expectations.
While some of this is attributable to a tighter than usual labor and labor market, particularly in light industrial jobs, we have taken steps to enable P&I to capture more of this demand opportunity and the future.
I'll provide some additional insight regarding those steps later in the call I'll now turn it over to Olivier to share more details about our Q1 results.
Peter.
Peter mentioned, our Q1 results reshape impactor for continuing stabilization and economic activity and demand from for our services.
And some COVID-19 and related challenges remain we passed the one year Mark of the panel members this quarter.
The impact of low oil demand shows that became visible in our financial results starting in mid March of 2020, as abundant increase bumps impacted economic activity around the globe.
For the first quarter of 2021 revenue totaled $1 2 billion down for 4% from the prior year or down five 5% in constant currency as.
As we mentioned last quarter, we have continued to see gradual improvement and demand from the low point experienced in Q2 2020.
Our Q1 cost and currency exit rate all year over year revenue trends for the months of March was down two 7% compounded to our December exit rate, excluding the fish and so the week of down eight 1%.
This is due in part to a prior year comparable and that reflects the early days of depended and making 2020 and reflects a continued trend of gradual improvements over the course of the quarter.
Three of our five segments are now reporting positive year over year constant currency revenue gains for the months of March OCG at plus 8%.
Confirming the trends we have seen in 2020.
And to National plus three 5% and education at plus two 7%.
For the quarter, our education segment continues to be impacted as U S quality suites and use of value and delivery models, including <unk> and hybrid.
Which has an impact on the demand for our services, However, revenue and our education segment for the first quarter did growth sequentially.
2020, which is encouraging.
Because schools have continued to modify their unstructured and delivery in response to changing local infection rates volatility and demand in the near term is still possible.
And international also experienced continued improvement and revenue trends and that positive sequential revenue gains and the quarter. Excluding the impact of the 50, <unk> week, Russia, and Mexico continued to show solid revenue growth, Switzerland, and Italy returned to positive revenue growth and the quarter and for all as seen on <unk>.
One showed improvements with a positive exit rate in March.
For revenue in our professional and then just for you on Sigma continues to reflect growth and our outcome based products, including our remote contact center business, our specialty business, while trending up is still limited by current talent and supply shortages and some additional challenges that Peter will cover later.
And within the <unk> segment, our results have generally tracked with the customers served and niche specialty science, where we have many life science and clinical customers as being the strongest and engineering with the concentration and the oil and gas sector has been slower to Rico.
And finally, our OCG segment as continued to perform well, thanks to new customer wins and growth in our existing customer base and CW Osteo and PPE.
After reaching a key inflection point in Q4 2020, when revenue for the quarter exceeds a corresponding pre COVID-19 period.
<unk> sustain that level of performance in Q1, and 2021 with revenue up over both the comparable periods in 2020 and also in 2019.
Permanent placement fees were up 30% year over year from significant increases in activity and P&I and set coupled with fees from our Q4 2020 acquisition of Greenwood as shown in the education segment.
And this was partially offset by a decline in seizing the international segment, reflecting a more uncertain environment in Europe.
Overall gross profit was down for 5% or five 7% on a constant currency basis.
Our gross profit rate was 17, 7% consistent with the first quarter of the pioneer on.
On a year over year basis, our GP rate was positively impacted by higher term fees and she was offset by the negative impact of higher employee related benefit costs. Within this segment, we did experience some variability and gd rates caused by shifts in customer and product mix and in the case of P&I.
And by one time costs associated with expected future increases in customer demand in our contact center product.
SG&A expenses were down 8% year over year on a reported basis included and expenses for the first quarter of 2020, and $8 7 million plus structuring charge.
On a like for like basis expenses for the quarter were down 5% and year over year and constant currency.
Overall expense reductions in all segments reflect continuous management of our cost base and landing with revenue trends, while preserving the ability to respond as market conditions improved and continuing with organic investment and our selected specialties.
Our reported earnings from operations for the first quarter were $10 6 million compared to Q1, and 2020 reported loss of 111 8 million.
Our Q1, 2020 earnings include a goodwill impairment charge of $147 7 million gain on the sale of assets of $32 1 million and and $8 7 million of restructuring charge.
As adjusted Q1, 2020 earnings from operations were $12 5 million and on a like for like basis.
And in the 2021 first quarter declined 15%.
For the quarter, all operating segments as positive earnings from operations, and OCG and international delivered better adjusted earnings and a year ago.
Now turning back to the company as a whole Kelly earnings before tax also include the unrealized gains and losses on our equity investments and Pearsall recordings.
For the quarter, we recognized a 30 million pre tax gain on our total common stock compared to $77 8 million pretax loss in the prior year.
And this is non cash gains and losses are recognized below earnings from operations as a separate line item.
