Q1 2022 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 it.

First quarter webcast presentation is also available on Kelly's website for this mornings call I would now like to turn the meeting over to your host Mr. Peter Quigley President and CEO . Please go ahead Sir.

Thank you, Steve 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. As a reminder, 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.

Have no obligation to update the statements made on this is cool.

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 on a reported and on an adjusted basis discussion of items on an adjusted basis.

GAAP financial measures designed to give insight into certain trends in our operations.

References to organic growth in our discussion today excludes the results of our Q2 2021 acquisition of self world.

While we did complete our acquisition of Iraqi power in the first quarter, which Peter will talk more about shortly will be consolidating the operating results on the once once like so why level of balance sheet and cash flows include the initial impact of the acquisition. We just stopped seems a positive P&L impact of rocket.

In Q2.

Finally, Lisa so I think that we are using on today's call is available on our website and now back to you Peter Thanks, Olivier it's been an exceptionally productive start to the year and Kelly's first quarter performance provided substantial evidence that our strategy is paying off we achieved significant year.

Over year improvement in revenue, we grew GP and every one of our five segments. Our G. P rate reached its highest level in more than 25 years, and we more than doubled our earnings from operations.

All of which point to broad based structural improvements in our business. We also restored our dividend to its pre pandemic level of seven and a half cents per share a sign of our boards confidence in Kelly's performance and strategic progress.

Our education set in OCG segment, each delivered double digit constant currency year over year top line growth, while the impact of Mexico's legislation led to an overall decline in international we saw solid revenue growth in our European operations.

And notwithstanding a modest decline in revenue P&I substantially grew its J P and saw significant growth in fees in fact fees were higher across all segments as companies continue to ramp up their hiring a full time talent.

As we approach just the second anniversary of our new operating model, we were pleased with Kellys first quarter financial results.

And early in 2022, we're excited about the progress we're making in executing our strategy. We entered the year committed to advancing our boulder more acquisitive specialty growth strategy.

In February we unwound noncore investments in APAC that provided approximately $235 million of capital and said then that we would redeploy that capital toward higher margin growth, we haven't wasted anytime as of last week, we have completed two acquisitions this year.

In March we acquired rocket power, a silicon valley startup that Diversifies and strengthens Kelly as fast growing RPM business by targeting clients in the high tech market in.

And last week, we acquired pediatric therapeutic services or Pts our specialty firm that extends our leadership position in K 12 workforce solutions with the provision of in school services, including occupational therapy, physical therapy speech language pathologists and mental and <unk>.

<unk> health services.

The other two acquisitions are in separate businesses one in OCG. The other in education, both acquisitions clearly align with our inorganic growth strategy. Both meet our goal of expanding <unk> presence in high growth high margin specialties, both offer significant opportunities for top line synergies.

And both provide clients value by connecting them quickly to the REIT specialized talent.

We were able to act decisively to acquire these highly attractive assets because of our strategic decision to monetize noncore assets in APAC that move equipped us with an unprecedented amount of capital to invest in our specialty growth strategy. As a reminder, upon completion of the APAC.

<unk> actions and considering our borrowing capacity, we had more than a half a billion dollars of capital capital available to pursue high margin high growth acquisitions and drive structural improvements in our business that will deliver quantitative and qualitative results.

Even after the rocket power and Pts transactions that totaled $140 million, we have ample capital to deploy and continue to carry no debt.

As we execute our growth strategy, we're also making thoughtful long term decisions about our portfolio of businesses in the first quarter. We shared that we were considering options for Kelly's Russian operations first and foremost taking steps to ensure the safety and wellbeing of our employees and the <unk>.

Region.

After careful consideration, we have decided to transition our Russian operations, we are committed to an orderly transition of our Russian operations in full compliance with international and local laws now for a closer look at the details of Kellys Q1 results I will turn it over to Olivier. Thank you.

