Kelly Services, Inc.

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. A first quarter 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, sir.

Thank you, Steve. Hello, everyone, and welcome to Kelly Services' first quarter conference call. With me today is Olivier Tiro, our Chief Financial Officer, who will walk you through our Safe Harbor language, which can be found in our presentation materials.

Thank you, Peter, and good morning, everyone. 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. References to organic growth in our discussion today exclude the results of our Q2 2021 acquisition of Softworld. While we did complete our acquisition of Rocket Power in the first quarter, which Peter will talk more about shortly, will be consolidating their operating results on a once-month lag. So while our balance sheet and cash flows include the initial impact of the acquisition, we'll start seeing the positive P&L impact of Rocket Power in Q2. Finally, the slide deck that we are using on today's call is available on our website. And now back to you, Peter.

Thanks, Olivier. It's been an exceptionally productive start to the year. and Kelly's first quarter performance provided substantial evidence that our strategy is paying off. We achieved significant year-over-year improvement in revenue. We grew GP in every one of our five segments. Our GP rate reached its highest level in more than 25 years, and we more than doubled our earnings from operations, all of which point to broad-based structural improvements in our business. We also restored our dividend to its pre-pandemic level of 7.5 cents per share, a sign of our board's confidence in Kelly's performance and strategic progress. Our education, SET, and OCG segments each delivered double-digit constant currency year-over-year top-line growth. While the impact of Mexico's legislation led to an overall decline in international, we saw solid revenue growth in our European operations. And notwithstanding a modest decline in revenue, P&I substantially grew its GP and saw significant growth in fees. In fact, fees were higher across all segments as companies continue to ramp up their hiring of full-time talent. As we approach just the second anniversary of our new operating model, we're pleased with Kelly's first quarter financial results. And early in 2022, we're excited about the progress we're making in executing our strategy. We enter the year committed to advancing our bolder, more acquisitive specialty growth strategy. In February, we unwound non-core investments in APAC that provided approximately $235 million of capital and said then that we would redeploy that capital toward higher margin growth. We haven't wasted any time. As of last week, we have completed two acquisitions this year. In March, we acquired Rocket Power, a Silicon Valley startup that diversifies and strengthens Kelly's fast-growing RPO business by targeting clients in the high-tech market. And last week, we acquired Pediatric Therapeutic Services, or PTS, a specialty firm that extends our leadership position in K-12 workforce solutions with the provision of in-school services including occupational therapy, physical therapy, speech-language pathology, and mental and behavioral health services. Though the two acquisitions are in separate businesses, one in OCG, the other in education, both acquisitions clearly align with our inorganic growth strategy. Both meet our goal of expanding Kelly's presence in high-growth, high-margin specialties. Both offer significant opportunities for top line synergies and both provide clients value by connecting them quickly to the right specialized talent. We were able to act decisively to acquire these highly attractive assets because of our strategic decision to monetize non-core assets in APAC. That move equipped us with an unprecedented amount of capital to invest in our specialty growth strategy. As a reminder, upon completion of the APAC transactions and considering our borrowing capacity, we had more than a half billion dollars of capital, capital available to pursue high-margin, high-growth acquisitions and drive structural improvements in our business that will deliver quantitative and qualitative results. Even after the Rocket Power and PTS transactions that totaled $140 million, we have ample capital to deploy, and continue to carry no debt. As we execute our growth strategy, we are also making thoughtful, long-term decisions about our portfolio of businesses. In the first quarter, we shared that we were considering options for Kelly's Russian operations, first and foremost, taking steps to ensure the safety and well-being of our employees in the region. After careful consideration, we have decided to transition our Russian operations. We are committed to an orderly transition of our Russian operations in full compliance with international and local laws. Now, for a closer look at the details of Kelly's Q1 results, I'll turn it over to Olivier.

