Kelly Services, Inc.

Good morning and welcome to Kelly Services' second quarter earnings conference call. All parties will be on a listen-only mode 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 second 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, Greg. Hello, everyone, and welcome to Kelly's second quarter conference call. Before we begin, I'll walk you through our Safe Harbor language. 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, a presentation with information about Kelly's financial results in the quarter is available on our website. With that, I'll begin with remarks on Kelly's financial results. In the second quarter, we remained focused on what we can control as we continue to navigate uncertain market conditions. Large enterprises maintained a cautious approach to hiring, though demand began to stabilize with positive signs emerging, in particular among our technology and life sciences customers. In our P&I business, revenues leveled off on a sequential basis. This trend reflects stabilizing demand and the benefits of our enhanced localized delivery model. The combined strength of our network of physical branch locations and the Kelly Now mobile app continue to generate positive momentum in the quarter with both clients and talent helping grow our pipeline of new industrial and commercial staffing business and drive meaningful improvement to our fill rate and time to GP. At the enterprise level, our strategy to deliver the full suite of Kelly offerings to our largest customers also gained traction. Within the initial focus accounts where we have operationalized this approach, we've improved both the efficiency and effectiveness with which we serve our largest customers. This progress is beginning to drive gains in share of wallet with our large enterprise customers. Our growth initiatives are helping capture market share and build upon Kelly's position as one of the largest staffing firms in the U.S. According to staffing industry analysts' latest rankings, Kelly increased its position by the widest margin among the top 20 firms from 2022 to 2023. This is a testament to our team's resilience in deftly navigating through uncertain market conditions. Amid encouraging developments with growth, we remain laser focused on improving our ability to convert a greater share of top line growth to bottom line growth. This month marks one year since we shared with you the anticipated impact of the transformation initiatives we undertook to drive structural efficiencies across Kelly and significantly improve the company's profitability. Our message at that time was clear. Kelly would achieve a normalized adjusted EBITDA margin in the range of 3.3 to .5% as soon as the first half of 2024. Notwithstanding the challenging market conditions, we delivered a steady cadence of net margin expansion driven by sustained reductions to SG&A. One year later, I'm pleased to share that we have achieved our initial expectations. In the first half of this year, Kelly attained an adjusted EBITDA margin of .4% excluding the benefit of our acquisition of MRP. For more details on this and our results in the second quarter, I'll turn the call over to our Chief Financial Officer Olivier Thiroux.