Peter for the first quarter of 2020 tool revenue totaled $1 3 billion up seven 5% from the Pio year, including 150 basis points of unfavorable currency impact so revenues for the quarter were up 9% in constant currency.

Included in that increase eight 310 basis points of favorable impact from our acquisition of self world as well as a 230 basis point unfavorable impact, resulting from the Q3 2021 changes in the Mexican stuffing markedly installation.

Why is the current situation is Ukraine as contributing to additional economic uncertainty in Europe , we did not experience any significant impact on our Q1 revenues.

As we look at first quarter revenue by segment. Our education segment continues to report significant year over year growth up 55% as a comparable to 2021 failures was still impacted by COVID-19 related disruptions.

We have continued to expand strong demand and new customer wins, even as we work through a challenging tenant market.

Our education business has been successful in broadening the supply of talent and we have started to see meaningful improvement in our.

Right.

Our OCG segment continues to deliver year over year revenue growth with revenue up 10% over last year in the first quarter OCG delivered strong growth in <unk>, reflecting customer demand for this product as well as solid growth in the MSP product, partially offset by declines in video as a risk.

There are some customer exits.

Revenue in our professional and retail segment declined 5% year over year in the quarter.

Overall, our results in the segment continued to reflect the impact of supply chain disruptions and the challenges to fulfill customer demand in the current tenant environment.

In our outcome based business, we have continued to expand so reduction in revenue down nine 9% year over year from the contraction in demand from our call center specialty which more than offset growth in other outcome based specialties.

Revenue from our staffing product declined three 5% on lower hours volume, which has been partially offset by higher bill rates, resulting from the upward pressure on wages in the current market.

Revenue in our international segment declined 7% on a nominal currency basis and was down 1% on a constant currency basis. The year over year revenue growth trend was negatively impacted by results in Mexico due to the impact of the legislation enacted in Q3 of 2021 revenue.

Growth in the EMEA region was positive up 9% in constant currency.

And finally, Lisa said segment, while the results from our acquisition of so called as reported revenue was up 25% on a reported basis and 10% on an organic basis.

Organic revenue trends in set of continued to vary by specialty and track visa customers served recovering demand in telecommunications continued demand for outcome based solutions remains strong and I will take <unk> specialty showed double digit growth and as we passed the one year anniversary of the softball.

<unk> at the end of the quarter. So called that's continued its trajectory of double digit top line growth and delivered on the significant revenue growth we expected when we acquired the business.

Across all segments, we have continued to meet to meet clients' changing tenant needs, including placing talent directly into employment with our customers' permanent placement fees were up 69% year over year in constant currency and also up 26% sequentially. We continue to see significantly increase.

And placement activity set international and indication, which includes Greenwood. The national P&I also had significant growth up more than 100% year over year that does include about $2 million from conversion fees from a customer that decided to change its labor acquisition strategy from here.

Contingent staffing to fulltime hiring I'd shambo details later as it has a bearing on our outlook.

Overall gross profit was up 21, 2% on a reported basis or 22, 6% in constant currency.

Excluding so for a GP increased 16, 2% on an organic constant currency basis. Our gross proceeds trade was 19, 9% compared to 17, 7% in the first quarter of last year, a 220 basis point improvement.

I'll yield the EOG to rate improvement was driven by a combination of values factors.

Hi, <unk> contributed 70 basis points and we go down to the 40 basis points as a result of the accretion of so fault, which generates higher margins. These factors were coupled with lower employee related cost of 60 basis points and favorable business mix for 50 basis points.

Included in the 220 basis point GP rate improvement for the quarter, we did benefit from the onetime convert conversion fee with a large customer as I previously mentioned and we had a favorable adjustment in Pi yoyo workers' compensation cost in the first quarter, so about 40 basis points.

Of our GP rate improvement of 220 basis point came from these factors.

SG&A expenses were up 16% year over year on a reported basis 17, 2% on a constant currency basis expenses for the first quarter of 2020 to include the intangible amortization and other operating expenses of self world, which added 500 basis points year over year <unk>.

