Q3 2024 Kelly Services Inc Earnings Call - Q&A
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Operator: Good morning, and welcome to Kelly Services' Q3 earnings conference call. All parties will be on listen only until the question and answer session 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. The Q3 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: And good morning, and welcome to Kelly Services third quarter earnings Conference call all parties will be on listen only until the question and answer session.
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.
Speaker Change: Third quarter webcast presentation is also available on Kelly's website for this mornings call I would now like to turn the meeting over to your host Mr. Peter Quigley President and CEO. Please go ahead.
Peter Quigley: Thank you, Brad. Hello, everyone, and welcome to Kelly's Q3 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. 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. Finally, a presentation with information about Kelly's financial results in the quarter is available on our website.
Peter Quigley: Thank you, Brad and Hello, everyone and welcome to Kellys third quarter Conference call.
Peter Quigley: Before we begin I'll walk you through our Safe Harbor language.
Speaker Change: As a reminder, any comments made during this call, including the Q&A may include forward looking statements about our expectations for future performance.
Speaker Change: Actual results could differ materially from those suggested by our comments and we have no obligation to update the statements made on this call.
Speaker Change: Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance.
Speaker Change: 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.
Speaker Change: Finally, our presentation with information about Kelly's financial results in the quarter is available on our website.
Peter Quigley: We have a lot to cover, so let's get started. First, I'm pleased to welcome Troy Anderson, Executive Vice President and CFO Designate, who formally joined Kelly last month and is with us on the call today. As announced in September, following an exhaustive search process, Troy was selected to succeed Kelly's current Executive Vice President and CFO, Olivier Thirot, following his planned retirement as an officer of the company. Troy and Olivier have been working side by side over the past several weeks to ensure a smooth transition of responsibilities. Upon completion of the transition, Troy will assume the role of Executive Vice President and CFO of Kelly, and Olivier will be a strategic advisor to the company. Troy brings to Kelly more than 30 years of experience successfully executing business transformations, a track record of accelerating profitable growth, and a passion for developing and leading high-performing teams.
Speaker Change: We have a lot to cover so let's get started.
Speaker Change: First I'm pleased to welcome Troy Anderson Executive Vice President and CFO designate who formerly joined Kelly last month and is with us on the call today.
Speaker Change: As announced in September following an exhaustive search process Troy was selected to succeed Kelly's current executive Vice President and CFO Olivier T. Rowe following his planned retirement as an officer of the company.
Speaker Change: Troy and Olivia he had been working side by side over the past several weeks to ensure a smooth transition of responsibilities.
Speaker Change: Upon completion of the transition Troy will assume the role of executive Vice President and CFO with Kelly and Olivier will be a strategic advisor to the company.
Speaker Change: Troy brings to Kelly more than 30 years of experience successfully executing business transformations her track record of accelerating profitable growth and a passion for developing and leading high performing teams.
Peter Quigley: I'm confident he will build upon the significant contributions of Olivier, to whom I'm immensely grateful for his distinguished service to Kelly. Olivier's leadership has helped transform this company into a more efficient, profitable enterprise with the financial discipline to drive long-term value creation. I look forward to working with Troy to accelerate Kelly forward on our specialty journey and congratulate Olivier as he prepares to close one chapter and begin an exciting new one. Turning to Kelly's results in Q3. We continue to navigate uncertain market conditions that were broadly consistent with the prior quarter. Large enterprises maintained a cautious approach to managing their workforces, deferring hiring decisions, managing existing headcount through attrition, and in some cases, choosing not to backfill open roles. This continued to impact demand for both temporary and permanent staffing services.
Speaker Change: I am confident he will build upon the significant contributions of Olivier to whom I'm immensely grateful for his distinguished service to Kelly Olivier. His leadership has helped transform this company into a more efficient profitable enterprise with the financial discipline to drive long term value creation.
Speaker Change: I look forward to working with Troy to accelerate Kelly forward on our specialty journey and congratulate Olivier as he prepares to close one chapter and began an exciting new one.
Speaker Change: Now turning to Kellys results in the third quarter, we continued to navigate uncertain market conditions that were broadly consistent with the prior quarter.
Speaker Change: Large enterprises maintained a cautious approach to managing their workforces differing hiring decisions managing existing head count through attrition and in some cases choosing not to backfill open roles. This continued to impact demand for both temporary and permanent staffing services.
Peter Quigley: Notwithstanding these persistent dynamics, we continue to focus on what we can control, capturing market share and shifting our business mix toward higher margin, more resilient solutions. Our actions contributed to Kelly's organic revenue stabilizing year over year for the second consecutive quarter and drove strategic progress in each of our businesses. In our education business, we achieved another quarter of double-digit revenue growth on strong fill rates and net new customer wins in our K-12 specialty. The ongoing growth of this specialty is reflected in Kelly's share of K-12 staffing market, which once again ranked number one on Staffing Industry Analysts' latest list of the largest education staffing firms in the US. We also remain focused on expanding our higher margin therapy specialty. Our near-term priorities in this specialty are scaling our capacity in additional markets and improving attraction and retention of therapy talent.
Speaker Change: Notwithstanding these persistent dynamics, we continue to focus on what we can control capturing market share in shifting our business mix toward higher margin more resilient solutions. Our actions contributed to Kelly's organic revenue stabilizing year over year for the second consecutive quarter and drove strategic progress.
Speaker Change: In each of our businesses.
Speaker Change: In our education business, we achieved another quarter of double digit revenue growth on strong fill rates and net new customer wins in our K 12 specialty.
Speaker Change: The ongoing growth of this specialty is reflected in kellys share of K 12, staffing market, which once again ranked number one on staffing industry analysts latest list of the largest education staffing firms in the U S.
Speaker Change: We also remain focused unexplained in our higher margin therapy specialty our near term priorities. In this specialty are scaling our capacity in additional markets and improving attraction and retention of therapy talent.
Peter Quigley: In our P&I business, the sequential revenue stabilization we achieved in Q2 gave way to a sequential improvement in Q3 as our omni-channel strategy within the staffing business continued to gain traction. This strategy, underpinned by our network of physical branch locations and the Kelly Now mobile app, enabled our P&I business to meet clients and talent where they are and capture a greater share of the market as demand for industrial and commercial staffing remained under pressure. Also driving the continued improvement in P&I is the ongoing expansion of our outcome-based business into attractive end markets, including semiconductors and renewables. Our OCG business delivered solid year-over-year revenue growth, driven primarily by increased demand for our payroll process outsourcing solution. Revenue from our MSP and RPO solutions stabilized sequentially as more employers seek to drive efficiencies through total talent management.
Speaker Change: In our P&I business the sequential revenue stabilization, we achieved in the second quarter gateway to a sequential improvement in the third quarter as our omni channel strategy within the staffing business continued to gain traction this strategy underpinned by our network of physical branch locations and the Kelly now mobile App.
Speaker Change: <unk> enabled our P&I business to meet clients and talent, where they are and capture a greater share of the market as demand for and industrial and commercial staffing remained under pressure.
Peter Quigley: Powered by our advanced Helix technology platform, which we continue to upgrade with the addition of AI-enabled market intelligence capabilities, OCG's higher margin MSP offering drove a steady pipeline of new business opportunities. In our SET business, demand decelerated during the summer months before improving in September as companies began to increase spending on technology projects. Its results for the Q3 reflect this dynamic while continuing to outpace the market on a year-over-year basis. SET maintained its focus on expanding into the market for higher margin SOW-based services through the statementworX suite of solutions. This innovative offering continues to generate strong interest among clients seeking to optimize business processes without adding headcount amid ongoing macroeconomic uncertainty. The Q3 also marked the first full quarter since Kelly acquired specialty talent solutions company, Motion Recruitment Partners, whose results are currently reported as part of SET.
Peter Quigley: With integration planning well underway, I'm pleased with the collaborative approach our teams have taken to combining our highly complementary businesses. Together, we're creating a clear pathway to achieve revenue and cost synergies that will enable Kelly to realize the full value of this transformational deal. For more details on our results in the Q3, I'll turn the call over to Olivier.
