Q4 2022 Kelly Services Inc Earnings Call
Yeah.
Okay.
Yeah.
Good morning, and welcome to the Kelly services fourth quarter full year 2022 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.
Our fourth quarter webcast presentation is also available on Kelly's website. This morning.
I would now like to turn the meeting over to your host Mr. Peter Quigley President and CEO . Please go ahead.
Thank you Keely, Hello, everyone and welcome to Kelly's fourth 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 that any comments made during this call, including the Q&A may include forward looking statements about our expectations.
<unk> for future performance actual results could differ materially from those suggested but yeah, we'll commence and we have no obligation to update the statements made on this call. Please.
Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.
During the call certain data will be 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.
References to organic growth in our discussion today excludes the results of our 2022 acquisitions look at Bauer and Pts as well as the impact of the sale of our Russian operations.
We have also provided a slide deck that we're using on today's call on our website and now back to you Peter.
Thanks Olivier.
Start by sharing my perspective on the current economic and labor market dynamics to provide some context for Kelly's full year and fourth quarter results.
The mixed pattern of deceleration we saw in the third quarter persisted through the balance of the year amid heightened economic uncertainty in the high Tech sector layoffs continued as more firms moved to bring costs in line with slowing growth following a long period of expansion and aggressive hiring.
Workforce reductions spread to the financial services sector amid market volatility and decreased consumer spending driven by rising interest rates.
Manufacturers also cut jobs as economic activity in this sector began to contract after 29 consecutive months of growth.
In the other sectors not broadly impacted by layoffs, a growing number of employers scaled back or slowed hiring in anticipation of greater headwinds in 2023.
Notwithstanding these dynamics the labor market remains tight the economy continued to add jobs in the fourth quarter, albeit at a slightly slower pace to end the year.
Services industries health care and retail accounted for the bulk of the gains as employers in these sectors continue to recover from the pandemic.
Unemployment remains at historically low levels vacancies are steady and the labor force participation rate is relatively unchanged despite elevated wage growth.
The net result job openings continue to be difficult to fill in most sectors.
Even as economic headwinds emerged in the second half of the year Kelly remained laser focused on executing our specialty strategy achieving solid growth in 2022.
We increased revenue year over year, driven by topline gains in our set education and OCG businesses and rapid growth in our outcome based solutions every business unit expanded its gross profit margin lifting Kelly's gross profit margin above 20% for the first time in <unk>.
More than 25 years, a significant milestone in our pursuit of higher margin higher value business.
And we improved adjusted earnings from operations by 30% year over year, demonstrating our ability to effectively translate gross margin expansion to earnings growth.
Together these achievements signal that our specialty strategy is paying off.
2022 also marked a year of bold action as we accelerated our strategic transformation streamlined our portfolio and created additional value for all our stakeholders.
We ended the cross ownership arrangement between Kelly and Pearsall and reduced our ownership interest and our personnel are Kelly joint venture unlocking $235 million of liquidity, while repurchasing our common shares held by Purcell for $27 million in the process.
We redeployed a portion of the net proceeds from those transactions to advance our inorganic growth strategy, while preserving the remaining capital to pursue additional high margin high growth acquisitions in the future, we monetize noncore real estate holdings unlocking more capital to invest in growth initiatives.
She lives and we acted decisively to transfer ownership of our Russian operations to a Russian company.
And finally, we increased our dividend to its pre pandemic level and authorized a $50 million repurchase of outstanding class a common shares.
These moves are indicative of a new Kelly Kelly EBITDAX with urgency in pursuit of profitable growth.
Yet the year wasn't without its challenges the impact of heightened economic uncertainty I mentioned earlier became more visible in parts of kellys portfolio, especially in the fourth quarter.
The combination of mixed deceleration and labor market tightness contributed to lower revenue in the quarter from our staffing products in P&I and set. This contrast with growth in our higher margin outcome based solutions in these segments, which demonstrated greater resilience and performed well.