Other income and expense also below also below earnings from operations other than usual year over year volume this quarter caused by higher transaction related expense from our software and the acquisition and the one time non cash write the write down of HIV innovation from investment.
Income tax expense for the first quarter was $10 5 million compared with our 2020 income tax benefit of $36 2 million, our effective tax rate for the quarter was 28, 3% and our tax rate was higher than the U S statutory rate primarily due to the impact of non.
Cash gains on virtual common stock and the related deferred taxes recorded at the higher Japanese statutory rate.
And finally reported earnings per share for the first quarter of 2021 was 64 cents per share compared to a loss of $3 91 per share in 2000 22021 earnings per share includes a gain on vessel sales net of tax and 2020 earnings per share.
And was unfavorably impacted by the goodwill impairment charge the loss and total common stock and those structuring charges, partially offset by the gain on sale of assets.
Adjusting for these items Q1, 2021, EPS was 12 <unk>.
Compared to <unk> 20 per share in Q1, and 2020, a decline of 40%.
Now moving to the balance sheet as Peter mentioned, we acquired <unk> on April 5th which falls in <unk> fiscal second quarter.
So the impact so far on acquisition is not reflected in our balance sheet as of the end of the first quarter.
As of quarter, and cash totaled $279 million compared to $223 million at year end 2020, and $48 million per year.
Debt remains slow and 1 million at quarter end compared to nearly zero at year end 2020, and $2 million of U <unk>.
And we ended the quarter with no borrowings in our U S credit facilities.
Our higher cash balance reflects the benefit of deferral of payroll and taxes and the U S. Under provisions of the cares Act and to a lesser extent the impact of predictions and 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 increase of three 5% year over year.
Global DSO was 60 days and increase of one day over the same period in 2020, but a decline of four days from year end 2020.
The decrease in senior and reflect the collection of receivables from several large customers. We are carrying higher balances at year end due to customer driven administrative issues.
And our cash flow for the quarter, we generated $8 million of free cash flow consistent with the same period in 2020 as.
As we noted in our form 8-K announcing the acquisition, we acquired <unk> for $215 million plus working capital adjustments and we were able to for the entire acquisition with existing cash balances.
As a result, our cash balances are now back in line with levels needed to manage daily liquidity and.
And why does the <unk> acquisition didn't require debt financing, we may begin to borrow and existing credit facilities to ship, both work and get their needs as revenue levels continued to recover offshore.
Pre COVID-19 levels and now back to you Peter Thanks for those details Olivier while it's clear that we are still living with the impact of the COVID-19 pandemic.
We're pleased to see continued economic momentum and we are encouraged by healthy sales pipelines and the new customer wins, we're capturing as the recovery progresses.
I'd like to provide a little more insight into the demand supply dynamics and P&I staffing that I mentioned earlier and the call as noted demand from existing and new customers exceeds pre pandemic levels while supply for.
Particularly and lower wage jobs is challenging and while our staffing business is trending up we're taking steps to capture more growth than we delivered this quarter.
You'll recall that even during the pandemic, we successfully deployed our new front office mid year last year. During the first phase of deployment certain activities still require use of legacy Kelly systems.
And the inefficient and inefficiencies. This causes became more pronounced as we emerged from last year's significantly depressed demand to the current environment.
We are addressing this by accelerating the technology deployment timeline, introducing additional training of our frontline teams and exploring the use of complementary technology to alleviate some inefficiencies.
We've also begun reopening physical branches and targeted high demand markets to facilitate and person recruiting of local talent and we are focusing internal resources on filling vacant recruiter roles more quickly.
To capture on new revenue stream and P&I, we have started offering a new skilled professional solution that bridges the gap between temporary and full time employment and lets clients.
And high value P&I workers on a project basis.
We expect the supply of P&I talent at all skill levels to improve as vaccines vaccination rates rise and schools resume in person instructional delivery, enabling more parents to return to work.
Overall, we're optimistic about these early stages of the recovery barring an unforeseen economic setback, we expect that demand and all operating segments will continue to accelerate particularly in the second half of the year.
It's worth noting that Kelly is maximizing the momentum of these market conditions with intelligent technologies deployed during the pandemic.
We launched virtual job fairs last year on response to COVID-19, and have now incorporated them into our standard recruiting practices, bringing and hundreds of hires and hundreds of thousands of GT GP dollars.
To help put people on the job faster, we have improved our online talent and experience and cut in half the time to complete the registration process. We are introducing a powerful new tech stack that enables Kelly clients to request full time contingent and contract talent through a single source Sim.
<unk> and speeding up the hiring process across their entire workforce.
And throughout our own operations Kelly has deployed numerous the bots that perform highly repetitive tasks and save hundreds of thousands of human work hours annually.
Technologies, such as these make it faster and easier for talent clients and our internal teams to connect and position Kelly to capture growth more quickly and efficiently as the recovery accelerates I'll now welcome back Olivier to provide additional thoughts on 2021, Thank you Peter and.