Olivier Thirot: Thank you, Peter, and good morning, everybody. As a reminder, Kelly's 2023 results included the European staffing business that was sold on 2 January 2024, and our 2024 results include Motion Recruitment Partners since the 31 May acquisition date. To provide greater visibility into trends in our operating results, I will 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. Revenue for Q3 2024 totaled $1.04 billion, compared to $1.12 billion in 2023, down 7.1%, resulting primarily from the sale of our European staffing business, partially offset by the acquisition of MRP. On an organic basis, year-over-year revenue was essentially flat and down 0.2%. This is slightly lower than what we have built into our H2 outlook.
Olivier Thirot: Reviewing results by segment, starting with Education. Q3 is low season for Education because of summer break in much of our K12 practices, but we continued to deliver sustained double-digit revenue growth, up 11% year-over-year in the quarter. This growth continues to reflect net new customer wins and an improving fee rate on existing business. In the SET segment, revenue was up 37% on a reported basis, resulting from the acquisition of MRP, which is included in our results for a full quarter in Q3. Revenue was down 5% on an organic basis. Organic revenue trends were weaker over some months but improved in September as we exited the quarter. For the total quarter, organic year-over-year trends reflect lower staffing market demand with revenue down 5% in our staffing specialties, as well as in our outcome-based solutions, driven primarily by lower demand in certain industry verticals like telecom.
Olivier Thirot: We continue to see the outcome-based statement of work business as a growing portion of the market where we are focused and continue to innovate. Permanent placement fees declined 31% organically, more than doubled when including the results of MRP, which has a strong direct hire business. In our OCG segment, revenue improved 6%. The increase in revenues continues to be driven by our PPO specialty. Year-over-year declines in RPO are due to slower hiring in certain market sectors, MSP revenues declined in line with customers' contingent labor demand. Adding lower margin PPO revenue put some pressure on gross margin for the OCG segment as a whole again this quarter, revenue in both MSP and RPO products were stable sequentially, our higher margin MSP product is well positioned to benefit from positive momentum in the sales pipeline moving into 2025.
Olivier Thirot: Revenue in our Professional & Industrial segment declined 2% year-over-year in the quarter. P&I sequential revenue stabilization in Q2 turned to sequential revenue growth of 4% in Q3. Revenue from our staffing product declined 3% year-over-year, and revenue in our outcome-based specialties was flat year-over-year. Consistent with SET, we are seeing strong demand for innovative solutions to meet clients' talent needs across a variety of skill sets in P&I. As demand for the segment's contact center specialty has declined, P&I has successfully diversified its portfolio of outcome-based solutions. Overall, gross profit was down 3% as reported, or 6.4% on an organic basis. Our reported gross profit rate was 21.4%, compared to 20.4% in Q3 2023. Our GP rate reflects a 130-basis-point improvement from the sale of our European staffing operations and an additional 110 basis points from the inclusion of MRP for a full quarter.
Olivier Thirot: Excluding those impacts on an organic basis, the GP rate declined 140 basis points in Q3, consistent with the trends we have seen in Q2. Drivers of the trend include 120 basis points from business mix and 30 basis points from lower perm fees, partially offset by 10 basis points of favorable and pre-rated costs. The business mixing impact continued to reflect growth in lower GP rates specialties. SG&A expenses were down 4.1% year-over-year on a reported basis. Expenses for Q3 2024 include $6.1 million of costs related to integrating MRP, as well as further aligning processes and technology across the company, $1.8 million of transition expenses related to the sale of our European staffing operations, and $1.4 million of transaction costs associated with the acquisition of MRP. SG&A expenses in 2023 include $16.4 million of restructuring charges.
Olivier Thirot: On an adjusted organic basis, expense declined 4%. Like-for-like expenses were low in Q3 2024, reflecting organic top-line trends and management's effort to align resource levels with volume as well as the impact on variable performance-related incentive compensation expenses. On a consolidated basis, our reported earnings from operations in Q3 were $2.6 million, compared to $0.1 million in Q3 2023. On an adjusted basis, Q3 2024 earnings from operations were $11.7 million, compared to $15.5 million a year ago. The acquisition of MRP added $2 million of earnings from operations in Q3 2024. Adjusted EBITDA margin improved 20 basis points to 2.5%, reflecting 30 basis points of improvement from the sale of our European staffing operations, 30 basis points from the inclusion of MRP, partially offset by a 40 basis point decline in our organic EBITDA margin.
Olivier Thirot: Following the borrowings related to the acquisition of MRP, interest expense net of interest income, which is reported as a component of other income expense net, has increased $4.3 million year-over-year in Q3. Income tax benefit for Q3 was $2.6 million, compared to a benefit of $4.9 million in 2023. Finally, reported earnings per share for Q3 was $0.02 per share compared to $0.18 in 2023. Earnings per share in 2024 include integration costs net of tax of $0.12 and $0.06 of transaction costs net of tax. Earnings per share in 2023 included $0.32 of restructuring charges net of tax. On an adjusted basis, Q3 2024 EPS was $0.21 compared to $0.50 per share in Q3 of 2023.
Olivier Thirot: The change in earnings per share include $0.09 of additional interest expenses following the acquisition of MRP in May 2024 and the impact of a one-time deferred income tax valuation allowance release of $0.14 in 2023. Now reflecting on the balance sheet. At the end of the quarter, total available liquidity was at $169 million, comprised of $33 million in cash and $126 million of available capacity on our credit facilities. Borrowings totaled $228 million. Our debt-to-capital ratio is 15.6% at quarter end as we leverage our strong balance sheet to acquire MRP. Our credit facilities give us the financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment. At quarter end, accounts receivable total $1.2 billion, including the receivables of MRP. Global DSO was 64 days, up 1 day from Q3 2023.
Olivier Thirot: With continued growth in our education business, we experienced a more pronounced seasonal DSO pattern in which DSO is the lowest in Q2 and the highest in Q3, making sequential comparisons less meaningful than in the past. Year to date, we have generated $3 million of free cash flow compared to $21 million in the comparable prior year period. Now looking ahead to operating results for Q4, we believe that staffing market conditions will remain relatively consistent with what we have experienced in Q3 and expect continued stabilization in revenue in our P&I Staff and OCG segments. With the start of the school year behind us, our education segment revenue will ramp sequentially from Q3 to Q4, and we'll continue to produce double-digit year-over-year revenue growth. Finally, the acquisition of MRP will deliver further improvement, both our growth and also value metrics.
Olivier Thirot: For Q4, on an organic basis, we expect revenue to be up 1.5% to 2.5%, with no significant FX impact, resulting in a midpoint revenue expectation of $1.045 billion on an organic basis. In addition, we expect MRP to add an additional $120 million of revenue in the quarter. We expect our organic GP rate to be about 19.3% for Q4, reflecting the continuation of a change in our business mix, primarily because the education segment is expected to continue to deliver significant revenue growth. MRP, with its higher margin specialty profile, is expected to add an additional 110 basis points to our current growth margin rate in Q4. All in, our GP rate in Q4 is expected to be about 20.4%.
Speaker Change: and a half percent with no significant FX impact, resulting in a midpoint revenue expectation of $1.045 billion on an organic basis.
Speaker Change: In addition, we expect MRP to add an additional $120 million of revenue in the quarter.
Speaker Change: We expect our organic GP rate to be about 19.3 for Q4, reflecting the continuation of a change in our business mix, primarily because the education segment is expected to continue to deliver significant revenue growth.
Speaker Change: MRP, with its higher margin specialty profile, is expected to add an additional 110 basis points to our current growth margin rate in Q4. So all in, our GP rate in Q4 is expected to be about 20.4%.
Olivier Thirot: Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year and are actively managing resources in line with revenue trends in each segment. We expect that adjusted SG&A, excluding depreciation and amortization, will be 4.5% to 5.5% lower than a year ago on an organic basis. MRP will add about $30 million of expenses in the Q4. All in, we expect approximately $14 million of depreciation and amortization in the Q4. We expect an adjusted EBITDA margin of 3.4% to 3.5%, up about 90 basis points year over year, including a 30 basis point improvement from the acquisition of MRP. Finally, we expect our effective tax rate to be in the low teens. Now back to you, Peter.
Speaker Change: Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year and are actively managing resources in line with revenue trends in each segment.
Speaker Change: We expect that adjusted SG&A, excluding deposition and amortization, will be 4.5% to 5.5% lower than a year ago on an organic basis, and MRP will add about $30 million of expenses in the quarter.
Speaker Change: All in, we expect approximately $14 million of depreciation and amortization in the fourth quarter.
