KELYA - Earnings call transcript Q1 2019

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Operator

Good morning, and welcome to Kelly Services First Quarter Earnings Conference Call. All parties will be on listen-only until the question-and-answer portion of the presentation. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. CEO. and President Corona, George Sir, you begin. may

George Corona

Thank XXXX First John, call Olivier and me good Services Kelly is CFO. our to Welcome Thirot, Quarter today's morning. on you, Conference With Call.

this no may of statements comments remind me this Please on the in a for and will and reported about the addition, call. adjusted our financial Actual non-GAAP future you comments an trends be performance. to expectations risk during any results made materially description actual have include in items Let suggested made could by a on on statements the basis insight operations. influence are forward-looking our our an obligation differ factors that that And into designed to data call, the SEC during certain including discussed measures, for on to performance. company's adjusted update could our Q&A, the refer from basis, give we certain those call, filings of future discussion

that the walk own. accounting like currency. to remind our has many International including represented out are morning, my this our with adoption the that through in results of let companies, comparisons point you once nominal related reported of a into I'd required is constant to volatility XXXX again exception standard introduced investments equity which me of year-over-year net segment, earnings currency, the our Also, in we As

quarter. for In and will remarks, our Persol detail volatility Olivier our provide the an our either or Persol's positively this on Our We stock on equity Persol Holdings excellent investment quarter, relationship each and connections we and investment his earnings together, negatively, have continues report introduce impact reporting with in Persol to us. regarding value our into more Persol business investment its continues depending this to performance. built be

last compared on and Now quarter to impact Revenue foreign turning acquisitions remarks, Olivier will X.X% discuss QX up operations the Earnings $X.X $X.X was quarter of results to the divestitures year. results. to These were our In first quarter restructuring the first of billion, recent and and Kelly's his exchange business. our a earnings charge with from earnings in $XX U.S. results. related XXXX $XX.X million. include acquisitions the million of of million our first compared

were year Excluding a ago. these, from an adjusted from earnings million, of operations increase XX% $XX.X

For of press per quarter $X.XX basis, like-for-like this adjusted a to the adjusted $X.XX a in were release. results, last On please compared Diluted $X.XX share our $X.XX totaled share per earnings share XXXX reconciliation XXXX review XXXX. morning's per compared for earnings of in year. to

pleased We quarter. execution solid first in are the with our

to three Staffing. Americas how the Now acquisition growth same compared year. let's in Americas first This operating the at the X% first look quarter, performed of quarter Staffing impacted last NextGen. Kelly's period in was rate starting strategic favorably increased the revenue segments with by

Revenue in the Excluding acquisition Staffing first consistent NextGen, impacted and prior the up XX% in first revenue Kelly grew the our revenue the quarter was specialties Commercial Professional X% was X% favorably fourth quarter quarter. and year, year, from was compared revenue flat Staffing the results. to quarter, of Educational down in by last with first NextGen. Technical in

for NextGen, year-over-year. the permanent a X% Professional Technical declined revenue and X% placement basis, increased Excluding fees quarter. combined On

for our costs. to we delivery XX.X%, the up the repositioning service were Expenses Staffing. XX% from for quarter. up The charge model The the growth, addition of addition last the increase gross XX for gross lower $X.X in of million restructuring Americas includes NextGen discussed a of which employee-related NextGen quarter rate quarter quarter basis by in year. profit and points last related Americas profit the was and impacted positively first The rate was Staffing

expenses charge, operating Staffing in down restructuring effective segment of quarter were profit the achieved an the cost the $XX Excluding told, compared to NextGen Americas year, compared to X% management. the reflecting year. million last million All prior and $XX.X

restructuring million, prior year. XX% the $XX.X profit up Excluding the and was over operating charge NextGen,

Now the Americas. in decreased growth. down currency Staffing of Revenue constant to significantly on dollar basis a X% operations International in our outside Staffing as U.S. turning strengthening a X.X% currency, International nominal impacted

in Western with Our results were in consistent Europe. declines in partially in the Eastern gains currency constant offset results our QX, region European and

is will International's same constant by $X.X mainly quarter exchange below last same first XX down were down the mix. Staffing rate points ease was income remainder year. GP Expenses currency is my Fee-based lower driven This basis For excluding the segment's the on reported the of a period quarter basis. million summary, comments prior operating for reported for the reference, of In X% the was to quarter negative a customer compared be rate year profit the year, XX.X%. X% $XXX,XXX International impact. versus on earlier The year-over-year.

