Q3 2023 Kelly Services Inc Earnings Call
Yeah.
Yeah.
Good morning, and welcome to Kelly Services third 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.
A 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 Kelly Hello, everyone and welcome to Kellys third quarter Conference call.
Before we begin I'll walk you through our safe Harbor language, which can be found in our presentation materials.
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 these suggested by our comments.
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 on a reported and on an adjusted basis discussion of items on an adjusted basis or.
Our non-GAAP financial measures designed to give insight into certain trends in our operations.
Finally, the slide deck that we're using on today's call is available on our website.
We have a lot to cover today, so let's get started before we turn to Kelly's third quarter results I'd like to cover our recent announcement regarding another transformative and bold step in our specialty growth journey.
On November 2nd Kelly entered into a definitive agreement to sell our European staffing business to GI group for 100 million Euro with 30 million euro or additional earn out potential.
Under the terms of the agreement we will transfer the European staffing business within Kelly's International operating segment did you Guy group, while retaining our MSP or P. O S. P business with customers in the EMEA region.
We expect the transaction to close in the first quarter of 'twenty 'twenty four after which Kelly will maintain its global footprint and continue to provide MSP and art P O solutions to customers in the EMEA region through Kelly OCG.
And our fast growing FSP solutions through Kelly said.
This transaction will unlock significant capital to pursue organic and inorganic investments in our chosen specialties.
Furthermore, it sharpens, our focus on our higher margin higher growth MSP, and <unk> solutions globally, and specialty outcome based and staffing services in North America.
Together, we expect these outcomes will accelerate our transformation efforts to significantly improve Kelly's net margin on.
I'm joined today by Olivier J row, our Chief Financial Officer, who will share more details about our expectations later in the call.
Turning to the third quarter, we continued to make progress on the business transformation initiatives, we launched earlier this year.
Following the implementation of strategic restructuring activities at the outset of the quarter. We remained laser focused on sustaining these structural improvements across the enterprise. Our continued emphasis on our organizational efficiency and effectiveness throughout the quarter resulted in a nine 1% decrease in S. G.
Again, a on an adjusted basis.
A substantial year over year improvement with the efficiency phase of our transformation on track and delivering results our expectation of an adjusted EBITDA margin around 3% exiting 2023 is within sight.
As we shared in August our expectations assume no change to the market conditions, we faced in the second quarter in fact macroeconomic headwinds in the third quarter proved to be more pronounced than anticipated.
Made it more challenging operating environment, we remain focused on what we can control achieving significant improvements on an adjusted basis to EBITDA margin and earnings.
As market conditions begin to improve we're confident that the structural changes we've made across the enterprise will continue to deliver significant improvement to Kelly's bottom line.
Notwithstanding persistent headwinds we were keeping our sites trained on the horizon as I shared with you in August we've undertaken several strategic initiatives that are positioning Kelly to accelerate profitable growth over the long term.
We've made progress since then which I'm pleased to share with you today at the enterprise level, we have developed a comprehensive strategy to deliver the full suite of Kelly offerings to our largest enterprise customers.
This strategy is transforming the culture capabilities and technology across our segments to serve critical accounts more efficiently and effectively we've begun to operationalize. This approach within our large enterprise account teams and I'm pleased by the way they have embraced the change by.
By successfully implementing this strategy, we will accelerate our progress on increasing our share of wallet, improving our business mix and optimizing expenses over a large subset of our business.
In our professional and industrial segment, we're enhancing service delivery to industrial and commercial staffing customers and building, our new business pipeline by enhancing our localized delivery model at.
At the heart of this model is a network of branch locations enabled by new technology through which our teams are meeting customers and talent closer to where they are.
Our approach is designed to yield several benefits accelerated responsiveness to customer and talent needs deeper insights into local market dynamics and greater collaboration empowerment and accountability among branch team members.
In the third quarter, we completed a successful pilot of this delivery model and branches in select markets across the U S. The outcome validated our assumptions our pilot markets delivered both top and bottom line improvements along with a healthy pipeline of new business opportunities feedback from customers and talent was positive.
But as well.
Just on this success, we're moving swiftly to implement this strategy and additional U S markets and early results continue to be encouraging.