Speaker Change: We expect an adjusted EBDA margin of 3.4 to 3.5%, up about 90 basis points year-over-year, including a 30 basis point improvement from the acquisition of MRP.
Speaker Change: And finally, we expect our effective tax rate to be in the low teens.
Peter Quigley: Thanks for those insights, Olivier. With uncertain market conditions likely to persist through the end of the year, our priorities are clear. We'll remain focused on what we can control, delivering near-term results while driving strategic progress on our specialty growth journey. We'll continue to execute our organic growth initiatives, including our omni-channel strategy in P&I and our large enterprise account strategy. These initiatives are enabling Kelly to capture a greater share of the market for staffing services and contributing to stabilizing revenue trends for the company. Within both P&I and SET, we'll aggressively pursue further expansion of our higher margin, more resilient outcome-based and SOW business into attractive end markets. And in Education, we'll continue to drive growth by maintaining strong fill rates on existing K12 staffing business and capturing net new customer wins through a healthy sales pipeline.
And now, back to you, Peter.
Thanks for those insights, Olivier.
Peter Quigley: With uncertain market conditions likely to persist through the end of the year, our priorities are clear. We'll remain focused on what we can control, delivering near-term results while driving strategic progress on our specialty growth journey.
Speaker Change: We will continue to execute our organic growth initiatives, including our omni-channel strategy in P&I and our large enterprise account strategy.
Speaker Change: These initiatives are enabling Kelly to capture a greater share of the market for staffing services and contributing to stabilizing revenue trends for the company.
Speaker Change: Within both P&I and SET, we'll aggressively pursue further expansion of our higher margin, more resilient, outcome-based, and SOW business into attractive end markets.
Speaker Change: And an education will continue to drive growth by maintaining strong fill rates on existing K-12 staffing business and capturing net new customer wins through a healthy sales pipeline.
Peter Quigley: We'll move ahead with our aggressive pursuit of value creation through our inorganic investments. MRP remains our top priority, with whom our SET and OCG teams will continue to partner on a thoughtful approach to integration that harnesses the unique strengths of each business. I look forward to sharing more about our approach on our Q4 and full year earnings conference call in February. We'll also continue to develop a pipeline of high-quality acquisition targets that align with our inorganic growth strategy in SET, education, and more opportunistically, OCG. Finally, we'll remain laser-focused on improving our ability to convert a greater share of top-line growth to bottom-line growth. This includes sustaining the structural improvements to our cost base that have enabled us to achieve significant EBITDA margin expansion from our recent historical average, and maintaining a disciplined approach to SG&A management that aligns our resources with demand trends.
Speaker Change: We'll move ahead with our aggressive pursuit of value creation through our inorganic investments. MRP remains our top priority, with whom our SET and OCG teams will continue to partner on a thoughtful approach to integration that harnesses the unique strengths of each business.
Speaker Change: I look forward to sharing more about our approach on our fourth quarter and full-year earnings conference call in February.
Speaker Change: We'll also continue to develop a pipeline of high-quality acquisition targets that align with our inorganic growth strategy, inset education, and more opportunistically, OCG.
Speaker Change: Finally, we'll remain laser-focused on improving our ability to convert a greater share of top-line growth to bottom-line growth.
Speaker Change: This includes sustaining the structural improvements to our cost base that have enabled us to achieve significant EBITDA margin expansion from our recent historical average and maintaining a disciplined approach to SG&A management that aligns our resources with demand trends.
Peter Quigley: This formula has helped set Kelly apart from our competitors in this uniquely challenging environment while driving significant progress on our specialty journey. It has positioned us to accelerate profitable growth when staffing demand rebounds. Of course, our greatest competitive advantage, and the key to our success on this journey, is our people. I'm grateful to each member of Team Kelly for their dedication to meeting the evolving needs of our clients and talent. Their relentless pursuit of innovation and commitment to excellence are among the reasons Everest Group's 2024 PEAK Matrix Assessment recently recognized Kelly across several categories. Among them are MSP and engineering contingent staffing solutions, in which Kelly was named a star performer, and industrial staffing, business and professional staffing, services procurement, and contingent workforce management, in which Kelly was recognized as a leader.
Speaker Change: This formula has helped set Kelly apart from our competitors in this uniquely challenging environment while driving significant progress on our specialty journey, and it has positioned us to accelerate profitable growth when staffing demand rebounds.
Speaker Change: Of course, our greatest competitive advantage and the key to our success on this journey is our people.
Speaker Change: I'm grateful to each member of Team Kelly for their dedication to meeting the evolving needs of our clients and talent.
Speaker Change: Their relentless pursuit of innovation and commitment to excellence are among the reasons Everest Group's 2024 Peak Matrix Assessment recently recognized Kelly across several categories.
Speaker Change: Among them are MSP and engineering contingent staffing solutions, in which Kelly was named a star performer.
and industrial staffing, business and professional staffing, services procurement.
Speaker Change: contingent workforce management in which Kelly was recognized as a leader. This recognition underscores the strength of Kelly's offerings and why we are positioned to compete and win over the long term.
Peter Quigley: This recognition underscores the strength of Kelly's offerings and why we are positioned to compete and win over the long term. With our team energized by the opportunity in front of us and united by our noble purpose, I'm confident that we'll deliver on our strategic priorities, continue to outperform the market, and propel Kelly into a new era of growth. Brad, you can now open the call to questions.
Speaker Change: With our team energized by the opportunity in front of us and united by our noble purpose, I'm confident that we'll deliver on our strategic priorities, continue to outperform the market, and propel Kelly into a new era of growth.
Operator: Of course. Ladies and gentlemen, if you wish to ask a question at this time, please press one then zero on your telephone keypad. You may withdraw your question at any time by repeating the one then zero command. If using a speakerphone, please pick up your handset before pressing the numbers. Once again, if you have a question at this time, please press one and then zero.
Brad, you can now open the call to questions.
Brad: Of course, and ladies and gentlemen, if you wish to ask a question at this time, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1 then 0 command. If using a speakerphone, please pick up your handset before pressing the numbers. And once again, if you have a question at this time, please press 1 and then 0.
Joe Gomes: Our first question today comes from the line of Joe Gomes with Noble Capital Markets. Please go ahead.
Speaker Change: And our first question today comes from the line of Joe Gomez with Noble Capital. Please go ahead. Good morning, Joe. Good morning. Good morning.
Peter Quigley: Good morning, Joe.
Joe Gomes: Good morning. Real quick on the MRP integration cost. I know one of the things you said in the past is you're planning on operating that separately from the rest of Kelly. How much more of these integration costs do you think we're going to see here in the next couple of quarters, if any?
So, real quick on the MRP integration cost.
Speaker Change: I know one of the things you've said in the past is, you know, you're planning on operating that, you know, kind of separately from the rest of Cali, so.
Speaker Change: You know how much more these integration costs do you think we're going to see here in the next couple of quarters if any?
Peter Quigley: Hey, Joe. Thanks. Regarding the integration, as previously discussed, there's an earn-out as part of the transaction. During the earn-out period, which runs through Q1 2025, we've agreed to maintain the operating companies and brand of MRP. We are in the midst of some significant planning for integration that will capture both top and bottom-line synergies when the earn-out period is over. I'll let Olivier comment on the integration cost question.
Thank you.
Speaker Change: Hey Joe, thanks. So regarding the integration we as previously discussed there there is an earn out as part of the
Speaker Change: the transaction and so during the earn-out period which runs through the first quarter of 2025, we've agreed to maintain the operating companies and brand of MRP.
but we are in the midst of some significant...
Speaker Change: planning for integration that will capture both top and bottom line synergies when the year-and-out period is over. I'll let Olivier comment on that.
Olivier Thirot: Yeah, sure. As Peter was saying, up to the end of Q1 of next year, we are on the planning mode because of the earn-out. We have now a plan that we are going to trigger as soon as the earn-out is behind us, Q2 of next year. The majority of the costs we are going to incur in 2025 are related to the technology integration. It's going to be CapEx and OpEx. We are still evaluating this cost, but I would say it's going to be in line with the type of IT investment we are usually making every single year. Overall, in term of CapEx and OpEx, it should have a limited impact, I would say, overall, in the course of 2025.
Olivier Kelly: integration cost question. Sure, I mean, as Peter was saying, I mean, up to the end of Q1 of next year, we are on the planning mode because of the earn out.
