Kelly Services(US:KELYA)2022-11-10 20:48Financial Data and Key Metrics Changes - For Q3 2022, revenue totaled $1.2 billion, down 2.3% from the prior year on a reported basis, which includes 260 basis points of unfavorable currency impact [23] - Gross profit was up 5.1% on a reported basis or 7.6% in constant currency, with a gross profit rate of 20.6% for the quarter compared to 19.2% in Q3 of last year, reflecting a 140 basis point improvement [32] - Reported loss from operations for Q3 was $21.4 million, while adjusted earnings from operations were $9.5 million, up 21% on a constant currency basis compared to Q3 of 2021 [39] Business Line Data and Key Metrics Changes - SET segment revenue was up 5%, driven by strong demand in telecom and technology specialties [25] - Education segment revenue grew 57% on a reported basis, with organic growth at 45%, reflecting robust demand and improved fill rates [26] - OCG segment revenue was up 5% on a reported basis, while organic constant currency revenue was flat, impacted by customer exits [28] - Professional and Industrial segment revenue declined 10% year-over-year, with staffing products down 14% [29] - International segment revenue declined 16% on a nominal basis but showed 7% organic constant currency growth when excluding Russian operations [31] Market Data and Key Metrics Changes - The company experienced a mixed pattern of deceleration in some industries and resiliency in others, particularly in financial services, insurance, and healthcare [12][14] - The high-tech industry saw a reduction in full-time hiring, impacting demand for RocketPower services, which experienced an 11% revenue decline year-over-year [37] Company Strategy and Development Direction - The company is focused on a flexible and balanced capital allocation strategy, including a $50 million share repurchase program [8] - There is a commitment to advancing specialty growth and value creation through strategic acquisitions and integration efforts [20][68] - The company aims to capture more value from RocketPower by diversifying its portfolio and accelerating integration activities [11] Management's Comments on Operating Environment and Future Outlook - Management noted that economic uncertainty is likely to impact the P&I and International businesses, while demand for SET, OCG, and education services is expected to remain steady [57] - The company anticipates continued challenges related to talent supply inflation and upward pressure on wages [58] - Management expressed confidence in the company's specialization strategy and its ability to adapt to market changes [69] Other Important Information - The company incurred a goodwill impairment charge of $30.7 million related to RocketPower due to reduced demand in the high-tech vertical [37] - Cash totaled $122 million at the end of Q3, compared to $44 million a year ago, with no debt reported [45] Q&A Session Summary Question: What is the company doing to attract talent in the current market? - Management highlighted efforts to attract talent through various channels, including social media and engaging retirees [76] Question: What caused the operating loss in the Education segment? - The operating loss was attributed to seasonality, as schools were just starting to open during Q3 [80] Question: Can you provide details on the integration of RocketPower? - Management indicated that the integration involves pivoting operations to other industries and leveraging existing customer relationships [95] Question: How does the company view the M&A pipeline? - The company continues to focus on high-margin, high-growth specialties, although the current M&A pipeline is less attractive than in the past [102] Question: What is the outlook for gross profit margins? - Management expects continued structural improvement in gross profit margins driven by a higher specialty mix, despite a slowdown in fee business growth [119]