<unk> growth rates, so on an organic basis expense grew by 12, 1% year over year in constant currency.

The majority of the increase in SG&A reflects higher compensation related expenses.

Full time talent, we have added head count in line with revenue growth and providing meaningful increases in performance based incentive compensation expenses for our client facing teams as well as smaller adjustment to baseband.

Is increasing is this increases reflect the need to attract and retain talent in the current environment, even with the increase in the cost of doing business. We produce additional operating leverage as GP growth largely exceeded expense growth for the quarter.

Our earnings from operations for the first quarter with $23 4 million more than double the $10 6 million earned in Q1 of 2021.

Included in our Q1 results I'll be operating earnings a sofa world for $3 5 million inclusive of intangible asset amortization.

Or is it not included in the earnings for operations Kitty owning before taxes also include the impact of our investment in and Q1 sale of the personal holdings common shares.

Up to the date of this sale, we have recognized noncash gains and losses related to changes in the fair market value of the investment each quarter as.

As we discussed in the fourth quarter earnings call in February and disclosed in our 2021 Form 10-K in the first quarter, we recognized a 52 million pretax loss on our peso common stock related to the market value of the shares on the date of the sale compared to the end of Q4 2021, and then additional cost.

15 million related to the transaction, including fees and expenses. This compares to a 30 million pretax noncash noncash gain in the pilot although reported below earnings from operations for the first quarter of 2022, we have realized a 20 million noncash foreign exchange loss related to the subsea.

Currently liquidation of our kidney Japan subsidiary following the sale of the peso shares the impact of the sale of most of our integration of <unk> joint venture was not significant and in the other income and expense we had one additional impact of the personal transactions, we recognized a $5 5 million.

Foreign exchange gain related to cash held in Japan. After the sale of the peso shelf until the wholesale or the cash to the U S. At the end of the quarter.

Notwithstanding all these non cash charges the APAC cause actions favorably impacted our cash flow for the quarter and created 275 million of additional liquidity.

Income tax benefit for the first quarter was 13 million compared with our 2021 income tax expense of $10 5 million, our effective tax rate for the quarter was 21, 2%.

And finally reported loss per share for the first quarter of 2022 was $1.23 per share compared to earnings of 64 cents per share in 2021 the.

The decrease in earnings per share resulted from the impact of the peso chef chef transactions and the related liquidation of kidney Japan net of tax.

Adjusting for the peso transactions and related impacts Q1, 2022, EPS was <unk> 46 cents compared to adjusted EPS of <unk> 12 per share in Q1 of 2021, so up almost 300 persons.

Now moving to the balance sheet at the end of the quarter.

Sales of most of our investment in the Brussels kidney joint venture generated cash proceeds of 114 million net of taxes payable on the sale of our investment in the common share with Versal holdings generated approximately $145 million net of transaction cost and the expected income taxes do we expect.

Good to pay the majority of the taxes related to this collection in Q2 of 2022 and to complete the unwinding of our cross shareholding agreement arrangement, we special.

We paid 27 million to rebuilt shades of the class a and B common shares owned by personal holdings in Q1, all in this transaction will generate approximately $235 million of cash after the cash payment of taxes in Q2 of 2022.

In addition, the repurchase of common shares allowed us to reduce our shares outstanding by 4% without impacting the share liquidity.

We have already started to utilize this gets done to accelerate that was Hershey transformation completed the acquisition of rocket power, which is included in our Q1 balance sheet and cash flows and we recently completed the acquisition of Pts in early Q2.

At the end of Q1 cash totaled $230 million compared to $239 million a year ago, Yeah, no debt consistent with debt nearly zero at the end of the first quarter of 2021.

With our 300 million in available capacity on our credit facilities and our cash balances. After the Q2 payment of the APAC transaction taxes and the acquisition of Pts will continue to have humble capital available to deploy.