Olivier Kelly: But I would say it's going to be in line with the type of IT investment we are usually making every single year. So overall, in terms of CapEx and OpEx, it should have a limited impact, I would say, overall in the course of 2025.
Olivier Thirot: It's going to be probably a little bit more visible in Q2, Q3 of next year as we are going to move significantly quick and big on this technology integration.
Speaker Change: It's going to be probably a little bit more visible in Q2, Q3 of next year, as we are going to go significantly quick and big on this technology integration.
Joe Gomes: Okay, thanks for that. Looking through the release, when you break everything out into segments, it looks like gross profit rate, with the exception of SET, fell in the other three segments. I just wondered if you might be able to year over year.
Speaker Change: Okay, thanks for that. And then, you know, looking through the release, when you break everything out into segments.
Speaker Change: It looks like gross profit rate, with the exception of SET, fell in the other three segments. I just wondered if you might be able to, year-over-year, talk a little bit about that.
Olivier Thirot: Yeah, sure.
Joe Gomes: Talk a little bit about that.
Olivier Thirot: Yeah, when you look at probably the best way to look at it is organic, right? Excluding MRP and excluding the transaction related to the EMEA staffing. If you look at P&I, we are at 17.9, pretty much in line with a year ago and the trend we have seen so far. We continue to see a little bit of pressure coming from the challenges we have on the fee business. We see some fluctuation, ups and downs related to umbrella-related cost. We start now to see a positive impact linked to the overall mix within our staffing business first, because we start to see our branch-based business growing at a faster pace than our centralized staffing business, and our local business got higher gross margin rate.
Yeah, when you when you look at
Speaker Change: And probably the best way to look at it is organic, excluding MRP and excluding the transaction related to EMEA staffing.
Speaker Change: If you look at P&I, we're at 17.9, pretty much in line with a year ago and the trend we have seen so far. We continue to see a little bit of pressure coming from the challenges we have on the fee business.
Speaker Change: We see some fluctuation, ups and downs, related to employee-related costs.
But we start now to see...
Speaker Change: a positive impact linked to the overall mix within our staffing business first.
because we start to see our branch-based business.
Speaker Change: growing at a faster pace than our centralized staffing business and our local business got higher growth margin rate.
Olivier Thirot: We see also the mix factor that we have seen for some quarters now, which is that overall, our outcome-based business in P&I, where we focus our attention on top of staffing, is providing better gross margin, so helping us also to overall maintain our gross margin rate despite of the continuing pressure we have on the fee business. In education, yes, we continue to see some margin pressure. I would say Q3 is a little bit of a quarter for education. You need to look carefully because it's a low seasonal quarter, right? Sometimes the mix does not necessarily reflect the type of mix we see overall in the year. Yes, we continue to see some margin pressure in education. It is more than offset by basically the top-line growth we continue to see.
Speaker Change: And we see also the mix factor that we have seen for...
Speaker Change: some quarters now, which is that overall our outcome-based business in P&I, where we focus our attention on top of staffing.
Speaker Change: is providing better growth margin, so helping us also to overall maintain our growth margin rate despite of the...
Speaker Change: continuing pressure we have on the few business. In education, yes, we continue to see some margin pressure. I would say Q3 is a little bit of...
Speaker Change: A quarter for education you need to look carefully because it's a low seasonal quarter, right?
Olivier Thirot: I would not necessarily make a definitive judgment on Q3 GP rate for education, again, because of the low seasonality. OCG, we are down, and the clear explanation is product mix. Our BPO business is growing significantly. The rest of the business, RPO and MSP, hopefully now is stabilizing, and we expect some growth in MSP in the near future because of the kind of healthy pipeline we have. Of course, knowing that the payrolling business got a much lower GP rate, that's the main reason why now we are at about 30% versus a history of 36% in OCG. In SET, when you look at it overall and you put on the side MRP, despite of the high pressure we still have on fees, we are doing a good job of maintaining our overall GP rate.
Speaker Change: But I would not necessarily make a definitive judgment on Q3 GP rate for education, again, because of the low seasonality. OCG, we are down, and the clear explanation is product mix.
Speaker Change: PPO business is growing significantly, the rest of the business, RPU and MSP, hopefully now is stabilizing and we expect some growth in MSP in the near future because of the kind of healthy pipeline we have, but of course knowing that the payrolling business got a much lower GP rate, that's the main reason why now we are at about 30%.
Speaker Change: versus a history of 36% in OCG. Instead, when you look at it overall and you put on the side
MRP.
Speaker Change: Despite of the high pressure we still have on fees, we are doing a good job of maintaining our overall GP rate.
Olivier Thirot: Basically, again, similar to P&I, by working on the mix, especially on outcome-based statements of work versus staffing on the other side.
Speaker Change: Basically, again, similar to PNI by working on the mix, especially on, you know, outcome-based state-of-the-art work versus staffing on the outside.
Joe Gomes: Thanks for that, Olivier. Much appreciated. Last one, I think you mentioned that the adjusted EBITDA margin was 2.5% in the quarter, was up 20 basis points year over year. I think last quarter, you said you were looking for about a 3% adjusted EBITDA margin.
Thanks for that, Olivier, much appreciated.
Again, I think you said, you mentioned that the...
Speaker Change: Adjusted EBITDA margin was 2.5% and the quarter was up 20 basis points year-over-year. But I think last quarter you said you were looking for about a 3% adjusted EBITDA margin and wondered if you could just...
Olivier Thirot: Yeah.
Joe Gomes: Wondering if you could just walk us through that?
Olivier Thirot: Yeah. I'm going to go back maybe to Q1, Q2 briefly to give you a little bit the full picture. You might remember in Q1, we are at 3.2. We are up 120 basis points. The majority of it, 80 basis points out of the 120, was pure organic. Q2, we were at 3.8 in total versus 2.1 a year ago, an improvement of 170 basis points. Organically, again, the biggest contributor, 120 basis points. In Q3, we are at 2.5. We're expecting something closer to 3%. 2.3 in Q3 of last year. Basically, the improvement is about 20 basis points. If you exclude and you go for organic only, we are at -40 basis points. I would say overall, first of all, of course, we know that education has an impact in Q3 because the education growth is still healthy at double digit.
Speaker Change: Yeah, I think what, if I'm going to go back maybe to Q1, Q2 briefly to give you a little bit the full picture. So you might remember in Q1 we're at 3.2, we're up 120 base points.
Speaker Change: The majority of it, 80 base points out of the 120, was pure organic.
Speaker Change: Q2 we were at 3.8 in total versus 2.1 a year ago.
So an improvement of 170 base points.
organically, again,
the biggest contributor of 120 base points.
Speaker Change: In Q3, we're at 2.5, we're expecting something closer to 3%, 2.3 in Q3 of last year, so basically the improvement is about 20 basis points, but if you exclude and you go for organic only, we are at minus 40 basis points.
So,
I would say, overall, what is...
Speaker Change: First of all, of course we know that education has an impact in Q3 because the education growth is still healthy at double digits, but of course the absolute dollar contribution to revenue growth is much higher.
Olivier Thirot: Of course, the absolute dollar contribution to revenue growth is much smaller than in Q4 or in H1. We have seen, of course, some pressure, as Peter and I were mentioning, on our SET business. The first two months of Q3 were pretty low in terms of revenue, and that was a surprise for us. We have seen our peers and also market conditions being a little bit more challenging in Q3 than they were at the beginning of the year. The positive side is that when you look at exit rate, meaning revenue of the month of September, basically, in SET, we are at -3.6% versus -5% organic for the quarter. We have seen some improvement in September.
Speaker Change: smaller than in 2.4 or in the first half of the year.
And we have seen of course
Speaker Change: Some pressure, as Peter and I were mentioning on our said business.
Speaker Change: The first two months of Q3 were pretty low in terms of revenue and that was a surprise for us.
Speaker Change: We have seen our peers and also market conditions being a little bit more challenging in Q3 than they were at the beginning of the year.
September.
Speaker Change: Basically, in SET, we are at minus 3.6% versus a minus 5% organic for the quarter. So we have seen some improvements in September. We need to wait a little bit to see how the trends are going to look like in the next coming weeks to see if we are trending more closer to our exit rate of 3.6%.
