Q2 2024 Kelly Services Inc Earnings Call

good morning and welcome to kelly' services second quarter earnings conference call

Operator: All parties will be in a listen-only mode 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, they may disconnect at this time. The second quarter webcast presentation is also available on Kelly's website for this morning's call. I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Please go ahead

Speaker Change: All parties will be on a listen-only mode 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.

peter quickigly: a second quarter webcast presentation is also available on kelly's websitefor this morning's call i would now like to turn the medeting over to your host mr peter quickigly president and ce please go ahead

Peter Quigley: Thank you, Greg. Hello, everyone, and welcome to Kelly's second quarter conference call. Before we begin, I'll walk you through our Safe Harbor language. 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, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.

Peter Quigley: Thank you, Greg. Hello, everyone, and welcome to Kelly's second quarter conference call.

Peter Quigley: In addition, during the call, certain data will be discussed on a reported and an adjusted basis. Discussing items on an adjusted basis is a non-GAAP financial measure designed to give insight into certain trends in our operations.

Speaker Change: Before we begin, I'll walk you through our Safe Harbor language.

peter quickigly: as a reminder any comments made during this call including the qna may include forward-looking statements about our expectations for a future performance

peter quickigly: Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.

peter quickigly: 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 are non-GAAP financial measures designed to give insight into certain trends in our operations.

Peter Quigley: Finally, a presentation with information about Kelly's financial results for the quarter is available on our website. With that, I'll begin with remarks on Kelly's financial results. In the second quarter, we remained focused on what we could control as we continue to navigate uncertain market conditions. Large enterprises maintained a cautious approach to hiring, though demand began to stabilize with positive signs emerging, in particular among our technology and life sciences customers. In our P&I business, revenues leveled off on a sequential basis.

peter quickigly: Finally, a presentation with information about Kelly's financial results in the quarter is available on our website.

Peter Quigley: This trend reflects stabilizing demand and the benefits of our enhanced localized delivery model. The combined strength of our network of physical branch locations and the Kelly Now mobile app continued to generate positive momentum in the quarter, with both clients and talent helping grow our pipeline of new industrial and commercial staffing business and drive a meaningful improvement to our fill rate and time to GP. At the enterprise level, our strategy to deliver the full suite of Kelly offerings to our largest customers has also gained traction.

Speaker Change: With that, I'll begin with remarks on Kelly's financial results. In the second quarter, we remained focused on what we can control as we continue to navigate uncertain market conditions.

Large enterprises maintained a cautious approach to hiring, though demand began to stabilize, with positive signs emerging, in particular among our technology and life sciences customers.

peter quickigly: In our P&I business, revenues leveled off on a sequential basis. This trend reflects stabilizing demand and the benefits of our enhanced localized delivery model.

peter quickigly: The combined strength of our network of physical branch locations and the Kelly Now mobile app continue to generate positive momentum in the quarter with both clients and talent helping grow our pipeline of new industrial and commercial staffing business and drive a meaningful improvement to our fill rate and time to GP.

peter quickigly: At the enterprise level, our strategy to deliver the full suite of Kelly offerings to our largest customers also gained traction.

Peter Quigley: Within the initial focus accounts, where we have operationalized this approach, we've improved both the efficiency and effectiveness with which we serve our largest customers. This progress is beginning to drive gains in share of wallet with our large enterprise customers. Our growth initiatives are helping capture market share and build upon Kelly's position as one of the largest staffing firms in the U.S. According to staffing industry analysts' latest rankings, Kelley increased its position by the widest margin among the top 20 firms from 2022 to 2023.

peter quickigly: Within the initial focus accounts, where we have operationalized this approach, we've improved both the efficiency and effectiveness with which we serve our largest customers. This progress is beginning to drive gains in share of wallet with our large enterprise customers.

peter quickigly: Our growth initiatives are helping capture market share and build upon Kelly's position as one of the largest staffing firms in the U.S.

peter quickigly: According to Staffing Industry Analyst's latest rankings, Kelly increased its position by the widest margin among the top 20 firms from 2022 to 2023. This is a testament to our team's resilience in deftly navigating through uncertain market conditions.

Peter Quigley: This is a testament to our team's resilience in deftly navigating through uncertain market conditions; amid encouraging developments with growth, we remain laser-focused on improving our ability to convert a greater share of top-line growth to bottom-line growth. This month marks one year since we shared with you the anticipated impact of the transformation initiatives we undertook to drive structural efficiencies across Kelly and significantly improve the company's profitability. Our message at that time was clear.

peter quickigly: amid encouraging developments with growth we remain laser focused on improving our ability to convert a greater share of top line growth to bottom line growth

peter quickigly: This month marks one year since we shared with you the anticipated impact of the transformation initiatives we undertook to drive structural efficiencies across Kelly and significantly improve the company's profitability.

Peter Quigley: Kelly would achieve a normalized adjusted EBITDA margin in the range of 3.3% to 3.5% as soon as the first half of 2024. Notwithstanding the challenging market conditions, we delivered a steady cadence of net margin expansion driven by sustained reductions to SG&A. One year later, I'm pleased to share that we have achieved our initial expectations. In the first half of this year, Kelly attained an adjusted EBITDA margin of 3.4%, excluding the benefit of her acquisition of MRP. For more details on this and our results in the second quarter, I'll turn the call over to our Chief Financial Officer, Olivier Toureau.

peter quickigly: Our message at that time was clear, Kelly would achieve a normalized adjusted EBITDA margin in the range of 3.3 to 3.5 percent as soon as the first half of 2024.

peter quickigly: Notwithstanding the challenging market conditions, we delivered a steady cadence of net margin expansion driven by sustained reductions to SG&A. One year later, I am pleased to share that we have achieved our initial expectations.

peter quickigly: In the first half of this year, Kelly attained an adjusted EBITDA margin of 3.4%, excluding the benefit of her acquisition of MRP.

peter quickigly: For more details on this and our results in the second quarter, I'll turn the call over to our Chief Financial Officer, Olivier Toureau. Thank you, Peter, and good morning, everybody.

Olivier Toureau: Thank you, Peter, and good morning, everybody. As a reminder, Kelly's 2023 results include the European Staffing Business that was sold on January 2, 2024, and we are now including the results of Motion Recruitment Partners since the date of the acquisition, so just for the month of June 2024 this quarter, to provide greater visibility to trends in our operating results. I will also discuss year-over-year changes on a reported and also on an organic basis. References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024.

Speaker Change: as a reminder calleast two thousand andtwenty-three results include the european staffing business

Olivier Toureau: that was sold on january is the second of two thousand and twentyfour and we are now including the results of motion recruitment partners since the date of the acquisition so just for the months of june two thousand andtwenty four this quarter

Speaker Change: to provide greater visibility to trend in our operating results i will also discuss here over area of changes on a reported and also an an organic basis

peter quickigly: References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024.

Olivier Toureau: Revenue for the second quarter of 2024 totaled 1.06 billion compared to 1.22 billion in 2023, down 13.1 percent, resulting primarily from the sale of our European staffing business, although partially offset by the acquisition of a market. On an organic basis, year-over-year revenue improved 0.6% in the quarter, reflecting strong growth in education and a sequential stabilization of demand from Q1 to Q2 across much of our other businesses, despite market uncertainty in several specialties. Reviewing results by segment, education continues to grow revenue by double digits, up 22% year-over-year in the quarter. This strong and sustained growth reflects net new customer wins, increased demand from existing customers, and an improving feel-right.

Speaker Change: Revenue for the second quarter of 2024 totaled 1.06 billion compared to 1.22 billion in 2023, down 13.1 percent, resulting primarily from the sale of European staffing business.

peter quickigly: Partially offset by the acquisition of MRP.

peter quickigly: On an organic basis, year-over-year revenue improved 0.6% in a quarter.

peter quickigly: reflecting strong growth in education.

peter quickigly: A sequential stabilization of demand from Q1 to Q2 across much of our other businesses despite of market uncertainty in several specialties.

peter quickigly: Reviewing results by segment, education continued to grow revenue by double digit, up 22% year-over-year in the quarter. This strong and sustained growth reflects net new customer wins, increased demand from existing customers and an improving feel-right.

Olivier Toureau: In the third segment, revenue was up 10% on a reported basis, which included the impact of the MRP acquisition. However, revenue was down 3% on an organic basis, and organic revenue trends were stable sequentially. Year-over-year organic revenue growth reflects lower staffing market demand, with revenue down 4% in our staffing specialties and down 1% in our outcome-based business. Permanent placement fees also declined by 20%.

peter quickigly: In the said segment, revenue was up 10% on a reported basis, which includes the impact of the MRP acquisition. Revenue was down 3% on an organic basis, and organic revenue trends were stable sequentially.

peter quickigly: year-over-year organic revenue growth reflect lower staffing market demand with revenue down four percent in our staffing specialties and down one percent in our outcome based business

peter quickigly: Permanent placement fees also declined by 20%.

Olivier Toureau: In our OCG segment, revenue improved Sweepers. The increase in revenues was driven by our PPO specialty, where demand growth has continued. Year-over-year declines in RPO are due to slower hiring in certain market sectors, and MSP revenues decline in line with customers' contingent labor demands. But revenue in both MSP and RPO products were stable sequentially, and with our MSP product positioned to benefit from positive momentum going forward. Revenue in our professional and industrial segment declined 9% year-over-year in the quarter, but it also stabilized sequentially, including in the P&I staffing specialty. However, revenue from our staffing product declined 9%.

peter quickigly: In our OCD segment, revenue improved 3%.

peter quickigly: The increase in revenues was driven by our PPO specialty, where demand growth has continued.

peter quickigly: Year-over-year declines in RPO are due to slower hiring in certain market sectors and MSP revenues decline in line with customers' contingent labor demands.

peter quickigly: But revenue in both MSP and RPO products were stable sequentially, and with our MSP product positioned to benefit from positive momentum going forward.

peter quickigly: Revenue in our professional and industrial segment declined 9% year-over-year in the quarter, but also stabilized sequentially, including in the P&I staffing specialty.

