Q2 2021 Kelly Services Inc Earnings Call
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Good morning, and welcome to Kelly services second quarter earnings Conference call.
All parties will be in a listen only mode until the question and answers 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 second quarter webcast presentation is also available on Kelly's website for this morning's call.
I would now like to turn the meeting over to your host Mr. Peter Quigley President and CEO. Please go ahead.
Thank you Cynthia Hello, everyone and welcome to Kelly services second 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.
You Peter and good morning, everyone. Let me remind you that any comments made during this call, including the Q&A may include forward looking statements about our expectations for future performance.
Actual results could differ materially from those suggested by our comments and we have.
No obligation to update 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 addition, during the call certain data will be discussed discussed on a reported and on an adjusted basis discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations.
Currencies to organic growth in our discussion today excludes the results of our Q2 acquisition of Sofa World. We have also provided a slide deck that we aren't using on today's call as well as an expanded slide deck with smaller formation.
Performance on our website now back to you Peter.
Thanks, Olivier as expected the economic recovery continued to gain momentum in the second quarter.
The temporary labor market is approaching pre covid levels. The unemployment crisis in the U S has eased with three months of strong job growth and demand for staffing and other workforce solutions continues to grow.
Kelly entered the recovery with our strategy firmly in place and we continue to execute against that strategy in the second quarter.
We are optimizing our operating model investing in organic growth and executing against our inorganic growth plans are.
Our purchase of soft World in April 2021 was our largest ever acquisition and the latest proof point in our Boulder approach to M&A and higher margin disciplines.
As Youll see in our results today soft world has already begun accelerating Kelly's revenue and GP results.
Illustrating the impact of targeted acquisition can have on the entire organization.
Before I hand, it off to Olivier to provide details on Kelly's quarterly performance I will share a few highlights.
All five of our operating segments professional and industrial Science Engineering, and technology Education, OCG and international had positive earnings from operations in the second quarter and all five segments delivered organic year over year revenue growth.
Four of our business units performed better than or in line with our expectations for the quarter education exceeded its pre pandemic performance for the first time in June.
OCG beat its pre Covid revenue for the third consecutive quarter International delivered positive sequential revenue gains and set continues to deliver top line growth.
Both organically and with the acquisition of soft World Inorganically.
And our professional and industrial segment, we continue to see strong demand for talent in our staffing business. While also experiencing the constraints on talent supply and other challenges and fulfillment that we described last quarter.
Demand in this segment's outcome based business has slowed since the heights. It reached during the pandemic as customers needs have shifted with the economies reopening and supply chain shortages temporarily dampen some demand.
These business has lagged our expectations for the quarter. So I will take a closer look at these dynamics later in the call along with the actions, we're taking to address them I'll now turn it over to Olivier to share more details about Kelly's Q2 results. Thank you Peter SPD.
As Peter mentioned, our Q2 results reflect the continuing stabilization in economic activity and resulting improved demand for our services coupled with a challenge to fully meet our customers' demand for talent in the current market.
Before I get started reviewing the current tangible results it's important to reflect on the comparable period of last year.
Q2 of 2020, we presented the best impact of the Covid 19 pandemic on our business.
Revenues were favorably impacted by declines in demand as businesses are responding to the crisis on the K 12 education system in the U S moved to remote learning as a result, we funded to the steep declines in revenue by quickly on exiting temporary expense mitigation actions in the second quarter of 2020.
Including salary reductions and furloughs of full time employees as well as cuts to discretionary expenses.
As we have discussed on past calls since Q2 of last year revenues have improved from crisis, driven lows and most temporary expense mitigation actions has been discontinued.
Now looking at the second quarter of 2021 revenue totaled $1.3 billion up 29% from the high year over year or up 26% in constant currency in the quarter, our acquisition of <unk> added 310 basis points to our revenue growth rate.
All five segments are now reporting organic year over year revenue growth as we anniversaried the depth of the Covid 19 crisis in the prior year.
Overall Q2 organic revenue is now 11% below pre covid 19 levels on a constant currency basis an.
An improvement of 200 basis 220 basis points versus the trend we saw in Q1.
For the second quarter, our education segment reported the highest year over year growth rate.
As a comparability is impacted by significant school closures in the prior failures. We also measure revenue compared to the most recent pre pandemic valued or Q2 of 2019.
Education revenue was at 90% of pre pandemic revenue for the quarter and in June exceeded pre pandemic performance for the first time.
Both are good indicators that our education segment will perform well as crude has continued to move towards even greater in person learning in the fall.
Our education business is already working to ensure that we have an adequate supply as the competition for talent in this space will be intense and of course because costs have continued to modify that on functional delivery in response to changing look at infection rates volatility and demand in the near term is still possible.
At the National continued to improve their revenue trends is both positive year over year and sequential revenue gains in the quarter.
Year over year revenue growth was driven by recoveries of hours volume in France in bulk together and continued solid performance in Mexico and Russia.