Thank you, Peter. For the first quarter of 2022, revenue total $1.3 billion, up 7.5% from the prior year, including 150 basis points of unfavorable currency impact. So revenues for the quarter were up 9% in constant currency. Included in that increase are a 310 basis points favorable impact from our acquisition of Softworld, as well as a 230 basis points unfavorable impact resulting from the Q3 2021 changes in the Mexican staffing market legislations. While the current situation in Ukraine has contributed to additional economic uncertainty in Europe, we did not experience any significant impact on our Q1 revenues. As we look at first quarter revenue by segment, our education segment continues to report significant year-over-year growth, up 55%, as the comparable 2021 period was still impacted by COVID-related disruptions. We have continued to experience strong demand and new customer wins, even as we walk through a challenging talent market. Our education business has been successful in broadening the supply of talent, and we have started to see meaningful improvement in our field rate. Our OCG segment continued to deliver year-over-year revenue growth, with revenue up 10% over the last year in the first quarter. OCG delivered strong growth in RPO, reflecting custom demand for this product, as well as solid growth in the MSP product partially offset by declines in PPO as a result of some customer exits. Revenue in our professional industrial segment declined 5% year-over-year in the quarter. Overall, our results in this segment continue to reflect the impact of supply chain disruptions and the challenges to fulfill customer demand in the current talent environment. In our outcome-based business, we have continued to experience a reduction in revenue down 9.9% year-over-year from a contraction in demand from our call center specialty, which more than offset growth in other outcome-based specialties. Revenue from our staffing product declined 3.5% on lower hours volume, which has been partially offset by higher bill rates, resulting from the upward pressure on wages in the current talent market. Revenue in our international segment declined 7% on a nominal currency basis and was down 1% on a constant currency basis. The year-over-year revenue growth trend was negatively impacted by results in Mexico due to the impact of the legislation enacted in Q3 of 2021. Revenue growth in the EMEA region was positive, up 9% in constant currency. And finally, the set segment, where the results from our acquisition of software is reported, revenue was up 25% on a reported basis and 10% on an organic basis. Organic revenue trends in set have continued to vary by specialty and track with the customers served. Recovering demand in telecommunications continued. Demand for outcome-based solutions remained strong, and our technology specialty showed double-digit growth. And as we pass the one-year anniversary of the Softworld acquisition, at the end of the quarter, Softworld has continued its trajectory of double-digit top-line growth and delivered on the significant revenue growth we expected when we acquired the business. Across all segments, we have continued to meet clients' changing talent needs, including placing talent directly into employment with our customers. Permanent placement fees were up 69% year-over-year in constant currency and also up 26% sequentially. We continue to see significant increases in placement activity in SET, international, and education, which includes Greenwood and Asher. P&I also had significant fee growth, up more than 100% year-over-year. That does include about $2 million from conversion fees from a customer that decided to change its labor acquisition strategy from heavy contingent staffing to full-time hiring. I'll share more details later as it has a bearing on our outlook. Overall gross profit was up 21.2% on a reported basis, or 22.6% in constant currency. Excluding software, GP increased 16.2% on an organic constant currency basis. Our gross profit rate was 19.9%, compared to 17.7% in the first quarter of last year, a 220 basis point improvement. Our year-over-year GP rate improvement was driven by a combination of various factors. Higher-perm fees contributed 70 basis points, and we got another 40 basis points as a result of the acquisition of softwares, which generates higher margins. These factors were coupled with lower employee-related costs of 60 basis points and favorable business mix for 50 basis points. Including the 220 basis points GP rate improvement for the quarter, we did benefit from the one-time conversion fee with a large customer, as I previously mentioned, and we had a favorable adjustment in prior year workers' compensation costs in the first quarter. So about 40 basis points of our GP rate improvement of 220 basis points came from these factors. SG&A expenses were up 16% year-over-year on a reported basis, 17.2% on a constant currency basis. Expenses for the first quarter of 2022 include the intangible amortization and other operating expenses of Softworld, which added 500 basis points to our year-over-year expense growth rate. So on an organic basis, expense grew by 12.1% year-over-year in constant currency. The majority of the increase in SG&A reflects higher compensation-related expenses for our full-time talent. We have added headcount in line with revenue growth and provided meaningful increases in performance-based incentive compensation expenses for our client-facing teams, as well as smaller adjustments to base pay. These increases These increases reflect the need to attract and retain talent in the current environment. Even with the increase in the cost of doing business, we produce additional operating leverage as GP growth largely exceeds its expense growth for the quarter. Our earnings from operations for the first quarter were $23.4 million, more than double the $10.6 million earned in Q1 of 2021. Included in our Q1 results are the operating earnings of Softworld for 3.5 million, inclusive of intangible asset amortization. Although not included in earnings for operations, Kelly earnings before taxes also include the impact of our investment in and Q1 sale of the personal holdings common shares. Up to the date of the sale, we have recognized non-cash gains and losses related to changes in the fair market value of the investment each quarter. As we discussed in the fourth quarter earnings call in February and disclosed in our 2021 Form 10-K, in the first quarter, we recognized a $52 million pre-tax loss on our personal common stock related to the market value of the shares on the date of the sale compared to the end of Q4 2021 and an additional cost of $15 million related to the transaction, including fees and expenses. This compares to a 30 million pre-tax non-cash gain in the prior year. Although reported below earnings from operations in the first quarter of 2022, we have realized a 20 million non-cash foreign exchange loss related to the subsequent liquidation of our Kelly Japan subsidiary following the sale of the Persol share. The impact of the sale of most of our interest in the Persol Kelly Japan venture was not significant, and in other income and expense, we had one additional impact of the parcel transactions. We recognized a 5.5 million foreign exchange gain related to cash held in Japan after the sale of the parcel shares until the transfer of the cash to the U.S. at the end of the quarter. Notwithstanding all these non-cash charges, the APAC transactions favorably impacted our cash flow for the quarter and created 235 million of additional liquidity. Income tax benefit for the first quarter was $13 million compared with our 2021 income tax expense of $10.5 million. Our effective tax rate for the quarter was 21.2%. And finally, reported loss per share for the first quarter of 2022 was $1.23 per share compared to earnings of $0.64 per share in 2021. The decrease in earnings per share resulted from the impact of the personal share transactions and the related liquidation of Kelly Japan net of tax. Adjusting for the personal transactions and related impacts, Q1 2022 EPS was $0.46 compared to adjusted EPS of $0.12 per share in Q1 of 2021, so up almost 300%. Now moving to the balance sheet at the end of the quarter. The sale of most of our investment in the personal collision venture generated cash proceeds of $114 million net of taxes payable. The sale of our investment in the common share of personal holdings generated approximately $145 million net of transaction costs and expected income taxes due. We expected to pay the majority of the taxes related to this transaction in Q2 of 2022. And to complete the unwinding of our cash holding arrangement with Persol, we paid $27 million to repurchase the Class A and B common shares owned by Persol Holdings in Q1. Only, this transaction will generate approximately $235 million of cash after the cash payment of taxes in Q2 of 2022. In addition, the repurchase of common shares allowed us to reduce our shares outstanding by 4%, without impacting the share liquidity. We have already started to utilize this capital to accelerate our strategic transformation. Completed the acquisition of Rocket Power, which is included in our Q1 balance sheet and cash flows, and we recently completed the acquisition of PTS in early Q2. At the end of Q1, cash totaled 230 million compared to 239 million a year ago. We had no debt consistent with debt at nearly zero at the end of the first quarter of 2021. With our $300 million in available capacity on our credit facilities and our cash balances after the Q2 payment of the APAC transaction taxes and the acquisition of PTS, we'll continue to have ample capital available to deploy. At the end of Q1, accounts receivable was $1.5 billion, an increase 19% year-over-year, reflecting our year-over-year increase in revenue as well as an increase in DSO. Global DSO was 62 days, an increase of two days, of a year in 2021 and the first quarter of 2021. For the first quarter of 2022, we used $108 million of free cash flow, reflecting increasing investment in working capital. Free cash flows in 2022 also include approximately $29 million of cash outflows used to repay federal payroll tax balances, which we deferred in 2022 under the CARES Act. In addition to the $29 million paid in Q1 2022, we expect to pay the remaining balance of $58 million on January the 3rd of 2023. And with all that, now back to you, Peter.