We're also aligning our capital allocation priorities to support our growth ambitions in the third quarter, we completed our $50 million share repurchase program, which returned considerable value to our shareholders. While we're pleased with the outcome. We're confident that the best way to create value in the current environment is by reinvesting in our biz.
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We continue to have ample capital available to deploy toward organic and inorganic growth initiatives with improved free cash flow driven by the efficiency phase of our transformation further strengthening our position and as I mentioned previously the sale of our European staffing business will add more than 100 million euro.
Oh of liquidity when the transaction closes in the first quarter of 2024.
As such we're continuing our efforts to identify high margin high growth inorganic opportunities. We remain focused on pursuing additional acquisitions and are set in the education segment and more opportunistically OCG with a strong balance sheet, a disciplined approach to evaluating opportunities and clearer.
Board approved inorganic priorities Kelly is positioned to pursue deals notwithstanding the macroeconomic environment.
We're also investing in technology, having developed a comprehensive roadmap to transform our business processes tools data and the way technology is delivered to our people. Our vision is to leverage technology to both enable growth by improving efficiency and generate growth through innovative offerings that create value for customers and <unk>.
Talent.
With our roadmap focused on maximizing business impact at each step we're committed to a disciplined approach to evolving our technology infrastructure prioritizing opportunities through which there was greater potential for Kelly just differentiate itself in the market.
I look forward to sharing more about our expectation expectations for growth in 2024 on our fourth quarter earnings call in February with that I'll turn the call over to Olivier to provide details on our financial results for the third quarter. Thank you Peter and good morning, everybody.
For the third quarter of 2023 revenue totaled $1 1 billion down four 3% from the Pi you are you, including 150 basis points of favorable currency effects. So revenues for the quarter wavelength five 8% in constant currency.
As you look at third quarter revenue by segment. Our Education segment continues to report significant year over year growth of 20, sweepers and due to our improved feed await strong demand from existing customers and net new customer wins.
Overall continued double digit revenue growth demonstrates that our education business, including our market, leading pre K 12, and Pts therapy solutions is a significant growth engine, even as brothers definitely market trends remain challenging.
<unk> segment revenue was down by 8% during the third quarter, we saw a continuation of the deceleration of the demand for our staffing specialties as well as lower revenue trends in our outcome based business.
Permanent placement fees were also impacted by a continued deceleration in market demand and declined 39%.
In our OCG segment year over year revenue declined 4% on a reported and constant currency basis.
Year over year declines after you continued as slower hiring in certain markets sick dog has had the disproportionate impact MSP revenue decline year over year in the quarter, but was flat sequentially and GPU year over year revenues improved.
Revenue in our professional and then just real segment declined 11% year over year in the quarter.
Revenue from our specialty products declined by 15%, reflecting the impact of Hakan <unk> headwinds, which are more on the table in these segments.
The segment's outcome based business, where revenue grew by 3% year over year, which is a moderation of the trend we have seen in the past few quarters.
Excluding our contact center specialty where demand for certain customers as he separated the segments. Although outcome base revenues have continued to grow at a double digit pace.
Placement fees, Indiana declined, 60% and continued to be impacted by lower demand for full time hiring.
Revenue in our international segment increased 2% on a nominal currency basis and was up 6% on a constant currency basis.
Therefore vary based on geography and product for the quarter, we had good constant currency revenue growth in Mexico and Portugal.
It was more than offset by revenue declines in Switzerland, France, and Italy, as well as the impact of the sale of our Russian operations, which was completed in July of 2022 and.
International placement fees were consistent with last year on a constant currency basis.
Overall gross profit was down five 1% on a reported basis or six 3% Ingalls hundreds.
Our gross profit rate was 24% compared to 26% in the third quarter of last year, a decrease of 20 basis points. The primary driver was 40 basis point of unfavorable impact from lower cheese, and 20 basis points of higher employee related costs.
Yeah.
These impacts were partially offset by 40 basis points of continued improvement in <unk> business mix.
SG&A expenses were down 1.2% year over year on a reported basis.
Expenses for the third quarter of 2023 include $15 4 million of charges related to our ongoing transformation efforts.
On an adjusted constant currency basis expenses declined by 99, 1% or $21 million in the quarter.