Our OCG segment continues to perform well as a result of new customer wins in all products and growth in our existing customer base primarily in <unk>.
<unk> continued to deliver year over year revenue growth and is now reporting sequential revenue growth as well with revenues up 28% over last year.
<unk> revenue as <unk> exceeded pre covid levels for the past three quarters and is now up 12% in Q2 best uses of <unk> in 2019.
Revenue in our professional and industrial segment continues to reflect increasing demand for talent in the staffing product.
It has been limited by the current softness in talent supply and resulting talents mismatches as well as talent fulfillment challenges that Peter will cover later in.
And after performing well and delivering revenue growth throughout the Covid 19 crisis.
Our outcome based business in P&I expense, a slight decline in revenue in the quarter as demand was impacted at several large customers.
And finally as of Sept segment, where the results from our acquisition of <unk> reported revenue was up 21% on a reported basis.
And 8% on an organic basis.
Organic revenue trends continued to track with the customers serve in each specialty.
Science, where we have many life science and clinical customers has been the strongest and engineering is a concentration in the oil and gas sector has been slower to recover.
Permanent placement fees were 146% up year over year and up 16% sequentially.
We continue to see significant increases in activity in P&L guidance at Copel with fees from our Q4.2020 acquisition of Greenwood Azure in the education segments fees.
<unk> in the International segment were also up over the pandemic impacted prior year, but were flat sequentially, reflecting a more cautious environment in Europe amid the uncertainty of further covid restrictions in the region overall balance sheet for the quarter now exceed pre covid level.
At plus 19% compared to the same period in 2019.
Overall gross profit was up 22, 1% or 19, 6% on a constant currency basis.
Our gross profit rate was 18, 4% compared to 19, 4% in the second quarter of the prior year.
On a year over year basis, our GP rate was negatively impacted by unfavorable and favorable project mix as our lower margin staffing business recovers, coupled with approximately 100 basis points of temporary government with subsidies in the prior year.
Partially offsetting those declines was the impact of higher perm fees, and the accretion of <unk>, which generates higher margin rates, 35% in the second quarter.
Within the segments.
We did expand some variability in GP rates caused by the factors I just mentioned said benefited from the software acquisitions.
And higher film sheet, the international GP rate improve on higher balance sheet and education was negatively impacted by the <unk> government, which.
P&I the largest swing as the impact of unfavorable product mix between staffing and outcome base and government subsidies were only partially offset by higher balance sheets.
In addition, the P&I outcome based business GP rate was negatively impacted as talent attrition and declines in customer demand resulted in lower productivity in certain programs.
Our outcome based business with its opportunity for higher margin also comes with higher inherent risk as we take on additional responsibilities for our customers' business processes.
When talent attrition increases our client demand and worker productivity decreases as they did in the second quarter Kelly's revenue and GP are negatively impacted.
SG&A expenses were up 21, 9% year over year on a reported basis or 19, 8% in constant currency.
Expenses for the second quarter of 2021 includes the intangible amortization and other operating expenses of soft world, which added 460 basis points to our year over year expense growth rate.
The increase in expenses reflect increases in performance based incentive compensation expenses as well as the impact of our sample expense mitigation efforts in the prior year.
Expenses in P&I OCG into Nash.
International and corporate remain below pre pandemic levels and expenses and set an education reflect investments in resources to capitalize on demand for services on in those specialties.
Our reported earnings from operations for the second quarter were $13.7 million compared to $11.1 million in Q2, a 24% increase included in our reported Q2 results of the operating earnings of <unk> of $2.3 million inclusive of intangible asset amortization.
Physician.
For the second consecutive quarter, all operating segments.
Earnings from operations.
Now I'll turn it back to the company as a whole Kelly's earning before tax also include the unrealized gains and losses on our equity investment in personal holding.
For the quarter, we recognized a $6.3 million pre tax gain on our preferred stock compared to 20, $29.6 million tax gain the prior year.
These noncash gains are recognized below earnings from operations as a separate line item.
Income tax benefit for the second quarter was $2.6 million compared with our 2020 income tax expense of 900000.
Our effective tax rate for the quarter.
$813 five benefit our effective tax rate was lower than the U S statutory rate and actually a benefit this quarter, primarily due to the impact of a nonrecurring UK tax rate change, resulting in greater deferred tax assets and the impact of the work opportunity credit in the U S.
And finally reported earnings per share for the second quarter of 2021 was <unk> 60 per share.
Compared to $1.04 per share in 2020.
Decline in earnings per share resulted primarily from lower gains on Purcell shares net of tax adjusting for the peso gains Q2, 2021, EPS was <unk> 49.
Compared to 51 cents per share in Q2.2020.
Now moving to the balance sheet, we acquired soft world on April of the fees and the impact of the software. The acquisition is reflected in our Q2 balance sheet.
As of quarter end cash totaled $64 million compared to $223 million at year end 2020 and to $116 million a year ago.