Thanks for those details, Olivier. We're encouraged by our momentum leaving the first quarter and the increased demand, healthy sales pipelines, and new customer wins we're seeing. We expect each of our specialty business units to deliver specifically strategic contributions to this year's performance. In P&I, the well-publicized dynamics of the current labor environment require Kelly and our clients to adjust the ways in which we connect with high-quality talent, and we are responding with speed and agility. As Olivier mentioned, we are changing how we work with one of our large P&I staffing clients, shifting to a direct hire model to better meet their needs. We are also making P&I's local teams more agile. In January, we made adjustments to the P&I organization to align with our local markets, enabling us to deliver service through the channel that works best for local talent and clients, whether that be through technology, our branch network, or an on-site arrangement. Notwithstanding ongoing talent shortages and supply chain disruptions, we expect P&I's new local alignment, coupled with the deployment of technology investments we've described on previous calls, will drive improved productivity throughout the second half of the year. In our SET segment, we said we wanted to see meaningful returns on our inorganic and organic investments. Our double-digit growth with and without Softworld in the first quarter delivered on that expectation, and we expect meaningful contributions from SET for the remainder of 2022 and beyond. In education, we committed to capture K-12 growth this year improve our fill rates, and further expand our adjacencies. And we achieved that growth in Q1 and started Q2 with our acquisition of PTS, which creates yet another high margin, high demand specialty within the education segment that can quickly drive synergies across our market leading client portfolio. We also expect to see improving fill rates in our K-12 staffing business throughout 2022. In OCG, we said we would invest in our fast-growing RPO business, and that's precisely what we did in the first quarter with the acquisition of Rocket Power, an innovative RPO leader in the high-margin, high-tech specialty. In addition, many of the sizable MSP wins from 2021 will begin to produce GP throughout 2022. And in our international segment, we said we expected continued growth in regional and local specialties, Our EMEA operations delivered solid top-line growth in the first quarter. Notwithstanding Mexico and our transition from Russia, we expect our international segment to continue delivering nice revenue growth for the remainder of the year. These growth strategies in our five business segments, together with our aggressive and focused use of capital, are designed to drive value for Kelly stakeholders in 2022 and beyond. To share more about what we expect from the year ahead, I'll now welcome back Olivier.