Solutions Global to Talent GTA, one segment strategic our our Now turning segment. of reporting results of This acquisitions. new includes

GTS first look year-over-year at first revenue in a as performed Let's in how QX. X% quarter. increased whole GTS the

Excluding growth of QX. was year. year-over-year quarter the last X% impact profit Gross our the fourth of in consistent GTA with increased revenue acquisition,

Excluding GP impact the X% of GTA the increased acquisition, year-over-year.

year-over-year our our decreases our delivered mix partially practices, in in improvement in KellyConnect structural centrally see to CWO increases staffing. this BPO, with product volume continue and by offset We quarter

profit results Now look in gross each at of the two businesses. let's GTS

decrease profit lower payroll outsourcing, process fulfillment staffing is staffing our of result offset by centrally contingent recruitment year-over-year delivered outsourcing, fulfillment employee-related process X% and in made Gross a talent business centrally solutions. partially QX. was practice delivered lower business down Our volume the costs. talent up outsourcing of workforce in our The was in

of and, Overall, and newly by rate profit comprised year-over-year. Gross as a segment's our gross of employee-related businesses KellyConnect our product BPO, employee-related the businesses strong outcome-based for continues the structural in GTA rate XX% of was were Expenses excluding solutions in growth with our result increase and volume KellyConnect GTS the organization. improved to be primarily the our points improvement driven year-over-year. mentioned our year-over-year, in and X% impact XX% Our service basis The up advisory of in profit outcome-based increased GTA the BPO XX% XXX acquisition. previously, up results acquired down costs. both lower is products, quarter, GTS costs. lower coupled mix primarily This like-for-like

first Excluding cost the X% effective of million expenses year-over-year. to acquisition, were All result lower profit quarter compared ago, a a GTA XX% were and told, $XX down operating impact compensation the a of year was performance-based expenses $XX.X increase. continued lower million management. GTS The

the over will company. who call the Olivier, results cover turn I'll Now to for our quarterly entire

Olivier Thirot

up year. the first to $X.X last totaled quarter Revenue George. X.X% you, billion, compared Thank

reported to impacted company foreign total were basis Our XXX results by unfavorably points exchange. due

X.X%. currency on constant So a first quarter the revenue for growth was basis, our

down and year slightly currency Americas and includes QX XX ago Overall, were nominal of International modest in results GTA, basis divestiture currency. offset added constant our up the basis fees GTS performance points the impact which in flat QX partially XXX of Staffing our of in offset to our care point total growth was by segments Our revenue and specialty This Staffing growth as Staffing. NextGen with the placement in organic revenue was a partially currency the X% by rate. constant also health growth recent practices. legal and was declines

basis. in in or X.X% positive profit currency gross fees International was X.X% Staffing. Continued up a Overall, in momentum by offset constant Americas on declines Staffing was

our GTA, GP basis up from was and Our X.X% the points costs. for acquisition XX and the XX basis the impact million gross year-over-year to operations. GP last of related primarily expenses currency rate basis which to Included restructuring expenses $X.X profit higher specialty to rate first of of basis were On quarter first year. the SG&A structural rate organic due XX points XX.X%, points improvement basis, from NextGen our in of quarter XX or rate margin X.X% points compared up businesses. branch-based XX coming was GP adjustments SG&A our when an of fluctuations. Approximately the in the with of staffing point improved in employee-related improvement U.S. basis excluding are XXXX,

XX% impact, Earnings $X.X include acquisitions. our expenses or cost an These reflect results across compared the in million. adjusted compared operations points. of for QX earnings decrease and The with the the the an which million of reflects excludes charge our results the of same organic management XXXX a on increase operating of GTA expense the million X% quarter. restructuring were solid basis period in execution quarter reflect $XX from currency million from an XXXX, all $XX.X profit impact return over these were segments. XX basis, XXXX recent both the our addition, On and conversion NextGen in expenses of In XXXX. excluding $XX.X for X.X% basis, restructuring costs and operations, rate to expenses of Adjusted first was acquisitions, On good down quarter XXXX. for of gross from earnings

execute to our for continue solutions an commitment and strategy the specialty on We on to talent year. rate conversion delivering improved our focused

unrealized we our Holdings of prior on changes Persol of reflect component equity and earnings. As Kelly our the market required in gains on is the to have value losses mentioned as in calls, investment a

we on quarter, pretax million our result, a As gain a common $XX.X recognized the Persol in stock.