The addiction reflect the positive impacts of Bolthouse formation at fault, which are designed to reduce cost on a structural bases as well as lower performance based incentive compensation.
For the third quarter on a reported basis, we produced breakeven earnings for operations. These compelled compares to a loss of $21 4 million in the third quarter of 2022.
As noted.
'twenty 'twenty suite Q3 results include the $10 4 million of charges related to our pulse Foundation activities. So adjusted earnings from operations in Q3 of 2023 were $15 5 million.
Our 2022 Qs we loss includes a $30 7 million goodwill impairment charge, resulting in adjusted earnings for operation in Q3 of 2022 of $9 5 billion.
So on the like for like basis, Q3, 2000, Twenty's, we earnings from operation increased by 60 buses adjust.
Adjusted EBITDA margin for the quarter also improved at two 3% compared to one 6% a year ago, a 70 basis point improvement.
Income tax benefit for the third quarter was $4 9 million.
Consistent with our 2022 income tax benefit of $5 million.
And finally reported earnings per share for the third quarter of 2020 free was 18 cents per share compared to a loss per share of <unk> 43 cents in 2022.
Adjusted EPS for the third quarter of 2023, excluding the transformation related charges net of tax was 50 cents.
And after adjusting for the 2022 goodwill impairment charge net of tax Q3, 2022, EPS was 25 cents. So on a like for like babies Eth in Q3 of 2023 doubled from the prior year.
Now moving.
So the balance sheet.
As of the end of Q3.
At the end of Q3 cash totaled 117 million compared to $154 million at the end of 2022, and we ended the third quarter of 2023 with no debt.
Systems, we substantially no debt at the end of 2022.
Our 300 million in available capacity on our credit facility and our cash balances as well as the outcome of our EMEA collection, we continue to have ample capital available to deploy in the near future.
As of the end of Q3 accounts receivable was $1 4 million and decreased 9% year over year, reflecting a year over year decrease in revenue as well as a decrease in DSO.
Global DSO was 63 days up two days from year end 2022, due primarily to the impact of seasonality in our education business, Yes, always one day lower than the same period in 2022.
For the second quarter of 2023, we generated $7 million of free cash flow in that year to date free cash flow now totals 21 million.
For the quarter, we have continued to maintain lower accounts receivable balances in line with our revenue trends in DSO improvement a portion of those receivables are related to our MSP programs and are funded with supplier payables. So the loyal niche position has a limited impact on free cash flow generation.
In the quarter, we completed the 50 million share repurchase program that we announced in November of last year by approximately 3 million shale doing the program.
Now I will move on to our expectation.
For the rest of 2020 suite.
We assume a continuation of the current market conditions, which as Peter noted is more channels are more challenging than we had anticipated a quarter ago.
We now expect fourth quarter net revenue to be down 50 to 150 basis points year over year.
We expect our Q4 GP rate will be down 50 basis points year over year to about 19.8 person as continued softness in demand for full time hiring compresses permanent placement fees.
The lower Q4 GP rate also reflects the normal sequential trend due to the seasonality of our education business and continuation of the structural business mix improvement that is expected to keep our full year GP rate above 20%.
We expect fourth quarter, adjusted SG&A to be about 9% lower than the same period last year, consistent with Q3 and better than our expectations that we shared a quarter ago.
We reacted to the more challenging topline trends and accelerated our transformation efficiency actions as a result, we expect adjusted EBITDA margin in the fourth quarter to be between two 8% to 3%, reflecting the more challenging market conditions.
For additional perspective with the benefit of a full year loss expected Pos formation related savings.
The impact of the sale of our European staffing business and our current top line expectations, we would expect to reach a normalized adjusted EBITDA margin in the range of $3 three to three 5% has discussed three months ago.
That is more than 100 basis points of improvement from our historical levels of adjusted EBITDA margin. All since we began the transformation journey earlier this year and I wish I could tell me back over to Peter for additional comments.
For those insights Olivier.
Change at this scale and speed is never easy, but together team Kelly is proving that it is achievable when I announced this transformation in May I committed to you that we would optimize our business and functional operations in a sustainable manner that we would unlock additional value creating opportunities and most importantly.
<unk> that we would find new avenues of growth.