Thank you, Peter. As we reflect on the first quarter results and look ahead, we expect a continuation of many of the macro trends we are currently seeing. There is a steady increase in demand for talent, coupled with a continuation of talent supply mismatch that puts pressure on our ability to fulfill that demand. We expect that recent trends in inflation and the upward pressure on wages at all skill levels, will continue into the second half of 2022, and that expected increases in interest rates may put pressure on certain industries as consumers and business adapt. Specific to Kelly, there are two unusual events that impact our outlook. First is our intention to transition our operations in the Russia market. This will reduce 2022 revenues in our international segment, and for total Kelly, by about 200 basis points. Second is a change in one of our large customers' labor strategy mentioned earlier. Essentially, one of our large staffing customers decided to address today's talent challenges and work with Scali differently by changing its heavy use of contingent labor to one that instead will rely on hiring talent directly as full-time employees. While P&I has secured a number of large on-site transitions from competitors during the quarter, there will not be enough in Q2 to fully offset the top-line impact of this change in this one customer's business. Even with those headwinds, we continue to expect revenue to be up organically 4.5% to 5.5% on a full year basis in nominal currency, of course, excluding the impact of our acquisition of Rocket Power and PTS. Stated another way, we are increasing our outlook for our non-Russian business by approximately 200 basis points. And finally, we expect an additional 150 basis points of inorganic revenue growth from our recent acquisitions of Rocket Power in the OCG segment and PTS in the education segment. So all in, we expect revenue growth of 6% to 7% for the full year. Our outlook reflects no material changes in the COVID-19 related impacts or significant deterioration in macroeconomic conditions. As we have mentioned on prior calls, international revenue growth rate will continue to be negatively impacted by the Mexico legislation change until we anniversary the impact in the second half of 2022. While we aren't providing quarterly guidance, we do expect that the Q2 organic revenue growth rate may be lower than our full year expectation, driven by many of the factors I've mentioned. But then we are expecting increasing revenue growth rate as we move into the second half of the year. We expect our GP rate to be about 20%. That's a 130 basis point improvement, from the 18.7% we reported for 2021 on a full year basis, and include 20 basis points from our recent 2022 acquisitions. Our continued structural improvement in GP rate expectations reflects sustained growth in our fee-based business, a continued shift in mix to higher margin specialty, and a more gradual pace of growth in our lower margin specialty. We expect SGA expenses to be up 6% to 7% on an adjusted organic basis. We continue to take steps to drive meaningful cost savings and calibrate our expense, including additional action taken in Q1. However, there is continuing pressure to address talent attraction and retention in the current market. We are focused on a variety of initiatives in that space, and part of the equation is providing opportunities for higher incentive compensation for our full-time talent. In addition, we'll continue to focus on technology initiatives that enhance the experience of talents we place on assignment. We remain committed to improving productivity on all of our business units and ensuring that investment in our talent produces the workforce necessary for future growth. We also expect that our two recent acquisitions will add approximately 200 basis points of SDNA expense growth, including impact of intangible amortization expense. As we execute on our organic and inorganic strategy, we are utilizing adjusted EBDA and adjusted EBDA margin as additional measures of our progress in delivering profitable growth. Based on our outlook for 2022, we expect adjusted organic EBDA margin to improve 70 to 90 basis points from the 1.7% adjusted EBDA margin delivered in 2021. And finally, we expect an effective income tax rate in the high teens, which includes the impact of the work opportunity tax credit, which has been enacted through 2025. And with that, back to you, Peter.

