Kelly Services, Inc.

Good morning and welcome to Kelly Services' fourth quarter earnings conference call. All parties will be on a 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 fourth 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.

Thank you, Keeley. Hello, everyone, and welcome to Kelly's fourth quarter conference call. Before we begin, I'll walk you through our safe harbor language, which can be found in our presentation materials. 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. Finally, the slide deck that we're using on today's call is available on our website. With that, let's get started. In a moment, I'll invite our Chief Financial Officer, Olivier Thurot, to share our results for the fourth quarter. I'll then share my reflections on what has been a transformative year defined by decisive action and rapid progress on our growth and efficiency objectives. Finally, we'll provide our preliminary expectations for 2024 before taking your questions. With that, I'll turn the call over to Olivier.

Thank you, Peter, and good morning, everybody. Before I provide more details on our Q4 results, some brief comments on our full-year performance first. Full-year revenue was down 2.6% as reported, or 3.2% on a constant currency basis. This reflects the challenging staffing market conditions we saw across a wide range of specialties and geographies. Amid those challenges, our education business demonstrated resilience and delivered another year of excellent revenue growth, up 32% in 2023, achieving over 840 million in revenue, almost doubling the level of revenue from the pre-COVID 2019 period. Overall, gross profit rate for 2023 was 19.9%. This is a 50 basis point decline from the prior year, driven primarily by lower permanent placement fees. Our 2023 results also reflect the significant efforts made as part of our transformation initiatives to lower our cost base and position us to benefit from our improved efficiency moving forward. On an adjusted basis, we lowered our SG&E expenses by 5.4%. That allowed us to deliver adjusted earnings from operations of 69.1 million, consistent with 2022, in spite of difficult market conditions. And finally, our full year 2023 adjusted ABDA margin rate improved by 20 basis points. Now looking at the fourth quarter of 2023 in more detail, revenue total 1.2 billion, essentially flat with the prior year, including 120 basis points of favorable currency impact. So revenues were down 1.3% on a constant currency basis. As we now look at revenue in the fourth quarter by segment, As noted in my fully remarks, our education segment's revenue growth continues to be strong, up 27% year-over-year. The continued double-digit growth reflects both strong fill rate and demand from existing customers, as well as net customer wins. Overall, the education business delivered more than 50 million of year-over-year revenue growth in the quarter. In the SET segment, revenue was down 5%. During the fourth quarter, we continued to see the impact of challenging market conditions, with year-over-year revenue down 6% in our staffing specialties, as well as lower revenue trends in our outcome-based business, which were flat year-over-year. Permanent placement fees in SET continued to be impacted by lower market demand and declined by 41%. In our OCG segment, revenue declined 3%. Year-over-year declines in RPO continued due to slower hiring in certain market sectors. Year-over-year MSP revenues also declined, while PPO year-over-year revenues improved. Revenue in our professional and industrial segment declined 11.5% year-over-year in the quarter. Revenue from our staffing product declined 15%. reflecting continuous challenging market conditions. The segment's outcome-based revenue was flat year-over-year in the quarter. Growth across most of our outcome-based specialties was offset by a contraction in the year-over-year demand from our call center specialty. And finally, revenue in our international segment improved 5% on a reported basis and was down 2% on a concerned currency basis. Overall gross profit was down 4.7% as reported, or 5.7% on a constant currency basis. Our gross profit rate was 19.3% compared to 20.3% in the fourth quarter of the prior year. Lower perm fees continue to unfavorably impact our GP rate by 60 basis points in Q4. And for the quarter, our GP rate was also impacted by unfavorable business mix by about 60 basis points. This reflects growth in specialties with lower GP rates, including education and PPO, and lower GP rates in SET, education, and international due to product, customers, and country-based mixed, respectively. Partially offsetting those impacts were 20 basis points of lower employee-related costs. SG&E expenses were down 2.2% year-over-year on a reported basis. Expenses for the fourth quarter of 2023 include $7.9 million of charges related to our ongoing transformation efforts, as well as $6.9 million related to activities associated with the Q1 2024 sale of our European staffing operations. So, on an adjusted basis, constant currency basis, expenses declined by 9.5%, similar to Q3. The reduction reflects the positive impact of our transformation efforts, which are designed to reduce costs on a structural basis. Our reported earnings from operations in the fourth quarter was 7.3 million compared to 4.6 million in Q4 of 2022. As noted, our 2023 results include 7.9 million of charges related to our transformation activities and 6.9 million of charges related to the sale of our European staffing operations. Our fourth quarter 2022 included the 10.3 million goodwill impairment charge, So on an adjusted basis, Q4 2023 earnings from operations were $22.1 million, a 59% improvement over the prior year. An adjusted EBDA margin also improved 60 basis points to 2.6%. Income taxes for the fourth quarter were a $6.5 million benefit compared with our 2022 income tax expense of $5.2 million. Income taxes in 2023 include the impact of non-taxable gains on the cash render value of company-owned life insurance and the benefits of work opportunity tax credit, which are recurring. In addition, we recognize different tax valuation allowance adjustments, the tax benefits from outside basis differences on health for sale assets, and other tax impacts from the legal entity restructuring of our European subsidiaries in anticipation of the Q1 2024 completion of the European staffing transaction. And finally, reported earnings per share for the fourth quarter of 2023 were $0.31 per share compared to a loss per share of $0.02 in 2022. Earnings per share in 2023 include $0.46 of unfavorable tax adjustment transaction costs and an unrealized loss on a forward contract, all net of tax, and all related to the sale of our European staffing operations. And 16 cents related to restructuring charges, net of tax. Loss per share in 2022 included the impact of a goodwill impairment charge, net of tax, partially upset by, again, on sale of real property, net of tax. So on an adjusted basis, Q4 2023 EPS was $0.93 compared to $0.18 per share in Q4 of 2022. This significant improvement is driven by year-over-year change in income taxes as well as business performance. Now moving to the balance sheet. As of year-end 2023, our European staffing operations are now classified as health for sale and those assets and liabilities are now included on separate line items on our balance sheet. AccuRent cashed total 126 million and we have no debt outstanding. Of course, this cash position does not include the more than 100 million of proceeds from the sale of our European staffing operations received early in 2024 or additional proceeds expected under the terms of the sales agreement in the third quarter of 2024. So when combining our strong balance sheet with our existing borrowing capacity, we continue to have ample capital available to fund our organic and inorganic strategy and navigate an uncertain market environment. At URAND, accounts receivable has reported total 1.2 billion and represents accounts receivable generated from our North American staffing and outcome-based businesses, as well as our global MSP and RPO practices. receivables from our European staffing operations are now included in assets held for sale. Our global DSO, which includes all receivables, including those generated by our European staffing operations, was 59 days. This is down two days over year-end 2022 and reflects continued efforts to manage our working capital investment in customer accounts receivables primarily in the U.S. For the year, we generated $61 million of free cash flow compared to using $88 million in free cash flows in 2022. Given the one-time items in the 2022 period, including the final repayment of approximately $87 million of federal payroll tax balances, which we deferred in 2020 under the CARES Act, and also $48 million of income taxes due in Japan following the sales of our investment in personal common stock, Comparisons from year over year are challenging, but on a lack-for-lack basis, free cash flow did improve from careful management of working capital. And now I'll turn it back over to Peter for additional comments.