KELYA - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Kelly Services Third Quarter Earnings Conference Call. All parties will be on listen-only until the question-and-answer portion of the presentation. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host, Mr. CEO. and President Quigley, Peter Sir, you begin. may

Peter Quigley

is Thank XXXX third John, President CEO. today's and CFO. Peter good Services Kelly and call on me to Welcome With Thirot, quarter Kelly's our morning. Quigley, you, Olivier conference I'm call.

any this you by statements including differ forward-looking made during our update the and refer materially results future call. our could expectations could for we from Let the on obligation that this may statements suggested for Please Q&A, of to our comments, description the me influence have risk comments remind filings Actual those include SEC about actual call, performance. to future performance. made no that the a Company's factors

on items and Discussion our designed trends addition, adjusted basis. operations. an an on to a certain reported non-GAAP call, during give be In the financial of on in basis certain adjusted are data into measures insight discussed will

in mission people connecting a in bright a a Before respect Like I belief and say people and lives. our Company enrich George our that I have an rich profound to unshakable and Kelly quarterly President of how Kelly's history results, turn I and to Corona, to their predecessor, I CEO. to and as be the moment newest honored fifth for serving work This to ways my a of has excited am future take want ahead.

ahead transition. George a continue half he'll next and with QX we of call, he as our ensure be on forward in advisor mentioned to the smooth Board earnings look in members other to year. retires of with George first months the staying until as As the an I the working Kelly

Kelly's let's results. third Now to turn quarter

please exception our As note nominal in with are Staffing currency year-over-year the in constant International segment, of currency. is that we comparisons which represented so, do

quarter of Kelly's Revenue down compared last quarter. third measures was QX was year. this key X.X% at to $X.X billion, of the Looking performance, a challenging

Our XX several from down basis was up results operations and both reflect rate and factors, was external. points, These gross profit internal earnings XX%.

and internal standpoint, designed of operations our call, last accelerate quarter's changes made are undertook growth several balance At in and our an branch From on in economically in a high-volume, specialties sensitive accounts. a as currently which light QX. same business. create overweighted necessary focused we low-value is our significant time, to mentioned mix, better lower-margin exited The restructuring we business industrial the US toward Kelly

to While results, longer and the taking deliver confident we it some of will the it disruption it is than restructure work believe expected in remain see through that positive we caused.

seeing are operations, anticipated in are we improved accounts. we particularly We efficiency existing growth not US in branch seeing the our but

a in to than has impact continues manufacturing talent seasonal low record supply. also continued commercial And seen the customer in our on quarter that we've Americas The in cycles, growth drove factors disproportionate unemployment the is slower our market as and constrain our The progress these In external ongoing US we hampered quarter. in third QX. throughout slower-than-expected internal the last noted US we particular, in previous current base business. changes, softness ramp

down year. mind, third Staffing. Americas in XX% let's Kelly's Americas X% performed the broader last third in to year, Staffing quarter Revenue absorbing quarter, decreased look that to staffing primarily revenue loss. third the acquisition. from in account how compared impacted first in by specialties Commercial starting a grew XX% due year. in quarter, Kelly compared revenue the With operating context the declined third NextGen, the last the our large professional/technical X% quarter favorably prior with three a in period same to revenue segments Education strategic at quarter was

in placement basis, On QX several projects impacted unfavorably not large XX% repeat. year-over-year, permanent by did decreased fees combined XXXX a that

Americas in partially down impact from rate profit and by NextGen XX offset year basis fees, of costs to the gross Staffing quarter business lower last higher on placement third points was employee-related favorable due XX.X%, The mix.

to addition in compensation and the quarter million for incentive-based strategic costs result salaries was restructuring. well a lower Expenses of the associated the told, for by as with Staffing last as of to Americas down quarter profit QX $X.X achieved an million in $XX.X the were projects. of Staffing Americas expense our as segment mainly year. The NextGen lower X% the due decrease offset All operating compared

US currency our of International X% for offset constant due Western the outside operations of International increases quarter by Europe. in decreased Revenue year-over-year primarily Americas. in the Staffing Staffing Eastern to dollars. nominal the to turning market basis, Europe, in a revenue Now On slowdown X% in partially third decreased a

my For a Staffing on ease on reference, International remainder the will of of basis. currency constant comments be

third down country services. quarter of cost the higher Fee-based points decline of to in rate increased last basis was year-over-year. which income due our The GP was X% the than in GP XXXX, The rate expense temp driven largely reported mix. XX for XX.X%, mainly by one-time quarter staffing underlying a is year,

year were accelerate one-time due than last several X% primarily to efficiencies. Expenses higher will expenses that

were this to last year due Excluding expenses X% continued management. below underlying effective effect, cost

quarter Staffing's year. In summary, was International million $X.X $X.X lower profit operating than same million, last reporting the