That was nearly zero consistent with year end 2020, and a year ago again, we ended the quarter with no borrowings in our U S credit facility the reduction in our cash balance reflects the 219 million cash paid net of cash received that was used to fund the acquisition of <unk> at the beginning of the quarter.
Accounts receivable was $1.4 billion and increased 26% year over year, reflecting our year over year increase in revenue.
Global DSO was 60 days.
A decrease of one day over the same period in 2020, and a decline of four days from year end 2020.
The decrease since year end reflects the collection of receivables from several large customers were carrying higher balances.
Due to customer driven administrative issues.
Year to date, we generated $43 million of free cash flow free cash flow last year reflected the rapid decline in working capital as a revenue decline on lower customer demand in the early stage of the Covid 19 pandemic.
As I mentioned above we completed the software acquisition in Q2, and we are able to fund the entire acquisition is existing cash balances.
Our cash balances are now back in line with levels needed to manage daily liquidity.
And whilst <unk> acquisition didn't required debt financing, we may begin to grow in existing credit facilities to support working capital needs as revenue levels continued to recover our surpass pre covid levels and now back to you Peter.
Thanks for those details Olivier where.
We're encouraged by the economic momentum and increased demand for our services as the recovery accelerates, our OCG and education segments are performing especially well and set an international are delivering solid year over year growth.
We're also encouraged by healthy sales pipeline and new customer wins, we're capturing in all five segments as businesses ramp up their full time and temporary hiring we have and will continue to add sales and recruiting resources as warranted to meet increased demand and support Kelly growth.
As Olivier mentioned demand in our P&I business exceeds pre pandemic levels and we continue to work through the fulfillment challenges, we discussed last quarter as well as taking additional actions in our outcome based business.
On a macro level the U S talent shortages are well document documented and publicized as the economy surges. Many jobs are going unfilled across industries. We do expect the supply of P&I talent to improve our schools resume in person instructional delivery in the fall and more pair.
<unk> returned to work.
Proper matching of talent requires more than just adequate supply businesses need workers with the right skills and up skilling and retraining, our not overnight fixes. The recovery is highlighting a structural skills mismatch that was present before covid began.
Beyond these broader trends as Olivier noted in the second quarter, we saw lower demand among large customers in our Kelly connect and <unk> businesses, which impacted revenue and GP for the P&I segment. In addition, ongoing supply chain challenges, particularly microchips impacted several large outcome based customers.
In the quarter.
We believe the current easing of demand is temporary and we remain confident in outcome based business as part of our higher margin specialization strategy.
We are taking numerous actions to accelerate revenue growth moving forward and P&I.
As I mentioned last quarter, we are intensifying efforts to add recruiters in our staffing business streamlining processes to boost their productivity and investing in technology to support their work and we have reopened critical branches in high demand areas, where in person recruiting can increase speed to revenue.
In the second quarter, we invested in additional sales resources to support increased demand for outcome based solutions, we implemented price increases were in the market and client dynamics warrant additional margin and we are exiting client relationships, where profitability doesn't meet our expectations.
We also continue to collaborate with clients to set competitive wages and benefits drop unnecessary job requirements and invest in Reskilling and upskilling.
Each of these actions is designed to deliver talent to meet the current demand, though are returned to pre covid growth across the P&I segment will take longer than anticipated, we remain optimistic about the recovery in kelly's ability to accelerate growth.
Now welcome back Olivier to provide additional thoughts on 2021. Thank you Peter as mentioned, we completed the purchase of <unk> at the beginning of the second quarter and we will have nine months of so forth activity reflected in our 2021 results the impact of soft World is now included in our outlook.
As we saw in the second quarter results. So far acquisition will accelerate our revenue growth in the high demand high margin technology specialty.
Results in the structural improvement in our.
GP rate.
As we reflect on our second quarter results and look forward. Our views are for consideration of the current trend of steady increases in demand as well as a longer than expected continuation of the current level of talent mismatch putting pressure on fulfillment.
For the full year, we expect revenue to be up 11% to 12% in nominal currency and including a 210 to 230 basis point impact from the software acquisition.
Our expectation reflects that there are no material changes in business of governmental restrictions related to Covid 19 demand continues to improve and that the steps. We are taking to address the current tenants mismatch will expand the supply of talent available to us as noted our current outlook reflects.
So slower pace of recovery than we were expecting last quarter, primarily in our lower margin specialties.
We expect that the timeline for each operating segment to reach pre covid revenue levels will depend on geographies served industry concentration talent supply and product mix with CGS already crossed that milestone and other segments will do so later in 2021 or in 2022, we'll continue to learn.
<unk> targeted growth initiatives that are intended to further accelerate organic revenue growth. We do expect that the international segment's revenue growth rate will be negatively impacted by legislation recently enacted in Mexico, which prohibits temporary staffing not consider specialized services.
So we see opportunities to improve our margin profile by delivering higher margins and specialty services.