Six months into our journey I can confidently say that we are delivering on our commitments. The measures we implemented in July to further optimize the company's operating model have taken root catalyzing a significant improvement in our EBITDA margin with additional runway ahead.
We have further strength strengthened our balance sheet and with significant capital available to us recommitted to unlocking value through organic and inorganic growth.
And through our large enterprise account strategy, we formulated a comprehensive approach to sales and delivery across business segments that will unleash the full revenue generating potential of our blue chip customer base and accelerate profitable growth over the long term.
Through these efforts, we're closer than ever to realizing our collective ambitions for this great company I'm grateful for the work of each and every member of team Kelly for embracing this moment and acting with urgency and agility to deliver on our commitments with our team moving forward together United by our noble purpose I'm confident.
Kelly's best days are ahead of it.
Kelly you can now open the call to questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press. One 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 ones here All command.
If you're on a speakerphone please pick up your handset before pressing the numbers once again for questions. Please press one and then zero at this time.
Well go to the line of Kevin Steinke with Barrington Research.
Good morning, Kevin Good morning, Kevin Good morning.
I wanted to start off by asking about.
Our growth.
Growth initiatives are part of the transformation you mentioned driving early results are favorable early results.
You touched on the local branch initiative I guess is that part of the transformation and maybe any others that you'd want to highlight.
Yeah, Kevin Thanks for the question, Yes that is a significant part of the transformation as I mentioned.
We are revitalizing and are re engaging.
Our local branch network.
Adding resources too.
Local markets the high growth local markets, adding new technology.
And essentially creating.
Our resources are putting our resources closer to the talent and customers as opposed to.
Supporting them in a more centralized manner.
And we are seeing.
Seeing successful results in the pilot markets and that's why we're moving quickly and aggressively to to roll it out in more U S markets as we speak.
Okay, Yeah, I was going to ask about that if this signals.
The emphasis of the centralized staffing model or you know, how how meaningful that will continue to be going forward.
It will continue we will continue to deliver.
Large enterprise customers through a centralized model, where it makes sense.
In markets, where.
They have.
Very large locations in single location or a few locations, but where large enterprise customers have distributed.
Facilities, we found that the local delivery is more efficient and effective and we have a higher customer and talent satisfaction.
So we're going to optimize both models and we will continue to look for ways to do that and expect to see the significant benefits when the macroeconomic.
<unk> conditions improve.
Okay great.
Can I just can you touch also on the.
The macro headwinds I guess, there were more pronounced in the third quarter and maybe what you know what you've seen in the environment.
What maybe you kind of changed since you.
Reported second quarter results.
We typically as you know, Kevin and our industry typically see.
An improvement in Q3, and then in Q4.
In terms of demand and that just hasnt materialized. This year I don't think there is a significant.
<unk> change its just a continuation of a.
Customers being more cautious they are uncertain about their own economic outlook, so they're taking longer to make decisions, they're dialing back on a permanent hiring and you know being very judicious about how they spend their dollars. So again, we don't expect.
Any significant change.
Relative to you know.
What we've seen in the last few months.
Okay.
Yeah.
To dive down into a couple of the segments here.
Really you know when I look at education.
The operating leverage you're getting there on SG&A has been impressive.
In terms of improving operating margin over time.
Doesn't look like.
You you really took cost out there related to the transformation, but maybe just speak to.
The operating leverage you've been seeing there and the opportunity for.
Further leverage going forward and education.
Yeah, Thanks, Kevin I'll turn it over to Olivia to provide some some details but.
We're very pleased with the impressive growth we've seen in education.
Not only with existing accounts and customers, but with new school districts that were winning our pipeline looks strong.
The fact is that we.
Our business is growing.
At a pace that.
We need more people to support the school districts are the new wins and standing up some of these big programs.
But the.
Education business unit did participate in the transformation review and analysis and in fact.
Created a number of.
Took a number of optimizing steps that we will continue to in order to the benefit of their overall results. Yeah. We we continued to see the top line growing and despite of a growing base.
She led 'twenty, two 'twenty, 3%, losing revenue E G suite.
On the on the leverage I would say, yes, I mean, we.
We continue to leverage in and one of the key Kpis, we use the incremental conversion rate. It's still very very good we expect that to continue.