Thank you, Peter, and good morning, everybody. As a reminder, Kelly's 2023 results include the European staffing business that was sold on January the 2nd of 2024, and we are now including the results of motion recruitment partners since the date of the acquisition, so just for the month of June 2024 this quarter. To provide greater visibility into trends in our operating results, I will also discuss -over-year changes on a reported and also on an organic basis. References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024. Revenue for the second quarter of 2024 totaled 1.06 billion compared to 1.22 billion in 2023, down .1% resulting primarily from the sale of our European staffing business, partially offset by the acquisition of MRP. On an organic basis, -over-year revenue improved .6% in the quarter, reflecting strong growth in education, a sequential stabilization of demand from Q1 to Q2 across much of our other businesses, despite of market uncertainty in several specialties. Reviewing results by segment, education continued to grow revenue by double digits, up 22% -over-year in the quarter. This strong and sustained growth reflects net new customer wins, increased demand from existing customers and an improving fill rate. In the set segment, revenue was up 10% on a reported basis, which includes the impact of the MRP acquisition. Revenue was down 3% on an organic basis and organic revenue trends were stable sequentially. -over-year organic revenue growth reflects lower staffing market demand with revenue down 4% in our staffing specialties and down 1% in our outcome-based business. Permanent placement fees also declined by 20%. In our OCD segment, revenue improved 3%. The increase in revenues was driven by our PPO specialty where demand growth has continued. -over-year declines in RPO are due to slower hiring in certain market sectors and MSP revenues declined in line with customers' contingent labor demands. But revenue in both MSP and RPO products were stable sequentially and with our MSP product positioned to benefit from positive momentum going forward. Revenue in our professional and industrial segment declined 9% -over-year in the PNR but also stabilized sequentially, including in the PNI staffing specialty. Revenue from our staffing product declined 9%. The segment's contact center outcome-based specialty revenue also declined -over-year, as did perm fees in this segment. Partially offsetting these declines, other higher margin outcome-based specialty revenue continued to grow. Overall gross profit was an .2% as reported or .3% on an organic basis. Our gross profit rate was .2% compared to .8% in the second quarter of the prior year. Our GDP rate reflects a 100-base point improvement from the sale of our European staffing operations and an additional 40 basis points from the inclusion of the June results of MRP. On an organic basis, the GP rate declined 100 basis points in Q2, 110 basis points due to unfavorable business mix and 20 basis points due to lower perm fees, partially offset by 30 basis points of favorable employee-related costs. The business mix impact reflects continued growth in specialties with lower GP rates, including education and PPO. SGN expenses were down 17% -over-year on a reported basis. Expenses for the second quarter of 2024 include 4.3 million of restructuring charges related to our ongoing transformation efforts, as well as 1.6 million of expenses primarily related to the sale of our European staffing operations, including transaction and also transition expenses. SGN expenses in 2023 include 5.6 million of restructuring charges, so expenses declined by 18% on an adjusted basis or 10% on an adjusted organic basis. So like for like, expenses were lower in Q2 of 2024 due to the positive impacts of our structural transformation efforts, as well as lower performance incentive conversation expenses, reflecting current upline trends. As a reminder, beginning in the first quarter of 2024, we are reporting the operating results of our reportable segments utilizing revised business unit profit measures. We also are allocating a greater share of the costs we have previously reported as corporate costs to our business units. In addition, we are no longer including deposition and amortization in our business unit profit measure. We believe this provides greater visibility into the financial performance of each business unit and how they contribute to Kelly's overall performance. On a consolidated basis, our reported earnings from operations in the second quarter were 12.2 million compared to 6.2 million in Q2 of 2023. On an adjusted basis, Q2 of 2024 earnings from operations were 28.1 million, nearly doubled from a year ago. The 15.9 million increase from reported earnings includes a loss on the sale of our European staffing operations, charges related to transformation actions and the sale of our European staffing operations, an impairment charge related to excess lease property, and again on the sale of assets related to the sales group. The acquisition of MRP added 1.5 million of earnings from operations in the second quarter of 2024. Adjusted earnings in the second quarter of 2023 were 14.2 million. The 8 million increase from reported earnings included transformation related charges and an asset impairment charge. The European staffing operations produced 1 million of earnings from operations on an adjusted basis in the second quarter of 2023. Adjusted EBD margin also improved 180 base points to 3.8%, reflecting 40 base points of improvement from the sale of our European staffing operations, 10 base points from the inclusion of the month of June result of MRP, and 130 base points of improvement from our ongoing transformation efforts. Income tax expense for the second quarter was 1.1 million compared to a benefit of 1.9 million in 2023. Our effective income tax rate was .4% in Q2 2024. And finally, reported earnings per share for the second quarter was 12 cents per share compared to 20 cents in 2023. Earnings per share in 2024 include a loss related to the sale of our European staffing operations and again on the sale of the IHIRS group transaction, as well as transaction costs related to the acquisition of MRP, restructuring charges related to our transformation, and an asset impairment charge. Earnings per share in 2023 include a restructuring and an asset impairment charge. So on an adjusted basis, Q2 2024 EPS was 71 cents compared to 36 cents per share in Q2 of 2023, nearly doubling year over year. Now reflecting on the balance sheet, following the acquisition of MRP at quarter line cash total 38 million, and we had 210 million of debt outstanding. Our debt to capital ratio is 14.1%, as of quarter end, as we leverage our balance sheet to acquire MRP. And as we disclose at the time of the acquisition, we have amended our credit facilities to maintain the financial flexibility for additional organic and inorganic investment and to navigate an ongoing uncertain market environment. At quarter end accounts receivable total 1.2 billion, including the receivables of MRP. Global DSO was 57 days, down two days from year end 2023, and down four days from the second quarter of 2023. In the quarter, we generated 55 million of free cash flow compared to 32 million in the comparable prior year period. Looking ahead to operating results for the second half of the year, our results will be impacted by several factors. First, we believe that staffing market conditions will remain relatively consistent with what we have experienced in the first half of the year. And modest sequential revenue improvement in our P&I, SET and OCG segments will continue in the second half of 2024. Our education segment revenue will be impacted by summer school holiday period in Q3, but will continue to produce double digit revenues. And finally, the acquisition of MRP will deliver further improvements in both our growth and also value metrics. For the second half of 2024, on an organic basis, we expect revenue to be up 2.5 to 3.5 percent, with no significant effects impact, resulting in a midpoint revenue expectation of about 2 billion. In addition, we expect MRP to add an additional 260 to 270 million of revenue in the second half of the year. We expect our organic GP rate to be between 20 to 20.2 percent in the second half. On a -for-life basis, this is a 90 basis point decline at the midpoint of our range, affecting the change in our business mix, primarily because our education business is expected to continue to deliver significant revenue growth. MRP, with its higher margin specialty profile, is expected to add an additional 100 basis points to our growth margin rate in the second half of the year. So, our all-in GP rate in the second half of 2024 is expected to be between 21 percent to 21.2 percent. Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year. The impact on -over-year trends will moderate as we anniversary the execution of most of those actions. We expect that adjusted SG&A, excluding DNA, will be 3.5 to 4.5 percent lower than a year ago on an organic basis. And MRP will add about 60 million of expenses in the second half. All-in, we expect approximately 28 million of deposition and amortization in H2 of 2024. We expect an adjusted organic ABDM margin of 3.2 to 3.3 percent, up 30 to 40 basis points -over-year. And we believe that MRP will add an additional 30 basis points of net margin in the second half of 2024. And back to my earlier point regarding education seasonality, we expect that our adjusted ABDM margin will be closer to 3 percent or 2.6 percent organic in the third quarter during the school summer holiday period, and then improve as in Q4 as education's working days increase. And finally, we expect our effective tax rate to be in the low teens. And now back to you, Peter.