Olivier Toureau: The segment's contact center outcome-based specialty revenue also declined year-over-year, as did PERM fees in this segment. Partially offsetting these declines, other higher-margin outcome-based specialty revenues continue to grow. Overall gross profit was 11.2% as reported, or 4.3% on an organic basis. Our gross profit rate was 20.2% compared to 19.8% in the second quarter of the prior year. Our GT rate reflects a 100 basis point improvement from the sale of our European staffing operations and an additional 40 basis points from the inclusion of the June results of MRP.

peter quickigly: Revenue from our staffing product declined 9%. The segment's contact center outcome-based specialty revenue also declined year-over-year, as did PERM fees in this segment.

peter quickigly: Partially offsetting these declines, other higher-margin outcome-based specialty revenues continue to grow.

peter quickigly: Overall gross profit was an 11.2% as reported or 4.3% on an organic basis.

peter quickigly: Our gross profit rate was 20.2% compared to 19.8% in the second quarter of the prior year.

peter quickigly: Our GP rate reflects a 100 basis point improvement from the sale of our European staffing operations and an additional 40 basis points from the inclusion of the June results of MRP.

Olivier Toureau: On an organic basis, the GP rate declined 100 basis points in Q2, 110 basis points due to unfavorable business mix, and 20 basis points due to lower perm fees, partially offset by 30 basis points of favorable employee-related costs. The business mix impact reflects continued growth in specialties with lower GPI rates, including education and PPE. SG&E expenses were down 17% year-over-year on a reported basis.

peter quickigly: On an organic basis, the GP rate declined 100 basis points in Q2, 110 basis points due to unfavorable business mix, and 20 basis points due to lower perm fees, partially offset by 30 basis points of favorable employee-related costs.

peter quickigly: The business mix impact reflects continued growth in specialties with lower GP rates, including education and PPO.

peter quickigly: yeah

peter quickigly: SG&E expenses were down 17% year-over-year on a reported basis.

Olivier Toureau: Expenses for the second quarter of 2024 include €4.3 million of restructuring charges related to our ongoing transformation efforts, as well as €1.6 million of expenses primarily related to the sale of our European staffing operations, including transaction and also transition expenses. SG&E expenses in 2023 include 5.6 million of restructuring charges, so expense is down by 18% on an adjusted basis or 10% on an adjusted organic basis.

peter quickigly: Expenses for the second quarter of 2024 include $4.3 million of restructuring charges.

peter quickigly: related to our ongoing transformation efforts, as well as 1.6 million of expenses.

peter quickigly: primarily related to the sale of our European staffing operations, including transaction and also transition expenses.

peter quickigly: SG&E expenses in 2023 include 5.6 million of restructuring charges. So expenses declined by 18% on an adjusted basis or 10% on an adjusted organic basis.

Olivier Toureau: So like-for-like, expenses were lower in Q2 of 2024 due to the positive impacts of our structural transformation efforts as well as lower performance incentive conversation expenses, reflecting current top-line trends. As a reminder, beginning in the first quarter of 2024, we are reporting the operating results of our reportable segments utilizing revised business unit profit measures. We also are allocating a greater share of the costs we have previously reported as corporate costs to our business units. In addition, we are no longer including deposition and amortization.

peter quickigly: So, like for like, expenses were lower in Q2 of 2024 due to the positive impacts of our structural transformation efforts as well as lower performance incentive conversation expenses, reflecting current top-line trends.

peter quickigly: As a reminder, beginning in the first quarter of 2024, we are reporting the operating results of our reportable segments utilizing revised business unit profit measures.

peter quickigly: We also are allocating a greater share of the costs we have previously reported as corporate costs to our business units.

Olivier Toureau: In our business, you need profit measurement. We believe this provides greater visibility into the financial performance of each business unit and how they contribute to Kelly's overall performance. On a consolidated basis, our reported earnings from operations in the 7th quarter were $12.2 million compared to $6.2 million in Q2 of 2023. On an adjusted basis, Q2 2024 earnings from operations were $28.1 million, nearly doubled from a year ago. The 15.9 million increase from reported earnings includes a loss on the sale of our European staffing operations, charges related to transformation actions and the sale of our European staffing operations, an impairment charge related to excess lease property, and a gain on the sale of assets related to the IRS.

peter quickigly: In addition, we are no longer including depreciation and amortization in our business unit profit measure. We believe this provides greater visibility into the financial performance of each business unit and how they contribute to Kelly's overall performance.

Olivier Toureau: The acquisition of MRP added $1.5 million of earnings from operations in the second quarter of 2024. Adjusted earnings in the second quarter of 2023 were $14.2 million. The $8 million increase from reported earnings included transformation-related charges and an asset impairment. The European staffing operations produced $1 million of earnings from operations on an adjusted basis in the second quarter of 2023. I just said the BDM margin also improved 180 base points to 3.8%, reflecting 40 basis points of improvement from the sale of our European staffing operations, 10 basis points from the inclusion of the month of June result of MRP, and 130 base points of improvement from our ongoing transformation efforts. Income tax expense for the second quarter was $1.1 million compared to a benefit of $1.9 million in 2020. Our effective income tax rate was 19.4% into 2024.

peter quickigly: On a consolidated basis, our reported earnings from operations in the 7th quarter were $12.2 million compared to $6.2 million in Q2 of 2023.

peter quickigly: On an adjusted basis, Q2 2024 earnings from operations were $28.1 million, nearly doubled from a year ago.

peter quickigly: The $15.9 million increase from reported earnings includes a loss on the sale of our European staffing operations, charges related to transformation actions and the sale of our European staffing operations.

peter quickigly: an impairment charge related to excess lease property, and a gain on the sale of assets related to the hires group.

peter quickigly: The acquisition of MRT added 1.5 million of earnings for operations in the second quarter of 2024.

peter quickigly: Adjusted earnings in the second quarter of 2023 were $14.2 million. The $8 million increase from reported earnings included transformation-related charges and an asset impairment charge.

peter quickigly: The European staffing operations produced 1 million of earnings from operations on an adjusted basis in the second quarter of 2023.

peter quickigly: I just said the BDM margin also improved 180 base points to 3.8%.

peter quickigly: reflecting 40 basis points of improvement from the sale of our European staffing operations, 10 basis points from the inclusion of the month of June result of MRP, and 130 basis points of improvement from our ongoing transformation efforts.

peter quickigly: Income tax expense for the second quarter was $1.1 million compared to a benefit of $1.9 million in 2023. Our effective income tax rate was 19.4% in Q2 2024.

Olivier Toureau: Finally, reported earnings per share for the second quarter were $0.12 per share, compared to $0.20 in 2023. Earnings per share in 2024 include a loss related to the sale of our European staffing operations and a gain on the sale of the IAS Group transaction, as well as transaction costs related to the acquisition of MRP, restructuring charges related to our transformation, and an asset impairment charge. Earnings per share in 2023 include a restructuring and an asset impairment charge, so on an adjusted basis.

peter quickigly: And finally, reported earnings per share for the second quarter was $0.12 per share, compared to $0.20 in 2023.

peter quickigly: Earnings per share in 2024 include a loss related to the sale of our European staffing operations and a gain on the sale of the IELTS group transaction, as well as transaction costs related to the acquisition of MRP, restructuring charges related to our transformation, and an asset impairment charge.

peter quickigly: Earnings per share in 2023 include a restructuring and an asset impairment charge. So on an adjusted basis...

Olivier Toureau: Q2 2024 EPS was $0.71, compared to $0.36 per share in Q2 of 2023, nearly doubling year-over-year. Now, this is reflected on the balance sheet. Following the acquisition of MRP, at Quaternary End, cash totaled $38 million, and we had $210 million of debt outstanding. Our debt-to-capital ratio is 14.1% as of Quaternary End, as we leveraged our balance sheet to acquire MRP. And, as we disclosed at the time of the acquisition, we have amended our credit facilities to maintain financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment.

Speaker Change: Q2 2020 for EPS was $0.71 compared to $0.36 per share in Q2 2023, nearly doubling year-over-year.

Speaker Change: Now reflecting on the balance sheet.

peter quickigly: Following the acquisition of MRP, at Quaternary End cash total $38 million and we had $210 million of debt outstanding. Our debt to capital ratio is 14.1% as of Quaternary End as we leveraged our balance sheet to acquire MRP.

peter quickigly: And as we disclosed at the time of the acquisition, we have amended our credit facilities to maintain the financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment.

Olivier Toureau: At Quarter End, accounts receivable totaled 1.2 billion, including the receivables of MRP. Global DSO was 57 days, down two days from year-end 2023 and down four days from the second quarter of 2023. In the quarter, we generated $55 million of free cash flow compared to $32 million in the comparable prior year period.

peter quickigly: At quarter end, accounts receivable total 1.2 billion including the receivables of MRP. Global DSO was 57 days, down 2 days from year-end 2023 and down 4 days from the second quarter of 2023.

peter quickigly: In the quarter, we generated $55 million of free cash flow compared to $32 million in the comparable prior year period.

Olivier Toureau: Looking ahead to operating results for the second half of the year, our results will be impacted by several factors. First, we believe that staffing market conditions will remain relatively consistent with what we experienced in the first half of the year, and modest sequential revenue improvement in our P&I, SET, and OCG segments will continue in the second half of 2024. Our education segment revenue will be impacted by the summer school holiday period in Q3, but it will continue to produce double-digit revenue. And finally, the acquisition of MRT will deliver further improvements in both our growth and also our value metrics.

peter quickigly: Looking ahead to operating results for the second half of the year, our results will be impacted by several factors.

peter quickigly: First, we believe that staffing market conditions will remain relatively consistent with what we have experienced in the first half of the year, and modest sequential revenue improvement in our P&I, SET and OCG segments will continue in the second half of 2024.

peter quickigly: Our education segment revenue will be impacted by the summer school holiday period in Q3, but will continue to produce double digit revenues.

peter quickigly: And finally, the acquisition of MRT will deliver further improvement in both our growth and also value metrics.

Olivier Toureau: For the second half of 2024, on an organic basis... We expect revenue for the review to be up 2.5 to 3.5%, with no significant FX impact, resulting in a midpoint revenue expectation of about $2 billion. In addition, we expect MRP to add an additional $260 to $270 million of revenue in the second half of the year. We expect our organic GP rate to be between 20 and 20.2% in the second half. On a lag-for-lag basis, this is a 90-basis-point decline at the midpoint of our orange, reflecting the change in our business mix, primarily because our education business is expected to continue to deliver significant revenue growth.

peter quickigly: For the second half of 2024, on an organic basis,

peter quickigly: We expect revenue to be up 2.5% to 3.5%.

peter quickigly: with no significant FX impact, resulting in a midpoint revenue expectation of about $2 billion.

peter quickigly: In addition, we expect MRP to add an additional $260 to $270 million of revenue in the second half of the year.

peter quickigly: We expect our organic GP rate to be between 20 to 20.2% in the second half.

peter quickigly: On a lag-for-lag basis, this is a 90-basis-point decline at the midpoint of our range, reflecting the change in our business mix, primarily because our education business is expected to continue to deliver significant revenue growth.