Talent of our includes one strategic GTS, Now Global our segment. results turn new segment of Solutions, reporting acquisitions. let's GTA, Technology to Associates, the This Global

while GTS revenue performed Let's increased X%. and GTS look revenue X% of were as the GP impacted QX, positively in how Both decreased a at acquisition whole in the gross quarter. GTA. profit by year-over-year first third

year-over-year in Payroll Process practices, KellyConnect volume In addition, and Process delivered products. staffing decreases Business mix structural we BPO; Outsourcing, by in improvement to our primarily offset continue Outsourcing, see centrally PPO, and product our in our increases, with

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

Recruitment talent of gross partially made volume employee-related and was the CWO, centrally Outsourcing, our in Our decrease talent by in business offset RPO, PPO costs. in The solutions. was our primarily result delivered practices, a X% lower and centrally year-over-year business is fulfillment The Process lower staffing up our PPO, delivered profit fulfillment staffing, down of QX. RPO,

newly Our with BPO, GTA increase acquired steady outcome-based by and driven to KellyConnect of in business in Gross outcome-based of impact of continues The be comprised profit volume and and BPO increased KellyConnect products, results organization. both GTA services year-over-year. along is solutions businesses growth the includes our XX% advisory the our our the acquisition. the

Expenses $XX.X our were told, year a GTS' gross a increase. down Overall, to for compared cost of the effective profit employee-related rate an X% XX% continued the million All as GTS quarter operating was result year-over-year GTS year-over-year was points $XX.X up million management. third mix ago, lower XX.X% basis segment's structural profit primarily and improvement product to costs. XX due in quarter, in

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

Olivier Thirot

last third the Thank you, $X.X Peter. billion, down year. X.X% compared Revenue totaled to quarter

Our unfavorably by basis total impacted to were results Company due exchange. foreign XX points reported

X.X% So was on a third quarter constant down year-over-year. currency revenue basis, our

results point added to the practice. QX as recent restructuring offset Europe economic revenue includes which the Our of impact This divestiture basis of reflect organic sector and was Organic current US the weakening manufacturing the branch GTA, revenue QX our the of of declines a currency our revenue XX from partially currency constant was as NextGen down QX within XXX in continuing Overall, and performance our the operations. well in US growth environment specialty X.X%. resulting challenges by constant the basis points growth rate. legal

constant down currency a currency. or in ago fees reflects X.X% Americas in Staffing was placement Overall, The currency XX% down International Staffing. performance Staffing a and versus in on fees X.X% fee down were declining XX% both year nominal profit and constant gross basis.

GP quarter last gross Our GTA, acquisition rate points points declined Staffing. was continued On profit to structural by of rate XX Approximately in basis margin the an year. due in organic GP XX which specialty basis point up our GP rate improvement XX was GP the to rate rate decline basis the XX%, when improvement are the NextGen Americas and was basis, third higher businesses. of compared GTA's offset as

acquisitions. were expenses are fluctuations. the excluding million in year-over-year X.X% the X% NextGen third and GTA SG&A Included from in SG&A of down expenses quarter of impact of XXXX our $X.X or currency

currency expenses with cost the comes organic were X.X%. reflects So of compensation, trends. efforts basis, excluding rest to that resources two-thirds an on and down decrease management impact, lower incentive revenue performance-based align Approximately from

specialty million were $XX.X the in our X.X% talent and reflect earnings reflect to X.X% compared rate operations QX conversion strategy. further million. results or an environment the third quarter continue $XX.X of These return compared for focused profit need These highlight to solutions of on with XXXX execute to XXXX. results from Earnings gross challenging the increasingly on