Thanks for those insights, Olivier. In May, I shared with you that 2024 would mark an inflection point on our strategic journey, that the actions and results we deliver this year will propel Kelly into a new era of growth. Reflecting on the significant progress we achieved in the second quarter, I'm confident that we're on track to realize those ambitions. Our transformational acquisition of Motion Recruitment Partners has strengthened the scale and capabilities of Kelly's staffing, consulting, and RPO solutions in attractive customer end markets, including technology, financial services, and healthcare. The highly complementary nature of MRP and Kelly's set and OCG businesses, MRP's attractive financial profile, and its leadership team of recruiting industry veterans will contribute in a significant way to enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion. The sale of Ayres Group further sharpened Kelly OCG's focus on global RPO and MSP solutions while unlocking incremental capital to redeploy towards Kelly's specialty strategy. And we achieved our initial expectation for EBITDA margin expansion, which we established one year ago, demonstrating the capacity of our growth and efficiency initiatives to significantly improve Kelly's profitability over the long term. Of course, it's difficult to know the precise timeline of a recovery for our industry. And as Olivier noted, we expect the results in the second half of the year will continue to reflect uncertain market conditions. Notwithstanding these dynamics, I'm optimistic about the sequential stabilization we saw across our business. And I'm confident that our achievements in the second quarter, together with the progress we've delivered since we embarked on our specialty growth journey, position Kelly to capitalize when sequential stabilization gives way to a sustained increase in demand. I'm immensely proud of the work of each and every member of Team Kelly, including our newest colleagues at MRP that has brought us to this point in our journey. Their urgency, agility and unwavering commitment to our clients and talent are the driving forces that continue to propel us to new heights. With our team moving forward together, united by our noble purpose, I'm confident that the opportunities before us are limitless. Greg, you can now open the call to questions. Okay, ladies and gentlemen, if you'd like to ask a question, please press 1 and 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1 and 0 at this time. And one moment, please, for your first question. Your first question comes from the line of Kartik Mehta from North Coast Research. Please go ahead.

Yeah, good morning.

First of

all, it's been a pleasure working with you and I wish you the best. You have some big shoes to build, so thank you for everything. Thank you,

Kathy.

Thank

you

very much. You're welcome. I'm wondering if we could focus on the MRP business for a second. And just as you look at the fundamentals for that business, maybe so far in the second quarter, and you do look at your outlook in the second half, and you compare it to a year ago or maybe a quarter ago, what's been the trend for that business?

Yeah, I will comment on a few numbers and Peter can add more color on business trends and so on. You might have seen, Kartik, that we have issued the so-called 8Ka, and of course the outlook of today, and you are going to see further information in our Thank You on what we call ProForma. If you use this information, you will see that H1 of 2024, the revenue was about 260 million. And if you take the mid-range of our guidance today, you are going to be at 265 million. So we expect, similar to what we have said for Kelly, organic, basically a slight improvement, basically in the second half of the year. When you look at how does it compare versus a year ago, H1 at 260 million is about minus 8% versus the prior year, which is consistent with the trends we have shared in June when we are talking specifically about MRP. And we expect based on the change in comparables and a little bit of sequential improvement to turn H2 into flat to minus 1, minus .5% versus a year ago.