We expect our GP rate to be approximately 18, 5%.
Including a 30 basis point impact from the software acquisition.
Our GP rate expectations have improved on both faster growth in our fee based business.
And then the more gradual pace of growth in our lower margin specialties.
We have taken definitive steps with respect to sustainable SG&A cost reductions in the past year that are driving meaningful cost savings and a partially offsetting the impact of the expired <unk> of our temporary cost actions in place in 2020.
These savings will allow us to moderate expense growth as revenues increase.
<unk> also started to make selected investments in organic growth initiatives.
And education to accelerate our specialty growth. So all in we expect SG&A expense to be up 9% to 10% on an adjusted basis, including 350 basis points impact from the software acquisition.
Included in our expectations is the 80 basis points of non cash intangible asset amortization from so fault.
As we executed on our acquisition strategy, we have started to utilize EBITDA and EBITDA margin as additional measures of our progress in delivering push double growth and we have included these measures with our second quarter's earnings materials.
And finally, we expect an effective income tax rate in the low teens, which includes the impacts of the work opportunity tax credit, which has been extended through 2025.
We announced this morning that our board of Directors has declared the first dividend since the beginning of Covid 19 crisis is dividend of five <unk> per share for the quarter is payable on both class a and class B common shares as the expected recovery in demand continues we'll continue to review our <unk>.
The location strategy, including our dividend policy with our board of directors.
Now back to you Peter Thank you Olivier as we anniversary the low points of the pandemic, we're gaining new clarity on the recovery trajectory.
We are encouraged by increasing demand in our outsourcing and staffing businesses. Our education business is already accelerating and so long as K 12 schools are able to conduct in person instruction. It is poised to resume pre covid growth rates later this year.
Strong sustained fee growth in our staffing businesses points toward our customers growing confidence in the future as companies continue to ramp up full time hiring.
As Olivier noted our board of directors approved a dividend for the quarter, reflecting the progress, we're making with our specialization and M&A strategies, our confidence in the sustainability of the recovery and our appreciation of shareholders patients throughout the crisis.
Moving forward as noted we expect the continued increases in demand will be coupled with continued challenges in talent supply our equity at work initiative is helping to address some of these pressures increasingly available talent pool by tackling systemic barriers that prevent people from connecting with work.
As we help clients improve their employer brands and attract talent in a competitive labor market. We are leveraging the strength of our own brand Kelly as one of the most recognized brands in the industry and in 2021 is the most recognized brand in key specialties, such as light industrial MSP Science Engineering Telecom.
K 12, and higher education, the Kelly brand continues to evolve as we drive growth from our specialization strategy, we're pursuing M&A opportunities in targeted high value specialties as evidenced by our acquisition of soft world, which is already delivering top and bottom line growth for the enterprise as well as bringing new synergy.
As to Kelly's existing businesses.
At the same time, we are investing in organic growth. For example, we are encouraged by the level of customer interest in our K 12, tutoring solution and the new P&I professional services product that I mentioned last quarter.
<unk> is moving forward in the economic recovery with a commitment to our specialization strategy and with confidence in our ability to help customers and talent thrive even brighter days lie ahead, and we are ready for them. Cynthia you can now open the call to questions.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your Touchtone phone.
We are here tone, indicating that you had been placed in Q U may also remove yourself from the queue by pressing the same one zero command.
Once again, it's one and then zero for any questions or comments.
And our first question will come from the line of Kevin. Thank you.
With Barrington Research your line is open.
Yeah.
Good morning.
Good morning, Kevin Good morning, Kevin.
I wanted to.
First ask about.
You mentioned tally.
Talent attrition.
Sure.
Professional and industrial outcome base.
Sure.
Can you just expand more on what's going on there and how you're addressing that I guess you're referring.
Referring specifically to Kelly connect and <unk>.
With regard to the attrition.
Yes, so thanks for the question, Kevin and good morning.
So as Olivier mentioned in our outcome based businesses inside P&I.
We take on the responsibility of hiring the employees in delivering the outcome and so when there is increased attrition.
Among the employees that we employ to deliver the services.
It has a negative impact on productivity and therefore on our R&R GDP and that's just.
Something that's characteristic of the outcome based business.
And we have plans in place to mitigate those risks we think it's temporary.
But it is one of the inherent risks we have when we're in such a competitive talent environment.
Okay.
Third.
And.
You talked about supply potentially.
Proving.
Schools reopen.
Pacifically within professional industrial.
But you also mentioned the ongoing skills mismatch in.
What role does Kelly play in.
Upscaling or retraining and how do you work with your clients.
The address those skills gaps.
We're regularly working with our.
Customers to identify what skills they need.
To deliver the services that they are.
Yes.
Their business and so.
When you have people coming off the sidelines that may be coming from different industries for example, hospitality and leisure.
We need to spend.
Some time re skilling and up scaling those individuals to fit for example in manufacturing environment. So.