And the time of our year end earnings release in February will be returned to providing and I would look for the full year and we'll continue to update our full year guidance as the year progresses.
We passed the one year anniversary of the COVID-19 pandemic in the quarter and remain confident that we have adequate financial resources and liquidity to emerge from this crisis and capitalize on low recovery as we have discussed we completed the purchase of so for I'll. Just after the end of the first quarter and we have nine months of Tso for the activity reflect.
And our 2021 results, we expect that the impact of <unk> acquisition will accelerate our revenue growth in the high demand high margin technology specialty and will result in a structural improvement in our GP rate.
So and discussing our outlook I'll first address our expectations from an inorganic perspective without the impact of the acquisition of so for them and we lose and address the impact of so flow separately.
As we reflect on the fourth quarter results and look at the remaining three quarters, our view as for continuation of the current trend of gradual and steady increases in demand with unimportant and for the most substantial recovery in the second item for 2021.
For the full year, we expect organic revenue to be up 10% to 12% compared to our initial 2021 and guidance of seven to 11 year over year revenue growth rate.
This reflects our expectation that demand continues to improve and that steps. We are taking to address the current talent shortage I expect it to expand the supply of talent available to us we expect that the timeline for each operating segment to reach free COVID-19 revenue levels will depend on will depend on geographies.
So and industry concentration and product mix with <unk> already and the other segments. We'll cross that milestone later in 2021 all in the first half of 2022, we'll continue to launch targeted growth initiatives that are intended to further accelerate organic revenue growth and.
In addition, we expect so flow to add an additional two and red to 200 feet and 50 basis points to our revenue growth rate this year.
We expect our organic GT rate to be just under 18% down slightly versus our pre COVID-19 and margins.
While we pursue our specialty strategy intended to drive growth and higher margin specialties and expect continued year over year improvement in our balance sheet business. We also expect to recovery and lower margin and specialties to keep our organic GP rate relatively flat in 2021.
The addition of so for US is expected to improve the total company and GP rate by and Chanel 30 to 40 basis points. This year.
We have taken some definitive steps with respect to sustainable SG&A cost reductions in Q4, 2020, and authorizing meaningful cost savings and <unk>.
And our intended to partially offset the impact of the expiring <unk> of our temporary cost actions in place in 2020.
We expect that these savings.
It will allow us to moderate expense growth as our revenues increase so all in we expect SG&A expenses to be up for two 5% on an organic basis.
Our recent acquisition is also expected to add about 200 basis points of operating expenses.
And also on additional 100 basis points of non cash intangible amortization this year.
As we execute on our acquisition strategy, we plan to utilize EBITDA and EBITDA margin as additional measures of our progress on the promise to deliver push stable growth.
We will begin reporting on and providing an outlook for these measures with our second quarter earnings release in August and.
And finally, we expect and effective income tax rate and the mid teens, which includes the impact of the work opportunity tax credit, which has been extended through 2025.
At the expected recovery and demand continues we will continue to review our capital allocation strategy, including our dividend policy with our board of directors back to you Peter on that thank you Olivier more than a year. After the pandemic began we are looking ahead with optimism and growing confidence in the economic recovery and.
Our performance as reflected in our newly raised 2021 guidance.
We're seeing demand continue to strengthen among large customers and and small and medium enterprises and encouraging sign that the recovery is gaining traction at multiple layers.
Robust fee growth and the U S also points toward increased confidence about the future as businesses ramp up their full time hiring in anticipation of strong economic growth.
Kelly is well positioned to drive growth from our specialization strategy. During this recovery, we are aggressively pursuing targeted M&A opportunities and high value specialties as evidenced by our acquisition of soft world, which dramatically expands our presence in the fast growing technology staffing and solutions space.
At the same time, we are investing in organic growth on multiple fronts. For example, pursuing adjacencies, such as tutoring and higher Ed and our education segment.
As the economic recovery strengthens underlying and equities in the labor market are likely to remain so they are too Kelly is taking action or equity at work initiative is helping to increase the available talent pool by tackling systemic barriers that prevent people from connecting with work we're on.
Inspired by customer support and enthusiasm around this initiative and we are already seeing some encouraging early results and talent attraction and retention rates.
<unk> is also taking a consultative role to help clients improve their employer brands and design, new incentives to attract diverse talent and an increasingly competitive labor market.
The economic recovery is here and Kelly is ready for it and we move forward in 2021 and confident in our specialization strategy, our ability to drive organic and inorganic growth and our commitment to helping customers and talent thrive and the brighter days that lie ahead.
Tony you can now open the call to questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one zero on your telephone keypad.
You may withdraw your question at any time by repeating the one Euro command.
If youre using a speakerphone, please pick up the handset before pressing the numbers.
Once again, if you have a question and today.
You May press, one zero at this time.