Among other areas of resilience is our education segment, which continued to grow at a fast pace across all specialties on a year over year basis. We remain pleased with the performance of Greenwood Asher and Pts our recent acquisition in the pediatric therapeutic space.
These higher margin businesses, both achieved revenue growth this quarter on increased demand.
In OCG ongoing headwinds in the high Tech sector continued to impact demand for the services of rocket power. Our recent acquisition in the ERP space. This.
This resulted in a goodwill impairment charge in the fourth quarter about what you Olivier will provide more details.
Notwithstanding these challenges we made measurable progress toward realizing more expected value from this acquisition were accelerating integration efforts to leverage the combined strength of Kelly's customer relationships and rocket powers delivery model, where diverse Joseph diversifying rocket powers customer base with a new.
Business outside the high tech sector and to help mitigate top line declines in the near term, we're taking steps to adjust SG&A.
Beyond racket power, we're stepping up our focus on SG&A management across Kelly in response to a decrease in leverage that we experienced in the fourth quarter. We took swift action to manage costs in the near term temporarily pausing hiring and reducing travel.
The macroeconomic situation involves evolves in 2023, we're committed to ensuring our cost base reflects our operating environment, our strategic priorities and our performance.
Longer term, we are reviewing our growth and efficiency objectives as we approach the three year anniversary of our operating model. This includes continuing our work to assign expenses as precisely as possible to each of our five business segments, providing us with the visibility necessary to.
More gross profit into earnings for more details on Kellys Q4 performance and our full year results I'll turn the call over to Olivier. Thank you Peter before I dig deeper into our Q4 results, which as Peter mentioned have been impacted by economic headwinds some comments on our performance.
First.
<unk> revenue was up one 1% on a reported basis suite <unk>, 2% on a constant currency basis.
This reflects excellent revenue growth in our education business unit as we capture additional growth opportunities and effectively manage talent supply challenges.
With CGM International excluding Russia also delivered solid constant currency revenue rules consistence with the actions taken in alignment with our specialty strategy GP rate improved 170 basis points on a year over year basis.
The higher GP rate combined with increasing revenue resulted in a 12, 1% increase in gross margin dollars all in constant currency and <unk> improved in order to use <unk>.
Finally, excluding the impairment charges were able to convert the higher gross profit to improve.
As Peter mentioned.
Earnings from operations were up.
So D persons and adjusted EBITDA margin was two 1% up 40 basis points from a yield.
Now looking at the first quarter of 2022, multi day's revenue totaled $1 2 billion down one 3% from the from the prior year, including 20 basis points of unfavorable currency impact.
Revenues were up <unk>, 7% on a constant currency basis.
Included in that increase.
150 basis points of favorable impact from our acquisitions of a rocket power in TTS as well as a 270 basis points unfavorable impact, resulting from the sale of our Russian operations.
Our revenue was up one 9% on the note.
On a non-GAAP organic constant currency basis.
As we look at revenue in the first quarter by segment.
<unk> segment revenue was up one 7% demand has continued to be strong for rail our telecommunication specialty.
And many of our outcome based solutions.
Growth in other specialties was negatively impacted in the quarter by the current economic headwinds.
In our education segment year over year revenue growth continues to be strong.
53% as reported and 43%.
Organic basis or excluding the impact of our May acquisition of Dts.
Our revenue growth in the education business reflects robust demand from existing customers and new wins in 2022.
This level of growth is consistent with Q1 to Q3 trends and demonstrate.
The resiliency of the education business, even as the broader economic trends soften plays.
Placement fees, primarily higher education, the executive search with Green Dude Asher were up 67 persons.
Our OCG segment delivered another quarter of year over year revenue growth with revenue up <unk>, 5% over last year.
<unk> results include the impact of our March acquisition of Ruckus power organic constant currency revenues were flat.
Declines in GPU upset the continued growth in our high margin MSP and <unk> projects I will provide more context on the situation. We look at power later in my comments.
Revenue in our professional and then just real segment declined 11, 8% in the quarter.
Revenue from our staffing products declined 17% in the quarter a deceleration from Q3 as he couldnt meet headwinds as Easter equally more impact on the segment early in the cycle.