At the end of Q1 accounts receivable was $1 5 billion and increased 19% year over year, reflecting our year over year increase in revenue as well as an increase in yes.

DSO was 62 days, an increase of two days of a year end 2021, and the first quarter of 2021.

For the first quarter of 2022, we used $108 million of free cash flow, reflecting increasing investments in working catch them.

Free cash flows in 2022 also includes approximately $29 million of cash outflows used to repay federal payroll tax balances, which will be felt in 2022 under the cares Act. In addition to the 29 million paid in Q1 2022, we expect to pay the remaining balance of $58 million.

On January <unk> of 2020 suite and we though is that now back to you Peter.

Thanks, Thanks for those details Olivier.

We are encouraged by our momentum, leaving the first quarter and the increased demand healthy sales pipelines and new customer wins, we're seeing we expect each of our specialty business units to deliver strategic contributions to this year's performance.

In P&I, the well publicized dynamics of the current labor environment require Kelly and our clients to adjust the ways in which we connect with high quality talent and we are responding with speed and agility.

As Olivier mentioned, we are changing how we work with one of our large P&I staffing clients shifting to a direct hire model to better meet their needs. We are also making P&I as local teams more agile in January we made adjustments to the P&I organization to align with our local markets, enabling us to deliver.

Serviced through the channel that works best for local talent and clients whether that be through technology, Our branch network or an onsite arrangement.

Notwithstanding ongoing talent shortages in supply chain disruptions, we expect P&I, new local alignment coupled with the deployment of technology investments. We've described on previous calls we will drive improved productivity throughout the second half of the year.

In our <unk> segment, we said, we wanted to see meaningful returns on our inorganic and organic investments are double digit growth with and without soft world in the first quarter delivered on that expectation and we expect meaningful contributions from <unk> for the remainder of 2022 and beyond.

In education, we committed to capture K 12 growth this year improve our fill rates and further expand our adjacencies and we achieved that growth in Q1 and started Q2 with our acquisition of Pts, which creates yet another high margin high demand specialty within the education segment that can quickly drive.

Synergies across our market, leading client portfolio. We also expect to see improving fill rates in our K 12 staffing business throughout 2022.

C. J, we said, we would invest in our fast growing <unk> business and that's precisely what we did in the first quarter with the acquisition of rocket power and innovative <unk> leader in the high margin high Tech specialty.

In addition, many of the sizeable MSP wins from 2021 will begin to produce J P. Throughout 2022.

And in our International segment, we said, we expected continued growth in regional and local specialties, our EMEA operations delivered solid topline growth in the first quarter, notwithstanding Mexico and our transition from Russia, We expect our international segment to continue delivering nice revenue growth for the remainder.

Of the year these growth strategies in our five business segments together with our aggressive and focused use of capital are designed to drive value for Kelly stakeholders in 2022 and beyond to share more about what we expect from the year ahead I'll now welcome back Olivier.

Peter as we reflect on the first quarter results and look ahead, we expect a continuation of many of the macro trends. We are currently seeing.

A steady increase in demand for talent, coupled with the continuation of balanced supply mismatch that puts pressure on our ability to fulfill that demand. We expect that recent trends in inflation and the airport pressure on wages at all skill levels will continue into the second half of 2022 and that's expected.

Increases in net interest rates may put pressure on certain industries as consumers and business adapt.

Specific to get it out to unusual event that impacts our outlook first is our intention to transition our operations in the Russia market. This we use 2022 revenues once the national segment and for the <unk> by about 200 basis points.

<unk> is a change in one of our lapsed customers labels. How does you mentioned earlier essentially one of our large staffing customers decided to address today's talent challenges and work with scheduled differently by changing its heavy use of contingent labor to one that instead, we rely on hiring.

Direct talent directly as full time employees.

Why do P&L P&I has secured a number of cloud onsite positions from compete during the quarter that will not be enough in Q2 to fully offset the top line impact of this change in these one customer's business.