Our first question comes from the line of John Healy with Northcoast Research. Please go ahead.
Thank you.
Let me and I was hoping you could just kind of run through some of that SG&A.
Outlook.
Again.
And I was just trying to trying to square some of those numbers around and on the gross margin outlook.
Just under 18% does that include the benefit of software and software world or does that exclude it.
Thank you and good morning, John.
And a start on the SG&A. So we set up for two 5% I just wanted to mention that of course, the reference point of 2020, a little bit difficult because of multiple you know.
And one time events in 2020, so you'd need to sing about a base of 2020 base at about $795 million, which I think is a base that you could use.
Basically built up your modeling for 2021.
The second question about so for them and the GP note.
The GTE shy of 18% for the current debt.
And as exclude so flow and it's probably and I don't want to dose you want to do it now and opportunity to talk a little bit about the financial sponsors. So for lease so and I think Peter is going to give also a broader.
Business view of both so flow. So just wanted to briefly talk about so flow <unk>.
<unk>.
Explain a little bit what I call weak orders and growth profile and the value profile of these comments. So if you think about the growth profile and you look at the revenue trend of so Paulo.
I'll give you two simple numbers the revenue CAGR of soft world.
Between 2015, and 2020 was on average gross per yield of 20% to 22%.
If you now look at 2020, which of course is always seen as a very specific year. So for world was growing their revenue by 23%.
And.
On the value profile of this company I'm going to help you to basically use our outlook to figure out.
Some key financials related yourself World issue you should take the.
The.
Impact that I was sharing with you about so flow.
Of course, it's on a nine months basis as opposed to a 12 month basis, but as you make the math get this information on the 12 months' basis to look at the kind of pro forma expected 2021 type of financials, you would end up basically looking at a revenue range.
And for social World fully abate between 100 130 to 175 million.
<unk> rate of 36% to 37% average.
<unk> 36 to 37, it's a very very high GP rate that is commensurate with liquidity.
The business, we have acquired and Peter probably will.
And a little bit of that and you would end up with <unk> and EBITDA.
Again on a full year basis, and up nine months off for about $20 million, So and EBITDA margin at about 15, one five per cent.
And to conclude on that if you look at the acquisition price of $215 million.
And you look at multiples of EBITDA, while you can make the math very easily and you would end up with a range of EBITDA multiple between 10 to 11 times and with that Peter maybe you want to give a little bit of small business and yogurt. So for us yes.
Thank you Olivia and good morning, John.
So the reason why we believe software lease such a.
Attractive addition to the Kelly portfolio and the basis behind the numbers that Olivia just shared with you as they sit and <unk>.
Streamline high growth.
Spot and the technology space.
The demand for our technology.
Specialist has accelerated application developers and software engineers data analysts and demand has never been greater.
And.
Software World results reflect that.
They have recruitment and staffing solutions that span some some high growth practice areas technology financial services Cyber Security Engineering Life Sciences government services data science.
And.
Importantly, they provide not only staffing but also.
And statement of work solutions that complement nicely.
And the.
Solutions that Kelly provides and I guess the last one I would make John is surprisingly the overlap among our customer set is actually relatively light, which we think provides a exciting opportunity for growth synergies going forward.
Great and just wanted to ask kind of one bigger picture question and.
I think you guys are uniquely positioned to provide a perspective on the assets and the education space.
How do you expect and kind of what is the debt.
The tone that you are getting from <unk>.
School districts and municipalities about 2000, and I guess school year 2022.
And Paul here of 'twenty one.
Are you expecting that business and.
Operator.
And of at pre pandemic levels and do you think the pandemic helps that business that didn't hurt that business kind of is.
As we kind of I would think start.
Reopening 10 person education Marcel.
Yeah. Thanks for the question, John and I'll comment provide some color and then let Olivier maybe share some true.
Financial.
Perspective.
We expect.
Schools to be providing in person and instruction and the fall and we think the.
What we're seeing.
In the first half of this year what school districts are talking about the <unk>.
Both at the federal.
Geographic level local level.
Plans are in place to reopen and fully in the fall so barring some unforeseen.
Challenge.
And Antefix challenge our expectation is that schools are going to be fully reopened and net demand for.
Our services is going to be robust.
We have and.
And we expect that not only from clients that we had.
Before the pandemic, who are who elect and working with but we also saw.
Significant new wins in the last nine months and one of the most productive periods.
And Kelly education history, so it's going to be a combination of our existing clients reopening.
And new wins coming online, maybe how you want to yes, and just probably adding on and the what we call until nearly our inflection point, which is the time, where our revenue.
Overall and by business unit is going to cross.
Not necessarily as a 2020 mouth, but for 2019, the pre COVID-19 type of revenue and we believe in education and based on what Peter what I would say that we believe we are going to exceed.
The secondary for 2019 revenue base.
Basically and the second half of 2021 net.