Working with customers to establish.
Short term training programs to accelerate the.
The way individuals gain skills to fill roles for those particular customers is something that that we do and customers see the benefit of it because they get.
A more capable source of talent.
More quickly.
Okay great.
Can you touch a little bit more on.
The SG&A outlook and the organic investments and maybe just expand on that.
Those organic investments specifically within.
Science Engineering, and technology and education specialty.
Yes.
Kevin.
I'm going to first give you a little bit of a view on Q2, because I think it's also produce very useful to understand.
Our.
Full year expectations related to SG&A. So if you look at Q2.
On a constant currency basis.
SG&A up 19, 8% out of that you've got 460 basis points that is going to.
<unk>. So basically if you exclude self world. We're at about 15% one five on an inorganic basis, then we've got about out of the 15% about 800 basis points coming from incentive.
Incentive out valuable cost.
And of course last yielding was pretty low based on what we have mentioned and what you know so it's about 8% Android based upon but it's completely valuable depending on the performance then we have about 300 and the <unk>.
Trend one basis point.
A link to the investments and set an indication that we are mentioning.
And then we have what we call a Beijing back meaning I did mention that of course last year, we had salary cuts furloughs and so on that's an additional 400 basis points that we have reduced as you know by going from for some restructuring actions in Q4 of last year, but we still have.
The impact of that especially in Q2, but also in Q3 of <unk> basically.
Last year. So if you think about now.
The full year.
We gave.
We give basically.
Outlook of nine to 10 person. So first of all it's what I call on an adjusted basis. So it is excluding.
From our 2020 base.
Our restructuring costs, which were about $15 million.
Between Q1, and Q4 and also a customer dispute that we had which was about 9 million cost.
So that's the first thing about the base.
So as you think about this 9% to 10% you've got about 350 basis points from so Paulo.
With about 80 basis points of amortization of intangible and then if you think about the arrest.
And sing about what I was sharing about Q2, you've got also these days in fact I was referring to you get the same type of impact coming from organic investments. We have now in our high growth specialty businesses certain education.
As well as the normal impact linked to incentives coming from improvements in performance.
So these are the way you need to think about.
Basically our guidance outlook.
Four.
For the full year, but again I think a good way to look at it is really bit referring to what I was explaining and demo dynamics.
For Q2 of the current year versus last year.
Okay. That's helpful.
I guess.
Again with regard to the investments those are incremental I guess and maybe can you just talk about little more expand on those investments in.
The growth opportunities you see that are leading you to.
Increase the pace of investment.
One of them and we did mention it.
Last quarter was.
Kevin that anytime we have an acquisition.
We immediately boost the topline rules by adding some organic initiatives.
We have done that in the past we have started to do it for so called as well.
<unk>.
<unk>.
<unk>, meaning the time, where.
We went through the acquisition.
That is going to be of course.
In investment, but we're seeing that knowing the trajectory we have on top line growth with <unk>.
Yes.
Still double digit around.
Around the 20% we are mentioning.
Three months ago, we want to further accelerate this momentum is the right time to the market would be a good dynamic.
<unk> so the other two investment we have underway smaller of course is.
In engineering.
And also in.
Our existing Kelly technologies again, it's really because in this recovery phase putting some investment in keeping the momentum is very appropriate and unique education as you know we have several.
Nick initiatives one of them, we did mention several times around tutoring.
Where we need to invest to really develop.
Some some areas electric touring where you know and Peter might develop a little bit on that.
During especially with what we know now.
We post Covid, but also with what we see now is a booming market.
Net.
We are investing into basically capture.
<unk>.
Yes, Kevin.
Recently released.
A report that we conducted.
With a partner organization called the tutoring solution, it's very clear that.
School districts and parents are.
Very concerned about the.
Covid GAAP.
GAAP year and the recovery of students.
And we think the combination of that demand coupled with.
Funding from the federal government as well as state and local governments.
We think there is.
Really promising prospects for <unk>.
Helping school districts develop tutoring solutions that help their students.
Recover from the.
In the GAAP GAAP year, essentially that was caused by the pandemic in 2021 and two.
22020.
Right. Okay. That's helpful.
And you did mention in your prepared comments that.
Demand in professional and industrial is actually exceeding pre covid level. So.
I guess it's in.
Encouraging to see the demand is there and coming back.
But it's more of a matter of having the available supply.
Fill that demand.
So so I guess thats going to be your real focus to make sure you can.
Meet the surging demand I mean is that your top priority right now in P&I.
Yes, absolutely Kevin.
On the staffing side.
All of the steps that I mentioned are designed to.
Increase our ability to capture more of that demand and the outcome based business.
Around generating additional.
Customers for that.
That solution.
As we said we think the.
Easing of demand is temporal and we expect that business to recover.
And we'll be prepared for it when it does.
Great just one last question for me.
Have you heard anything in your.
Actions with their clients.
Or any indicators that.