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

Persol are our below we As recognized common QX. a on income million XXXX, stock million $XX.X $XX.X common recognized In separate expense. Persol within pre-tax recognized from on quarter, a we a the gain gains These a stock. result, as and line and item other losses operations the in loss earnings in

of in Persol a to the in on effective gains was is losses expense compared a in tax benefit stock. change expense due XXXX. benefit The The rate XXXX. primarily tax and was tax impact effective tax common XX.X% quarter the of million Income million $XX.X rate in compared $X.X third a the the XXXX to tax to of the XX.X%

in quarter to per loss of share to diluted approximately earnings a the of tax, finally, $X.XX Persol of XXXX related net And compared $X.XX on gain XXXX. Included our stock, loss XXXX. $X.XX in of for in third to earnings per is EPS $X.XX share XXXX of was compared

includes a In XXXX benefit recent addition, EPS from acquisitions. our our $X.XX

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

growth our The QX Now basis NextGen year. X%. expect impact ahead FX on included rest and This recent be with an acquisitions expected the expectations. in GTA unfavorable of reported considering our we quarter, revenue of down are XX the of to points. approximately includes of the as results look third our we to of revenue our After impact X% to

We expect gross be par on the year. QX last rate to with profit

mix of structural as impact rate. margin our both organically expect positively in solutions, our GP acquisitions, result recent and business shift from our to to higher We changes a

Americas margin offset Staffing will of continuous this erosion most However, in improvement.

our a with expectations consistent our As gross dollar are expectations. profit result, revenue

reflect discussions, losses SG&A the gains believe do on related the that not to intangible recently to X%. unrealized expense from losses any market prior Persol outlook and and down could additional in resulting with provided our includes QX changes future This to stock, acquired material. amortization Consistent assets. anticipate price does we although gains We expense be be the X%

full we losses. finally, additional rate be from the Persol expect And year any excluding in impact to the mid-teens tax gains effective or

in growth have and resources expectations cost more current focused that as structure recent we started position forward, our aligned us for taking and of actions future our aggressive and being trends, revenue is a our near-term Moving are to ensure with specialties. result

move same up of to year-end DSO let's totaled year-end one million was QX sheet. Now Cash X.X% last XX quarter year-end at Global to day totaled Accounts and million $XX compared XXXX. billion days and compared the at days, quarter up are $X.X end, million from year XXXX. $XX from the balance $XX receivable to down XXXX. $X from million we had debt At four XXXX.

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

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

and not earnings we forward. it material expect have lease on sheet, have on adoption we obligations assets going balance did our do impact right-of-use While the our will reflected nor a

million free deleverage flow year-to-date fund recent cash us repay borrowings cash $XX cash year. to has the our compared quickly our same allowed sheet. in in free and period free improvement our acquisitions flow, In $XX cash flow our flow last to balance to of was This used million

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

to turn it Peter concluding back now his thoughts. I'll over for

Peter Quigley

Olivier. Thank you,

customers, on I this insights beginning third some of When US like we new lies undertook seeing portfolio noted performance our quickly while were quarter, the and As branch ahead. was share our and call, toward challenging, our base. achieving demand higher-margin are and in our the are reposition we first resources about transformation what could in businesses. to rebalance I'd generation we the operations how And in a we at of quarter efficiency certain of we typical additional ramp customer the not acquiring optimistic

in in our of already we so taking market. specialties US while light to continue will our do with we bring focused recent revenue to and line cost further in to trends, top In our structure demand have ability capture retaining line, action Americas begun the our

demand, We areas have we that specialize, proven line well. in where in we with performed

for business in create forward, trends. to Moving manufacturing what's include of in constrained sector, Europe and growth we customer a key that healthier weak market Those our a next soft US balance aligns these a economic worldwide. areas environment needs, supply trends talent need mix, and accelerate to talent one a preferences

executed quarter. challenging Against services. GP pressure We that Kelly we as to and outcome-based Despite our the accomplished on higher in growth, things this improvements we and short. again GTA on these we our backdrop, on QX several effectively focus strategy NextGen top our margin Despite And inorganic acquisitions, rate our continue revenue delivered efforts, line and results specialty delivering outperforming with expectations growth. and costs. fell GP strong contained once

and of strategy the value saw bottom need shareholders. While to top we this fundamentals line deliver we and to we quarter results improve our sound, than drive are better the

And its next specific and I'll CEO transition complete of earnings I of my on be quarter, ready our As structures. share with to course and the organization, into expected the next the assessment call. outcomes insights the you role, operations I'll its over

Kelly In efforts to and our back to in next solutions their balancing the specialty managing remains that on committed in forward as ways We to of lives. you our results to growth reporting portfolio, with the strategy quarter. connect to revenue our expenses enrich people the work equation look value-versus-volume talent effectively advancing meantime, align we

Olivier questions. can now open answer and be be your I will the questions. happy to for John, now call