Cross this inflection point when you compare our trends and litigation non divestitures 2020 versus 2019.
Great. Thank you guys.
Thank you. Our next question comes from Josh Vogel with Sidoti. Please go ahead.
Thank you and good morning, Peter and Olivier on it.
Josh Josh.
Jim I don't want to harp on software on too much but.
I was just curious the.
Initial press release said, they did and excess of about $100 from 2020 mentioned.
Our CAGR range of like 22, 23%.
But it seems like your guidance for the nine months extrapolate it out over the full year, you're looking at it.
And 30% type growth is that just going up against good comp or are you seeing pent up demand or is it a little bit of both.
No I'm going to start and Peter is going to complement on that.
And knowing that you know two.
2020 was a difficult year in terms of overall environment, including in the <unk> in the U S.
We are very confident that we can continue uneven so fast and the type of double digit growth, we are seeing and revenue and on top of that we are as we did for Nextgen and GTA and 2019 immediately initiated some.
Further investment to basically further accelerates.
On the organic growth so for all that.
And that is already in double digits.
Yes, hi, good morning, Josh.
I would add debt.
Regarding the pent up demand there is significant and there was significant demand.
Before the pandemic and it is only.
Accelerated as a result of.
The pandemic when you consider the companies having to stand up remote workforces and deal with the <unk>.
Titan cyber security threats that exist.
And software old is in excellent position to supply.
Supply the kind of high and talent that really all organizations are going to need going forward for the foreseeable future. So.
<unk>.
Software on saw continuing.
Continuing growth during 2020, and we expect as the.
The worst part of the pandemic is behind us that it will only accelerate.
Yes and.
Just when we are going to issue an 8-K.
Probably mid June or with all the pro forma so for <unk>.
As well as the combination between the shortfall and Katie and then youre going to have more access to.
You know historical information for.
<unk> basically.
When we talk about $100 million well in fact, we say around 100 million. So you will see that basically when you get the pro forma for <unk>.
2020, and the revenue was slightly higher than the 100 million Mark you were referring to.
I Gotcha I appreciate those insights and.
When we think about the M&A pipeline and appetite.
And is paying 10% to 11 times for technology or and SEC type company.
Are you comfortable with going forward or your and we're happy paying a little bit more softer world and just given the profile and the growth within the business and just on a slight tangent.
What are the typical multiples we've been paying on the education and the education sector.
Yeah, I would say, we feel comfortable with the 10 to 11 neurons because of the strategic fit and the growth as well as the value provided that detail and eyewear and describing today.
And.
And I can say that and we use a pretty high hurdle rates that we use and on their rate of return.
As a critical you know.
Filter to make sure that you know.
And we put the right price.
Use.
And the harder rate for internal rate of return of 25% and.
And I've said several times I mean, that's a pretty high hurdle rate to make sure that we.
We really always consider.
Basically and the type of accuracy acquisition pricing, we put on the table on education I believe talking about the type of Adjacencies and efficiencies. We are looking at is going to be probably yes.
Double digit for being low double digit, but certainly crossing the 10% multiple yes, especially and the adjacencies, Josh not necessarily in the K 12 space, but.
And the higher margin for example, and occupational speech some of the other therapy <unk>.
Adjacencies that are attractive.
Those are going to command higher multiples.
And as Olivier said, we have a very high internal rate of return on our hurdle rate and we're also measuring targets against other factors, including.
And our culture cultural set.
And ability to integrate which I think we've demonstrated a good track record with the acquisitions, we've made over the last three or four years.
As well as the ability to create.
On synergies.
To date, it's primarily been topline synergies but.
And that's also an important factor.
Okay great.
Just wanted to give us a little bit understanding the current.
Demand and supply dynamic.
And we think about the entire business and the pricing environment and what does it look at the lower and higher and goals set for categories versus pre pandemic and general thoughts around on.
Pricing and from here and your ability to maintain the spread.
Well I think it's.
And it's very attractive at the higher and the professional.
And our and our SAP business.
I think there is opportunity and our professional and industrial is the.
And the talent shortages reveal themselves and companies are.
Dealing with the production consequences of not having enough.
Workers and.
And so not only true.
Captures some of the.
Higher benefit cost debt, we have as a result of.
States having higher.
And the payroll taxes, but also.
Because of the demand for talent and working with customers not only on competitive wages, but also potentially cash.
Capturing more margin as a result of.
Our ability to deliver the talent that they need to to run their businesses.
Alright, great. Thank you and yes just.
Just two quick quick hit one.
The missing it and either and the slide presentation on the.
Earnings report, but what was in the other income or expense line that $3 for Milan.
Yes, you mean other income and expense Josh, Yes, yes, and then.
We have of course as usual some what we call <unk>.
Currency fluctuation, which is one explanation, but that is happening or less for the time. The two other items were basically acquisition cost and into software.
