KELLY SERVICES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Troy Anderson joined as Executive Vice President and CFO Designate, with transition from Olivier Thirot. Troy brings over 30 years of experience.
• Navigating uncertain market conditions, focusing on capturing market share and shifting to higher-margin solutions. Education business with double-digit growth, K-12 staffing ranked #1. P&I's omnichannel strategy gaining traction. OCG's MSP offering with Helix technology. SETT's focus on SOW-based services and integration of Motion Recruitment Partners.
• Transition of responsibilities between Olivier Thirot and Troy Anderson, with Olivier to become strategic adviser.

Segment Performance

• Education: Q3 saw double-digit revenue growth, with strong fill rates and net new customer wins in K-12 specialty. Year-over-year revenue up 11%. Revenue contribution from Education reflects sustained growth in K-12 staffing.
• P&I: Sequential revenue improvement in Q3 after stabilizing in Q2. Omnichannel strategy (physical branches and Kelly Now app) driving progress. Expansion into semiconductors and renewables. Year-over-year revenue down 2%, but sequential improvement of 4% from Q2 to Q3.
• OCG: Solid year-over-year revenue growth driven by Payroll Process Outsourcing. MSP and RPO solutions stabilized. Higher-margin MSP offering boosted by Helix technology. Revenue up 6%.
• SETT: Demand decelerated in summer but improved in September. Results reflect dynamic, but outpaced market year-over-year. Focus on higher-margin SOW-based services. Included Motion Recruitment Partners results for full quarter. Revenue up 37% reported, down 5% organic.

Guidance

• Expect staffing market conditions to remain consistent with Q3. Education segment revenue to ramp sequentially from Q3 to Q4 with double-digit growth.
• Organic revenue expected to be up 1.5% to 2.5% in Q4 with no significant FX impact, plus MRP adding $120M revenue.
• GP rate expected to be about 20.4% in Q4, with MRP contributing 110 basis points. Adjusted EBITDA margin expected 3.4% to 3.5%, up ~90 basis points year-over-year.

Risks

• Uncertain market conditions impacting demand for staffing services.
• Potential challenges in fully integrating Motion Recruitment Partners, especially during the earn-out period.
• Fluctuations in gross profit rates due to business mix changes, particularly in OCG and Education segments.

Question and Answer

Q: About MRP integration costs A: Integration costs related to MRP will be managed, with majority of costs in 2025 related to technology integration, expected to have limited impact.

Q: Gross profit rate trends A: Varies by segment; P&I mix shift and outcome-based business help maintain margin; OCG impacted by PPO's lower margin; SETT and Education have margin pressure but offset by top-line growth.

Q: Adjusted EBITDA margin A: 2.5% in Q3, up 20 basis points, with SETT having uncertainty but P&I showing improvement.

Q: MRP business performance A: Meets expectations, complementary to Kelly's business, with SETT-like performance in current market conditions.

Q: SETT segment trends A: Softness in first two months of Q3, but improvement in September; still taking market share.

Q: P&I sequential revenue growth A: Driven by omnichannel strategy, local market focus, Kelly Now app, and expansion into semiconductor and renewables.

Q: SG&A expenses A: Driven by inclusion of MRP, with synergies expected in 2025 after earn-out period.

Q: MRP integration and customer feedback A: Integration plan underway, customer feedback positive with recognition of complementary talent and solutions.