The Delta variances, having any impact on.
Demand or slowing the outlook at all for the second half of.
Of the year.
Kevin we've seen.
Some customers have reintroduced masked mandates for example for the first time in a couple of months.
We haven't seen any customers.
I don't see any customers, but we haven't seen widespread shutdown facilities due to the Delta variant, we have seen some shutdowns due to the microchips shortage.
Which has caused some some companies in automotive for example to.
Suspend operations for a period of time, a week, maybe 10 days while they.
Find access to microchips.
But we haven't seen any widespread disruption in economic activity as a result of the delta variant yet.
Okay. Thanks very helpful insight, thanks for taking the questions.
Thanks, Kevin Thank you Kevin.
Thank you. Our next question comes from the line of Josh Vogel with Sidoti and your line is open.
Good morning, Josh.
Hope you guys are doing well.
Josh. Thank you. Thank you I have a couple of questions.
First one is a little bit higher level, and just thinking about the <unk> today in your client base.
Awesome.
Maybe are you seeing meaningful changes in mix.
The client size or the number of orders there.
They are putting in for an even going a little bit further.
Perhaps larger clients, who predominantly did things in house are now starting to open up to the outsourcing model, especially given the supply constrained environment, just some general thoughts around that please.
Yes, I think the first dynamic I would point to Josh and again good morning is.
Our perm business and both set and P&I.
Is exceeding.
Pre pandemic levels, which suggests that at least some customers in order to address their demand, but also the talent supply issue are resorting to full time.
Hiring as opposed to contingent at the same time, we are seeing customers.
Especially with large customers talk to us more about both increasing there the amount of their contingent.
Labor as well as moving more.
Products, two or more of their processes to an outcome in our BPL practice notwithstanding.
Some.
Hiccups related to the chip shortages in our business in the second quarter, we are seeing some.
Healthy demand in our P&I salute.
<unk> solution that we introduced and I discussed last quarter, which is essentially an outcome based solution.
<unk> solution that.
Allows customers to take advantage of.
Talent and use them for longer periods of time than they might have otherwise using a temporary.
Employee so.
There are some shifts going on I think as a result of companies.
Taking experience away from the pandemic environment.
And so those are a couple.
Those are a couple that I would offer.
Yes, those are great insights. Thank you.
So obviously, a big theme is the supply constrained environment and expectations or assumptions that even outside of potential mismatches, but we should see an increase in the labor pool. So I was just thinking.
Kids going back to school frees up parents.
Unemployment benefits that are going to be curtailed government stimulus. So what do you think.
The lag time could be.
Tween, especially once the stimulus and unemployment benefits are curtailed to actually seeing a meaningful increase in the labor pool and thus the order fulfillment I'm. Just curious is this something that could and should happen immediately or is it something that could take several months before people really start to reenter I was just wondering your thoughts there.
While it's still early Josh.
Something we talk about and look at all the time, it's still early to judge the impact that the.
States, who eliminated or suspended the enhanced unemployment benefits what impact that had has on the labor pool.
It doesn't appear that it has resulted in a wave of new talent.
So at least as far as the enhanced unemployment benefits are concerned.
Again, it's early but judging from the states that.
Have eliminated the enhanced benefits.
Would suggest that there isn't going to be an immediate impact we believe that the schools reopening within class instruction might have a bigger impact and we say that because.
We did see anecdotally in our own experience that when.
Schools reopened during the pandemic in 2020 in 2021.
We did see additional talent come off the sidelines and big.
Again looking for work so that's encouraging.
And <unk>.
Potentially the increase in the number of people that is vaccinate it could be a third factor that will provide some assurance to individuals.
The workplace that they're coming back to is safe.
Our guidance.
And thinking about the investments youre, making on the technology side to streamline processes support your recruiters.
Can you talk about any investments are you investing in any client facing technology that is focused on.
Enabling candidates, whether attracting them to Cu onboarding, where they can see except to be deployed on assignments I'm just curious about.
What's going on in the client facing end of it.
Josh we're very excited about.
The technology that we've introduced the last quarter called helix. It's currently deployed.
In our OCG segment with our MSP clients.
But the reaction from from customers in that space has been.
STREAMWAY positive and basically what helix does is it allows.
Organizations and hiring managers too.
Okay.
Use the technology use the helix platform to take out a lot of the guesswork of what kind of talent they need.
And.
Essentially streamlines for that.
Hiring manager all of the processes that they otherwise would have to go through to try to answer that question and it does it in a relatively it's a very user friendly way.
And it's something that customers have been asking for and we were.
<unk>.
First to market and delivering this solution and as I said the response from our customers has been very positive. So we are regularly looking for opportunities to introduce technology into our solutions.
And that includes our OCG this helix product, but it also includes.
Our other businesses, where we.
Our work with customers to identify what their pain points are and bring technology to eliminate those pain points.
Great. Thank you I just have a couple of quick hitters.
Our relations with the outlook for the balance of the year the first one.