The segment's outcome based business delivered solid revenue growth of 9% and even with continued contraction in the yield of a yield demand from our call center efficiency.
In other outcome based patient Ts West home.
Revenue in our international segment declined 16% on a reported basis and was down 8% on a constant currency basis, excluding the impact of the sale of our Russian operations revenue improved by 5% on an organic constant currency basis.
And placement fees were also resilient and were up 32% on an organic basis.
Overall gross profit was up one 7% as reported.
Three 7% on the calls.
Current currency basis, our gross profit rate was 23% compared to 19, 7% in the first quarter of the pioneer full year over year improvement of 60 basis points.
Primary driver continued to be favorable organic business mix, which contributed approximately 100 basis points for the quarter.
Our 2022 acquisitions also positively impact impacted our total GP rate by about 20 basis points.
As both Pts and look at power will generate higher margins than <unk> average. These improvements were partially offset by higher employee related costs and also lower perm fees.
I'll set OCG and international businesses delivered the most significant year over year improvement in business mix and improved year over year GDP rates.
SG&A expenses were up to focus on year over year on a reported basis and up 4% on a constant currency basis included in our 2021 results are approximately $4 million in restructuring charges.
And our 2022 results are impacted by the intangible amortization and other expenses of our recent acquisitions as well as a favorable impact of the sale of our Russian operations. So on an organic constant currency basis fourth quarter 2022 expenses grew by four three.
Year over year.
This is a reduction in the SG&A growth trends from earlier this year and it does reflect our continued focus on cost management will continue to take steps to ensure that we are prepared for uncertain economic conditions, while continuing to fund investments in technology improvements that will position us for long term success.
<unk>.
During the first quarter, we did we bought an additional $10 3 million goodwill impairment charge related to rugged power as.
As we have discussed previously rocket power provides <unk> fuel cell c's, primarily to customers in the high tech vertical.
Beginning earlier this year and accelerating in Q4, there has been a reduction in hiring activity in December three vertical, which we now believe will be deeper and will last through much of 2020 suite.
The impairment charge is a noncash item and does not impact our plans for rocket power, including as Peter mentioned, a focus on customer diversification and opportunities for synergies, which will allow us to maximize the value of our investment in the future.
Our reported earnings from operations in the fourth quarter were $4 6 million compared to $15 3 million in Q4 of 2021.
Included in Q4 of 2022 is a goodwill impairment challenge and in Q4 2021 is approximately $4 million of restructuring charges. So and then there's just and then that adjusted basis Q4, 'twenty to 2022 earnings from operation of $14 million declined 28%.
For the year.
Peter mentioned, we monetized our investment holdings and most of the peso to the APAC joint venture in the first quarter of 2022, so as it will be no further P&L impact from those investments, but the comparable period year.
We'd include gains and losses related to those investments until we anniversary the collections in the fourth quarter of 2021, we recognized a 50 million pre tax gain on our personal holdings common stock.
Also reported below earnings from operations in the fourth quarter of 2021, we realized a 19 million onetime gain related to cash proceeds received from the settlement of a claim on the representation and warranties insurance policies purchased in connection with the acquisition of so forth.
Income tax expense for the fourth quarter was $5 2 million compared with our 2021 income tax expense of $16 1 million.
Our effective tax rate for the quarter was more than 100 person and was impacted by non deductible losses on the cash surrender value of company owned life insurance.
And finally reported loss per share for the fourth quarter of 2022, or <unk> <unk> per share compared to earnings per share of $1 80 in 2021.
Loss per share in 2022 included the impact of the goodwill impairment charge net of tax partially offset by your gain on sale of real estate properties net of tax.
Earnings per share in 2021 were favorably impacted by gains on vessel shares and the gain on insurance settlement and partially offset by switching Charles all net of tax so all in on an adjusted basis Q4, 2022, EPS was <unk> 18.
265 per share in Q4 of 2021.