Olivier Thirot: We need to wait a little bit to see how the trends are going to look like in the next coming weeks to see if we are trending more closer to our exit rate of 3.6. Overall, if I look at the exit rate of Kelly in September, which I think is good to understand a little bit the Q1 dynamic and think about what does it mean for Q4, our exit rate in September, excluding on an organic basis, was 3.1%, with P&I being at almost 1% growth, which is very good news. Education at about 12.5 and OCG 7.1. That is giving us comfort that some of the dynamics we have seen could continue in Q4.
Speaker Change: But, overall, if I look at the exit rate of Kelly in September, which I think is good to understand a little bit the current dynamic and think about what does it mean for Q4, our exit rate in September, excluding on an organic basis, was 3.1 percent.
Speaker Change: with P&I being at almost 1% growth, which is very good news, education at about 12.5% and OCG 7.1%. That is giving us comfort that...
Olivier Thirot: Again, we need to wait a little bit to see how SET is going to trend in the next coming weeks to have a final assessment on the potential dynamic in Q4 for SET and beyond Q4.
Speaker Change: You know, some of the dynamics we have seen could continue in Q4, but again, we need to wait a little bit to see how SET is going to trend in the next coming weeks to have a final assessment on, you know, the potential dynamic in Q4 for SET and beyond Q4.
Joe Gomes: Great. Thanks for that, Olivier. Much appreciate. I'll get back in queue.
Olivier Thirot: Thanks, Peter.
Olivier Thirot: Thank you.
Speaker Change: Great. Thanks for that, Olivier. Much appreciated. I'll get back in queue. Thanks, Bill.
Operator: Our next question comes from the line of Kartik Mehta with Northcoast Research. Please go ahead.
Speaker Change: And our next question comes from the line of Kartik Mehta with North Coast Research. Please go ahead.
Kartik Mehta: Good morning, Peter. Good morning, Olivier.
Olivier Thirot: Morning, Kartik.
Speaker Change: Hey, good morning, Peter. Good morning, Olivia. Olivia, I think last quarter I said goodbye to you a little bit early, so I want to correct that and wish you the best going forward. Thank you.
Kartik Mehta: Last quarter, I said goodbye to you a little bit early. I want to correct that and wish you the best way forward.
Olivier Thirot: Thank you.
Kartik Mehta: Peter, as you look at the MRP business and look at the performance of that business, how would you characterize it based on expectations when you acquired the business and now? I know it hasn't been a long time, but just your early thoughts on how this business is performing and what you might see that maybe has been better than your early expectations on the business.
Speaker Change: Peter, as you look at the MRP business and kind of look at the performance of that business, how would you characterize it based on kind of expectations when you acquired the business to now? I know it hasn't been a long time.
Speaker Change: just kind of your early thoughts on how this business is performing and what you might see that maybe has been better than your early expectations on the business.
Olivier Thirot: The business has certainly met my expectations. The business is in sectors of the industry that are affected by the current market conditions, and MRP is not immune from that, and its results are similar to what we see in our SET business. In terms of performance there, I think managing the current industry headwinds very well. I think they're positioned for when demand rebounds. We really like the complementary nature of their business, their really significant options for how they deliver solutions, and we think that long term, MRP at least is meeting our expectations, if not exceeding our expectations. That includes both the MRP staffing solutions as well as the Sevenstep business, which will complement our existing RPO and MSP practices.
Yeah, uh, the business is...
Speaker Change: certainly met my expectations. Business is in sectors of the the industry that are affected by the you know current market conditions and MRP is not immune from that and its results
Speaker Change: are similar to what we see in our set business. So, in terms of performance there, I think,
Thank you.
Speaker Change: managing the current industry headwinds very well. I think their position for when demand rebounds, we really like the complimentary nature of their business. They're really significant.
Speaker Change: options for how they deliver solutions and we think that long-term MRP is
Speaker Change: at least as meeting our expectations, if not exceeding our expectations. And that includes both the MRP staffing solutions as well as the seven step business, which will complement our existing RPO and MSP practices.
Kartik Mehta: Olivier, you talked a little about the SET business and talked about maybe some monthly trends and how September was better than the previous two months and the quarter. I'm wondering if you just look at the overall business and the rest of the businesses, if you saw a similar trend, or were things fairly even throughout the three months of the quarter?
Speaker Change: And then, Olivia, you talked a little about the Fed business and talked about maybe some monthly trends and how September was better than the previous two months.
Speaker Change: the quarter. And I'm wondering, you know, if you just look at the overall business and the rest of the businesses, if you saw a similar trend or were things fairly even throughout the three months of the quarter?
Olivier Thirot: No, overall, if you look at total SET again, better exit rate than the average of the quarter. If you think, is it linked to a specific area in the SET business? No, I would say it's overall the same type of trends we have seen. Two challenging months at the beginning of Q3, and then a better month in September. None of that was linked to a specific area in SET. We have seen a very similar trend in Motion Recruitment as well. Although interestingly, to follow up on what Peter was saying, we see some pressure on the top line for MRP. The GP rate, interestingly, despite of the pressure we have on the fee business, is still meeting our expectation at 29%, which I think is excellent knowing the pressure we see in the market now on the perm fees, amongst other things.
Speaker Change: No, overall, I mean, if you look at total set, again, better exit rate than the average of the quarter. If you think, is it linked to a specific area in the set business? No, I would say it's overall the same type of trends we have seen.
Speaker Change: two challenging months at the beginning of Q3 and then a better month in September. But none of that was linked to a specific area in CET.
Speaker Change: And we have seen very similar trends in motion recruitment as well. Although, interestingly, to follow up on what Peter was saying, we see some pressure on the top line for MRP.
meeting our expectations at 29%.
Speaker Change: which I think is excellent, knowing the pressure we see in the market now on the perm fees, amongst other things. And our EBDI margin trend for MRP is now in the region of 5.6, 5.7%, a little bit lower than the 6% we're expecting, but it's mainly driven by the...
Olivier Thirot: Our EBITDA margin trend for MRP is now in the region of 5.6%, 5.7%. A little bit lower than the 6% we're expecting, but it's mainly driven by the top-line pressure we continue to see in Q3 and potentially in Q4.
Speaker Change: top-line pressure we continue to see in Q3 and potentially in Q4.
Kartik Mehta: This is the final last question. Olivier, as you look at 2025, if revenues were to stay kind of stable and the trends you're seeing to stay similar in 2025, is the business at a point where you, I know you've taken out cost, that you can improve margins or the margins can kind of stay stable?
In this final last question, Olivier, as you...
Speaker Change: Look at 2025 if you know revenues were to stay kind of stable and the trends you were seeing
Speaker Change: to stay similar in 2025. Is the business at a point where you, I know you've taken a cost that you can improve margins or the margins can kind of stay stable?
Olivier Thirot: No, I know the September exit rate might not be something you can extrapolate, but even if you look at the outlook we have now for Q4, organic plus MRP, I think we are turning now the overall top line on a positive momentum, which is good, and I think we are going to see that being confirmed in Q4. There is still this question about SET where again, we need to wait a little bit to see how the coming weeks are going to look like. I'm confident that things are going to get probably back on track. As soon as we start to grow organically, and of course with the addition of MRP, I think our margin expansion or net margin expansion should continue. You have seen that for Q4, we are providing an outlook of 3.4% to 3.5%.
No, I think when
Speaker Change: And I know the September exit rate might not be, you know, something you can extrapolate, but...
Speaker Change: Even if you look at the outlook we have now for Q4, organic plus MRT, I think we are turning now the overall top line.
Speaker Change: on a positive momentum, which is good. And I think we are going to see that being confirmed in Q4. There is still this question about set where, again, we need to wait a little bit.
Speaker Change: to see how the coming weeks are going to look like but I am confident that things are going to get back on track. So as soon as we start to grow,
organically and of course with the addition of MRP. I think our margin expansion or net margin expansion should continue. You have seen that for Q4 we are providing an outlook of 3.4 to 3.5.
Olivier Thirot: That's going to be something that I think is achievable, and that's going to position us well, I think, to enter into 2025. Even though we may not have high growth in the near short-term future, I think we have now proven capabilities to really leverage through our transformation or better leverage even a small top-line growth, which I hope is going to be not small. I think now we are well equipped to leverage with, I would say, still a challenging environment, which I think should lead us to continue our progress in terms of net margin expansion beyond the year 2024.
Speaker Change: That's going to be, you know, something that I think is achievable and that's going to position us well, I think, to enter into 2025.