Olivier Toureau: MRP, with its higher margin specialty profile, is expected to add an additional 100 basis points to our gross margin rate in the second half of the year. Thus, our all-in GP rate in the second half of 2024 is expected to be between 21% and 21.2%. Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year. However, the impact on year-over-year trends will moderate as we anniversary the execution of most of those actions.

peter quickigly: MRP, with its higher margin specialty profile, is expected to add an additional 100 basis points to our gross margin rate in the second half of the year.

peter quickigly: So, our all-in GP rate in the second half of 2024 is expected to be between 21% to 21.2%.

peter quickigly: Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year. The impact on year-over-year trends will moderate, as we anniversary the execution of most of those actions.

Olivier Toureau: We expect that adjusted sDNA, excluding DNA, will be 3.5% to 4.5% lower than a year ago on an organic basis. And MRP will add about $60 million of expenses in the second half. All in, we expect approximately $28 million of deposition and amortization in H2 of 2024. We expect an adjusted organic ABDMR gene of 3.2 to 3.3 percent.

peter quickigly: We expect that adjusted sDNA, excluding DNA,

peter quickigly: will be 3.5% to 4.5% lower than a year ago on an organic basis.

peter quickigly: And MRP will add about 60 million of expenses in the second half.

peter quickigly: All in, we expect approximately 28 million of deposition and amortization in H2 of 2024.

Speaker Change: We expect an adjusted organic ABDMR gene of 3.2 to 3.3 percent up 30 to 40 base points year over year.

Peter Quigley: Absolute 40 basis points year over year, and we believe that MRP will add an additional 30 basis points of net margin in the second half of 2024. And back to my earlier point regarding education seasonality, we expect that our adjusted EBD margin will be closer to 3% or 2.6% organic in the third quarter during the school summer holiday period and then improve in Q4 as education working days increase. And finally, we expect our effective tax rate to be in the low teens. And now, back to you. Thanks for those insights.

peter quickigly: And we believe that MRP will add an additional 30 basis points of net margin in the second half of 2024.

peter quickigly: And back to my earlier point regarding education seasonality, we expect that our adjusted EBDI margin will be closer to 3%.

peter quickigly: or 2.6% organic in the third quarter during the school summer holiday period and then improve as in Q4 as education's working days increase.

peter quickigly: And finally, we expect our effective tax rate to be in the low teens.

Peter Quigley: Thanks for those insights, Olivier. In May, I shared with you that 2024 would mark an inflection point on our strategic journey, and the actions and results we deliver this year will propel Kelly into a new era of growth. Reflecting on the significant progress we achieved in the second quarter, I'm confident that we're on track to realize those ambitions. Our transformational acquisition of Motion Recruitment Partners has strengthened the scale and capabilities of Kelly's staffing, consulting, and RPO solutions in attractive customer end markets, including technology, financial services, and health care.

peter quickigly: And now, back to you, Peter.

Peter: Thanks for those insights, Olivier. In May, I shared with you that 2024 would mark an inflection point on our strategic journey, that the actions and results we deliver this year will propel Kelly into a new era of growth.

Peter: Reflecting on the significant progress we achieved in the second quarter, I'm confident that we're on track to realize those ambitions.

Peter: Our transformational acquisition of Motion Recruitment Partners has strengthened the scale and capabilities of Kelly's staffing, consulting, and RPO solutions in attractive customer end markets, including technology, financial services, and health care.

Operator: All parties will be on a listen only mode until the question and answer portion of the presentation. Today's call is being recorded at the request of Kelly services.

Peter Quigley: The highly complementary nature of MRP and Kelly's SET and OCG businesses, MRP's attractive financial profile, and its leadership team of recruiting industry veterans will contribute in a significant way to enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion. The sale of Ayers Group further sharpened Kelly OCG's focus on global RPO and MSP solutions while unlocking incremental capital to redeploy towards Kelly's specialty strategy. And we achieved our initial expectation for EBITDA margin expansion, which we established one year ago, demonstrating the capacity of our growth and efficiency initiatives to significantly improve Kelly's profitability over the long term. Of course, it's difficult to know the precise timeline of a recovery for our industry. And, as Olivier noted, we expect the results in the second half of the year will continue to reflect uncertain market conditions.

Operator: If anyone has any objections, you may disconnect at this time. A second quarter webcast presentation is also available on Kelly's website for this morning's call.

peter quickigly: The highly complimentary nature of MRP and Kelly's Set and OCG businesses.

peter quickigly: MRP's attractive financial profile and its leadership team of recruiting industry veterans will contribute in a significant way to enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion.

Mr. Peter Quigley: I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Please go ahead. Thank you, Greg.

Mr. Peter Quigley: Hello, everyone and welcome to Kelly's second quarter conference call. Before we begin, I'll walk you through our safe harbor language. 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 and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.

peter quickigly: The sale of Ayers Group further sharpened Kelly OCG's focus on global RPO and MSP solutions while unlocking incremental capital to redeploy towards Kelly's specialty strategy.

peter quickigly: And, we achieved our initial expectation for EBITDA margin expansion, which we established one year ago, demonstrating the capacity of our growth and efficiency initiatives to significantly improve Kelly's profitability over the long term.

peter quickigly: Of course, it's difficult to know the precise timeline of a recovery for our industry.

Mr. Peter Quigley: 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 are non-gap financial measures designed to get insight into certain trends in our operations. Finally, a presentation with information about Kelly's financial results in the quarter is available on our website.

peter quickigly: And as Olivier noted, we expect the results in the second half of the year will continue to reflect uncertain market conditions.

Peter Quigley: Notwithstanding these dynamics, I'm optimistic about the sequential stabilization we saw across our business, and I'm confident that our achievements in the second quarter, together with the progress we've delivered since we embarked on our specialty growth journey, position Kelly to capitalize when sequential stabilization gives way to a sustained increase in demand. I'm immensely proud of the work of each and every member of Team Kelly, including our newest colleagues at MRP, that has brought us to this point on our journey.

Olivier Toureau: Notwithstanding these dynamics, I'm optimistic about the sequential stabilization we saw across our business.

peter quickigly: And I'm confident that our achievements in the second quarter, together with the progress we've delivered since we embarked on our specialty growth journey, position Kelly to capitalize when sequential stabilization gives way to a sustained increase in demand.

Mr. Peter Quigley: With that, I'll begin with remarks on Kelly's financial results. In the second quarter, we remained focused on what we can control as we continue to navigate uncertain market conditions. Large enterprises maintained a cautious approach to hiring, though demand began to stabilize with positive signs emerging in particular among our technology and life sciences customers. In our P&I business, revenues leveled off on a sequential basis. This trend reflects stabilizing demand and the benefits of our enhanced localized delivery model.

peter quickigly: I'm immensely proud of the work of each and every member of Team Kelly, including our newest colleagues at MRP, that has brought us to this point in our journey. Their urgency, agility, and unwavering commitment to our clients and talent are the driving forces that continue to propel us to new heights.

Peter Quigley: Their urgency, agility, and unwavering commitment to our clients and talent are the driving forces that continue to propel us to new heights. With our team moving forward together, united by our noble purpose, I'm confident that the opportunities before us are limitless.

peter quickigly: With our team moving forward together, united by our noble purpose, I'm confident that the opportunities before us are limitless.

Greg: Greg, you can now open the call to questions. Okay, ladies and gentlemen, if you'd like to ask a question, please press 1 and 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1 and 0 at this time. And one moment, please, for your first question.

Mr. Peter Quigley: The combined strength of our network of physical branch locations and the Kelly Now mobile app continue to generate positive momentum in the quarter with both clients and talent helping grow our pipeline of new industrial and commercial staffing business and drive a meaningful improvement to our fill rate and time to GP. At the enterprise level, our strategy to deliver the full suite of Kelly offerings to our largest customers also gain traction within the initial focus accounts where we have operationalized this approach.

peter quickigly: Greg, you can now open the call to questions.

Greg: Okay, ladies and gentlemen, if you'd like to ask a question, please press 1 and 0 on your telephone keypad.

Speaker Change: You may withdraw your question at any time by repeating the 1-0 command.

Speaker Change: Your first question comes from the line of Kartik Mehta from North Coast Research. Please go ahead.

Operator: Yeah, good morning. Good morning.

Kartik Mehta: Yeah, good morning. Olivia, first of all, it's been a pleasure working with you, and I wish you the best. You have some big shoes to fill, so thank you for everything.

Mr. Peter Quigley: We've improved both the efficiency and effectiveness with which we serve our largest customers. This progress is beginning to drive gains in share of wallet with our large enterprise customers. Our growth initiatives are helping capture market share and build upon Kelly's position is one of the largest staffing firms in the US. According to staffing industry analysts latest rankings, Kelly increased its position by the widest margin among the top 20 firms from 2022 to 2023.

Kevin: Thank you, Kevin.

Karthik: I'm wondering if we could focus on the MRP business for a second, and just as you look at the fundamentals for that business, maybe so far in the second quarter, and you do look at your outlook for the second half, and you, you know, compare it to a year ago or maybe a quarter ago, you know, what's been the trend for that business?

Olivia: Thank you, Captain.

Olivia: Thank you very much.

Speaker Change: You're welcome. I'm wondering if we could focus on the MRP business for a second and just as you look at the fundamentals for that business, maybe so far in the second quarter and you do look at your outlook in the second half.

Mr. Peter Quigley: This is a testament to our team's resilience and definitely navigating through uncertain market conditions. Amid encouraging developments with growth, we remain laser focused on improving our ability to convert a greater share of top line growth to bottom line growth.

Speaker Change: And you, you know, compare it to a year ago or maybe a quarter ago, you know, what's been the trend for that business?

Olivier Toureau: Yeah, I will comment on a few numbers, and Peter can add more color on business trends and so on. You might have seen, Karthik, that we have issued a so-called 8KA and, of course, the outlook for today, and you are going to see further information in our 10Q on what we call Proforma.