In the near future.
And on the transformation I agree with Peter I mean, it's a high growth business, we have done some transformation initiatives, but it was more streamlining simply shake sampras, yet simplifying the structure and continue to invest in growth in our in our people are because of the topline that just continues to grow with them.
Very fast pace.
Yeah.
Okay, great. Thank you I also wanted to ask you about the OCG segment.
Yeah that continues to generate strong gross margins about 36%.
Although SG&A expenses as a percent of revenue.
Kind of in the low thirties, and that's always been meaningfully higher as a percent of Arabia and some of the other the other segments.
It looks like you took a small charge.
Charge, there transferring really transformation related charge in the quarter, but.
Can you just refresh me on just the SG&A expense.
Is there and is there opportunity to get that.
Lower over time.
Really.
Get more profitability out of those that high gross margin those gross profit dollars than you currently are.
Yeah definitely yes, I mean in terms of the efficiency side of our transformation.
You are going to seeds in a more visible way in OCG and in Q4.
And that's going to continue in the near future and demo optimizing our delivery model in values locations and values products. So that's something that is.
More timing points and then she goes you are going to see more of that in Q4 and later on.
Now whether you can say that it's a high margin business.
Especially around a few in MSP.
Of course, who close to deliver especially MSP.
<unk> is also the cost of our footprint outside of the U S. But we actually consciousness that we can continue to leverage each business in the future I O pipeline is very good and OCD as it is in most of our segments.
And I believe we are going to start to see some additional traction in the next coming months on the top line as well.
Okay great.
Its good a good color on.
Just lastly, just from a reporting perspective going forward once the.
Sale of the European staffing businesses closed there's the international segment.
Completely go away I know you still have Mexico on there just wondering.
What happens there.
Yes, she is seeing about it basically.
[laughter].
She wanted to look at some of the numbers and figure out a little bit the scope of what.
We are selling to Gi, it's basically the total international segment, excluding Mexico just to give you an idea on revenue if you extrapolate our international business. Our revenue is at about 800 then.
<unk> Union Ah I.
I would say.
Mexico is around $70 million you can see that on our 8-K, so what what basically we are covering.
Offering to Gi you're sitting two Gi is about $810 million to $820 million of revenue.
The Mexican business basically is going to move to P&I.
The international segment will no longer exist.
We'll have four.
Yeah.
That's unique to the beach and he is gonna be TNI. He's going to include Mexico, because that's where it is best suited for the future in terms of synergies and continued to accelerate growth.
Our Mexican business that was very successful we grew at a very fast paced our base and we expect that to continue.
Okay perfect. Thank you I'll turn it back over to Kevin and Thank you Kevin.
Thank you we'll go next to the line of.
Kartik Mehta with Northcoast research.
Good morning Kartik.
<unk>.
Okay.
Mr. Mehta Your line is open.
Yeah.
Can you hear me now yeah.
Sorry, good morning, sorry about that no congratulations on the sale of the European business and I'm wondering as you look to deploy that money are there opportunities in the marketplace.
Which would enhance maybe the revenue growth the margin profile of the company and is the pricing at the current time something that makes sense or is it something that you would wait on considering what's available out there.
Kartik, where as I said in my in.
My comments were unlocking significant capital with the.
Deal that we've signed with the Gi group.
In addition to our.
Very strong balance sheet.
We think there are opportunities to.
To enhance our portfolio of high margin high growth businesses.
And we're aggressively.
Seeking to identify those are those properties.
The market right now is the pipeline for them.
<unk> is less.
Less.
Robust than it has been say 18 months ago.
But we expect that to turn around us.
Greater visibility into the future.
Future economic conditions and companies come off the sidelines.
But there are still quality properties that are.
Drifted in combination.
Or a sale to a company like Kelly and we're actively pursuing those.
Two as I said to add to our portfolio.
Particularly in our science engineering, and technology, and telecom business as well as education.
And Opportunistically in OCG.
And then as you look at the trends throughout the quarter and into October any changes are they getting better or worse.
Jim.
I would say.
When you look at our September exit rate.
Yeah.
In constant currency basically at minus two point fall, which is basically the midpoint of our guidance as you move it from nominal currency constant currency, we expect about 140 basis points of favorable FX. So these where we have ended the quarter.