Now moving to the balance sheet as of year end cash totaled $154 million compared to $113 million a year ago that was nearly zero consistent with year end 2021, and when combining our strong balance sheet with our existing borrowing capacity.
C level and continue to have ample capital available to fund, our organic and inorganic strategy as well as navigating an uncertain macroeconomic environment.
At year end accounts receivable was $1 5 billion and increased 5% year over year, reflecting our year over year increase in revenue as well as billings to MSP customers reported on a net basis.
Global DSO was 61 days, an increase of one day over year end of 2021.
For the year, we used $88 million of free cash flow free cash flows in 2022 include the final repayment.
Approximately $87 million of federal payroll tax balances, which were deferred in 2020 under cable act as well as $48 million of income taxes due in Japan. Following the sale of so Paulo investment in <unk> common stock.
And during the fourth quarter, we have started executing against the $50 million share repurchase plan that we announced in November by approximately 475000 shares for a value of $7 8 million.
As Peter mentioned, the global economy has grown increasingly uncertain as a result, we are not going to provide a formal outlook for 2023 at this stage. However, I will share the following observation.
Through the execution of our specialty strategy kidney has continued to transform since the last significant economic disruption caused by the COVID-19 pandemic in 2020.
We have remixed our portfolio towards higher margin products and specialty and we have demonstrated the ability to act with urgency to proactively manage costs to protect the bottom line and preserve that when necessary.
Our current view for the first half of 2020 suite reflect that the economic uncertainty will constrain top line growth in several of our business units.
We expect that our structural GP rate improvement will continue but likely at a slower pace than in 2022, and finally that will contain our SG&A to levels similar to Q4 of 2022.
By continuing to invest in our technology initiatives and in our people.
Topline trends don't align with our current expectations. We are prepared to take action and you shouldn't actions to align our cost structure as we move forward and with now all of that back to you Peter Thank.
Thanks for those insights Olivier.
It's difficult to know how the macroeconomic situation will unfold as we move forward in 2023.
What is certain is that we all focus on what we can control and stay the course and our aggressive pursuit of profitable growth.
In each of our chosen specialties will continue to shift toward a business mix characterized not only by higher margins in value, but greater resiliency amid market pressures will drive inorganic growth using the ample capital available to us on our balance sheet to pursue additional high quality.
Acquisitions, and education set and OCG.
And we will continue to invest in technology, and new products that will improve the talent and customer experience enable organic growth and increase efficiency.
I have great confidence in our team's ability to meet the moment and deliver on these priorities.
This has been a defining characteristic of Kelly people since our founding more than 75 years ago and has contributed in no small way to the longevity of our company.
With our team laser focused on executing our specialty strategy and guided by our noble purpose I look forward to building on the positive momentum we generated in 2022.
Together, we will create long term value for all our stakeholders, helping our talent and customers thrive and rewarding our shareholders for their patients since we embarked on this transformation. We are grateful to all of them and to our board of directors for their unwavering support as we move forward on our journey to unleash the full.
Potential of this great company.
Kelly 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.
You will hear an acknowledgment that you've been placed into Q and you can't remove yourself from queue at any time by repeating the one zero command.
If you're on a speakerphone please pick up your handset before pressing the numbers once again for questions. Please press one zero at this time.
We will go to the line of Joe Gomes with noble capital.
Good morning, Peter and Olivier Thanks for taking the questions, yes, good morning, Johnny.
So just kind of wanted to start off here.
On the P&I business, if we look at that it looked like.
Revenues kind of accelerated.
On a negative and in the quarter.
It was higher in the fourth quarter the revenue decline in the other quarters in the year maybe.
Maybe you could just give us a little more color as to what is going on in the P&I segment.
Yes, Joe.
Think it's a reflection of what's going on in the.
Parts of the economy that we have exposure to.
The P&I business as considerable exposure to manufacturing light industrial.
Distribution and those businesses in particular were impacted by the <unk>.
Headwinds that we saw to some extent in Q3, but really accelerating in Q4 and.
That's that's the story behind that.
P&I also mentioned that we still have yet to anniversary the loss of the major customer we had.