our Income quarter diluted gain $X.X And compared separate below compared on $X.XX We $X.XX our recognized within was tax quarter net XX.X% $X.XX tax related XXXX the in compared income for tax for in XXXX. XXXX. in is XX.X% QX other with XXXX. line million, from a rate in recognized million of operations item share finally, $X.XX These effective XXXX EPS first The a per totaled in approximately to expense. of are XXXX as was per in and Included earnings also $XX.X to tax Persol consistent XXXX stock earnings XXXX. gains income share expense. first the to to gain expense

our acquisitions. from impact benefit restructuring $X.XX XXXX our the a EPS In recent charge addition, of $X.XX and include

So like-for-like was $X.XX a on XX% year $X.XX the an to adjusted a ago, quarter compared EPS increase. for basis,

to rest ahead Now look as we of the the year.

Our is QX discussion outlook in current full our in the with line February. generally call on year

be now foreign – revenue headwind expectations expense Europe on a and impact growth the these that the changes. believe stronger of strong aligned However, headwind and conditions our exchange growth, we in we economic will have a with

impact For NextGen This of the an basis FX points. expected includes be X.X%. included reported revenue in XXX X.X% we approximately are The full of acquisition impact unfavorable to on and revenue expectations. our the to our of our GTA recent year, growth of expect

made in second half to the delivery as anticipate will our that growth continue the we Staffing take We year effect. the revenue accelerate Americas changes in our of models

XX expect rate XX gross points We a be year-over-year to basis. basis the to up profit on

rate acquired recently not in the believe do to to Persol the impact losses. shift rate from intangible Persol a losses assets. that higher mix be stock. our While GP basis, related reflect the losses We margin And we changes anticipate unrealized structural up we our our recent our and be in price Consistent X%, from rate both result does experience tax to volatility we X% expense finally, business full amortization and additional mid-teens, any impact effective gains to material. and a for acquisitions, on gains quarterly future expected restructuring GP provided of solutions, could continue changes to and as are gains resulting prior from some with to the Also, the may organically be charges. any to in positively the on excluding SG&A expense outlook the discussions, market year. includes expect This in excluding

key continue we to areas we several to improvement in, conversion in So of in rate. while our our year-over-year XXXX, expect business make all deliver in investments

second including revenue basis points. XXX be impact to the unfavorable FX up X.X%, to expect of reported quarter, For we X.X%

to up basis the We profit XX XX finally, to we expense be expect And to year-over-year. expect rate be X%. gross points SG&A up to X%

and to the fluctuations. of last quarter-end, up debt $XX $X from day totaled balance due compared at the to XXXX. DSO days receivable was let's year-end we from same and XXXX. million million XX flat X year-end million totaled Global at primarily Cash million billion X At with XXXX. quarter seasonal $XX year year-end to had to QX up XXXX was Now move $XX days, Accounts compared sheet. $X.X

includes level borrowing of debt Our of increased of NextGen and the GTA. related to our impact acquisitions

standard accounting Our QX beginning new at XXXX. of also balance reflects adoption the lease sheet the of the effective

the sheet, million have material we $XX cash nor did we right-of-use do While adoption cash on reflected forward. flow compared for of earnings balance quarter, impact obligations will and going In have it last to our expect on not lease million free year. a free our our flow flow cash negative assets $X the was

deck slide performance, our first website. quarter For more please information review on available the our on

George to over his turn thoughts. I'll Now back for it concluding

George Corona

demand on Thank quarter. talent, line of business for If delivered actions three you, successive has again opportunities unemployment, new environment. to and sustained its our we Olivier. Kelly the continues labor business necessary a adapt the After investing well while team deliver bottom first this normal, markets to once low tight demonstrated results periods and conditions taken business successfully manage to the has the to have in solid the future. in represent and challenges our its these ability for