And the thing and one is basically a write off of one.
Investments, we add to our kidney innovation from on a company called Kenzie Academy.
And that's a onetime non cash item of.
And one 4 million.
Alright, great and just lastly.
Do you have an early read on the April exit range, given that that was the first full month of the pandemic last year.
Yes.
Our exit rate for for the months of March was minus two seven we have to say that we start to see.
OCG of course, confirming the growth we are seeing even compared to 2019 education till noon to positive as well in March as well as.
On.
Our international sales.
And we see now and AP, while basically confirming the trends we have seen a gradual improvement.
And usually the way, we look and see it as I did mentioned with the inflection point is basically also comparing I will say from 2019, and we continue to see progress.
Versus the pre COVID-19 type of revenue yet before.
Got you well thanks for taking my questions and for all the details and insights on the prepared remarks have a great day guys.
Thanks, Josh Thank you Josh.
Thank you. Our next question comes from Kevin Steinke with Barrington Research. Please go ahead.
Hey, good morning.
And Kevin Good morning.
I wanted to.
Follow up on your organic growth outlook and.
Uh huh.
The increase to 10% to 12% expected rate and 2021 versus the prior outlook of 7% to 11% just any more color you can provide on <unk>.
And what's giving you that confidence to increase the net organic unit growth.
Outlook.
Just one quarter into and through the year.
Yes, I would say.
First.
And some reflection of what twists and each one.
On.
Revenue wise.
<unk>.
What we have seen and we are mentioning is the March exit rate, what we see.
And in April and the beginning of May.
And so that's basically taking into accounts or these type of from formation and you might assume debt, we have narrowed down and these beats the range.
Which is also because we have much better visibility on what is going on.
Overall.
I would say if she wants and that can expand beyond education that we havent discussed and international.
Anticipate slow, but continuous improvements you noted that they work.
Q1 revenue constant currency, including Brazil, because you might remember we have sold our Brazil operation in August of last year.
We are for the entire quarter up two 4%, but we stay cautious for international because of the uncertainties around the pandemic and related economic environment, we are going to continue to.
On <unk> margin and cost and invest in selected markets and international but we believe that we need to be and little bit cautious based on the external.
Type of.
On environment OCG, we expect very positive momentum to continue thanks to healthy pipeline new wins.
And you know and we have said today, we are already exceeding our 2019 and level of revenue by six 4%.
In Q1.
Set.
We expect continued momentum and science outcome based and fee business. Our <unk> business was up 41% and Q1, which is a good sign of the momentum we have and we have already also crossing and the inflection point because our <unk> business was up also in Q1, 71% of vs Q1 of 2019.
Right, which is which is a good sign that we are moving.
And could be fast on that.
We believe that.
We are going to see some continuous improvements and technology and telecoms and indeed slow improvement and engineering due to oil and gas that is getting better but still challenging.
And overall, we should reach our inflection point in set.
Probably late Q3 early Q4 of the current per year.
P&I and we expect continued gross mentor and our outcome based business, we were still growing at.
And that's about seven 6% in Q1 and 2021 so that.
And thats, good and our staffing sheets, because interestingly and like and said, our <unk> business and P&I is up 60% and Q1 and 2020.
2021, sorry, and we expect some acceleration and our P&I staffing second and for the year, probably mainly driven by a central delivery model, but probably Peter can add EBITDA Mark Cola, specifically, maybe on P&I Yeah Kevin.
Well first I'll talk about all of the businesses I think the.
The encouraging signs regarding.
Existing customer renewals as well as.
The acquisition of new clients across the board is.
Adding to our confidence.
In <unk>.
Professional and industrial we are.
Pleased to see that the demand has returned to pre pandemic levels and as noted it.
We think it's going to accelerate throughout the year and some of the technology issues that I mentioned earlier as well as talent supply. We believe is going to improve particularly and the second half of the year and.
And our large customers continue to drive the.
And recovery and we expect that to continue as well and the second half of the year.
Okay. That's helpful.
And some nice color at the segment level. So appreciate that.
Yes.
Circling back on soft World, maybe can you just talk a little bit more about.
And how that deal came together and obviously there.
A lot of attractive characteristics about soft rule.
And for you, but from their perspective, what made it attractive for them to come.
Combined with a larger organization.
Ali.
Well I think the growth opportunities that were very evident from.
To start when we began our discussions.
As I noted earlier all customers need.
Technology support and when you.
Consider the breadth of customers that Kelly.
And the fact as noted earlier that there was not a lot of overlap and are the customers that we support so I think the opportunity to grow.
On.
And in life Sciences application development and data management embedded systems development functional it services in the Kelly.
On customer base, as well as bringing to bear Kellys solutions to the soft world customer base was very attractive and I think as Olivier mentioned, the willingness of Kelly to provide some organic investment too.
And further accelerate what is already a very.
And historically promising business was attractive too.