Operator

Vogel Instructions] go [Operator of with to line Josh first & We'll Please you. Company. Thank ahead. the go Sidoti

Josh Vogel

and comments of start just with, if I'm you some already But I apologize, actually minutes talking something I I first, ended guess, late, on I I'll ask about you a out just Peter, covered. network, you hopped the so that streamlining cost line with couple sorry building or functions. know And in two, in and the it amount demand. recent the good we operations Americas structure current of time bringing a year investment with back-office spent branch in and

up is on down I it macro scale to the the get based and trends? you to how just or overall sense, demand easy environment want So a for business

Peter Quigley

management restructured in to Thanks for of the in demand operations, for US this to reducing us the to seeing agility question, that, network the was addition supply the layers, branch that of markets. year, in quarter and we we greater first were one Josh. respond of When objectives to the create

And way scale and my expected and the in I as up in expected. lot while within significant indicated restructuring, So a to parts growth terms it of the organization. efficiency was the involving designed even generating the agile agility undertaking in we're US. comments, down just a from a more of we taking It's the we of seeing that is longer than

Olivier Thirot

when per done a us than delivery was years explaining, agile and Peter have help doing much now, we of because flexible up a and have as flexible business, Josh, more I model. top our in pretty better We And of look of than more do at would pressure, a much model we that productivity quickly were capable good, FTE a we down have line ago. to much few commercial more ago despite couple scale years we

Josh Vogel

only a does just think personnel scaling that branch? I is a closure that about And that reductions? you. potentially down, Thank Or Or is look? about actually how Understood. of when

Peter Quigley

we when scaling a the Josh, all customers. Well, are to delivering the at need at there's to down look resources look to that services of available resources, our

not brick-and-mortar innovative a cover brick-and-mortar, little but certain methods. necessarily of And through only to different agility so think, ways where markets. both also at too new other very way to demand cover maybe looking more appropriate be to beholden And branches try our We've delivery as justified. part of there the isn't is with headcount, focused to to been, include geographies. on that closure and may But focusing on delivering the I we're would of markets

Josh Vogel

you. US, candidate Thank in could Understanding the way? -- and labor I regard wondering to helpful. efforts historically done attract What's maybe talk this was being to tight candidates drive with your you with doing pool about if you're That's acquisition. to your or more what

Peter Quigley

we to Josh, last so, we talent we of call equally differentiated. are, has and We deeply So our couple that we're with for that talent the initiatives attention our recognize sure is recognize their and experience turn -- make But one years, to what that we on focused need been strategic our also experience. our customers. of appropriately Kelly the

been talent. using we develop think of of will what research course, mentioned, career destination But are have be ways to help both to see and days. we us it's interacted other you difficult marketing that to We, be their some the interact innovative Kelly So for to programs, want qualitative quantitative many on allow way media, And to engaging preferred a as social environment. relying for campaigns, with referral means; try aspirations. to these we as talent talent a they look continue ways technology, with

Olivier Thirot

live To technologies, might office our and are likely to development further other next go our and are add FTE. in US feel recall digital application per we enhance way for we of and course, also on that that year. front could investing you and And productivity combine new now that also, attract technologies, with markets, the talents we we going can the it

Josh Vogel

Great. sluggish just give across XXXX or in be know the to direction that more, sense of one what across feel compelled Europe demand, in appreciated. the But and you and sort any International, we in US, it's weak could just but early, And of manufacturing the I if look landscape I Thank of Americas, labor environment store have would economic you. a and ask. light can GTS when

Olivier Thirot

Yes.

start with could it bit probably next we for think what now see what and I'm mean year. I kind little to on going of a comment

rate. including X%, XX guidance by in our basis X% now to point revenue we have seen You forecast that exchange of to about our down be

And overall, for is trend our So of to similar is similar the at seeing our fact the end are trend. looks what exit it's QX that to we QX that to rate this QX. be entire in going QX likely

that about So Europe or you QX to of next see kind we are Also, that we continuing that growth. line that whether see if is it's we year, of challenges we well. feel Europe Eastern do terms in feel in think top continue in trend, to to going

report You invest have challenging it continue increase course, spots of in pace. structure new Western still although still will on are the bright reason to growing is fast see Italy. challenging tools, to a in more at some But so like we countries one anticipate we like Europe that continue in some in That's of to additional our our efficiency. But a Europe. of environment technologies and we Russia