Kelly. final thoughts activities the labor some about the update what are remains strategic labor on U.S. currently on are we The market our investments seeing in underway more markets, latest Here at an change tight. and

to supply economic expect Given we in healthy foreseeable the future. challenging of labor the environment the the U.S., remain in

our assets creative and to effectively address new when where supply possible. using they as and gaps ways seeking occur as are we always, As

to aggressively gross stay businesses areas. our margin on we higher in As focused and we intend pursuing growth previously, on profit specialty mentioned

continue do this, or unprofitable from will to we portfolio. exit our evaluate, remediate we As customers

strategic is our I'll say but quarter, two are in of believe these lines traditional next am to significantly our moving business are announced forward we contributing such more In addition, and a new acquisitions GTA, progressing as acquisitions, result. Integrations from part two each we delivering pleased companies and two the quarter. about identifying a Both NextGen line. to and news high of bottom benefiting and is margin acquisitions this for profitable, strategy margins well. one higher our learning the of are beginning we and company another at acquisitions I share

we're Finally, our continue North currently as well brand, all platform. strategies to and investments aspects digital activities Prominent evaluate of business our change underway American marketing acquisition include improve operations updating making to we our them. talent talent the in as ongoing

precisely customers as designed required allowing critical quickly mix. of branch to allow initiated back are by activities us This your by and to efficiently customer questions. forward productivity flexibly you restructuring next resources both accelerate supply across reporting recruiter activities demand these of Olivier year growth and redeploy Another operations. more sales and in I and begin be efforts demands adjust should more U.S. improvements in agility improved project includes and I the will and results organization and and our on later quarter. These to look we answer the conditions. to healthier meet talent to to us and our this all producing now and product happy the

Operator

Instructions] And from Josh of the Sidoti. go [Operator first line Vogel with Please ahead.

Josh Vogel

Good morning and thank you guys.

my Sorry, I me are allergies the sound getting today. a of little nasally, best

to just some know George I front. was question, employee-related went rate and may the mix into on there product first if lower there is was GTS, there on can I costs. any onetime but just fueled have know my I'm items detail that upside or a you curious run going did job a tremendous So Olivier, you expect and forward? this, at margin we looking see

Olivier Thirot

Yes.

think basis we split idea, structural acceleration like categories. three to We point XX XX There into margin our is so improvement. it business structural coming is give When average. on a basis acquisitions. you reply from this XX% the this believe the that. than me of a higher about about overall, is we improvement Let To an points,

our one basis XX is structural. This is one second our points. structural in has been about mix. product improvement current The That

on employee-related since outlook. of we several fluctuations. continue we our that more and XX downs which it is including And XXXX, and I times, year-over-year – to what progress seen about is on have one, of call ups basis would is course, costs. And have made adjustment with, points, short-term some We this mentioned call we last that what expect the

down and So workers’ quarter-related I and is would as and the on other up tax say more dynamics payroll can and go this depending healthcare, one, comp. quarter some around such matters

Josh Vogel

acquisitions did from those Great. acquire but deals And That's the to with property the you. very balance that's I assuming, you two curious, looking regard equipment exactly sheet, in just obviously, Thank I'm P&E? on was what helpful. and at

Olivier Thirot

lease a adjustment. say have it's quarter, versus for you that we surprised, of net linked capital, would $XX assets not lease in recent to some assets. or most very, the million I standard for very this was mean, to in ago accounting that is our quarter would a if is see right-of-use purely year of to book shy of to linked it acquired, extent, limited fixed we referring and Basically, mean, I is the script. the assets. acquisitions, say, are value to new I movement fixed referring versus working And two year-end I are to The you that is now limited adjustment the the my recognize I and

Josh Vogel

yes. the any acquisitions, related I NextGen That all was know sense. makes That’s spike to curious with was for And – increases there in helpful. and just any seasonal that I cap Okay, borrowings working that Thank of purposes? to short-term Were GTA. the the you. was going

Olivier Thirot

pieces, the our would bits acquisitions. $XX were large to securitization although recent about relate two I mean, I the of does majority, split large we and now don't That $XX the million, say majority into million. use

we in a to our So cash quarter. already start managed deleverage have flow little free bit the through to

Josh Vogel

giving your in? want thoughts, strategic get margin talking if curious landscape, foothold certainly deals. for in information, I'm markets any to Okay. talk just specific – targeting, were white acquisition looking you're that there just And you away could you high are any about to, just without spaces competitive a George, final you

George Corona

things. of of education at look looking of the those the the mean, have we're at. we're But at and more market, that's invest areas past looking types we And looking to science in we're North where strength, places Well, at specialty also that is to said American future engineering, looking and invest. in so what that I we've we'll looking we're kinds we're as

as look maintenance would going after So go light and things to like and lot what begin – industrial and those that those start there's at be changing just terms in you call the to our repair way to activity. opportunity automation to of more we kinds things, marketplace commercial of the kinds a and of

we would there our business. well to as look diversify So

Josh Vogel

the then businesses, services see flip health that of? can Okay. and be – get the are expect to we on legal with divisions some to of you'll side And care the that lastly out just looking managed