On soft world, because they see that as an exciting opportunity to participate in.
And that investment and growth.
Makes sense and.
In terms of the organic investments and software all are we talking about.
And where recruiters head count.
Other.
Type of investments you might be making there.
Yes, it's primarily.
People Kevin.
Sales and sales and recruiters and we think that the.
And the track record of soft world and delivering year over year impressive growth.
Warrants the investment of our capital there.
Great.
So with with the software on the acquisition.
You've talked about for a while wanting to get more scale.
And the it staffing.
Do you think this acquisition gives us the necessary scale and that area or do you see opportunities to continue to add and.
And our it staffing and solutions.
And it certainly improved significantly our scale and technology. It is one of the fastest growing and largest staffing markets and when you couple that with Kelly solutions and.
And.
Outcome base as well as software World solutions based business.
We think there is considerable opportunity and.
If there are attractive opportunities that would complement the combination of software and Kelly as IP Platt.
Platforms and.
Net.
We were able and we were able to acquire them at a high hurdle rate and Olivier mentioned earlier, we would certainly consider it.
Great.
And you talked about some of the.
External factors that you think will and.
Kris talent supply as we move forward I think you've also talked about.
Internal initiatives too.
Attract more talent maybe any.
Data on that and some other things youre doing to.
Attract talent.
And thinking specifically about P&I, but.
If you want to touch on on the other segments as well that'd be that'd be great.
Well I think there are both external and internal.
Factors that are contributing to the talent supply in especially in the lower wage P&I space.
And the external factors I think are fairly well known with non.
Not only the.
Concerns about the pandemic, but also the number of workers that are on the sidelines due to.
Either caregiving or schooling responsibilities.
Created by by pandemic there is.
It's hard to quantify the depressive effect of the stimulus packages and whether or not that is contributing to.
And people staying on the sidelines I know thats, a sort of a politically charged issue but.
And there's probably some impact.
The impact that that's happening and the internal issues. We think we've identified as I mentioned, we deployed successfully on new front office.
The way that technology gets deployed requires us to continue to rely on legacy Kelly systems for a period of time and.
The pandemic demand last year that depressed the pandemic demand may have masked some of those inefficiencies and as demand came back significantly in late Q4 and early early in Q1.
And those inefficiencies reveal themselves and we are.
And we're taking action to to address them.
And.
Double down on our efforts to and.
Recruit more recruiters because of the demand and we're also spending time with the existing recruiter base.
And to ensure that the adoption of the new front office technology is optimized.
Okay, well thanks for all the insights that's all I had for now thanks.
Thanks, Kevin and thank you Kevin.
Thank you if there are any additional questions. Please press one and then zero at this time.
Our next question comes from Joe Gomes with noble capital.
Yeah.
Good morning, Joe.
Yes.
Taking my question, so I kind of wanted to circle back.
On the education segment here, you mentioned and.
Answering one of the other questions that you had significant new wins over the last nine months and one of the Bath and Kelly is history.
And I was wondering if you would care to kind of quantify what.
That statement means part a and part B on the education segment.
<unk> seen a lot of reports at least.
Teachers retiring.
And partly due to the pandemic and the conditions.
How does that either positively or negatively.
And impact Kelly's education segment.
Yes, good morning, Joe I'm going to and Olivier and refreshed.
The financial numbers it went through earlier, but.
We think the.
On.
Well you are correct and the debt there are a.
Large number of and.
Instructors that are leaving the education workforce and.
At the same time, we believe that there is going to be and increased demand for instructors at all levels and.
And.
As well as the support services that schools will need.
Need in a post.
Post pandemic environment, when you think about.
Cleaning services, how often school scope, our classrooms will have to be cleaned and when do you think about the.
Spacing of students and classrooms.
And the number of instructors that are going to be.
Needed not only to.
Refresh the number of teachers that are retired but also to deal with just the increased demand and instructors. We think Kelly is very well positioned.
Have a leading provider of substitute teachers, we have.
Extremely well recognized brand in this space and.
And.
We believe that school districts more school districts will see the value of outsourcing their talent acquisition.
And needs to have a company like Kelly, we think that is part of the reason why we saw such.
Significant new wins in the past nine months and.
They are across the board, meaning that it's not.
Small school districts.
It's all school districts medium and large and small school districts that are seeing the value of.
On using Kelly to help them support there.
Need for instructors and we think there will be additional revenue streams created as a result of the pandemic as I mentioned and custodial and other support services, but also and tutoring we think that is a.
Going to be a growth area. The federal government is throwing its weight behind.
Tutoring with federal funding for.
Between year.
Tutoring as well as during the year tutoring and school districts are looking for help too.
Support them on that regard so.
We feel bullish about the education space, which is why we have been making additional investments and and let me do you want to comment on that Joe just to.