Speaker Change: Yeah, I will comment on a few numbers and Peter can add more color on business trends and so on. You might have seen, Karthik, that we have issued...

Mr. Peter Quigley: This month marks one year since we shared with you the anticipated impact of the transformation initiatives we undertook to drive structural efficiencies across Kelly and significantly improve the company's profitability. Our message at that time was clear. Kelly would achieve a normalized adjusted EBITDA margin in the range of 3.3 to 3.5 percent as soon as the first half of 2024. Notwithstanding the challenging market conditions, we delivered a steady cadence of net margin expansion driven by sustained reductions to SGNA.

Peter: The so-called 8KA, and of course the outlook of today, and you are going to see further information in our 10Q on what we call Proforma.

Olivier Toureau: If you use this information you will see that H1 of 2024, the revenue was about 260 million and if you take the mid-range of our guidance today you are going to be at 265 million. So we expect, similar to what we have said for Kelly Organic, basically a slight improvement basically in the second half of the year. When you look at how does it compare versus a year ago, H1 at 260 million is about minus 8% versus a prior year, which is consistent with the trends we have shared in June when we are talking specifically about MRP and we expect based on, you know, the change in comparables and a little bit of sequential improvement to turn H2 into flat to minus 1, minus one and a half percent versus a year ago.

Peter: If you use this information, you will see that H1 of 2024, the revenue was about $260 million.

Speaker Change: And if you take the mid-range of our guidance today, you are going to be at $265 million. So we expect...

Kayleigh: Similar to what we have said for Kayleigh...

Kayleigh: organic, basically a slight improvement basically in the second half of the year.

Mr. Peter Quigley: One year later, I'm pleased to share that we have achieved our initial expectations. In the first half of this year, Kelly attained an adjusted EBITDA margin of 3.4 percent excluding the benefit of our acquisition of MRP.

Greg: When you look at how does it compare versus a year ago, H1 at 260 million is about minus 8% versus the prior year, which is consistent with the trends we have shared.

Olivier Toureau: For more details on this and our results in the second quarter, I'll turn the call over to our chief financial officer, Olivier Toureau. Thank you Peter and good morning everybody.

Greg: in June when we are talking specifically about MRP.

Greg: And we expect, based on, you know, the change in comparables and a little bit of sequential improvement...

Olivier Toureau: As a reminder, Kelly's 2023 results include the European staffing business that was sold on January 2nd of 2024. And we are now including the results of motion recruitment partners since the date of the acquisition so just for the months of June 2024 this quarter. To provide greater visibility to trends in our operating results, I will also discuss here of your year changes on a reported and also on an organic basis. References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024.

Greg: to turn H2 into flat 2-1-1.5% versus a year ago.

Peter Quigley: In the longer term, I mean, we continue to be very bullish on MRP in particular, but also the space that they're in, both the staffing and solutions side, as well as on the RPO side. We've been very pleased with the partnership we've had with the MRP leadership to date and the significant complementary nature of our businesses, the lack of significant customer overlap, and complementary delivery models. So longer term, we're still very optimistic about the investment thesis in making the acquisition of MRP.

Greg: In Cardic longer term, I mean we continue to be very bullish on the

Greg: On MRP in particular, but also the space that they're in, both the...

Greg: and solutions side as well as on the RPO side.

Greg: partnership we've had with the MRP leadership.

Greg: to date and the

Greg: significant complementary nature of our businesses, the lack of significant customer overlap.

Olivier Toureau: Revenue for the second quarter of 2024 totaled 1.06 billion compared to 1.22 billion in 2023 down 13.1 percent resulting primary from the sale of our European staffing business. Partially offset by the acquisition of MRP. On an organic basis, year-over-year revenue improved 0.6 percent in a quarter, reflecting strong growth in education, a sequential stabilization of demand from Q1 to Q2 across much of our other businesses despite of market uncertainty in several specialties.

Greg: So, longer term, we're still very optimistic about the investment thesis in making the acquisition of MRP.

Peter Quigley: And then as you just look at the overall business, maybe in each of the segments, I'm wondering what you're witnessing in terms of pricing. Have pricing trends or competition increased in any of the segments, or are they kind of where they were last quarter?

Speaker Change: And then as you just look at the overall business, maybe in each of the segments, I'm wondering what you're witnessing in terms of pricing. Have pricing trends or competition increased in any of the segments or are they kind of where they were last quarter?

Olivier Toureau: Well, I think in this kind of uncertain environment, market conditions, you're always going to find outlier suppliers that are going to try to buy share. But it's not across the board. It's not an industry dynamic that we're seeing. In fact, we've been relatively pleased with our ability to maintain pricing discipline during these market conditions.

Greg: Yeah.

Speaker Change: Well, I think in this kind of uncertain environment, market conditions, you're always going to find outlier.

Olivier Toureau: Reviewing results by segment education continued to grow revenue by double digit up 22 percent year-over-year in the quarter. This strong and sustained growth reflects net new customer wins, increased demand from existing customers and an improving field rate. In the set segment revenue was up 10 percent on a reported basis which include the impact of the MRP acquisition. Revenue was down 3 percent on an organic basis and organic revenue trends were stable sequentially.

Speaker Change: suppliers that are going to try to buy share, but it's not across the board. It's not an industry dynamic that we're seeing. In fact, we've been relatively pleased with our ability to maintain pricing discipline during these market conditions.

Olivier Toureau: Just when you look at the so-called spread, in PNI, it's completely stable, in SET, flat to slightly up, in education, a little bit down, but it's more the customer mix than the real pricing conversation. So far, and this isn't an isolated quarter, Q2 of this year, we have not seen any change or any pressure on spreads. We continue to see, you know, that we are capable of keeping our spread and thus keeping our overall margin.

Speaker Change: you just when you look at the so-called spread in pni completely stable in set flight to flat to up slightly in education a little bit down that it's small the customer mix than we know pricing conversation

Olivier Toureau: Year-over-year organic revenue growth reflect lower staffing market demand with revenue down 4 percent in our staffing specialties and down 1 percent in our outcome-based business. Permanent placement fees are also declined by 20 percent. In our OCD segment revenue improved 3 percent. The increase in revenues was driven by our PTO specialty where demand growth has continued. Year-over-year declines in our PO are due to slower hiring in certain market sectors and MSP revenues decline in line with customer's content But revenue in both MSP and RPO products were stable sequentially and with our MSP product positioned to benefit from positive momentum going forward.

Speaker Change: So, so far, and it's not an isolated quarter, Q2 of this year, we have not seen any change or any pressure on spreads.

Speaker Change: We continue to see, you know, that we are capable of keeping our spread, thus keeping our overall margin.

Peter Quigley: And then just one last question, you know, as you go down this transformation journey, and obviously MRP will help, you know, as you look for the next acquisition, is the thought that you'd like to integrate MRP so you'd wait, or if an opportunity turned up, are you at a point where you could do another acquisition?

Speaker Change: And then just one last question, you know as you go down this transformation journey and obviously MRP will help

Speaker Change: You know, as you look for the next acquisition, is it not that you'd like to integrate MLT so you'd wait, or if an opportunity turned up, you're at a point where you could do another acquisition?

Peter Quigley: Well, I think, as we've said, MRP is going to continue to deliver its services and solutions through its operating companies and under its current brand. We'll, of course, be working with the MRP leadership on where it makes sense to integrate. I think our focus right now is on that as a priority, but we're not going to stand on the sidelines in terms of developing a pipeline for future acquisitions. The cycle time is, as you know, quite long, so we're preparing for the time when it would make sense for us to deploy additional capital in pursuit of high-margin, high-growth businesses, as I've said before, primarily in the science, engineering, technology, and telecom space or in our education practice.

Speaker Change: Well, I think our as we've said

Speaker Change: MRP is going to continue to deliver its services and solutions through its operating companies and under its current brand. We'll, of course, be working with the MRP leadership on where it makes sense.

Olivier Toureau: Revenue in our professional and industrial segment declined 9% year over year in the quarter, but also stabilized sequentially, including in the PNI staffing specialty. Revenue from our staffing product declined 9%. The segment's contact center outcome-based specialty revenue also declined year over year as it perishes in this segment, partially offsetting these declines, other higher margin outcome-based specialty revenue continued to grow. Overall gross profit was an 11.2% as reported, or 4.3% on an organic basis.

Greg: integration. I think, you know, our focus right now is on that as a priority, but we're not...

Greg: Um...

Greg: We're not going to stand on the sidelines in terms of developing a pipeline for future acquisitions.

Speaker Change: As you know, CARDIC quite long, so we're...

Greg: preparing for the time when it would make sense for us to deploy additional capital in pursuit of high-margin, high-growth businesses, as I've said before, primarily in the science, engineering, technology, and telecom space or in our education practice.

Olivier Toureau: Our gross profit rate was 20.2% compared to 19.8% in the second quarter of the prior year. Our GDP rate reflect a 100-based point improvement from the sale of our European staffing operations and an additional 40 basis points from the inclusion of the June results of MRP. On an organic basis, the GDP rate declined 100 basis points in Q2, 110 basis points due to unfavorable business mix, and 20 basis points due to lower parentheses, partially offset by 30 basis points of favorable and pre-related costs.

Operator: Perfect. Thank you so much. I appreciate it. Thank you, Carter. Thank you, Coby.

Operator: Thank you, Carter. Thank you, Coby. Thank you. Your next question comes from the line of Kevin Steinke from Barrington Research.

Speaker Change: Perfect. Thank you so much. I appreciate it. Thank you, Karthik. Thank you, Karthik.

Kevin: Please go ahead. Good morning, Kevin. Good morning.

Speaker Change: Your next question comes from the line of Kevin Steinke from Barrington Research. Please go ahead. Morning Kevin. Good morning.

Kevin: I want to start off by asking about generating some, you know, modest organic growth in the second quarter. It sounded like you were pleased with the progress of the organic growth initiatives that are part of the transformation effort. I mean, would you attribute the, you know, the return to organic growth as really being driven by those transformation-related organic growth initiatives? Yeah.

Kevin Steinke: Good morning. I want to start off by asking about

Speaker Change: Generating some, you know, modest organic growth in the second quarter, it sounded like you were pleased with the progress of...

Speaker Change: The organic growth initiatives that are part of the transformation effort, would you attribute the return to organic growth as really being driven by those transformation related organic growth initiatives?