One other point to consider of course.
For September but also Q4 is basically the education seasonality that we have started to see you again in September that he's going to continue to.
Get us some good traction on the topline, but apart from that when you really look at it.
Without the educational excuse me and education, we have not seen a lot of changes between today and cute.
Q3 revenue wise by segment.
September exit trade, we have not seen of course improvement easier, but not really something that would tell us that.
That the trends are going to be significantly different in Q4. The main item is of course for Q4 high seasonality in education.
That of course with the same type of Bruce we have seen so far.
<unk> contributes more dollar wise to the total revenue simply because of the fact that Q4 sites.
Vacation.
And then just one last question have you seen any change in competitive behavior or pricing or anything.
The market continues to struggle look bad.
Yeah.
Well, we always see.
Certain competitors that respond to a challenging macroeconomic environment by.
Adjusting their pricing we continue to sell.
<unk> maintained our price discipline and sell the value of working with with Kelly.
And we continue we will continue to do so.
We haven't seen I would say wide scale changes among.
The largest player as it typically is smaller regional players that will try to.
Compensate for slower slower demand by taking a a.
Price decrease for a period of time and so we haven't.
We haven't seen it on a wide scale basis.
Okay. Thank you very much I really appreciate it thank.
Thank you. Thank you.
Thank you we'll go next to the line of Joe Gomes with noble capital markets.
Good morning, Joe Good morning.
Hey, guys. This is actually Josh is fulfilling on for Joe Oh, Okay. Good morning.
So I kind of wanted to get a quick start on them.
Things on looking at your segments here everything seems to be kind of neutral.
Hum.
When you move a little bit down.
I just kind of looking at it.
Yeah basis, Unlike what was going on in the quarter that led to that.
Okay.
Well, yeah, the big Big Outlier is obviously education, which we've discussed.
The challenging macroeconomic conditions because of our being in a cyclical business were impacted by that is as customers.
Customers reduced their permanent hiring which shows up in a significant drop in.
Our fee based business.
As I mentioned earlier customers are cautious about the outlook.
Are their own outlook, and so they're taking longer to make decisions, they're not adding ships, they're just absorb.
Maintaining their operations.
That's what we're seeing in the in the results.
We haven't as Olivier mentioned and I mentioned, we haven't seen any significant change.
Change and don't see on the horizon any any significant change.
And would expect that we will continue to.
Pursue our growth initiatives to take share in this environment and you know.
As I mentioned during my comments, we're encouraged by the early indications of some of the initiatives that we've started whether it's at the enterprise account level or within our P&I.
Business segment, but we have initiatives underway in all of our business units to.
Capture share during this realm.
Relatively sluggish period of demand.
Okay great.
And obviously kind of switching and shifting to the international.
I don't think so.
And just kind of I know.
You touched on it it makes a little bit recently, but how does that sale really kind of impact Kelly in terms of an even better. They can what should we expect in 2024 and as any kind of additional color on that would be helpful.
So you mean just to clarify the <unk>.
Impact on a pro forma basis of basically getting international with exception of Mexico being being monetize or.
Yes, that's right.
Yeah, if you issue.
If you.
The collection and <unk> in the perimeter of this transaction and you applied to 2020 suite together sort of pro forma.
And you think about the impact yesterday are going to be a visible impact on revenue as I said a few minutes ago.
That's going to reduce our revenue base by about $820 million.
Now thinking about that.
It's.
It is going to improve our mid to long term growth potential on the top line.
He's going to reduce our FX exposure because most of it is coming from Jason International business.
Is it going to improve our gross margin rate by about 100 basis points simply because the international business. He is doing a good job but for.
Market reason, there a GP rate is lower than the average so it should lead us to get to 100 basis point gross margin improvement.
And on the pure EBITDA mountain as Peter and and advisor share during our prepared remarks remarks, if you should just.
Look at the current year and you exclude the perimeter of this EMEA stashing AR collection basically it has an impact a positive impact on our net margin by about 30 basis points and it will just add also an impact on DSO are historically.
It's not just Europe DSO are usually on average higher than in North America. So it should create a benefit of about two.
Two days of DSO, so improving our working capital and free cash flow generation.