That will anniversary in April of 2023.
On the flip side I would say and we did mention it I did mentioned.
Bto business.
Growing.
Despite of the fact that our call center businesses.
When the kind of challenging comps.
Comparables.
But overall, we grew these business by about 9% in Q4.
Which I think is an improvement versus what we have seen even in Q3, where it was about <unk> <unk>. So that's I wouldn't say that is offsetting staffing, but it is something we.
Assumed to be resilient for the near future.
Okay. Thank you for that.
Switching over to Europe .
You call out a number of different.
Countries, there are break that out in your <unk>.
Tables Im look.
Looking at it.
So we know what happened in Russia with the sale, but all the other countries that you identify outside of Portugal.
We're down on a revenue basis.
Maybe you could talk a little bit as to what youre seeing in some of those.
Countries.
That would show.
The sequential decline are the quarterly decline in revenue.
Yes, I would say.
Of course, you need to put on the side two things right. One is of course exchange rate, which is of course as we did mentioned again impacting our P&L in <unk>.
National and of course, Russia until we anniversary.
Basically the.
Collection that it up in early July of 2022. So if you put these two things on the side to ask you growing at about 5%, we have it's a little bit lower than what we have seen in Q3 Q3, we were shy.
Shy of 7%, so we see a decline, but not I would say pretty.
Personal loans decline.
We still see a lot of growth in Portugal, and you can see on our 8-K, so the 30% plus we have seen that in Q1 Q2 Q3.
As well as Q4 of 2022.
We have seen some slowdown in Switzerland, and France and Italy.
Because of market conditions, but I would say.
It is more challenging than before but I wouldn't call. It as you know.
Complete change in trend, we slept bright spots in Germany that is mentioned in other and he is one of the main reason why other is still up by 14%.
In Germany also the revenue isn't that big.
Business, where the margin on the gross margin is pretty encouraging because of the business mix and we continue to make huge progress over there. So we have also a couple of other countries, where we continue to see very good traction and of course, we don't disclose them because they.
Pretty small, especially on the revenue, but some of them like including Germany.
Creating very interesting traction.
Probably more visible in GP and bottom line.
Okay. Thanks Olivier on that end.
Pardon me.
Mentioned on the last call.
Talking about the tech layoffs about how that might.
Provide a better pipeline of candidates for some of the other verticals.
Maybe you could talk are you seeing that.
<unk>.
What else are you needing to do I know this is kind of an ongoing an unfolding situation to attract.
Workers.
Fill positions that are open.
Yes, the demand for the talent that are involved in a lot of the publicize layoffs in the tech sector are.
Skills and capabilities that are in demand outside of the high tech sector.
The lag time between moving those people to other industries.
As measured.
By geography by.
Pressures that.
In all industries customers are making hiring decisions slower.
Taking a little bit more time, but clearly the demand for those skill sets is evident and we're seeing it it's just that the <unk>.
Macro economic conditions.
It doesn't translate immediately into Ma.
Moving people from.
From Friday to Monday to a new position that takes a little bit longer than we expect to see the benefits of that increase in.
Technology talent and skill sets.
Throughout 2023.
Okay.
One more if I may on rocket power again last call when you were talking about it.
The firm.
Mentioned about identifying synergies with the rest of tally.
Accelerating the integration diversifying the portfolio maybe.
Maybe could you provide a little more detail.
Where are you where you see yourself progressing on those goals for rocket power.
Yes, we're very we're very encouraged by where we are on those two issues, but also Joe.
Part of the investment thesis for rocket power was being able to take advantage of there.
Latin American delivery model.
And we're encouraged by the ability not only to continue to use that for rocket power customers, but also to take advantage of that for either legacy Kelly <unk> customers and also use it as part of our sales efforts for our new <unk> customers.
We are.
Seeing signs at that.
Part of the investment thesis is paying off with.
Customers were talking to in terms of where they are looking to.
See a lower cost delivery and we're able to.
Provide that through that Latin American delivery model that was part of rocket power.