Even with those headwinds we continue to expect revenue to be up organically four five to five 5% on a full year basis in nominal currency.

Of course, excluding the impact of our acquisition of rocket power in Pts.

Another way, we are increasing our outlook for our non Russian business by approximately 200 basis points.

And finally, we expect an additional 150 basis points of Shneur organic revenue growth from our recent acquisitions of brocade power in the OCG segment and PTH in the education segment. So all in we expect revenue growth of 6% to 7% for the full year.

Our outlook reflects no material changes in the COVID-19 related impact of significant deterioration in macroeconomic conditions as we have mentioned on prior calls and to national its revenue growth rate will continue to be negatively impacted by the Mexico legislation change we until we anniversary that.

The impact in the second half of 2022.

While we arent, providing quarterly guidance, we do expect Q2 organic revenue growth rate may be lower than our full year expectation driven by many of the factors I've mentioned, but then we are expecting increasing revenue growth rates as we move into the second half of the year.

We expect our GP rate to be about 20%.

Thats, a 130 basis point improvement from the $18 seven persons we reported for 2021 on a full year basis and includes 20 basis points from our Q1 of our recent 2022 acquisitions.

Our continued structural improvement in GP rate expectations reflect sustained growth in our fee based business a continued shift in mix to higher margin specialty.

And a more gradual pace of growth in our lower margin specialties.

We expect SG&A expenses to be up six to seven person on an adjusted organic basis, we continue to take steps to drive meaningful cost savings and calibrate our expense, including additional action taken in Q1. However, there is continuing pressure to address talent attraction and retention in the <unk>.

Current market.

We are focused on evaluating of initiatives in that space and part of the equation is providing opportunities for higher incentive compensation for our fulltime tenant. In addition, we'll continue to focus on technology initiatives that enhance the experience of talents we place on that.

Silent.

We remain committed to improving productivity on all of our business units and ensuring that the investments in our talent produces the workforce necessary for future growth. We also expect that our two recent acquisitions will add approximately 200 basis points of <unk>.

Yeah on the expense growth, including the impact of intangible amortization expense.

As we execute on our organic and inorganic strategy, we are utilizing our adjusted EBITDA and adjusted EBITDA margin as additional measures of our progress in delivering profitable growth based on our outlook for 2022, we expect adjusted organic EBITDA margin to improve.

70 to 90 basis points from the one 7% adjusted EBITDA margin delivered in 2021.

And finally, we expect an effective income tax rate in the high teens, which includes the impact of the work opportunity tax credit, which has been enacted through 2025 and with that back to you Peter.

Thank you Olivier we entered 2022 with energy and optimism and signaled that 2022 would be a year of bold progress for Kelly.

Kelly is leaning into market opportunities with a well defined and well capitalized specialization strategy ready to use the resources at our disposal to accelerate our progress and increased value to our shareholders.

We made a commitment to bold inorganic growth and we started 2022 by providing unprecedented capital to enable that growth the effectiveness with which we started putting our capital to work signals a newly confident Kelly one that has chosen our specialties wisely pursues high margin growth, where we know we can win.

And acts decisively to drive value for shareholders, we're thrilled to welcome rocket power and Pts to the Kelly team and we look forward to our shared success.

At the same time, we're delivering on our promise to accelerate high quality organic growth driving significant improvement in GP, while simultaneously investing in the talent and technology needed to bring innovative Kelly products to market with speed and impact as we continue to execute against our specialty strategy in 2000.

22, Kelly will create value for all of our stakeholders talent clients suppliers and shareholders alike.

Steve you can now open the call to questions.

Ladies and gentlemen, we will now begin the question and answer session of today's conference. If you wish to ask a question. Please press. The one followed by the zero on your Touchtone phone, you'll hear a tone, indicating that you place yourself in Q and all questions will be pulled in the order. They are received you may remove yourself at any time by once again the pricing the one followed.

By the zero and if you're using a speakerphone. Please pick up your handset before pressing the keys.