Okay great.
And then just last one from me I'll get back into queue is that.
I didn't hear much about the kind of the digital workers program you guys put out earlier in the year and kind of what I'm just going to get a handle on that you guys get any additional interest since you last spoke about it how does the pipeline haven't been looking for that program.
Yeah. We're we're very encouraged by the I would call it that the digital.
Our innovation and the ability that we've demonstrated to bring technology.
And incorporate it in solutions to our customers I mentioned.
We have technology, we're deploying in our professional and industrial segment in the ER Optum.
Optimized local delivery.
We Kelly helix.
Continue which is in our OCG segment continues to.
Develop.
New tools and <unk>.
Expanded solutions.
Digital worker automation product that we launched earlier continues a lot of customers are asking about it in <unk>.
Trying to figure out how to.
Capitalize on that we announced a <unk>.
Kelly Ark, which is our robotic process automation jobs platform in the quarter.
So all of these are the culmination of a very intentional strategy to deploy them.
Technology, including generative AI in both in our processes, but also in solutions that benefit our customers and also the talent we place.
Okay, great guys. Thanks for asking the question.
Thanks, Josh.
Thank you we'll go next to the line of Marc Riddick with Sidoti.
Good morning, Mark Good morning morning.
So it's certainly been a busy year for you I wanted to just sort of touch a little bit on the growth initiatives and maybe what were thinking about from a.
A standpoint of sort of the.
The rollout and implementation and timeframe and then also as you.
These were developed and and if you could talk a little bit about maybe.
So our incremental investments needed either personnel technology spend or the like that we should be thinking about in and whether there's any lumpiness to that or any concentration of that.
Yeah, so the the.
Transformation initiative that I announced in May as I indicated then really had two components one.
CNC and the second growth.
And.
Just by way of the speed to execution.
Focus on our efficiency objectives, and now are in full swing focussed on the growth initiatives and.
There are.
Initiatives as I mentioned earlier in each of our business segments there are initiatives.
In our enterprise function.
Try to enable our business units to.
Focus on growth and then there are initiatives at the enterprise level, all of which are at different stages.
And we're mindful of needing to sequence our investments.
<unk> not only with our.
Top line.
Results, but also ensuring that we have sort of consistent.
Spending and don't overburden the enterprise.
In any particular way, but most of these initiatives are going to occur because of some of the efficiency initiatives that we took with reducing spans and layers.
Putting more resources.
On the frontline.
Enabled by technology.
No I don't.
Expect there to be any significant I think you used the word lumpiness.
In terms of our investments in either technology or resources with the possible exception of and it's not necessarily lumpy because we have the top line to support the growth in education.
Okay, Great and then I was wondering if you could you touched on this a little bit I just wanted to follow up on the potential acquisition pipeline and congratulations on the on the on the sale in Europe.
So you know what.
The cash flows are you going to be able to work with I was wondering if you could talk a little bit about maybe just.
I understand that maybe the pipeline is not as good I guess, maybe I think your words were that it wasn't us.
As we talked it was maybe it was 18 months ago or so.
Are there any particular.
<unk> that are that you think can improve or target areas that you'd think.
You kind of have an eye on.
That have the opportunity to improve over the next few months and is it really more about pricing the ability issue or just availability of some attractive targets.
I'd say on a on a.
Reactive basis, so companies that are bringing themselves to market, it's still a little bit tepid.
I mean, we see a lot of it.
The quantity is there, but the quality is in there and we're not going to we're not going to chase.
Properties, unless they are high growth high margin quality.
And that it would be a good fit for Kelly.
But about.
You know three years ago, when we set up our operating model, we recognize that we needed to be more proactive in generating a pipeline of them.
Acquisition targets and we've been at work doing that and.
That's the areas that we're focused on are in technology.
And education.
And set in general So science engineering technology, and telecom and Opportunistically in OCG.
We continue to plan.
Plan on deploying our capital, which we have now added to or will be adding to in those areas and we think that's going to accelerate.
The growth in net margin improvement that we have on a on an organic basis.
I appreciate it thank you very much.
Okay. Thank you thanks.
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Okay. Kelly, Thanks, I think we can call it.
Call. It a day then thank you. Thank you.
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