Thank you, Olivier. We entered 2022 with energy and optimism and signaled that 2022 would be a year of bold progress for Kelly. Kelly is leaning into market opportunities with a well-defined and well-capitalized specialization strategy, ready to use the resources at our disposal to accelerate our progress and increase value to our shareholders. We made a commitment to bold inorganic growth and we started 2022 by providing unprecedented capital to enable that growth. The effectiveness with which we started putting our capital to work signals a newly confident Kelly, one that has chosen our specialties wisely, pursues high-margin growth where we know we can win, and acts decisively to drive value for shareholders. We're thrilled to welcome Rocket Power and PTS to the Kelly team, and we look forward to our shared success. At the same time, we're delivering on our promise to accelerate high-quality organic growth, driving significant improvement in GP, while simultaneously investing in the talent and technology needed to bring innovative Kelly products to market with speed and impact. As we continue to execute against our specialty strategy in 2022, Kelly will create value for all of our stakeholders, talent, clients, suppliers, and shareholders alike. Steve, you can now open the call to questions.

Ladies and gentlemen, we'll now begin the question and answer session of today's conference. If you wish to ask a question, please depress the 1 followed by the 0 on your touchtone phone. You'll hear a tone indicating that you've placed yourself in queue, and all questions will be pulled in the order they are received. You may remove yourself at any time by once again depressing the 1 followed by the 0. And if you're using a speakerphone, please pick up your handset before depressing the keys. One moment, please. Our first question will come from the line at Kevin Steinke of Barrington Research. Please go ahead.

Good morning. Congratulations on the solid start to the year. Thank you, Kevin. Good morning. Good morning, Kevin. Good morning. I wanted to start off by asking about rocket power applications. It seems like a really nice acquisition, but can you just give us a sense as to what they bring to Kelly that is additive to what you were doing before in recruitment process outsourcing?

Yeah, thanks, Kevin. We're really excited about the Rocket Power acquisition. It's another high-quality, high-margin, high-growth, property that we think will add considerably to our existing Kelly RPO practice, which is also experiencing significant growth and demand. Rocket Power participates in a high-tech industry that Kelly has not participated significantly in, so it broadens the customer base. There was literally no overlap in our customers between Kelly and Rocket Power, and they have a delivery model that includes leveraging resources in Latin America that we think can be deployed in our legacy Kelly RPO practice to the advantage of our customers and also produce some meaningful financial returns.

Maybe, Kevin, I can add a few numbers if you want to tell you a little bit more about what we call pro forma full year expectations. So you know that revenue of Rocket Power in 2021 was about $28 million. If you think about our expectations, and again, full year, not basically the pro rata temporary that we are going to recognize based on the acquisition date. We expect a revenue in the region of close to $60 million for the year. So if you compare that with $28 million in 2021, I would say very high growth. And we have already seen that in 2021 versus 2020. GP rate in the region of 44%. So growth margin very, very high. And ABDA margin in the region of 20%. So really... a high-growth, high-value engine, as Peter, I think, was describing during his prepared remarks.

Great. Thank you. That's very helpful. And can you give us just a sense as to how quickly you can capitalize on revenue synergies, both from Rocket Power as well as your latest acquisition of pediatric therapeutic services in the education space?