Olivier Toureau: The business makes impact reflects continued growth in specialties with lower GDP rates, including education and PPU. SGM expenses were done 17% year over year on a reported basis. Expenses for the second quarter of 2024 include 4.3 million of restructuring charges related to our ongoing transformation efforts, as well as 1.6 million of expenses, primarily related to the sale of our European staffing operations, including transaction and also transition expenses. SGM expenses in 2023 include 5.6 million of restructuring charges, so expenses declined by 18% on an adjusted basis or 10% on an adjusted organic basis. So like for lack, expenses were lower in Q2 of 2024 due to the positive impacts of our structural transformation efforts, as well as lower performance incentive conversation expenses, reflecting current applying trends.

Peter Quigley: I think so, Kevin. It's hard to pin it down precisely, but relative to what we're seeing from our competitors, we believe we're taking share across our businesses, and we spent a good portion of 2023 focused on efficiency, but as I said, at the beginning of the year, we were pivoting and turning our attention to growth. I think the progress we've made on our omni-channel strategy and professional industrial is beginning to show results.

Speaker Change: Yeah, I think so Kevin, you know, it's hard to

Greg: Beep.

Greg: you know, pin it down precisely, but relative to what we're seeing from our competitors, we believe we're taking share in across our businesses, and we spent a good portion of 2023 focused on efficiency, but as I said,

Greg: At the beginning of the year, we were pivoting and turning our attention to growth.

Greg: I think the progress we've made in our omni-channel strategy and professional industrial is beginning to show results and our focus on

Peter Quigley: And our focus on taking share within our large enterprise customers is also showing traction. And I think the combination of those two, plus obviously the continued growth in education, high margin, and areas that are a little bit more stable, we're pleased with the organic growth in the quarter.

Greg: Taking share within our large enterprise customers is also Showing traction, and I think the combination of those two plus obviously the continued growth in education and Focus on

Olivier Toureau: As a reminder beginning in the first quarter of 2024, we are reporting the operating results of our reportable segments utilising revised business unit profit measures. We also are locating a greater share of the costs we have previously reported as corporate cost to our business units. In addition, we are no longer including the position and amortization in our business unit profit measure. We believe this provides greater visibility into the financial performance of each business unit and how they contribute to kelly's overall performance.

Greg: high margin and areas that are a little bit more stable. We're pleased with the organic growth in the quarter.

Olivier Toureau: Okay, good. And it's related to that question. When we think about your forecast for organic revenue growth of 2.5% to 3.5% in the second half of 2024, you talked about assuming kind of a similar demand environment in the second half relative to what you've been seeing recently. You know, but you also mentioned some. Stability and demand sound like some improvement in technology and life sciences. I'm just trying to unpack how you get to that higher rate of organic growth in the second half if it's driven by the organic growth initiatives or assuming some sort of continued improvement or stabilization in just the overall demand environment to get to that growth and also the sequential improvements you mentioned you expect in P&I set and OCG.

Greg: Okay, good. And it's related to that question.

Speaker Change: When we think about your forecast for organic revenue growth of 2.5% to 3.5% in the second half of 2024, you talked about assuming kind of a similar...

Olivier Toureau: On a console-ledic basis, our reporting earnings from variations in the second quarter were 12.2 million compared to 6.2 million in due to of 2023. On an adjusted basis, Q22024 earnings from operations were 28.1 million, nearly doubled from a year ago. The 15.9 million increase from reported earnings includes a lot on the sale of our European staffing operations, charges related transformation actions and the sale of our European staffing operations, an impairment challenge related to excess lease property, and again on the sale of assets related to the Ayers group.

Speaker Change: demand environment in the second half relative to what you've been seeing recently.

Speaker Change: you know, but also you mentioned some

Speaker Change: Stabilization and demands sound like some improvement in technology and life sciences. I'm just trying to try and unpack

Speaker Change: you know, how you get to that higher rate of organic growth.

Speaker Change: In the second half, if it's driven by the organic growth initiatives or assuming some sort of continued improvement or stabilization in just the overall demand environment.

Speaker Change: you know, to get to that growth and also the sequential improvements you mentioned, you expect in P&I set and OCG.

Olivier Toureau: The acquisition of a market added 1.5 million of earnings for operations in the second quarter of 2024. Adjusted earnings in the second quarter of 2023 were 14.2 million, the 8 million increase from reported earnings included transformation related charges and an asset impairment charge. The European staffing operations produced 1 million of earning for operations on an adjusted basis in the second quarter of 2023. Adjusted EBD margin also improved 180 base points to 3.8%.

Olivier Toureau: I'm going to start and then Peter will add some color on the business side and so on. But if you think about it, first of all, we did confirm today that we see education continuing to grow at a double-digit rate. Of course, you know Q3 is low seasonality, but we see the dynamic we have seen for a long, long time continuing. So that's one point.

Speaker Change: Yeah, I mean, I'm going to start and then Peter will add some color on the business side and so on. If you think about it, first of all, we did confirm today that we see education continuing to grow at double digit rate.

Speaker Change: Of course, you know Q3 is low seasonality, but we see the dynamic we have seen for a long, long time continuing, so that's one point.

Olivier Toureau: The second point is when you put aside education sequentially from Q1 to Q2, excluding education, the rest of the business sequentially went up by about 1.5%. We expect similar modest improvements sequentially over the second half of the year. That is basically based on what we have seen sequentially from Q1 to Q2. Some areas are more stabilization, like, for instance, P&I staffing; others, it's really sequential growth, and I'm thinking about OCD and, to some extent, SET.

Peter: Second point is, when you put on the side education sequentially from Q1 to Q2, excluding education, the rest of the business sequentially went up by about 1.5%.

Olivier Toureau: With reflecting 40 base point of improvement from the sale of our European staffing operations, 10 base points from the inclusion of the months of June result of MRP and 130 base point of improvement from our ongoing transformation efforts. In the income tax expand for the second quarter was 1.1 million compared to the benefit of 1.9 million in 2023. Our effective income tax rate was 19.4% in due to 2024. And finally reported earnings per share for the second quarter was 12 cents per share compared to 20 cents in 2023.

Peter: We expect similar modest improvements sequentially over the second half of the year.

Peter: That is basically based on what we have seen sequentially from Q1 to Q2.

Speaker Change: Some areas, it's more stabilization, like for instance PNI statting. Others, it's really, you know, sequential growth.

Olivier Toureau: We are starting to see some positive dynamics, as Peter was saying, in our legacy IT business and also science that are moving up. And on top of that, of course, the growth initiatives that Peter was mentioning that are part of this sequential improvement of 1.5% I was mentioning from Q1 to Q2 when you exclude education. And there is also the base impact, right? I mean, the 2.5% to 3.5% is also basically reflecting the fact that our comparables are basically lower in H2 of 2023 than they were, you know, in the first half of this. And Kevin is too.

Peter: thinking about OCD and to some extent SET. We start to see some positive dynamics, as Peter was saying, in our legacy IT business and also science that are moving up.

Olivier Toureau: Earning per share in 2024 include the loss related to the sale of our European staffing operations and again on the sale of the Ayers Group Transaction as well as transaction costs related to the acquisition of MRP, refraction charges related to our transformation and an asset impairment charge. Earning per share in 2023 include the refractioning and an asset impairment charge. So on an adjusted basis, Q22040PS was 71 cents compared to 36 cents per share in Q2 of 2023 nearly doubling year of year.

Speaker Change: And on top of that, of course, the growth initiatives that Peter was mentioning, that are part of the sequential improvement of one and a half percent I was mentioning from Q1 to Q2 when you exclude education.

Peter: And there is also the base impact, right? I mean, the two and a half to three and a half.

Speaker Change: It's also basically reflecting on the fact that our comparables are basically lower in H2 of 2023 than they were, you know, in the first half of this year.

Peter Quigley: Kevin, as I mentioned in my prepared remarks, we don't know when there will be a return to a more normalized demand, but we are much better positioned to take advantage of that, and we're prepared to take advantage of it when it happens than we were a couple of years ago, just because of all the steps we've taken to structurally improve the cost base and to be able to leverage when demand returns in a meaningful way, but we're not waiting for that, which is why I focused on the growth initiatives that I mentioned, turn to in earnest at the beginning of the year and we will continue to lean into those growth initiatives notwithstanding the external market conditions.

Speaker Change: Kevin, as I mentioned in my prepared remarks,

Olivier Toureau: Now reflecting on the balance sheet, following the acquisition of MRP at quarter and cash total 38 million and we had 210 million of debt outstanding. Our debt to capital ratio is 14.1% as of quarter and as we leverage our balance sheet to acquire MRP. And as we disclose at the time of the acquisition, we have amended our credit facilities to maintain the financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment.

Kevin Steinke: We don't know when there will be a return to a more normalized demand, but we are

Kevin Steinke: Much better positioned to take advantage of that and we're prepared to take advantage of it when it happens than we were a couple years ago just because of all the steps we've taken to structurally improve the the cost base

Speaker Change: and to be able to leverage when demand returns in a meaningful way. But we're not waiting for that, which is why I focused on the growth initiatives that I mentioned.

Olivier Toureau: At quarter and accounts receivable total 1.2 billion including the receivables of MRP. Global DSO was 57 days down two days from year and 2023 and down four days from the second quarter of 2023. In the quarter, we generated 55 million of free cash flow compared to 32 million in the comparable prior year period.

Speaker Change: turn to in earnest at the beginning of the year, and we will continue to lean into those growth initiatives, notwithstanding the external market conditions.

Olivier Toureau: Okay, great. I also want to ask about the trend in adjusted SG&A expenses. You mentioned you expect them to be down organically 3.5% to 4.5% year-over-year. Just trying to think about... You know, on a sequential basis, as we move into the second half of the year, how those will trend organically, you know, if we should think about those kind of being flattish sequentially excluding MRP or, you know, if they come down a little bit more. Yeah, I would. I would definitely do that.

Speaker Change: Okay, great. I also want to ask about the

Olivier Toureau: Looking ahead to operating results for the second half of the year, our results will be impacted by several factors. First, we believe that staffing market conditions will remain relatively consistent with what we have experienced in the first half of the year and modest sequential revenue improvement in our TNI set and OCD segments will continue in the second half of 2024. Our education segment revenue will be impacted by a summer school holiday period in Q3 but will continue to produce double digital revenues and finally the accession of MRT will deliver further improvement in both our growth and also value metrics.

Speaker Change: You mentioned you expect them to be down organically 3.5% to 4.5% year-over-year. I'm just trying to think about...