Please.

Yeah.

Our first question will come from the line of Kevin Steinke of Barrington Research. Please go ahead.

Hey, good morning, congratulations on the solid start to the year.

Thank you Kevin Good morning, good morning, Kevin.

Good morning.

Wanted to start off by asking about rocket power.

It seems like a really nice acquisition, but can you just give us a sense as.

As to what they bring to Kelly.

As additive to what you were doing before and recruitment process outsourcing.

Yeah. Thanks, Kevin.

We're really excited about the rocket power acquisition, it's another.

High quality high margin high growth.

<unk> that we think will add considerably to our existing.

Existing Kelly RPI practice, which is also experiencing.

Significant growth and demand.

Rocket power participates in.

Hi Tech industry that.

Kelly has not participated significantly in so it broadens they.

Our customer base, there was literally no overlap in our customers between Kelly and rocket power.

And they have a delivery model that includes leveraging resources in Latin America that we think.

Can be deployed in our Lego.

Legacy Kelly RPM practice to the advantage of our customers and also produce some meaningful financial returns.

Maybe okay sure.

I cannot shoes shoe numbers, if you want to to tell you a little bit more.

About what we call pro forma full year expectations. So you you know that's revenue of rocket power in 2021 was about $28 million. If you are seeing about our expectations and again full yield not basically the pro rata tomfoolery is that we are going to recognize based on the acquisition date.

We expect revenue in the region of close to $60 million for the year. So as you compare that with $28 million in 2021, I would say very high growth and we have already seen that in 2021 versus 2020 GP rate in the region of 44% gross margin and very very high and <unk>.

Margin in the region of 20 person so already a high growth high value engine as Peter was describing during his prepared remarks.

Great. Thank you that's very helpful.

Okay.

Senses to how.

Quickly you can.

Capitalize on.

Revenue synergies, both from rocket power as well as.

Your latest acquisition pediatric therapeutics Servicers in the education space.

Yes.

So priority Kevin that you.

Top line synergies as one is one of the parts of the investment thesis for both both of the rock and power in Pts.

And we think that there is opportunity as I said in the case of rock and power to.

Leverage their exposure in the Hi Tech.

Market, which we don't have a lot of exposure to.

Bring their delivery.

With our other other customers.

In the case of PPS.

An adjacency that we've been looking for a high quality property to add to the K 12 portfolio. We believe we found it in Pts we have.

School districts that are in need of the therapies that Pts provides and it's just a natural.

<unk>.

Complement to our <unk>.

Leading K 12.

Core business to be able to support our school districts with the therapies that Pts provides and we believe it's a platform that we can scale.

Great.

Just wanted to ask you about the education segment.

Really strong results at least relative to my expectations.

And then we had been talking last quarter about labor shortages in that market.

You noted, a meaning and meaningful improvement in fill rates and that your efforts to attract talent or gaining traction. So can you just talk a little bit about.

The education segment, the momentum there and.

Your ability to.

Attract more talent.

Yes, we're really encouraged by what we saw in Q1 and leave in Q1 by the.

Improvement in fill rates that we talked about last quarter.

We're in some of the regions that Kelly education.

Participates in work.

At or even exceeding pre pandemic levels in terms of fill rates.

There are some geographies that are still behind but all of them are showing levels of improvement as more individuals come off the sidelines. The healthcare concerns are lessened and schools are open.

And.

No longer requiring a vaccines and masking. So we're encouraged we're also encouraged by the pipeline of new wins, a number of large school districts, we've added to the portfolio.

Even.

<unk>.

Even this year and as we look to the 'twenty two 'twenty three school year, we're encouraged by the combination of improved fill rates and increased demand.

And I would add on that that we done with the traction we see wage inflation continuing.

Look at Q1, you know education wage inflation was about 14%. One four was of course the same impact on the bill rate. So thats good for kidney, but thats good dosing to attract tenants.