Okay, great. Thanks for taking my questions guys I appreciate it alright.
Alright, Thanks, Joe Thank you Joe.
We will go next to the line of Kevin Steinke.
Barrington research.
Good morning, good morning.
Good morning, Kevin.
Good morning.
I wanted to.
First ask about the.
Science engineering and technology segments.
You noted.
Continued.
Good demand in the telecom area, although that.
You mentioned also that the other areas within this segment are being impacted by the economy. So can you maybe just expand on.
The areas being impacted by the economy.
And.
Maybe how material.
Slowdown has been there.
Yes, thanks, Kevin.
So as Olivier mentioned.
The callout.
Our outcome based business and that continues to see nice growth and I think it speaks to the strategy that we have moved.
Moving business to that.
That delivery model.
Where I would start telecom is enjoying very significant growth both in terms of traditional staff August as well as <unk>.
Statement of work business and we.
We see that continuing as companies.
Work to deploy next generation networks.
The areas that.
Or a little more challenged are probably science.
In engineering.
Because in science there is a lot of companies that are catching their breath after coming out of Covid and.
Trying to reestablish what there going forward strategy is so we've seen some slowdown in hiring.
Taking customers taking longer.
In engineering as continued to see some.
Yes.
Headwinds.
From a macroeconomic standpoint technology is reflective of I think the high tech sector overall.
But we don't see that as a.
A permanent.
Probably a temporary lull in terms of demand companies still need.
Developers and network architects.
Arc attacks and cyber security experts.
Data analysts and we see when the.
Economic conditions become more certain we expect that to come back quite quickly.
Okay.
Okay. Thanks, that's helpful color.
Yeah.
You were talking earlier about.
Some of the layoffs.
Hi Tech sector you could.
Sure.
Use symbols people and their skills to build demand in other areas I guess just more broadly as.
Some of the softening in the labor market.
Improved your ability to fill orders.
More generally across the company.
I know you referenced there's still.
A good number of job openings and the labor market is still fairly tight.
And I'm wondering if that's maybe enables you to fill some other orders.
Better that maybe were sitting open due to greater.
Market tightness, yes.
Well.
The demand has slowed in certain sectors.
I would.
Point out that our fill rates have improved and in education, which is likely a sign of.
People coming off the sidelines could be retirees that are.
Concerned about inflation, but we've seen.
Across the regions improvement in fill rates, which is very encouraging because of the demand continues to.
Be very strong in education.
Insert our fill rates have.
Pretty much maintained demand as slack slack and a little bit but.
We continue to.
Sure.
<unk> talent and put them to work at our at our customers and our bill rates have improved and P&I, although the the demand is.
Softened considerably as I mentioned two in response to Joe's question. Another way to look at it is about that we'll own wage inflation, we see.
Is there a single insert is still elevated at around 8% to 9%, which is what we have seen for a long time now it is moving down the <unk> P&I, which might be a sign that the supply of talent side seeing.
A little bit our wage inflation for P&I in Q4 was about $2 five questions there.
Something like 7% in Q3 education is.
Likely down, but still very elevated at about 9%, <unk> 14, or 13% to 14% before.
Okay. Yeah. That's that's good helpful.
Color.
Sure.
Maybe just drilling down a little bit more into education.
Does the business pipeline there continues to be strong.
And specifically what are you seeing with.
Demand in your ability to leverage the.
The pediatric therapeutic services acquisition.
Im very encouraged by the.
Early signs of synergy between our traditional pre K to 12 education business in Pts.
Both ways frankly, so PPS, introducing our traditional K 12.
Business to that school districts as support and.
Our K 12.
School districts being introduced the Pts So we think there is cigna.
Significant synergistic opportunity there.
We're seeing.
<unk>.
Growth in the traditional business both in terms of existing.
Customers as well as our existing school districts as well as the pipeline continues to be very strong in school district struggle with.
Okay.
Frankly, a chronic teacher shortage and as they focus on their full time hiring and curriculum.
More and more school districts are likely to be outsourcing the management of their substitute teacher population and.