When you good look -- see outcome-based our growth as several seen quarters. for at some still our GTS segment, we some we in have

over is the So to think, in changing going US staffing our on as start US, traction We Peter, necessarily commercial as that GTS half to to still going the staffing by of it's year. to next discussed the opposed or be but feel early have time, in to very gain year difficult. more that second good the feel believe be We business, we I whether something that to continue is environment next going traction, operations, are outcome-based going unless we dramatically. to is it's the side

conditions, still to continue environment feel the challenging manufacturing it's think the to foreseeable overall top boost to market to the acquisitions, whether feel labor that we are But are our our the recent remain rebound stage in that year, going next we NextGen. at or going some US, future. going line. and top good We the in GTA confident during they Although is about line

Operator

open. we're line ahead. Instructions] Gomes Capital. Please going Noble Joe next, And with Joe, is go your [Operator to

are mute, you on maybe. If

Joe Gomes

I'm morning. sorry. Good

Peter Quigley

morning, Good Joe.

Olivier Thirot

morning. Good

Joe Gomes

first to education touch on the It base wanted slightly. down segment. Just was

that talk segment a And if why of days? ex that was the about little in segment you could -- kind these that Was What lost you'd said lost contract. wondering environment I bit education up? a loss You is contract. you the

Peter Quigley

leads in public. public, thanks there's is that the in. contracts -- The the Well, question, becomes always the environment are to significant. so Joe. space they're pricing coming for I competitive competitive mean potential Their let some information competitors education

value from are very going have they was time a school It district. of see to differentiates of with from we it that and that We happened. a school out Kelly a a others. time, to large providing But record so districts customer, strong track happened, rotate

growth proposition little education I'll customers as in to So a financial the the comment provide the impact I'll But we platform -- business. see in turn that Company. we confident very on we're the than the value the our for education Olivier more And was ask But to for pivotal education significant again, usual. space. a

Olivier Thirot

that, at at line add about would we're QX, I X%. when education in top in look on of QX, growth you the course, Yes. growth, that

like So We this a the trend X% bit only have QX is several is similar market any in to year not over see growing little have seen still than past, for an exception change we X%. The a there. quarters. the to trend pace don't but seen basically in we between at

pipeline terms new We new have customers, in of a good very win.

organic Of pipeline course, trends expansion losing think, the the a challenging, have our is see, -- but big I we we and customer changing. structural say I would dynamic we not the in growth, is have,

now developing get It's marketplace and basically We booming some childhood early product a the momentum high market. next capture good probably also and an are very we on starting year. growth launching where and to expect basically

years childhood. up develop what through market on positioned continue Teachers acquisition build Call On and early in ago two to we well our basically are this to We high-growth now have

Joe Gomes

environment you in Thank you quarter back Europe US. challenging on weakness that. little for some the the mentioned bit And Western also, I wanted the to last here guys circle Because the environment. a soft just Okay. of here challenging and the

in the be sequentially provide color, that detail, trying some quarter. idea, quarter-from-quarter a quarter little as you relatively last -- just that described if that changed what flat I'm environment revenues you challenging more down to from appreciated. you went And So an get would this more basically significantly to maybe could

Peter Quigley

ramp softening ordinarily And some business one start, and in -- I would to I'll provide began QX of business significant manufacturing in QX. April particular, down Joe. of are which Olivier is in the to ask -- and to my overweighted, our comments, economy, a a Sure, on But we in slow the the portion it the maybe the we the into PMI, continued where in I'll decline. see in color cyclical we frame, indicated to the are in time as -- numbers. according

we be And single ordinarily seen And the seasonal It's see other limited of demand haven't ramp, that our geographies the to impact it's we the and on across industry. industries. portion just across what would been in cycles. a manufacturing not

indicate So given started it would QX seasonality, our that softness our on in quarter. the that results for just likely had the accelerated and, into QX impact disproportionate a

Olivier Thirot

by Yes. manufacturing a complement but I that it's activity profitable material. would that saying is for us,

a So mode, weight, a would this into on and to knowing slowing not on down business say, we that is putting us. recession, that little the of material pressure in standpoint demand, turning as it's is bit are a of although terms I recessionary exposed

Operator

comments. And queue, you with it any no further turn Mr. to questions closing if have you in back I'll Quigley,

Peter Quigley

good. setting you you. Thank the -- John. Again, think the for we're thank call, No, I up and

Olivier Thirot

you Thank much. very

Operator

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Kelly Services (KELYA) 6 Nov 192019 Q3 Earnings call transcript