And as Olivier said, you know pay rates are high and we're seeing an inflow of.

Talent from the healthcare sector as the Covid induced stress individuals' are.

Migrating to the education space, which adds to the.

Labor pool for school districts.

Six which is very positive for Kelly education.

Alright, Yeah, that's an interesting dynamic.

You called out there okay great.

So.

You talked about the shift to a direct hire model with your large tier.

A customer and it sounds like that's happening.

Other places across the market I mean, when you talk to your customers.

Do you think this reflects oh.

Fairly permanent shift in their approach to hiring errors.

Racking talent or.

Do you think they might eventually revert back to the old model.

What's your sense on this.

The market trend and the sustainability of it.

Yeah, I don't think I wouldn't call. It a trend Kevin I think there are a few isolated instances where customers have.

Decided to deal with the talent shortage by moving from a contingent workers strategy to a permanent <unk>.

<unk> strategy, but.

At the same time the demand for contingent workers support.

Is at an all time high according to the American Staffing Association numbers in terms of the penetration rate and customers are.

Due to the Covid.

Situation they have come to realize the benefits to their business models of the flexibility that contingent labor provides so it would be hard to predict whether these one or two customers are going to revert back to.

Using contingent workers, but we don't see it as a trend that's going to have a long term impact on our business.

Okay. Good that's helpful. Just a couple more here.

You noted the higher SG&A expenses related to higher compensation.

To attract and retain.

Your own workforce.

Do you feel like you're in a good position now with those compensation increases too.

Attract and retain the talent you need to fulfill all the customer demand youre seeing.

Well, it's a it's a competitive labor market as you know Kevin then we're addressing some of that through increased compensation, which is important.

<unk> our employees contributions to the success of our business.

But it's not the only.

The only answer we need to provide a compelling value proposition to our employees and provide a workforce.

In a workplace that is flexible.

Flexible that is inclusive and welcoming and we have <unk>.

<unk> underway to ensure that that's the case at Kelly, but it's a competitive environment and.

We're doing everything we can to ensure that we have the talent and the capabilities, we need to deliver on our strategy.

Okay. Thanks, just lastly.

As we think about the gross margin as we move throughout the year should we think about that being pretty consistent from quarter to COVID-19, nine in the first quarter and 20 for the full year. So is that.

You know it.

Relatively consistent or anything we should think about.

Just the second quarter the quarters beyond.

Well I would say we are confident in the 2020 plus percent for the year, including our two recent acquisitions I think we have a I would say solid set of dynamics.

The dynamics that we see as a fee business that is teed up 68%.

The mix that that has been useful for us.

<unk> improvement, especially in our insert where we start to see now our beta rates moving at the higher pace than.

Our pay rate.

So we see all of those dynamics continuing as we have seen for.

Quite to widen, though I mean I was just recently looking at.

Our gross margin dedicated in 2018, we're at 17 six right. So and we have been able to improve our gross margin every single year since 2015, including in 2020, where basically the market conditions were extremely challenging so I would say, it's a long time.

So show an improvement that we expect to continue to see this.

This year, but also beyond this year.

Yeah.

Yeah.

Great. Thank you for taking the questions.

Thanks, Kevin Thanksgiving.

If there are any additional questions. Please press the one followed by the zero at this time. Our next question will come from the line of Joe Gomes of Noble capital. Please go ahead.

Yeah.

Good morning, Thanks for taking the question Hey, good morning, Johnny Chou.

The first one is I think you've noted a little bit here.

Amit.

In your remarks, if you look at the P&I business in.

International business, both had lower revenues, but increased GP dollars and rates I believe for bulk.

Wonder if you could give us a little more color as to you know what is going on there that's allowing you to increase the GP rate even in the face of some lower revenues in those two segments.

Well the international segment was the headwind there is Mexico, primarily in EMEA, we saw an increase in revenue 9%. So.

Good growth there in both cases, though Joe the focus.

Of our staffing business.