Speaker Change: So, even though we may not have, you know, high growth in the near short-term future,
I think we have now proven capabilities to really leverage through our transformation or better leverage.
Even a small top-line growth, which I hope is going to be not small, but I think now we are well equipped to leverage with, I would say, still a challenging environment, which I think
should lead us to continue our progress in terms of net margin expansion beyond the year 2024.
Kartik Mehta: Perfect. Thank you very much. I really appreciate it.
Olivier Thirot: Thank you.
Peter Quigley: Thank you.
Perfect. Thank you very much. I really appreciate it.
Thank you. Thank you.
Operator: Our next question comes from the line of Kevin Steinke with Barrington Research. Please go ahead.
Speaker Change: And our next question comes from the line of Kevin Stanky with Barrington Research. Please go ahead. Morning, Kevin. Morning, Kevin.
Peter Quigley: Morning, Kevin.
Olivier Thirot: Morning, Kevin.
Kevin Steinke: Good morning, Peter and Olivier. You talked there about the softness in SET in the first couple of months of Q3 with some improvement in September. Sounds like that, I think you mentioned a bit of a surprise, that softness. Could you just dig a little bit more into the market dynamics you're seeing in that segment and what kind of led to the trends you saw throughout Q3?
Good morning, Peter and Olivier.
So, you talked there about the...
Speaker Change: softness and set in the first couple of months of the third quarter with some improvement in September. Sounds like that, you know, I think you mentioned a bit of surprise that softness so
Speaker Change: Could you just dig a little bit more into the market dynamics you're seeing in that segment?
Speaker Change: What kind of led to the trends you saw throughout the third quarter?
Peter Quigley: Well, Kevin, as Olivier mentioned, we were surprised by the deceleration in July and August. It was steeper than expected. We were also encouraged by the rebound in September. As Olivier mentioned, the exit rate showed considerable improvement over the first couple months of the quarter. We're keeping a close eye on it. The industry is, I would say, stabilizing but not necessarily or noticeably improving. That's, I think, reflective of a continued sense of caution among large enterprise customers with respect to large technology deployments and the like, big CapEx projects. When that will ease and companies will return to normal spending habits in the technology and other science and engineering practices, of course, remains to be seen. We're well-positioned when that happens, both in terms of the Kelly SET business as well as our MRP acquisition.
Well, Kevin, as Olivier mentioned, we were
Speaker Change: We were surprised by the deceleration and in July and August it was
steeper than expected, but we were also encouraged by the rebound in September. As Olivier mentioned, the exit rate showed considerable improvement over the first couple months of the quarter.
We're keeping a close eye on it the industry is
Speaker Change: would say stabilizing but not necessarily or noticeably improving and that's I think reflective of
a continued sense of caution among large enterprise customers with respect to large technology deployments and the like, big CapEx projects, you know, when that will ease and companies will
return to normal
Speaker Change: Normal spending habits in the technology and other science and engineering practices, you know, of course, remains to be seen.
Speaker Change: So, we're well positioned when that happens, both in terms of our, you know, the Kelly Set business as well as our MRP acquisition.
Kevin Steinke: Okay. That makes sense. When we look at kind of this flattish organic growth in Q3 and combine that with your outlook for Q4 in terms of organic growth. I think it's a bit below what you were looking for previously. Is it fair to say that's primarily attributable to SET?
Okay, that makes sense.
Speaker Change: And so when we look at, you know, it's kind of this flat-ish organic growth in the third quarter.
Speaker Change: combine that with your outlook for the fourth quarter in terms of organic growth. Yes, I think it's a bit below what you were looking for previously, so is it fair to say that's
and primarily attributable to SET.
Olivier Thirot: Yeah
Kevin Steinke: Bit of a change in expectations?
Olivier Thirot: I would say SET is where we still have a question mark. Again, our outlook organic revenue is based on some level of cautiousness for SET because we need to wait to see a little bit how things are moving. On the flip side, P&I is really showing significant improvement. When you think about a sequential improvement of 4% from Q2 to Q3 total revenue. The fact that year-over-year, we are starting the year at -11 Q1 versus Q1 of 2023, then moving to -8, now -2. Knowing that now we have an exit rate in September, total revenue P&I turning positive. Also because we start to see the market improving a little bit. That is probably a positive versus what we thought 3 months ago.
Speaker Change: in terms of that bit of a change in expectations? I would say SET is where we still have a question mark, but again,
Speaker Change: Our outlook, organic revenue is based on some level of cautiousness for that because we need to wait to see a little bit how things are moving.
On the flip side...
Speaker Change: PNI is really showing significant improvement. I mean, when you think about a sequential improvement of 4% from Q3 to Q4,
Speaker Change: or the fact that year over year we are starting the year at minus 11 Q1.
Speaker Change: versus Q1 of 23, then moving to minus 8, now minus 2, and knowing that now we have an exit rate in September, total revenue P&I turning positive. And also because we start to see the market improving a little bit.
Speaker Change: That is probably a positive versus what we thought three months ago.
Peter Quigley: Kevin, while as you mentioned, the relatively flat revenue is slightly below what we expected because of SET in the first couple of months. It's very clear that we continue to take market share across all of our business segments. That includes SET as well as P&I, OCG, and of course, education. In SET, it's been six quarters now where we've been taking share.
And Kevin while the
Speaker Change: as you mentioned, the relatively flat revenue is slightly below what we expected because of set in the first couple of months. It's very clear that we continue to take market share across all of our business segments.
Speaker Change: And that includes SET as well as P&I OCG and of course education. So, you know, it's been in SET, it's been six quarters now where we've been taking share.
Kevin Steinke: Okay, that's great. I guess, Olivier, there in discussing P&I, that was leading into my next question in terms of that really nice sequential revenue growth you saw in P&I. I think you mentioned maybe the market getting a little bit better, but I'm just wondering if you could dig into any other factors driving that sequential improvement. I know you have some organic initiatives in place. I think you mentioned moving into a couple of new market areas like semiconductor and renewables. Maybe if you could give any more color on that revenue rebound you saw sequentially.
Okay, that's great.
Speaker Change: I guess, you know, Olivier, there in discussing P&I, that kind of was leading into my next question in terms of that really nice sequential.
Speaker Change: revenue growth you saw in P&I. I think you mentioned maybe the market getting a little bit better, but
Speaker Change: I'm just, you know, wondering if you could dig into any other factors driving that sequential improvement. I know you have some organic initiatives in place. I think you mentioned moving into a couple of…
Speaker Change: new market areas like semiconductor and renewables so maybe if you could give me any more color on that revenue rebound you saw sequentially.
Peter Quigley: I think the performance, and I'll let Olivier comment on that as well, Kevin, but the improvement in P&I is really sort of resulting from what we call our omni-channel strategy, which is centralized delivery to large enterprise customers, a renewed focus on local markets that are high growth, where we see demand for light industrial and commercial solutions. Our Kelly Now mobile app, which we're very pleased with the results and the number of our employees who are using it, signing up for it. We're seeing improved reassignment rates, improved cycle times, and improved fill rates as a result. It's a combination of that strategy really beginning to pay off for a number of quarters, and we have expectations that type of improvement will continue going forward and will continue to take share.
Speaker Change: Yeah, I think the performance, and I'll let Olivier comment on that as well, Kevin, but the improvement in PNI is really...
Speaker Change: Sort of resulting from our what we call our omni-channel strategy, which is centralized delivery to large enterprise customers a renewed focus on
Speaker Change: local markets that are high-growth, where we see demand for light industrial and commercial solutions, and our KellyNow mobile app, which...
Speaker Change: We're very pleased with the results and the number of employees who are using it, signing up for it. We're seeing improved...
Um...
Speaker Change: reassignment rates, improved cycle times, and improved fill rates as a result. So, it's a combination of...
Speaker Change: That strategy is really beginning to pay off for a number of quarters, and we have expectations that that
Speaker Change: This type of improvement will continue going forward and will continue to take share.
Olivier Thirot: Just to add probably on P&I outcome base. In total, revenue is flat versus a year ago, but it is hiding a little bit different dynamics, meaning our call center business that is now about one-third in revenue of this outcome base in P&I is really in a difficult situation. Our revenue is under pressure. Whilst now two-third of the outcome-based business in P&I, a good example of that is what Peter was discussing several times, which is the semiconductor business. This one is high growth. As we speak, it is up double digit. That's a nice diversification for us away from the call center business. Again, historically, the call center business was two-third of this outcome base.