You know, it's a priority, Kevin, that, you know, top-line synergies is one of the parts of the investment thesis for both Rocket Power and PTS. And we think that there's opportunity, as I said, in the case of Rocket Power, to leverage their exposure in the high-tech areas market, which we don't have a lot of exposure to, to bring their delivery with our other customers. In the case of PTS, it's an adjacency that we've been looking for a high-quality property to add to the K-12 portfolio. We believe we found it in PTS. We have School districts that are in need of the therapies that pts provides and it's just a natural. compliment to our leading K 12 core business to be able to support our school districts with the therapies that pts provides and we believe it's a platform that we can scale.

Great. I want to ask you about the education segment. You know, really strong results, at least relative to my expectations. And we had been talking last quarter about labor shortages in that market. And you noted a meaningful improvement in fill rates and that your efforts to attract talent are gaining traction. So can you just talk a little bit about the education segment, the momentum there, and your ability to attract more talent?

Yeah, we're really encouraged by what we saw in Q1 and leaving Q1 by the improvement in fill rates that we talked about last quarter. We're in some of the regions that Kelly Education participates in. We're at, or it even exceeding pre-pandemic levels in terms of fill rates. There are some geographies that are still behind, but all of them are showing levels of improvement as more individuals come off the sidelines, the healthcare concerns are lessened, and schools are open and no longer requiring vaccines and masking. We're encouraged. We're also encouraged by the pipeline of new wins. A number of large school districts we've added to the portfolio even this year. And as we look to the 22-23 school year, we're encouraged by the combination of improved fill rates and increased demand.

And I would add on that that we, in terms of attraction, we see wage inflation continuing. If you look at Q1 in our education, wage inflation was about 14%, 1-4, with, of course, the same impact on the bill rate. So that's good for KD, but that's good also to attract talents.

And as Olivier said, you know, pay rates are high, and we're seeing an inflow of talent from the healthcare sector as the COVID-induced stress individuals are migrating to the education space, which adds to the labor pool for school districts, which is very positive for Kelly education.

All right, yeah, that's an interesting dynamic that you called out there. Okay, great. So you talked about the shift to a direct hire model with your large P&I customer and it sounds like that's happening at other places across the market. When you talk to your customers, do you think this reflects a fairly permanent shift in their approach to hiring or attracting talent or do you think they might eventually revert back to the old model? What's your sense on just that market trend and the sustainability of it?

Yeah, I don't think, I wouldn't call it a trend, Kevin. I think there are a few isolated instances where customers have decided to deal with the talent shortage by moving from a contingent worker strategy to a permanent hiring strategy. But at the same time, the demand for contingent worker support is at an all-time high, according to the American Staffing Association numbers, in terms of the penetration rate. And customers are, due to the COVID situation, they have come to realize the benefits to their business models of the flexibility that contingent labor provides. So it'd be hard to predict whether these one or two customers are gonna revert back to using contingent workers, but we don't see it as a trend that's gonna have a long-term impact on our business.

Okay, good, that's helpful. Just a couple more here. You noted the higher SG&A expenses related to higher compensation. to attract and retain your own workforce. Do you feel like that you're in a good position now with those compensation increases to attract and retain the talent you need to fulfill all the customer demand you're seeing?

Well, it's a, It's a competitive labor market, as you know, Kevin, and we're addressing some of that through increased compensation, which is important to recognize our employees' contributions to the success of our business. But it's not the only answer. We need to provide a compelling value proposition to our employees and provide a workplace that is flexible that is inclusive and welcoming and we have efforts underway to ensure that that's the case at Kelly but it's a competitive environment and we're we're doing everything we can to ensure that we have the talent and the capabilities we need to deliver on our strategy okay thanks just lastly

As we think about the gross margin, as we move throughout the year, should that we think about that being pretty consistent from quarter to quarter, you know, you were 19, nine and the first quarter and 20 for the full year. So is that, you know, relatively consistent or anything we should think about in, uh, uh, you know, just second quarter, the quarters beyond.

I would say we are confident on the 20-plus percent for the year, including our two recent acquisitions. I think we have, I would say, a solid set of dynamics that we see. The fee business is still up 68%. The mix that has been useful for years spread improvement, especially in SETT. where we start to see now our bill rate moving at a higher pace than our pay rate. So we see all those dynamics continuing as we have seen for quite a while now. I was just recently looking at our gross margin total in 2018. We're at 17.6. And we have been able to improve our gross margin every single year since 2015, including in 2020, where basically the market conditions were extremely challenging. So I would say it's a long-term structural improvement that we expect to continue to see this year, but also beyond this year.