Speaker Change: You know, on a sequential basis, as we move into the second half of the year, how those will trend.

Speaker Change: organically, you know, if we should think about those kind of being flattish sequentially excluding MRP or, you know, if they come down a little bit more.

Olivier Toureau: I would really continue to look at organic, meaning excluding our European staffing business and MRP. I think we gave today some specifics around the MRP expectation for SG&A, excluding DNA, by the way, for the second half of the year. So if you think about a Q2 trend, if you really go on the adjusted organic, we're at about minus 10% like-for-like in Q2 versus a year ago. In Q1, we're at minus 11, so a very similar trend in the second quarter than in the first quarter.

Speaker Change: I would really continue to look at organic, meaning excluding our European staffing business and MRP. I think we gave today some specific around MRP expectation for SG&A.

Olivier Toureau: For the second half of 2024, on an organic basis, we expect revenue to be up to 1.5 to 3.5%, with no significant effects impact, resulting in a midpoint revenue expectation of about 2 billion. In addition, we expect MRT to add an additional 260 to 270 million of revenue in the second half of the year. We expect our organic GP rate to be between 20 to 20.2% in the second half. On the lag for like basis, this is a 9K basis point decline at the midpoint of our range, affecting the change in our business mix, primarily because of our education business is expected to continue to deliver significant revenue growth.

Speaker Change: If you think about the Q2 trend, if you go really on the adjusted organic, we are at about minus 10% like for like in Q2 versus a year ago.

Speaker Change: In Q1, we're at minus 11, so very similar trend in the second quarter than in the first quarter.

Olivier Toureau: When we move to our guidance that you are mentioning for the second half, of course, the comparables are becoming more challenging, right, because a good portion of our efficiency initiatives were already visible in the second half of the year. This is why we go for this adjusted guidance. But if you think about it more sequentially, you will see that it's basically flat sequentially from first half to second half, or if you look at Q2 to Q3 and Q4. Yes, that's our expectation, and this is where we are trending now.

Speaker Change: When we move to our guidance that you are mentioning for the second half,

Speaker Change: Of course, the comparables are becoming more challenging, right, because a good portion of our efficiency initiatives were already visible in the second half of the year. So this is why we go for this adjusted guidance.

Olivier Toureau: MRT, with its higher margin specialty profile, is expected to add an additional 100 basis point to our growth margin rate in the second half of the year. So, our all-in GP rate in the second half of 2024 is expected to be between 21% to 21.2%. Reflecting on SGNA, we expect to sustain the efficiency improvements that we gain from our transformation related actions over the past year. The impact on year-over-year trends will moderate, as we anniversary, the execution of most of those actions.

Speaker Change: But if you think about it more sequentially, you will see that it's basically flat sequentially from first half to second half or if you look at Q2 to Q3 and Q4.

Speaker Change: Yes, that's our expectation and this is where we are training now.

Olivier Toureau: Okay. Thank you, Olivier. That was very helpful. And I also wanted to add my congratulations and best wishes for your upcoming retirement. It has certainly been a pleasure working with you over the years.

Speaker Change: Okay, thank you, Olivier. That was very helpful, and I also wanted to add my congratulations and best wishes for your upcoming retirement, and certainly, you know, it was a pleasure working with you over the years.

Olivier Toureau: I'm gonna be around for a while now, right? So you're gonna hear from me for the next two quarters with pleasure. Oh, right. Okay.

Olivier Toureau: We expect that adjusted SGNA, exuding DNA, will be 3.5 to 4.5% lower than a year ago on an organic basis. And MRT will add about 60 million of expenses in the second half. All-in, we expect approximately 28 million of deposition and amortization in H2 of 2024. We expect an adjusted organic ABDM margin of 3.2 to 3.3%, up 30 to 40 basis point here over year. And we believe that MRT will add an additional 30 basis point of net margin in the second half of 2024.

Speaker Change: I'm gonna be still around for a while now, right? So you're gonna hear from me For the next two quarters with pleasure. Oh, right. Okay

Kevin: Right, okay. I'll look forward to it.

Olivier Toureau: Well, look forward to talking to you then.

Operator: Your next question comes from the line of Joe Gomes from Noble Capital Markets. Please go ahead. Morning, Joe. Morning. Oh, hey, Josh.

Olivier Toureau: Thank you.

Speaker Change: Your next question comes from the line of Joe Gomes from Noble Capital Markets. Please go ahead.

Olivier Toureau: Morning Joe. Morning. Josh filling in for Joe. Oh hey Josh.

Josh: And so now, you know, we're kind of a couple of months just into the completion of MRP. Can I, you know, can you guys describe to me how the integration of it's kind of coming along and some key takeaways so far? Has the company really picked up any new business ones from it so far? Well, as we explained, Josh, for the foreseeable future, we're going to continue to operate the businesses as they've been operating under their current delivery models and brands.

Speaker Change: And so now, you know...

Josh: We're kind of a couple months just into the completion of MRP, you know, can I, you know, can you guys describe me how, you know, the integration of it's kind of coming along and some key takeaways so far into it? Has the company really picked up any new business ones from it so far?

Olivier Toureau: And back to my earlier points regarding education seasonality, we expect that our adjusted ABDM margin will be closer to 3% or 2.6% organic in the third quarter during the school summer holiday period, and then improve as in-cure for as education's working days increase. And finally, we expect our effective tax rate to be in the low teens.

Josh: Well, as we explained, Josh, for the foreseeable future we're going to continue to operate

Speaker Change: the businesses as they've been operating under their current delivery models and brands. That doesn't mean we're not spending a lot of time with the Motion Recruitment Partners leadership team working on

Mr. Peter Quigley: And I will back to you, Peter. Thanks for those insights, Olivier.

Josh: That doesn't mean we're not spending a lot of time with the Motion Recruitment Partners leadership team working on ideas and plans for integration when it makes sense. We have been encouraged by the collaboration between the teams on both the staffing and solution side of the Motion Recruitment Partners business as well as within the 7-Step business. And there have been opportunities that we've taken advantage of where the combined forces of Kelly and MRP have proven to be an advantage.

Mr. Peter Quigley: In May, I shared with you that 2024 would mark an inflection point on our strategic journey that the actions and results we deliver this year will propel Kelly into a new era of growth. Reflecting on the significant progress we achieved in the second quarter, I'm confident that we're on track to realize those ambitions. Our transformational acquisition of motion recruitment partners has strengthened the scale and capabilities of Kelly staffing, consulting and RPO solutions in attractive customer end markets, including technology, financial services, and healthcare.

Speaker Change: ideas and plans for integration when it makes sense.

Speaker Change: We have been encouraged by the collaboration between

Speaker Change: The team's...

Speaker Change: on both the

Speaker Change: staffing and solution side of the Motion Recruitment Partners business, as well as within the 7-Step business.

Speaker Change: And there have been opportunities that we've taken advantage of that...

Mr. Peter Quigley: The highly complimentary nature of MRP and Kelly's set and OCG businesses, MRP's attractive financial profile and its leadership team of recruiting industry veterans will contribute in a significant way to enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion. The sale of AERS group, further sharpened Kelly OCG's focus on global RPO and MSP solutions while unlocking incremental capital to redeploy towards Kelly's specialty strategy. And we achieved our initial expectation for EBITDA margin expansion, which we established one year ago, demonstrating the capacity of our growth and efficiency initiatives to significantly improve Kelly's profitability over the long term.

Speaker Change: combined forces of Kelly and

Josh: It's still early, but we're encouraged by what we think is the market and customer reaction to the combination and partnership, and more to come on that as we further refine what the ideal or optimized operating model will be going forward.

Speaker Change: MRP has proven to be an advantage. It's still early, but we're encouraged by what we think is the...

Speaker Change: market and customer reaction to the combination and partnership, and more to come on that as we further refine what the ideal or optimized operating model will be going forward.

Peter Quigley: Okay, that's helpful. Thank you.

Speaker Change: Okay, that's helpful, thank you. And yeah, you kind of touched on the M&A side a little bit, but you know, you guys talked about in the previous quarter how, you know, there's kind of more discussion happening. Is that's really still true now? Is there kind of more properties in the market that you're seeing or is it still roughly about the same?

Peter Quigley: And yeah, you kind of touched on it on the M&A side a little bit, but you guys talked about in the previous quarter how there's kind of more discussions and negotiations happening. Is that really still true now? Are there kind of more properties in the market that you're seeing? Or is it still roughly about the same? I'd say it's...

Peter Quigley: I'd say it's roughly about the same Josh. There's, you know; it's still not what it was two or three years ago. I think companies are still a little bit cautious about coming off the sidelines, so the flow is not what it was at its height. But as you know, in our business, in particular, not everything comes to market, and so we continue to explore high-quality, high-growth, high-margin businesses and develop relationships that we think could potentially, at some point in the future, result in an acquisition similar to how we accomplished MRP.

Speaker Change: I'd say it's roughly about the same Josh. There's, you know, it's still not what it was two or three years ago. I think companies are still a little bit cautious about

Mr. Peter Quigley: Of course, it's difficult to know the precise timeline of our recovery for our industry. And as Olivier noted, we expect the results in the second half of the year will continue to reflect uncertain market conditions. Notwithstanding these dynamics, I'm optimistic about the sequential stabilization we saw across our business. And I'm confident that our achievements in the second quarter, together with the progress we've delivered since we embarked on our specialty growth journey, position Kelly to capitalize, when sequential stabilization gives way to a sustained increase in demand.

Speaker Change: coming off the sidelines so that the flow is not...

Speaker Change: what it was at its height, but...

Speaker Change: As you know, in our business in particular, not everything comes to market. And so we continue to explore high-quality,

Mr. Peter Quigley: I'm immensely proud of the work of each and every member of Team Kelly, including our newest colleagues at MRP, that has brought us to this point in our journey. Their urgency, agility, and unwavering commitment to our clients and talent are the driving forces that continue to propel us to new heights. With our team moving forward together, united by our noble purpose, I'm confident that the opportunities before us are limitless.

Speaker Change: high-growth, high-margin businesses and develop relationships that we think could potentially, at some point in the future, result in an acquisition similar to how we accomplished MRP.

Peter Quigley: Okay, thank you for the color. And then last one for me, you know, it's been probably a couple quarters since you guys commented on the Kelly arc. Can you guys kind of provide us with an update on that and kind of what's the interest been like in that program? Well, the interest is high, you know.