Speaker Change: Yeah, I mean, just to add probably on the P&I outcome base.
Speaker Change: In total, revenue is flat versus a year ago, but it is hiding a little bit different dynamics.
Speaker Change: Our call center business, that is now about one-third in revenue of this outcome base in PNI, is really in a difficult situation. I mean, our revenue is...
Speaker Change: pressure, while now two-thirds of the outcome-based business in P&I, which is, I mean, a good example of that is what Peter was discussing several times, which is the semi-conductor business.
This one is high growth, I mean, as we speak.
It is up a double digit.
Speaker Change: And that's a nice diversification for us away from the call center business. And again, historically, the call center business was two-thirds of this outcome base. Now it's only one-third because we grew very, very fast on the outcome base, especially around, you know, specialties.
Olivier Thirot: Now it's only one-third because we grew very fast on the outcome base, especially around specialties or combining our specialty in delivering outcome base in P&I together with some industry verticals.
Speaker Change: or combining our specialty in delivering outcome-based in PNI together with some industry verticals.
Kevin Steinke: Okay, sounds great. You alluded a couple of times there or mentioned a couple times about taking market share in SET and P&I, and you actually had a comment in your earnings release about the stable year-over-year organic revenue actually outpacing the market. Maybe just speak to that, what the factors are that you think are enabling you to take market share, the competitive dynamics and if you feel like you can continue that trend of taking share and outperforming the market going forward.
Okay, sounds great. So you alluded a couple
Speaker Change: taking market share and set in P&I and you actually Had it had a comment in your earnings release about the stable year-over-year organic
Speaker Change: revenue actually outpacing the market. So maybe just speak to that, what the factors are that you think are enabling you to take market share, you know, the competitive dynamics and...
Speaker Change: If you feel like you can continue that trend of taking share and outperforming the market going forward.
Peter Quigley: Yeah, Kevin. We do think it's possible. I think I would point to a couple of dynamics. Education, we're just clearly the leader. We have a value proposition for school districts that really no one else can match. That's why, as Olivier mentioned, we continue to expect to see double-digit growth, at least, for the near term. Who knows how long that can be sustained, given the more difficult comps. Education, we're just the leader there. In both P&I and SET, I think we're taking share because of the solutions that we're bringing to the market. I mentioned the omni-channel strategy in P&I staffing. Olivier mentioned the focus on outcome-based in P&I. It's also gaining traction within SET. Our statementworX suite of solutions, we think is a competitive differentiator in the science, engineering, telecom, and technology space.
Speaker Change: Yeah, Kevin, we do think it's possible, and I think I would point to a couple of dynamics. Education, we're just clearly the leader, and we have a value proposition for school districts that really...
Speaker Change: no one else can match. And so that's why, as Olivier mentioned, we continue to expect to see double-digit growth, at least, you know, for the near term. Who knows how long that can be sustained, given the more difficult comps, but
Speaker Change: education, we're just the leader there. In both P&I and SET, I think it's a we're taking share because of the solutions that we're bringing to the market.
Speaker Change: I mentioned the omni-channel strategy in P&I staffing. Olivier mentioned the focus on outcome-based in P&I, but it's also gaining traction within SET. And our statement works.
Speaker Change: suite of solutions we think is a competitive differentiator in the science engineering telecom
Peter Quigley: We think that we're going to continue to develop that. In OCG, we're taking share because of our technology-driven solution, particularly our Helix solution is a competitive differentiator. Customers recognize that, and that's why, particularly in our MSP practice, we are winning more than our fair share of large MSP business. We've also won and have in implementation a number of very large programs that will begin to deliver GP in 2025, more so in the back half of 2025. Again, it's the result of a set of solutions that we think create and set Kelly apart.
Speaker Change: technology space and we we think that we're going to continue to develop that and in OCG we're taking share because of our
Speaker Change: Our technology-driven solution, particularly our Helix solution, is a competitive differentiator. Customers recognize that, and that's why, particularly in our MSP practice, we are winning more than our fair share of customers.
large MSP.
Speaker Change: business. We have a very healthy pipeline, but we've also won and have an implementation a number of very large programs that will begin to deliver
Speaker Change: GP you know in 25 more more so in the back half of 25 but we're are again it's a it's a
Um...
Speaker Change: The result of a set of solutions that we think create and set Kelly apart.
Speaker Change: Create and set Kelly apart.
Kevin Steinke: Great. Yeah, that's helpful insight. Appreciate that. Just lastly, Olivier, when we think about the adjusted SG&A expenses for Q3, they were $210 million, up sequentially from $185.6 million. Is that just really driven by the inclusion of MRP, I assume? The potential change.
Thank you.
Speaker Change: Great. Yes, that's helpful and I appreciate that this last week.
Great, yeah, that's helpful insight, appreciate that.
Speaker Change: Yeah.
Speaker Change: Olivier when we think about the.
Olivier, when we think about the adjusted SG&A expenses,
Speaker Change: SG&A expenses.
Speaker Change: For the third quarter, there are $210 million.
For the third quarter, they were $210 billion.
Speaker Change: Up sequentially from $185 $6 million is that just really driven by.
Speaker Change: up sequentially from 185.6 million. Is that just really driven by the inclusion of MRP, I assume?
Speaker Change: Alright.
Speaker Change: Assume that.
Olivier Thirot: Yeah. Clearly, when you look at the impact of MRP and what we provided in the outlook is, I would say something you can use for Q3 as well. MRP is adding about $30 million of expense, excluding depreciation and amortization every quarter, right? This is what we have seen in Q3. This is what we are going to see in Q4. After that, things are going to change because we are going to have, of course, synergies whenever we start the integration that Peter was discussing a few minutes ago, starting in Q2 of next year.
Speaker Change: Yes.
Speaker Change: Yeah, I mean clearly.
Speaker Change: Yeah, I mean, clearly, when you look at the impact of MRP and what we provided in the Outlook is, I would say, something you can use for...
Speaker Change: When you look at the.
Speaker Change: Impact of MLP in.
Speaker Change: What we.
Speaker Change: We provide.
Speaker Change: Provided in the outlook is I would say something you can you can use for.
Speaker Change: For Q3, as well I mean, the MLP is adding about $30 million of expense.
Speaker Change: for Q3 as well. I mean, MRP is adding about $30 million of expense, excluding depreciation and amortization every quarter, right? This is what we have seen in Q3, this is what we are going to see in Q4. After that, things are going to change because we are going to have, of course,
Speaker Change: <unk> depreciation and amortization every quarter right. These what we have seen in Q3. These what we are going to see in Q4. After that things are going to change because we are going to have of course synergies whenever we start the integration that Peter was discussing.
Speaker Change: synergies whenever we start the integration that Peter was discussing a few minutes ago, starting in Q2 of next year.
Speaker Change: Few minutes ago, starting in Q2 of next year.
Kevin Steinke: Okay. Yeah, thanks. Thanks for that. That's helpful. On what I believe is now your last earnings call, Olivier, I'll add my best wishes.
Speaker Change: Okay. Thanks, Thanks for that that's helpful and.
Speaker Change: And what I believe is now your last earnings call.
Speaker Change: I'll add my best wishes.
Olivier Thirot: Thank you. I appreciate it very much. Thank you. Thank you very much.
Speaker Change: I appreciate it very much. Thank you. Thank you very much.
Operator: With that, our next question comes from the line of Marc Riddick with Sidoti. Please go ahead.
Speaker Change: And with that our next question comes from the line of Marc Riddick with Sidoti. Please go ahead.
Peter Quigley: Morning, Marc.
Olivier Thirot: Good morning.
Speaker Change: Good morning, Mark good morning.
Operator: One moment. His line seems to have dropped out of the queue. One second here. We'll get him back.
Speaker Change: Oh, one moment.
Speaker Change: Seems too.
Speaker Change: Dropped out of the Q1 second here I will go back.
Marc Riddick: Hello?
Marc Riddick: Please go ahead with your question, sir.
Speaker Change: Hello. Please. Please go ahead with your question Sir.
Marc Riddick: Hi, can you hear me?
Peter Quigley: Yeah.
Speaker Change: Hi can you hear me yes.
Olivier Thirot: Yeah.
Peter Quigley: We can, Marc. Good morning.
Marc Riddick: There we go. Okay. Good morning. Just wanted to echo my sentiments as well, Olivier. Thank you for everything. It's certainly been a pleasure working with you.