We're.
Going to be the beneficiary of that because we win more than our fair share when were.
Competing for business.
Excellent.
The retention rate among our existing customers an excellent win.
Win ratio when we compete for business I would also add that the higher Ed.
A portion of the education system is very dynamic, which leads to a lot of turnover, which means that our Greenwood Asher.
<unk> search practice is seeing very significant volume of.
Searches for universities and community colleges and even some superintendents and our K 12 space.
So we're very encouraged by that because it's a very not a huge business, but a very.
Very profitable business.
Great. Thank you.
Just also wanted to ask about.
Yeah.
The outlook for the first half of 2023 as you noted you expect revenue will.
Continue to be constrained by economic uncertainty.
Also acknowledging that as you mentioned it's difficult to.
Ascertain exactly how the megawatt macroeconomic situation will evolve, but as it currently stands would you expect.
Economic headwinds that to pick up.
In the first half or.
Kind of kind of stay as is.
What's the pipeline look like in your.
Your expectation for how.
Severe or how much of a change you could see in terms of the economic headwinds in the first half.
Yeah, probably what I'm going to do is to reflect a little bit what we have seen so far especially in Denver for revenue.
Early in 2023, as we speak so back to what Peter was talking about education, we continue to trend very well in all practices, including tickets.
<unk> of what we have seen again.
For the whole of 2022, we continue to make progress in improving our fee rate.
And we expect I mean solid.
Solid growth in it.
Continuation of the solid growth just for you to know that of course, we are going to deal with higher comparables because were already growing at.
40% to 50% in 2022, but very solid start of the year.
When I look at the OCG not seen any significant changes in trends so far.
<unk>, which we have seen Q.
Q4 2022.
I believe at some stage, we would expect some pressure on <unk> because of the market.
We have not seen that yet for CIT P&I and international.
What I would say he's.
Staffing continued to slow down, especially in P&I.
He's very very volatile we have one good week, one more challenging week difficult to new.
How he is going to trend in the future I would say high volatility outcome base. So far what we have seen is a portion omission of.
Whether it's in P&I.
Alright, well, thank you for that insight.
I'll turn it over thanks.
For taking the questions.
Thanks, Kevin.
Thank you.
We'll go next to the line of Kartik Mehta of Northcoast research.
Good morning, everyone. This is Jack Boyle speaking on behalf of Kartik Mehta, just a couple of questions to get US started here. So you just spoke a little bit about what we can expect early.
I appreciate that so can you speak a little bit more about the maybe the competitive environment, what youre seeing.
I understand demand has come down but.
What kind of competitive environment are you guys seeing now and is there a certain point that you guys are competing on whether it be price or capability.
I think the.
Competitive landscape Hasnt changed significantly in terms of.
The the.
Vendors and suppliers that we compete against.
We've been very disciplined about maintaining.
Our pricing.
Our margin and to some extent in some cases trading off.
And not chasing revenue for purposes of Av.
Top line.
I think we haven't seen a lot of I would say wholesale wholesale.
Margin pressure coming from.
Our principal competitors.
<unk>.
Regional companies.
<unk> to chase business.
As I said, we're being disciplined about it we're focusing on finding.
Higher margin jobs and job categories that we know we can fill and compete and win.
We're pleased with the number of.
Customer acquisitions that we've had in the <unk>.
Yes.
A couple of quarters.
Those take a while to show up because you have to transition.
From other companies.
But.
I would say on the whole there's not a significant change in the competitive landscape.
Alright, and then just one more.
In terms of a little more color around some of the SG&A savings strategy you discussed the pause in hiring is that across all of your businesses and how long do you foresee that lasting.
Well we.
It's across all businesses subject to wreck.
If we have a customer facing revenue GP generating position.
We're filling those roles.
But were.
Doing it after a review to make sure that it's necessary, but all of the the other I would call them non customer facing non revenue generating roles.
Are we.
We've put a hiring freeze on and will continue that until we see some.
Some signs of certainty in the macroeconomic conditions and.