Speaker Change: Okay, yeah, thank you for the color. And then last one from me, you know, it's been probably a couple quarters you guys commented on the Kelly Arc. Can you guys kind of provide us with an update on that and kind of what's it been the interest been like in that program?

Operator: Greg, you can now open the call to questions. Okay, ladies and gentlemen, if you'd like to ask a question, please press 1-0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command.

Peter Quigley: Well, the interest is high, you know, the fact is that it's a platform solution that... on both the talent and customer side in an area of great demand in terms of AI and automation talent. Adoption on both the talent side and the customer side takes time. But we have dozen plus customers on the platform and hundreds of AI automation professionals that are also partaking in the solution. And it's one of those solutions, again, a platform solution as individuals and customers begin to join and register.

Speaker Change: Well, the interest is high. The fact is that it's a...

Speaker Change: It's a platform solution that has both the talent and customer side in an area of great demand in terms of AI and automation talent as with any

Operator: If you're using a speaker phone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1-0 at this time. And one moment, please, for your first question.

Kartik Mehta: Your first question comes from the line of Kartik Mehta from North Coast Research. Please go ahead. Yeah, good morning. Good morning.

Unnamed Speaker: I live here, first of all, it's been a pleasure working with you, and I wish you the best. You have some big shoes to build, so thank you for everything. Thank you, Kathy. You're welcome.

Speaker Change: dozen plus customers on the platform and hundreds of

Speaker Change: AI automation professionals that are also partaking in the solution and You know, it's one of those solutions again a platform solution as individuals and customers begin to

Olivier Toureau: We're doing it if we could focus on the MRP business for a second, and just as you look at the fundamentals for that business, maybe so far in the second quarter, and you do look at your outlook in the second half, and you compare it to a year ago, or maybe a quarter ago, what's in the trend for that business? Yeah, I will comment on few numbers and Peter can add more color on business trends and so on.

Peter Quigley: It has a network effect as people hear about it and learn about it and refer other people to the platform. So we're still optimistic about the solution and the value it brings for both talent and customers, and we'll continue to invest our time and technology in it. Your next question comes from the line of Mark Riddick from Sidoti. Please go ahead.

Speaker Change: and register. It has a network effect as people hear about it and learn about it and refer other people to the platform. So we're still optimistic about the solution and the value it brings for both talent and customers.

Olivier Toureau: You might have seen a carpet that we have issued a so-called 8KA and of course the outlook of today and you are going to see further information in our thank you on what we call performance. If you use this information you will see that H1 of 2024 the revenue was about 260 million and if you take the mid range of our guidance today you are going to be at 265 million. So we expect similar to what we have said for Kelly organic, basically a slight improvement, basically in the second half of the year.

Speaker Change: and we'll continue to invest our time and technology into it.

Speaker Change: Your next question comes from the line of Mark Riddick from Sidoti. Please go ahead.

Operator: Good morning, good morning. And Olivia, I'm glad you're with us today. So, we certainly appreciate that. I wanted to touch a little bit on sort of maybe piggybacking on the acquisition pipeline and opportunities that you see there. I was wondering if you thought maybe shifting a little bit sort of comfort levels with that and leverage and sort of how that plays into the thought process of the future acquisition pipeline. Yeah, I mean, if you...

Mark Riddick: Morning, Mark. Morning.

Mark Riddick: I wanted to touch a little bit on sort of maybe piggybacking on the acquisition pipeline and opportunities that you see there. I was wondering if you thought maybe shifting a little bit towards sort of use of...

Olivier Toureau: When you look at how does it compare versus a year ago, H1 at 260 million is about minus 8% versus a prior year which is consistent with the trends we have shared in June when we are talking specifically about MRT and we expect based on the change in comparables and a little bit of second share improvement to turn edge two into flat two minus one minus one and a half person versus a year ago. In cardic longer term I mean we continue to be very bullish on MRP in particular but also the space that they are in both the staffing and solution side as well as on the RPO side.

Speaker Change: sort of comfort levels with that and leverage and sort of how that plays into the thought process of the future acquisition pipeline.

Olivier Toureau: Yeah, I mean, if you remember at the time of the MRP acquisition, our debt level was $263 million, to be very precise. We are already at $210 million. If you use, amongst many other metrics, a multiple of EBDA, and I'm using the last 12 months of EBDA, that is the calculation we use in our bond governance.

Speaker Change: If you remember, at the time of the MRP acquisition, our debt level was $263 million to be very precise.

Speaker Change: multiple of ABDA and I'm using the last 12 months ABDA that is the calculation we use in our bank governance. We are now at about 1.7 dead to ABDA.

Olivier Toureau: We are now at about 1.7 in debt to EBDA, so we are making progress. You have seen that our free cash flow for the quarter was over $50 million. So I feel comfortable that over time, not this year, but I think we are going to continue to basically de-leverage as much as we can and as quickly as possible. It's going to take, of course, more than the next 12 months, but I feel that we are on the right track.

Olivier Toureau: We have been very pleased with the partnership we have had with the MRP leadership to date and the significant complimentary nature of our businesses, the lack of significant customer overlap complimentary delivery models. So longer term we are still very optimistic about the investment thesis in making the acquisition of MRP.

Speaker Change: So we are making progress. You have seen that our free cash flow for the quarter was over 50 million.

Mark Riddick: So, I feel comfortable that over time...

Speaker Change: Not this year, but I think we are going to continue to basically de-leverage as much as we can and as quickly as possible. It's going to take, of course, more than the next 12 months, but I feel that we are on the right track.

Olivier Toureau: And then as you just look at the overall business, maybe in each of the segments I'm wondering what you were witnessing in terms of pricing and pricing trends or competition and increase in any of the segments or are they kind of where they were last quarter? Well I think in this kind of uncertain environment market conditions you're always going to find outlier suppliers that are going to try to buy share but it's not it's not across the board it's not an industry dynamic that we're seeing.

Olivier Toureau: When you see our working capital, I'm glad to confirm that our DSO now is at 57 days, which is, I would say, a big progress versus where we were before. And we are in a business where the best way to manage your capital is basically to manage your DSO. So I feel comfortable that what we see in terms of metrics, balance sheet leverage, we are comfortable that we can continue to de-leverage and are comfortable to basically go for an acquisition whenever we are ready to do it and whenever we have attractive properties.

Speaker Change: When you see our working capital, I'm glad to confirm that our DSO now is at 57 days, which is...

Speaker Change: I would say a big progress versus where we are before and we are in a business where

Speaker Change: the bestase way to manage your getital is basically to energy ofthe su so i think s comfortable that what' we in them of metrrix balancesheet leverage we have comfortable that

Speaker Change: We can continue to de-leverage and comfortable to basically go for an acquisition whenever we are ready to do it and whenever we have attractive properties.

Olivier Toureau: In fact we've been relatively pleased with the our ability to maintain pricing discipline during these market yeah just when you look at the so-called spread in PNI it's completely stable instead fly too flat to up slightly in education a little bit down but it's more the customer mix than real you know pricing configuration. So so far and it's not an isolated product due to this we have not seen any change or any pressure on spreads. We continue to see you know that we are capable of keeping our spread as keeping our overall amounts.

Olivier Toureau: Okay, great. And then I guess one quick little follow-up. Is there sort of a general ballpark range we're looking at for any potential technology investments, maybe CapEx for this year? Are there any sort of investments that you see coming, whether it was in conjunction with MRP, but just maybe enterprise-wide would be great?

Speaker Change: Okay great and then I guess one quick little follow-up is there sort of a general ballpark range we're looking at for

Speaker Change: any potential technology investments, maybe CapEx for this year. Are there any sort of investments that you see coming, whether it was in conjunction with MRP, but just maybe enterprise-wide would be great.

Olivier Toureau: I mean, of course, you can assess our CapEx at least on the cash flow by looking at our cash flow statement. Most of our CapEx over time has been on technology, and it will continue to be the case. You need to think about something in the region of $20-25 million on a recurring basis. Of course, that does not take into account the technology integration of MRP that, as Peter was mentioning, is going to happen as soon as we have the earn-out behind us.

Speaker Change: I mean of course you can assess our CapEx at least on the cash flow by looking at our cash flow statement.

Speaker Change: Most of our CAPEX over time have been on technology and it will continue to be the case. You need to think about something in the region of 20-25 million on a recurring basis.

Olivier Toureau: And then just one last question, you know, as you go down this transformation journey and obviously MRP will help, you know, as you look for the next acquisition, as you thought that you'd like to integrate MRP, so you'd wait or if an opportunity turned up, you are at a point where you could do another acquisition. Well, I think our, as we've said, MRP is going to continue to deliver its services and solutions through its operating companies and under its current brand.

Speaker Change: Of course,

Speaker Change: That does not take into account, you know, technology integration of MRP that, as Peter was mentioning, is going to happen as soon as...

Speaker Change: we

Olivier Toureau: So after Q1 of next year, we are planning for it now, and it will possibly move the $20-25 million up for a temporary period. That's something that, knowing our free cash flow generation, I feel comfortable that we can absorb, you know, higher capital expenses and the $20-25 million, at least for a limited period of time, which may happen through this integration of technology for MRT.

Peter: We have the earn-out behind us, so after Q1 of next year we are planning for it now.

Speaker Change: And it will possibly move the $20 million to $25 million up for a temporary period. But that's something that, knowing our free cash flow generation,

Olivier Toureau: We'll of course be working with the MRP leadership on where it makes sense integration. I think, you know, our focus right now is on that as a priority, but we're not going to stand on the sidelines in terms of developing a pipeline for future acquisitions. The cycle time is, as you know, cardic quite long, so we're preparing for the time when it would make sense for us to deploy additional capital in pursuit of high margin, high growth businesses, as I've said before, primarily in the science engineering technology and telecom space or in our education practice. Perfect. Thank you so much. I appreciate it. Thank you, cardic.

Speaker Change: I feel comfortable that we can absorb, you know, higher capital expenses and the 20-25 million at least for a limited period of time, which may happen through this integration of technology for MRP.

Mark: Great. Thank you very much. Thank you. Thank you, Mark.

Speaker Change: Great. Thank you very much.

Operator: If there are any additional questions, please press 1 and 0. And at this time, there are no further questions. Okay, Greg, I think we can end the call. Thank you very much. Thank you, Greg. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.

Speaker Change: Thank you. Thank you, Mark.