George Corona

horizon the on There's nothing that. for

– go again really take that after As our businesses were when had to very had our business, so capital if we at – our we use were was going capital two leadership positions, where small those we that look places And looked at the the just determined as and market. a you Josh, high divested those. of we we better of in needs

Josh Vogel

Okay, you questions. taking for great. my Thank

George Corona

you. Thank

Operator

Next, go ahead. with John we Research. Northcoast go Please to Healy

John Healy

Thank entity. how wanted own. business. business you. just the in that Kelly to have at terms There's curious ago were little clearly year kind year versus business grows business Americas? that performed a on compared expectations of their excitement But how I what's And embedded the in least bit ask to on a might did this they a to they the kind for – forma the pro what the when legacy of surrounding in kind NextGen about of know that of basis

Olivier Thirot

rate was $X.XX. are of $XX impact on that the EPS and pace, a see revenue, of in XX%, Overall, both looking impact and the I on growing quarter $X fast Yes. over GP million forma mean, million GP, XX%. information, to you about so about the them about when going other at the We pro was our see at in

organic that more on on top I we might GTA. You investment mean, that growth and recall accelerate mentioned NextGen both have sides, to added have their we

our line we with very these of growth acquisitions. that basically, top So moving now an quickly related to two recent see acceleration

George Corona

to has attracted have in of them Yes, one on these part do bring than horizon were with that John, And their seems the to businesses one of ability the us XG even able long-time was we an fast-growing was that that here. – they grow main to to they the were things that to market invest the a own. fact of things to could a faster

see So these company. platforms definitely growth we for as the

John Healy

number? $X.XX I the this And NextGen. would've of the Great. I'm XX% you just out of the ops $X.XX basis, quarter, guys your to misinterpreting did to $X.XX, earnings business adjustments in been on adjusted wanted assuming Maybe topic the backing you but are for own earnings continuing NextGen So earnings quarter, so that the from – the ask contribution correct? of around closer a to

George Corona

That’s correct.

Olivier Thirot

$X.XX the is tax, That's $X we to completely lead which of on Yes. But In to, was with $X.XX to $X.XX, eliminate referring analysis, million restructuring, that that XX% $X.XX the and the on add would be the start something that XXX% we acquisitions, increase. back and in added net Persol gain correct. of of we the deduct plus knowing yes. GTA NextGen of potentially $X.XX $X.XX, truly activity the reflected are QX,

John Healy

Okay.

but the in Is so. continue Just sure efforts on would happening of the like first the throughout make service it then correct. just think, or you $X restructuring color Americas, those it the just Any – those year? and with remainder the I color wanted to of interpreting – the million trends were I expect sounds in the to on that any in past what's on continuation efforts quarter, in past was what And model? the

George Corona

Yes.

was looked in the John, to boundaries at it heavily had So million branch – we've that – kind network. was is do, commercial Americas on that designed business we it focused was based break management. And what and our $X.X to around always really of the our geography on the

be to to do the we're to is that what So capacity demand in to the allow occurs. that there exists the where able use organization flatten attempting business and

able we we're needs frontline of allows more an to And use invest the if California, demand to it be but market in is. the that market us more rapidly much business. where in can we because that the have Southern, meet in the more now capacity resources Northern as to we high way example, also organizing So now have of the

benefit we as and think as half to play I that second seeing out. said, really we begin process we – get the through this initial by in to year that the So we begin expect of

John Healy

Great, guys. thank you,

George Corona

you. Thank

Operator

[Operator in questions few Mr. moments, Instructions] queue. And allowing further Corona, a no

George Corona

Okay. call and ahead Well, go we'll then thank everyone. end and

Operator

Great. It a.m. and today last starts Ladies at and XX:XX replay. at this Eastern gentlemen, June will conference available until for is X midnight.

access access may numbers XXXXXX. your XXX-XXXX That XXX-XXXX. at dialing replay or or You participation. today. the code (XXX) access The The by is Thank (XXX) Those conference any is time (XXX) for for code XXXXXX. XXX-XXXX. again (XXX) XXX-XXXX does conclude your you

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Kelly Services (KELYA) 6 May 192019 Q1 Earnings call transcript