Summarize what I've said and before that we see and there is a very positive momentum in education, and we are and across the inflection point moving revenue exceeding.
28, 2019 series or pre COVID-19.
And then for this year.
Which for chasing is a sign that we feel that we are well positioned to capture growth and.
<unk>.
And and as in Q1 as a proof of that and we are rapidly recovering.
And so we are still very positive and optimistic about.
Education stuffs.
Starting with loans to come.
Okay. Thank you for that and then.
Looking at the <unk>.
Earlier today and on a segment level on.
The P&I segment, you are showing the revenue from services were debt was down five 3%.
Gross profit and that segment was down 10, 7%.
Year over year, which with a much larger drop on the gross profit side and any other than any of the other segment that saw declining revenue and I'm just wondering what.
Might be behind that.
Bigger than that.
Profit drop on the revenue drop and the P&I segment.
Yes, I will.
I will briefly.
Talk about that so when you look at P&I.
Basically the staffing piece.
And the margin is basically very much stable versus a year ago.
And we start to see of course, some positive dynamics in our staffing business and P&I and thanks to the few these assets again is growing over 60% and Q1 and we believe debt.
And this momentum is going to patients and so that's of course.
Helping us to get our margin pledge and mature line with where it was a year ago.
On the outcome based business.
And specifically on the call Center business basically as we did mentioned briefly during our prepared remarks, we've got our call center business on.
And as one specific.
Customer.
On a lot of specific additional training.
On.
Is that off or there is a non billable training that is pushing our margin and it will be down and thats basically almost the majority of the reason why <unk> is down by 100 basis for 100 basis points.
Just last year and this is basically at Chanel and unusual training Avi usually happening.
To this extent, but our good sign that basically it's because we need to do.
<unk> per train for ramp up and demand in the next coming months.
For the revenue isn't going to come we is this kind of.
And.
Preliminary non billable training investment.
But again.
I think the next few months are going to show.
And basically run booking activity in this area, which of course is of the day.
We reported faster it.
Okay. Thanks for that and just to circle back to fall from World for for one one second here kind of on a different approach.
You mentioned that you're utilizing your existing cash balances are you did utilize.
Pay for.
On the cost of the acquisition.
Yes.
Mitch.
And of this year, you still do have to repay the roughly $60 million of tax deferrals.
On the cares act so.
Do you think youll be generating enough cash over the quarter and year to pay that or would that point and Todd maybe have to dip into some of their credit facilities.
Yes.
Also on other yes.
Despite the soft for collection and <unk>.
Total and cash.
And you have seen debt our cash position at the end of Q1 was on.
And most one on <unk>.
$40 million right. So now what is happening is basically.
We have to continue to fund our work and get it back and because as the business.
And he is moving up our work and get that is going to continue to progress and moving up right.
The second point price you are right to say that high for the.
Payroll tax deferral, which was about.
$117 million.
And we need to be before the end of this year then the other half and then.
On this next year. So it may be if you combine that with our growing working get debt requirements that we are going to have a little bit of leverage.
During the unit, especially at <unk> with this for.
For the cares act there was mentioning but it is going to be still a very low level range versus you know other liquidity on the debt capacity that we have seen.
Completely intact.
Okay and one thanks for thanks for that I appreciate it and one last one for me I know, it's relatively minor and everything.
Kenzie Academy right off.
And when you guys made the announcement of that investment and November 18, and was a lot of fanfare there.
Training and it and then.
Tech space.
And one of the one of the goals.
Maybe you could just Peter kind of give us what happened there.
Yeah. Thanks, Joe.
So the Kenzie Academy business model was we thought.
<unk>.
Excellent complement to.
Bringing more.
<unk>.
Talent into the workforce the.
And the model changed and a number of times and the course of our relationship and.
And that's as startups, often do to try to figure out exactly the sweet spot I think kenzie.
Was.
And potentially had some traction but the pandemic really took its toll on.
On.
On the.
The ability to attract.
The.
New cohorts, new new classes and.
And.
And just.
Recognize that.
The amount of investment.
Stabilize and.
Sure.
And regain that traction was.
<unk>.
More than they anticipated and more than their investors anticipated and.
And they struck a deal with a.
Education and University and.
And that's that's that's going to be the future and it's going to be housed within a university that can spread the risk over a lot more.
Platforms, then Kenzie Academy code on its own.
But yes, I would just say we.
And when we make investments of that debt.
<unk> type we recognize that there is potentially.
And we won't make those investments unless we are excited about the value proposition and hence the fanfare, but we also recognize that there are going to be risks in terms of the unique or novel business models that on.
Entrepreneur and spring to the floor.
Right right I understand that thanks.
Thanks for the update and again, thanks for taking my questions. Yes, good to talk to you Joe. Thank you Joe.
Thank you there and all remaining questions and the queue. Please continue.
Johnny if there are no further questions I think we can probably on the call.
Great. Thank you.
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