Thoughts on <unk>.
Direct hire perm over the balance of the year.
The strong.
Results, we saw in Q1, and certainly Q2 was that more pent up demand or do you think that can continue and then certainly ones get once comps get a little bit tougher in the first half of next year.
When youre thinking there.
Yes.
Josh it's already.
He is one of the reason why we have increased our GP rate expectation for the year to $18 five of course.
We mentioned one of the boost is coming from <unk>.
<unk> 30 basis points for three quarters only.
But the fee business, we see.
I mean, the momentum continuing.
At least for the next coming months and Thats one of the key reason amongst those is why we are comfortable to bring that while GP rates expectation up.
We're seeing that in the in an environment, where they have some issues officially structural issues on the on the supply side.
<unk>.
Probably with higher comparable is going to the percentage is going to go down a little bit, but we believe that in the.
Mid time Horizon, I think they are going to be two very good traction whether it's in P&I of set and you have seen also through our recent.
Acquisition and dedications have good traction.
Also in education.
One of the reason is confidence as Peter was mentioning so.
The supply constraints that we see all over the place.
Education, but of course also P&I.
Sure, Okay, and then taking one of the prior questions a little bit further.
Yes.
Outside of discussions or what you may be seeing within the client base looking at revenue baked any conservative assumptions into two this outlook to reflect the potential for the delta varian or other areas potentially leading to the lockdowns or just a broader disruption than we're seeing at this point in time.
Yes, I mean, we.
We of course or does that just based on multiple assumptions and so on that.
Our view for the second half of the year.
To get a cautious view on Q3.
Because of what is going on.
With the Covid.
And getting.
Through a combination of business.
<unk> business improvements seasonality and also some.
Better.
Containment of Zions.
<unk> probably better in <unk>.
Q4, so we have been quite cautious.
When building our outlook, especially again for Q3.
Okay, Great and just lastly, you gave a lot of good information Olivia day around kind of reconciling.
SG&A.
In my notes that I think it was last quarter, you basically gave US a base number of 795 million, Yes, Josh said for last year is that the number to use still yes.
Let me double check.
I think it should be in the same region.
Just one second.
I need to confirm with my old notes, so one more question.
Yes.
So just need tools.
To the right page 19, ICI would confirm.
Confirmed the same numbers yes.
I have like 790 so.
Okay.
Pretty close yes $7 million.
Currency fluctuation and so on but ballpark, that's where whether you should be I think basically.
I believe eliminated structuring in this.
It's a onetime event with one customer just to give a view that is more what I would call adjusted our like for like but the base is good of course, okay. Great well. Thank you for taking my questions I look forward to chatting soon.
Thanks, Josh Thank you Josh.
Thank you. Our next question comes from the line of.
Well known with noble capital and your line is open.
Good morning, Joe.
Good morning, Thanks for taking good morning Julien.
So I wanted to start off.
Soft world and just how is that integration going and Peter you mentioned about some synergy.
I was wondering if you might be able to just expand a little bit more.
What youre seeing on synergies and maybe the opportunity expansion with the software acquisition.
Yes, Joe Thanks, and good morning.
Where the integration is.
Is on track.
And meeting all of our expectations. We are very excited about the quality of.
The Tam.
Talent.
At software World as well as the talent that they engage on behalf of our customers.
The the synergies it's early.
But.
The opportunities, we think are promising because of the <unk>.
Fact that.
The overlap in customers between soft world and Kelly.
Was not surprisingly was not that significant and it was one of the things that we were attracted to because we know that the kinds of services that software provides to.
Its customers are in demand at every organization.
Hi technology.
Development.
Cyber security.
Network.
Board is are all things that organizations in the <unk>.
U S.
<unk> need for and so the synergies are.
To increase the profile of software world in into the Kelly.
The customer base, one and then two.
Software old has demonstrated an ability to expand its platform in.
Into new disciplines based on customer demand so it will <unk>.
Provide a particular.
Specialty into our customer a customer will have a need in our adjacency and software all has shown an ability to build out that adjacency very effectively and we think.
There could be some adjacencies and specialties inside not only technology, but even in our.
Science businesses that would allow for new solutions in our customer base. So again, it's early but the.
The relationship that are being developed between the software team and the team are very promising and the customer reaction. So far has also been very promising.
Okay.
Alright.
Hey, Joe just let me add a comment as well just to EUR 22, others that gives you some some views on the financials. So.
Italy, we are completely on track with what we are expecting the revenue is around $30 million.
Margin 75.
<unk>, which was our expectation that EBITDA for the quarter was four and a half million so 15% roughly.
And it has been the only accretive which is what we are expecting despite starting to invest just maybe as a as a point of reference suite due to the date of the acquisition. We had we saw the 11 weeks of activity sort of 13 weeks.
Thats also something you may consider topline growth is still double digit as we say so completely in line with our expectations delivering.
I would say.