Don't see any deterioration in demand in our in our businesses, but one exception Jack might be education, where the demand is so significant that we've got to add.
People because the.
The opportunity is so significant and.
We're not going to miss the.
Great work that the education team has done to acquire new skills school districts and.
Generate additional revenue and GP through improving our fill rates.
Great. Thanks for the additional detail.
Thanks, Jack Thank you.
We'll go next to the line of Mitra Ram Gopal with Sidoti.
Yes. Good morning, Thanks for taking the questions Hi, good morning.
Just following up a little on the last question on the SG&A.
In terms of how comfortable you feel you'll be able to.
Keep SG&A levels, you'd like especially in light of the revenue uncertainty and how far along are you in terms of the investments and technology initiatives.
Should we continue to see unabated investments.
So on the.
On the SG&A question.
Done a lot of work starting in the third quarter of last year to identify.
Certain metrics that we're following very closely that will.
Trigger additional.
Cost moves.
If necessary and I think we're better prepared to respond to macroeconomic conditions than we have been before.
So I'm very comfortable that.
We're.
Have the levers that we need to pull.
<unk> identified and available to us should that be necessary.
The technology is a very critical area of investment for us.
We're investing not only in the.
Ways to improve the productivity of our frontline teams, but we're also investing in the talent and experience. We recently launched a new Mike Kelly portal.
Which provides.
Talent that we deal with every day with a better user experience and we think thats going to.
Create some opportunities to maintain relationships with the <unk>.
Great people that we put to work every day and.
Yes.
Use that as a differentiator in terms of selling to our customers. So the technology investments.
We will continue to judiciously, but we need to make investments for the long term and that will be and continue to be a priority in terms of our.
Organic investments.
Okay, that's great.
And then on the inorganic.
Syed.
I know, it's something you always keep an eye on given the balance sheet. You have you can certainly be aggressive there, but in light of the economic uncertainty you spoke to.
If maybe you can give us some color in terms of how youre thinking about inorganic opportunities.
Do you feel confident.
You'll be able to get something done maybe this year and pipeline and valuations youre seeing.
Well candidly Mitra the.
Quality and the quantity of properties in the market right now is less than it was a year ago and Thats I think just a reflection of not only the macroeconomic conditions, but also the interest rate environment.
And that's likely to continue for the first quarter and probably end of the first half.
I my expectation is that when the interest rate environment becomes a little bit clearer in terms of.
The ceiling and companies have line of sight to more certainty in the economy, we're going to see a lot of companies that were on the sidelines.
Yeah.
Being part of conversations and.
We're not waiting for that we're actively.
Proactively.
Pursuing in identifying high quality high margin high growth assets that we would.
Like to add to the portfolio, but it's a it's a fairly constrained environment right now, but we will we will be ready and as I said, we're not sitting on our heels. During this period of time, we are continuing to to.
To proactively look for those kinds of properties.
Our level of liquidity, which is now over $450 million I mean, we can really.
Go fast and aggressive, especially.
In the second half of the year not necessarily waiting for a much better economic environment, because again with our balance sheet. We can do it at an early stage of.
But onshore the recovery versus the current environment.
Okay, No that's great. Thanks, again for taking the questions.
Thanks Mitra thank you.
Thank you we have a follow up from the line of Kevin Spanky with Barrington Research.
Hi, just really quick follow up in terms of what we should expect for <unk>.
<unk> tax rate.
As we move into 2023.
Yes.
That's a difficult equation I would say.
I'm still on the you know.
Mid teens, plus that would be where I would position it.
Although you might have seen that there is a lot of volatility because of several items I think today when I was talking about tax.
The example of that but.
Hi, mid teens would be would be probably the way I would position it for the moment.
Okay. That's fair thank you very much.
Thank you thanks, Kevin.
Once again for questions from the phone it's one.
Zero.
And we'll go to <unk>.
And speakers, allowing a few moments there are no further questions in queue.
Okay, Kelly I think we can.
We can wrap it up then thank you very much for your help thank you.
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