Business is to improve the quality of the.

Business that we're acquiring and that allows us to.

As I said during the last earnings call to focus on.

Higher margin business in both of those segments.

In addition in the case of P&I.

Higher margin outcome based solutions that we're offering.

To our customers in the new operating model, where we're able to offer.

Outcome based business process out.

Business process outsourcing and.

Our Sps solution, we're able to offer those to all of our P&I customers and those solutions command higher margin.

They are growing at a.

At a good clip so that contributes to the improved GP performance in P&I.

Okay. Thanks for that insight.

Pardon me.

Okay.

Great movement here, an improvement on GP rate.

You've mentioned over the years our.

Hopefully this year will be at a 20% rate I mean, how much more upside do you think there is.

And that and is it just.

Continuing to get more.

The salt and a software type of acquisition.

Are there other other things that you can leverage you can be pulling on to continue to grow that GP rate.

Well Joe with it.

Our strategy is both organic and inorganic and we believe in both cases, we can improve.

Our GP rate and I think thats, what youre seeing it's a combination of the addition of high quality high growth.

Properties like soft world like Pts like rocket power.

But also.

Improving the.

The solutions that we provide in our legacy Kelly businesses that command higher margins or outcome based solutions.

Amanda higher margin and we believe that there is upside.

And really all of our business segments too.

Improve our our GP rate if you take education as an example, it's.

<unk> been relatively stable and Kelly education, but the addition of Pts which command much higher margins.

You can have a meaningful impact on the.

The GP rate in Kelly education, as well as Kelly overall.

Yes, so far when you look back at all.

When you do so.

When you look back from let's say 2018.

Our average GP rate improvement.

Joe was about.

40% to 50 basis points.

I was about to sell the ER that.

That is basically purely organic and we still have a lot of opportunities even organically as Peter was describing.

Yeah.

Thanks Olivier for that.

And you talked a little bit.

Your own full time.

Talent and.

Some of the things that Youre doing there.

In your presentation, you talked about addressing the talent supply to meet customer demand.

Just wondering outside obviously increased pay what other types of <unk>.

Things are you being able to offer to.

To help try and attract more talent.

Are you so that you can meet your customer's supply demand.

Well as mentioned, Joe it's about the value proposition.

Today's workers want a.

<unk> flexible.

Environment, where they can adjust their work.

Their work requirements around there.

Other aspects of their life, we have.

A program that we started before the pandemic five years ago called Kelly anywhere, which provides a level of flexibility that we think is very attractive to today's workers. So combined with that.

That as well as.

Proving our wellness and benefits plans.

Creating affinity groups so individuals.

Paul.

Demographics will welcome in the workplace.

That that's a potent combination to attract people as well as telling this story of.

Our noble purpose of connecting people to work in ways that enrich their lives.

Today's workers want to feel a sense of purpose and we believe that Kelly offers that combination that they can.

The excited about coming to work every day in.

In support of the great companies that we work with and the great talent that we work with.

Yeah.

Okay and one last for me if I may.

I know you.

Yeah.

We repurchase the shares held by first of all you just raised the dividend.

But given where what's happening in the market today, where the stock has been trading here recently.

Would be going back and buying some more shares.

Interest you or the board in this environment or would you rather prefer to kind of hold onto that dry power powder.

For potential acquisitions.

Well were reviewing all of the options with respect to.

Capital allocation, Joe we do that regularly with the board, whether it's dividends or.

The possibility of share repurchase we do believe that the best use of.

The majority of our capital is going to be to acquire.

High quality properties like we've demonstrated with soft world and rocket power in Pts.

But.

Nothing's off the table and more regularly considering how to create value for our shareholders.

That's it for me thank you.

Joe.

Yeah.

There are no further questions in queue at this time. Please continue Mr quickly.

Steve if there are no further questions I think we can.

We can call it a day.

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Yeah.

Okay.

Yeah.

Yeah.

Yeah.

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