Speaker Change: If there are any additional questions, please press 1 and 0.

Speaker Change: And at this time, there are no further questions.

Speaker Change: Okay, Greg, I think we can end the call. Thank you very much. Thank you, Greg. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.

Kevin Steinke: Your next question comes from the line of Kevin Steinke from Barrington Research. Please go ahead. Morning, Kevin. Good morning. I want to start off by asking about generating some, you know, modest organic growth in the second quarter. It sounded like you were pleased with the progress of the organic growth initiatives that are part of the transformation effort. I mean, would you attribute the return to organic growth is really being driven by those transformation-related organic growth initiatives?

Kevin Steinke: Yeah, I think so, Kevin. You know, it's hard to be, you know, pin it down precisely, but relative to what we're seeing from our competitors, we believe we're taking share across our businesses. And we spent a good portion of 2023 focused on efficiency, but as I said, at the beginning of the year, we were pivoting and turning our attention to growth. I think the progress we've made in our omnichannel strategy and professional industrial is beginning to show results and our focus on taking share within our large enterprise customers is also showing traction.

Kevin Steinke: And I think the combination of those two plus obviously the continued growth in education and a focus on high margin and areas that are a little bit more stable. We're pleased with the organic growth in the quarter. Okay, good. And it's related to that question. When we think about your forecast for organic revenue growth of 2.5 to 3.5 percent in the second half of 2024, you talked about assuming kind of a similar demand environment in the second half relative to what you've been seeing recently.

Kevin Steinke: You know, but also you mentioned some stabilization in demand, some like some improvement in technology and life sciences, I'm just trying to unpack, you know, how you get to that higher rate of organic growth in the second half if it's driven by the organic growth initiatives or some assuming some sort of continued improvement or stabilization in just the overall demand environment, you know, to get to that growth and also the sequential improvements you mentioned. Do you expect in P and I set in OCEG?

Kevin Steinke: Yeah, I mean, I'm going to start and then Peter will add some color on the business side and then so on. If you think about it, first of all, we did confirm today that we see education continuing to grow at the digit rate. Of course, you know, Q3 is low seasonality, but we see the dynamic we have seen for a long, long time continuing. So that's one point. Second point is when you put on the side education sequentially from Q1 to Q2, extending education, the rest of the business sequentially went up by about 1.5%.

Kevin Steinke: We expect similar modest improvement sequentially over the second half of the year. That is basically based on what we have seen sequentially from Q1 to Q2. Some areas it's more stabilization, like for instance, P&I staffing. Others, it's really, you know, sequential growth and I'm thinking about OCEG and to some extent set. We start to see some positive dynamics as Peter was seeing in our legacy IT business and also science that are moving up.

Kevin Steinke: And on top of that, of course, the growth initiative that Peter was mentioning, that are part of this sequential improvement of 1.5% I was mentioning from Q1 to Q2 when you extrude education. And there is also the basic back, right? I mean, the 2.5 to 3.5% is also basically reflecting on the fact that our comparables are basically lower in H2 of 2023 than they were, you know, in the first half of this year.

Kevin Steinke: And Kevin, as I mentioned in my prepared remarks, we don't know when there will be a return to a more normalized demand. But we are much better positioned to take advantage of that and we're prepared to take advantage of it when it happens. Then we were a couple of years ago, just because of all the steps we've taken to structurally improve the cost base and to be able to leverage when demand returns in a meaningful way.

Kevin Steinke: But we're not waiting for that, which is why I focused on the growth initiatives that I mentioned. We turned to an earnest at the beginning of the year and we will continue to lean into those growth initiatives, notwithstanding the external market conditions. Okay, great. I also want to ask about the trend and adjusted SDNA expenses. You mentioned you expect them to be known organically 3.5 to 4.5% year of a year. Just try and think about, you know, on a sequential basis as we move into the second half of the year, how those old trend organically, you know, if we should think about those kind of being flatish, sequentially excluding MRP or, you know, take that a little bit more.

Kevin Steinke: Yeah, I would really continue to look at organic, meaning, excluding our European staffing business and MRP. I think we gave today some specific around MRP expectation for XGNA, excluding DNA, by the way, for the second half of the year. So, if you think about Q2 trend, if you go really on adjusted organic, where at about minus 10% like for like in Q2 versus a year ago, into one where at minus 11% so very similar trend in the second quarter than in the first quarter, when we move to our guidance that you are mentioning for the second half, of course the comparables are becoming more challenging, right, because a good portion of our efficiency initiative will already be available in the second half of the year.

Kevin Steinke: So, this is why we go for adjusted guidance, but if you think about it more sequentially, you will see that it's basically flat sequentially from first half to second half, or if you will get Q2, or Q3 and Q4. Yes, that's our expectation, and this is where we are turning now. Okay, thank you Olivier, that was very helpful, and I also wanted to add my congratulations, and best wishes for your upcoming retirement, and certainly, you know, thank you.

Kevin Steinke: It was a pleasure working with you over the years. I'm going to be still around for a while now, right, so you're going to hear from me for the next two quarters. We'll start with pleasure. Oh, right, okay. Well, we'll look forward to talking to that. Thank you.

Joe Gomes: Your next question comes from the line of Joe Gomes from Noble Capital Markets. Please go ahead. Thank you, Joe. What are you talking about for Joe? Oh, hey, Josh. Okay, so now, you know, we're kind of a couple of months just into the completion of MRP.

Unnamed Speaker: You know, can you guys describe me how, you know, the integration of it's kind of coming along, and some key takeaways so far into it, has the company really picked up any new business ones from it so far? Well, as we explained, Josh, for the foreseeable future, we're going to continue to operate. The businesses as they've been operating under their current delivery models and brands. That doesn't mean we're not spending a lot of time with the Motion Recruitment Partners leadership team working on ideas and plans for integration when it makes sense.

Unnamed Speaker: We have been encouraged by the collaboration between the teams on both the staffing and solution side of the Motion Recruitment Partners business as well as within the seven step business. And there have been opportunities that we've taken advantage of that combined forces of Kelly and MRP has proven to be an advantage. It's still early but we're encouraged by what we think is the market and customer reaction to the combination and partnership.

Unnamed Speaker: And more to come on that as we furthered refine what the ideal or optimized operating model will be going forward. Okay, that's helpful. Thank you.

Unnamed Speaker: And yeah, you kind of touched on the M&A side a little bit but you know you guys talked about in the previous quarter how you know this kind of more discussion happening. Is that's really still true now? Is there kind of more properties in the market that you're seeing or is it still roughly about the same? I'd say it's roughly about the same Josh there's you know it's still not what it was two or three years ago.

Unnamed Speaker: I think companies are still a little bit cautious about coming off the sidelines so that the flow is not what it was at its height but you know as you know in our business in particular not everything comes to market and so we continue to explore high quality high growth high margin businesses and develop relationships that we think could potentially at some point in the future result in a acquisition similar to how we accomplished MRP.

Unnamed Speaker: Okay, thank you for the color and then last one for me you know it's been probably a couple quarters you guys commented on the Kelly arc. Can you guys kind of provide us with the update on that and kind of what's been the interest been like in that program? Well the interest is high you know the the fact is that it's a it's a platform solution that has both the talent and customer side in an area of great demand in terms of AI and automation talent as with any platform driven solution adoption on both the talent side and the customer side takes time but we have dozen dozen plus customers on the platform and hundreds of AI automation professionals that are also partaking in the solution and you know it's one of those solutions again a platform solution as individuals and customers begin to join and register it has a network effect as people hear about it and learn about it and and refer other people to the platform so we're we're still optimistic about the solution then the value it brings for both talent and customers and will it will continue to invest our time and technology into it. Okay.

Mark Ridic: Your next question comes from the line of Mark Ridic from Sedoti. Please go ahead. Morning, Mark. Morning. Good morning. And Olivia, glad you're with us today. So we'll be very excitedly appreciate that. I wanted to touch a little bit on, so maybe piggybacking on the acquisition pipeline and opportunities that you see there. I was wanting to talk maybe shifting a little bit sort of use of the sort of comfort levels with that and leverage and sort of how that plays into the thought process of the future acquisition pipeline.

Mark Ridic: Yeah, I mean, if you remember at the time of the MRP acquisition, our debt level was 263 million to be very precise. We are already now at 2.10. If you use what I like to use amongst many of the metrics, multiple of ABDA and I'm using the last 12 months ABDA that is the calculation we use in our bond governance. We are now at about 1.7 debt to ABDA. So we are making progress.

Mark Ridic: You have seen that our free cash flow for the quarter was over 50 million. So I feel comfortable that over time not this year, but I think we are going to continue to basically deliver as much as we can and as quickly as possible. It's going to take, of course, more than the next 12 months, but I feel that we are on the right track. When you see our working capital, I'm glad to confirm that our DSO now is at 57 days, which is, I would say, a big progress where we are before and we are in a business where the best way to manage your capital is basically to manage your DSO.

Mark Ridic: So I think comfortable that what we see in terms of metrics, balance sheet leverage, we are comfortable that we can continue to deliver as and comfortable to basically go for an acquisition whenever we are ready to do it and whenever we have attractive properties. Okay, great.

Olivier Toureau: And then I guess one quick little follow-up is there sort of a general bulk park range we are looking at for any potential technology investments, maybe CAPEX for this year, are there any sort of investments that you see coming whether it was in conjunction with MRP, but just maybe enterprise-wise would be great. I mean, of course, you can assist our CAPEX at least on the cash flow by looking at our cash flow statement.

Olivier Toureau: Most of our CAPEX, over time, have been on technology and it will continue to be the case. You need to think about something in the region of 20, 25 million on a recurring basis. Of course, that does not take into account technology integration of MRP that as Peter was mentioning is going to happen as soon as we have the urn out behind us. So after Q1 of next year, we are planning for it now and it will possibly move the 20 to 25 million for a temporary period.

Olivier Toureau: But that's something that knowing our free cash flow generation I feel comfortable that we can absorb, you know, higher capital expenses and the 20-25 million, at least for limited period of time, which may happen through this integration of technology for MRT. Great. Thank you very much. Thank you. Thank you, Mark. Mark, if there are any additional questions, please press one and zero. And at this time, there are no further questions.

Operator: Okay, Greg, I think we can end the call. Thank you very much. Thank you, Greg. Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect. We're sorry. Your conference is ending now.

Operator: Please, hang up.