Growth and value dynamics, we were expecting so all of that is on track.
Thanks, Scott I appreciate that.
And then on the cash.
Obviously.
<unk>.
Substantial portion of that for the software acquisition.
The remaining cash balance I mean, you could remind us how much of that is due to go back to the federal government for FICA.
Taxes, and then is that remaining level.
Are you comfortable with that.
As demand begins.
<unk> continues to increase across the business.
Yes.
So we ended up the quarter with $64 million of cash usually we need about 25 million to randy's business. We are a little bit access of course, not as big as it was.
So Paul acquisition, so we have a little bit from there.
At the end of December we are going to need to pay half of the.
Deferred payroll tax, which was about 117 million, so roughly $58 million.
You know that.
As of now we have.
Available funding capacity between our securitization and revolver of shy of $300 million precisely $297 million, so and knowing that we have no leverage now.
We have ample capacity to basically do two things potentially one is of course fund our growth and continuing growth in working capital as we continued to improve our but our top line sorry, and also potentially continues the momentum we have started.
Here again.
We self world.
If you know.
There is something that would fit with <unk>.
Our strategic priorities. So we believe we can fund really working capital as well.
Acquisitions.
Potential acquisitions with our existing facilities.
DSO now is under control.
Today's worker continue to make progress.
So we feel comfortable with basically the level of cash we have.
Our working capital expectations and basically our available liquidity.
Okay, Great and then one last question for me and it's kind of MA.
Pretty high level here.
Peter and just trying to get some commentary. So I was just looking earlier this morning.
Thompson and looking at the 12 month stock returns based again on Thompson information and if you look on.
What Thomson is saying.
Kelly over the past 12 months, it's up 24%.
Almost every other one of the main competitors in that group are up 50% to 100% and I look at that and I'd say well geez.
Kelly has had very good rebound off of Panther Emmick lows.
There can't be any questions from anybody on the capital structure, We're obviously really nice reinitiate into dividend.
Can you talk with investors.
What are some of their concerns that they bring to you is that the dual class structure.
The fact that every quarter you have the pearsall impact on reported numbers that if youre not willing to.
Below the surface you can't really see.
What what the adjusted numbers or is it something else I mean, what are people, saying to you that would at.
At least in your mind kind of say well. This is why Kelly is only up again according to Thomson 24% in their peer group is up 50% to 100% and stock performance over the past 12 months.
Yes.
It's always difficult to.
No.
My.
Filling these motorboats seating and opinion, then edson please peter add onto it I mean one of them.
And I think we have mentioned that several times.
We have this APAC assets basically.
Basically one third of our enterprise value that are not generating any EBITDA, but the value of those assets.
Probably underestimated by by the market the second item I think it's probably the fact that.
Although we are moving you know and transforming our sales to be a.
Specialty value company, we still have a good proportion of our business.
I would say.
Lower margin specialties with probably there is a concern.
Probably tombo equaled sun on.
<unk> side as we did mentioned again today.
Peter do you have any other things you would add yes, so Joe.
I.
Wouldn't want to pretend to get into the minds of Av.
All of our investors or potential investors some of the issues that you mentioned do come up in conversations I think the new structure that we've created the reaction from investors has been positive in terms of.
Being simpler to understand our business and what we're trying to accomplish.
But I think that the.
Transformation in the.
Focus on higher margin specialty is a work in process and I think probably.
There is perhaps some.
I don't want to say trepidation, but waiting to see if we can deliver on that I think soft world was a huge step forward, but as Olivier said and as you mentioned.
Shareholding.
In.
In both the JV and in personal does create some.
Confusion in the marketplace.
And as well represents a asset that is not contributing to our.
Two our earnings in a meaningful way so.
We think we still have work to do but I don't have any.
<unk>.
Any.
Precise answer other than to say that we.
We have historically traded at a discount to that competitive set that I'm sure.
I don't know exactly what.
The competitive set is in the Thompson.
Information that youre looking at but we.
We typically have traded at a at a discount.
To some extent could be from the dual class structure, but also from the reasons that Olivier mentioned about our dependence on the lower margin.
Staffing business.
Thank you Peter Levine.
Thank you guys have been doing an excellent job and just trying to see if there's something that I'm missing as to as to that but it doesn't it doesn't it seems like we're all pretty much on the same page here and hopefully in the near term people start to investors start to see the job that you guys are doing and where you're moving to.
And then becomes reflected in the share price. So that's all the questions I had thanks for taking them.
Thanks, Joe Good to talk to you today. Thank you.
Thank you.
As a final reminder, for any other questions or comments press, one and then zero.
One and then zero for your questions or comments.
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And allowing a few moments it looks like we have no further questions in queue. Please continue.
That's we're good here Cynthia if we have no further questions. We can we can wrap up the call.
Thank you, ladies and gentlemen that does conclude your conference call for today. Thank you for your participation for using AT&T Executive Teleconference Service you may now disconnect.
Yes.
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