Mark: We can mark good morning.
Speaker Change: I just wanted to echo my sentiments as well let me thank you for everything.
Olivier Thirot: Thank you, Marc.
Marc Riddick: You guys covered quite a bit already. I was sort of curious as to whether or not you could talk a little bit about the integration and maybe some of the potential that you see as far as investment opportunities or technology spend, or some of the things that maybe some initial thoughts as to sort of how that integration might play out with MRP?
Speaker Change: Leisure working with you.
Speaker Change: I would be curious as to.
Speaker Change: You guys covered quite a bit already I was wondering curious as to whether or not.
Speaker Change: You could talk a little bit about the.
Speaker Change: The integration and maybe some of the potential.
Speaker Change: That you see as far as investment opportunities or technology spend or some of the things that maybe some initial thoughts.
Speaker Change: As to sort.
Speaker Change: Sort of how that that integration may play out in the market.
Peter Quigley: Well, I think our focus, Marc, right now is to create a plan that takes advantage of the really unique capabilities of both Kelly and MRP. That includes how we go to market. It includes bringing the best practices of each enterprise to the other and its customers and talent. That work is well underway. As I said, we're not going to do anything during the earn-out period. Beginning Q2 of next year, we will begin to implement those integration. MRP brings to the equation some really exciting technology opportunities for Kelly, and so we're going to be very focused on how we scale the technology to include not only our SET business, but also potentially, and at some point, the Kelly enterprise. We think that's a very exciting opportunity.
Speaker Change: Well I think our focus.
Mark: Mark right now is too.
Mark: Create a plan that takes advantage of the.
Speaker Change: Really unique capabilities of both Kelly and MRP and that includes.
Speaker Change: How we go to market it includes.
Speaker Change: Bringing the best practices of each enterprise to the other and its customers and talent.
Speaker Change: That work is well underway as I said, we're not going to do anything during the earn out period, but beginning Q2 of next year.
Speaker Change: We will begin to implement those integration.
Speaker Change: <unk> brings to the equation, some really exciting technology opportunities for Kelly and so we're going to be very focused on how we scale.
Speaker Change: Technology to include not only the.
Speaker Change: Our set business, but also.
Speaker Change: Essentially in at some point the Kelly enterprise.
Speaker Change: We think thats, a very exciting opportunity.
Peter Quigley: To create value beyond the four walls of MRP. Again, we're eager to get started, but respecting the earn-out period, but we're doing a lot of the preparatory work to make sure we're ready to go.
Speaker Change: To create value beyond the.
Speaker Change: So the four walls of MRP.
Speaker Change: <unk>.
Speaker Change: And.
Speaker Change: So we're.
Speaker Change: Again.
Speaker Change: Eager to get started.
Speaker Change: Respecting the earn out period and.
Speaker Change: But we're doing a lot of a lot of.
Speaker Change: The preparatory work to make sure we're ready to go yet.
Olivier Thirot: As Peter was saying, we have a plan now on business integration, technology integration, and of course, back-office integration, because we need to be ready as soon as the earn-out is behind us, and I think we are ready. We have some targets to achieve in terms of top-line synergies that we have shared, I think in June or July when we are talking about this Motion acquisition. We feel comfortable that we are going to be able to execute those initiatives as soon as Q2 of next year.
Speaker Change: Thank you.
Speaker Change: As Peter was saying we are planning.
Speaker Change: We have a plan now on business integration.
Speaker Change: Technology integration and of course backward integration.
Speaker Change: Because we need to be ready as soon as you all know which is behind us.
Speaker Change: And I think we already I mean, we have we have some targets to achieve and then we'll stop lines <unk> synergies.
Speaker Change: We have shared this in June or July.
Speaker Change: Why wouldn't wear.
Speaker Change: Talking about this motion acquisition.
Speaker Change: So we feel comfortable that we are going to be able to execute.
Speaker Change: Those initiatives as soon as Q2 of next year.
Peter Quigley: This might be a little early, but I was going to ask you as to whether or not you've had the opportunity to gain customer feedback, client feedback as to the combined operations and maybe what you may be hearing there if it's not too early for that. Marc, it's been universally positive. I think people recognize that combining two outstanding organizations like ours creates a lot of potential. I think Kelly's customers are very excited about the really high-quality talent that Motion is known for being able to recruit and place. The Sevenstep brand is well-recognized as a leader in the RPO space. Our customers are excited about the best practices that Sevenstep will bring to the Kelly OCG RPO practice. The Motion Telco practice is a leader and has a very complementary customer set to Kelly's Telecom practice.
Speaker Change: And is it.
Speaker Change: It might be a little early but I'm sort of curious as to whether or not you.
Speaker Change: The opportunity to gain customer feedback client feedback as to the combined operations.
Speaker Change: And maybe what you may be hearing there.
Speaker Change: If it's not too early for that.
Mark: Mark it's been it's been.
Speaker Change: Universally positive I think people recognize it combining to outstanding organizations.
Speaker Change: Like ours creates a lot of potential I think.
Speaker Change: Kelly's customers are very excited about the really high quality talent that motion is known for being able to recruit and place.
Speaker Change: The seven step.
Speaker Change: Brand is well recognized as a leader in the <unk> space.
Speaker Change: So our customers are excited about the best practices that <unk>.
Speaker Change: <unk> step will bring to the Kelly OCG ERP practice.
Speaker Change: The.
Speaker Change: Emotion telco practice as a leader in and has a very complementary customer set to Kelly's telecom practice.
Peter Quigley: TG Federal is an excellent government business that, again, is highly complementary to Kelly's formidable government business. The customers recognize that and see opportunities for new solutions, new technology, and again, an opportunity to bring the very best talent to their workforces.
Speaker Change: And TG federal is.
Speaker Change: Excellent.
Speaker Change: Government business that again is highly complementary to kellys.
Speaker Change: Formidable government business so.
Speaker Change: The customers recognize that and see opportunities for new solutions.
Speaker Change: New technology and again.
Speaker Change: An opportunity to bring the very best talent to their workforces.
Marc Riddick: It's very encouraging.
Marc Riddick: Thank you very much.
Speaker Change: That's very encouraging thank you very much.
Olivier Thirot: Okay, Marc. Thank you.
Peter Quigley: Thank you, Marc.
Mark: Okay, Mark Thank you Mark.
Operator: Once again, if there are any additional questions at this time, please press one followed by the zero on your touch-tone phone. Once again, if there are any questions, please press one then zero at this time. It does appear at this time there are no further questions from the phone lines.
Speaker Change: And once you connect are any additional questions. At this time. Please press one followed by this zero on your Touchtone phone.
Mark: Once again, if there any questions. Please press one to zero at this time.
Speaker Change: And it does appear at this time there are no further questions from our phone lines.
Peter Quigley: Okay, Brad. Well, let me add, again, my final thanks to Olivier for his tremendous contributions to Kelly and wish him all the best.
Speaker Change: Hey, Brad Let me add my my again my final thanks to Olivier.
Speaker Change: For his tremendous contributions to Kelly.
Speaker Change: And.
Olivier Thirot: Merci and au revoir.
Speaker Change: We wish him all the best <unk> and <unk>.
Peter Quigley: Thank you, Olivier. Brad, I think we're all set.
Speaker Change: Thank you Olivier Brad I think we're all set.
Operator: Thank you. Ladies and gentlemen, this conference will be available for replay today after 11:30 AM Eastern through 5 December. You may access the AT&T replay system at any time by dialing 1-866-207-1041, entering the access code 9480328. International participants may dial 4029700847, and those numbers again are 1-866-207-1041 and 4029700847. Again, entering the access code 9480328. That does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect. We're sorry. Your conference is ending now. Please hang up.
Speaker Change: Thank you and ladies and gentlemen, this conference will be available for replay today. After 11 30 am eastern through December 5th you May access the AT&T replay system at anytime by dialing 18662071041 entering the access code 90 480328 <unk>.
Speaker Change: A national participants may dial four zero to $9 700847, and those numbers again are one 806 2071041 and four zero to 97008 47 again entering the access code 90 480328 that does.
Speaker Change: Conclude your conference for today. Thank you for your participation and for using AT&T Conferencing service you may now disconnect.
Speaker Change: Yeah.
Speaker Change: We're sorry your conferences ending now please hang up.