Great. Thank you for taking the questions.

Thanks, Kevin. Thanks, Kevin.

If there are any additional questions, please press the 1 followed by the 0 at this time. Our next question will come from the line of Joe Gomes of Noble Capital. Please go ahead.

Good morning. Thanks for taking the questions.

Good morning, Joe.

The first one is I think you noted a little bit here in your remarks. If you look at the P&I business and The international business both had lower revenues but increased GP dollars and rates, I believe, for both. I just wonder if you could give us a little more color as to, you know, what is going on there that's allowing you to increase the GP rate even in the face of some lower revenues in those two segments.

Well, the international segment was the headwind there is Mexico primarily. In EMEA, we saw it. increase in revenue, 9%. So good growth there. In both cases, though, Joe, you know, the focus of our staffing business is to improve the quality of the business that we're acquiring. And that allows us to, as I said during the last earnings call, to focus on higher margin business in both of those segments. In addition, in the case of P&I, higher margin outcome-based solutions that we're offering to our customers in the new operating model where we're able to offer outcome-based business process outsourcing and our SPS solution, we're able to offer those to all of our P&I customers, and those solutions command higher margin, and they're growing at a good clip. So that contributes to the improved GP performance in P&I.

Okay, thanks for that insight. Pardon me. Great movement here and improvement on GP rate. Olivia, you've mentioned over the years, hopefully this year we'll be at a 20% rate. How much more upside do you think there is in that? Is it just continuing to get more of the soft world type of acquisitions, or is there other things that levers you can be pulling on to continue to grow that GP rate?

Well, Joe, our strategy is both organic and inorganic. And we believe in both cases we can improve our GP rate. And I think that's what you're seeing. It's a combination of the addition of high-quality, high-growth properties like Softworld, like PTS, like Rocket Power, but also improving the solutions that we provide in our legacy Kelly businesses that command higher margins. Our outcome-based solutions command a higher margin, and we believe that there is upside in really all of our business segments to improve our GP rate. If you take education as an example, it's been relatively stable in Kelly education, but the addition of PTS which commands much higher margins we think can have a meaningful impact on the the GP rate in Kelly education as well as Kelly overall Yeah so far when you look back a little bit When you look back from let's say 2018

Our average GP rate improvement, Joe, was about 40 to 50 basis points with about two-thirds that is basically purely organic. And we still have a lot of opportunities even organically as Peter was describing.

Thanks, Olivier, for that. And you talked a little bit on your own full-time talent some of the things that you're doing there. In your presentation, you talk about addressing the talent supply to meet customer demand. Just wondering, outside, obviously, of increased pay, what other types of things are you being able to offer to help try and attract more talent for you so that you can meet your customer supply demands?

Well, as mentioned, Joe, it's about the value proposition. Today's workers want a flexible environment where they can adjust their work requirements around their other aspects of their life. We have a program that we started before the pandemic five years ago called Kelly Anywhere, which provides a level of flexibility that we think is very attractive to today's workers. So combined with that, as well as improving our wellness and benefits plans, creating affinity groups so individuals of all demographics feel welcome in the workplace, that that's a potent combination to attract people, as well as telling the story of our noble purpose of connecting people to work in ways that enrich their lives. Today's workers want to feel a sense of purpose, and we believe that Kelly offers that combination, that they can be excited about coming to work every day in support of the great companies that we work with and the great talent that we work with.

Okay. And one last, for me, if I may, I know you repurchased the shares held by Persol and you just raised the dividend, but given what's happening in the market today where the stock has been trading here recently, would going back and buying some more shares be of interest to you or the board in this environment, or would you rather prefer to kind of hold on to that dry power powder for potential acquisitions?

Well, we're reviewing all of the options with respect to capital allocation, Joe. We do that regularly with the board, whether it's dividends or the possibility of share repurchase. We do believe that the best use of the majority of our capital is going to be to acquire high-quality properties like we've demonstrated with Softworld and Rocket Power and PTS, but nothing's off the table, and we're regularly considering how to create value for our shareholders.

That's it for me. Thank you.

Thank you, Joe.

There are no further questions in queue at this time. Please continue, Mr. Quigley.

Steve, if there are no further questions, I think we can call it a day.

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