In Kartik, longer term, I mean we continue to be very bullish on MRP in particular, but also the space that they are in, both on the staffing and solutions side as well as on the RPO side. We have been very pleased with the partnership we have had with the MRP leadership to date and the significant complementary nature of our businesses, the lack of significant customer overlap, complementary delivery models. So longer term, we are still very optimistic about the investment thesis in making the acquisition of MRP.

And then if you just look at the overall business, maybe in each of the segments, I am wondering what you are witnessing in terms of pricing, have pricing trends or competition increased in any of the segments or are they kind of where they were last quarter?

Well, I think in this kind of uncertain environment, market conditions, you are always going to find outlier suppliers that are going to try to buy share, but it is not across the board. It is not an industry dynamic that we are seeing. In fact, we have been relatively pleased with our ability to maintain pricing discipline during these market conditions. Yeah,

just when you look at the so-called spread in P&I, it is completely stable. In SET, flat to up slightly. In education, a little bit down, but it is more the customer mix than real pricing conversation. So far, and it is not an isolated quarter, Q2 of this year, we have not seen any change or any pressure on spreads. We continue to see that we are capable of keeping our spread, thus keeping our overall margin.

And then just one last question. As you go down this transformation journey, and obviously MRP will help, as you look for the next acquisition, is there a thought that you would like to integrate MRP so you would wait, or if an opportunity turned up, you are at a point where you could do another acquisition?

Well, I think as we have said, MRP is going to continue to deliver its services and solutions through its operating companies under its current brand. We will of course be working with the MRP leadership on where it makes sense, integration. I think our focus right now is on that as a priority, but we are not going to stand on the sidelines in terms of developing a pipeline for future acquisitions. The cycle time, as you know, is quite long. So we are preparing for the time when it would make sense for us to deploy additional capital in pursuit of high margin, high growth businesses, as I've said before, primarily in the science, engineering, technology and telecom space or in our education practice.

Perfect. Thank you so much. I appreciate it.

Thank you, Karyk. Thank you, Karyk. Your next question comes from the line of Kevin Steinkie from Barrington Research. Please go ahead. Good morning, Kevin. Good morning. Good morning.

I want to start out by asking about generating some modest organic growth in the second quarter. It sounded like you were pleased with the progress of the organic growth initiatives that are part of the transformation effort. I mean, would you attribute the return to organic growth as really being driven by those transformation related organic growth initiatives?

Yeah, I think so, Kevin. It's hard to pin it down precisely, but relative to what we're seeing from our competitors, we believe we're taking share across our businesses. And we spent a good portion of 2023 focused on efficiency. But as I said, at the beginning of the year, we were pivoting and turning our attention to growth. I think the progress we've made in our omni-channel strategy and professional industrial is beginning to show results. And our focus on taking share within our large enterprise customers is also showing traction. And I think the combination of those two plus obviously the continued growth in education and a focus on high margin and areas that are a little bit more stable, we're pleased with the organic growth in the quarter.

Okay, good. And it's related to that question. When we think about your forecast for organic revenue growth of two and a half to three and a half percent in the second half of 2024, you talked about assuming kind of a similar demand environment in the second half relative to what you've been seeing recently. But also you mentioned some stabilization and demand, sound like some improvement in technology and life sciences. I'm just trying to unpack how you get to that higher rate of organic growth in the second half, if it's driven by the organic growth initiatives or assuming some sort of continued improvement or stabilization and just the overall demand environment. To get to that growth and also the sequential improvements you mentioned you expect in P&I set and OCG.

Yeah, I mean, I'm going to start and then Peter will add some color on the business side. And so if you think about it, first of all, we did confirm today that we see education continuing to grow at the digit rate. Of course, you know, Q3 is low seasonality, but we see the dynamic we have seen for a long, long time continuing. So that's one point. Second point is when you put on the side education sequentially from Q1 to Q2, assuming education, the rest of the business sequentially went up by about 1.5 percent. We expect similar modest improvements sequentially over the second half of the year. That is basically based on what we have seen sequentially from Q1 to Q2. Some areas it's more stabilization, like for instance P&I staffing. Others, it's really, you know, sequential growth. And I'm thinking about OCG and to some extent set. We start to see some positive dynamics as Peter was saying in our legacy IT business and also science that are moving up. And on top of that, of course, the growth initiative that Peter was mentioning that are part of the sequential improvement of one and a half percent. I was mentioning from Q1 to Q2 when you exclude education. And there is also the base impact. Right. I mean, the two and a half to three and a half is also basically reflecting on the fact that our comparables are basically lower in age two of 2023 than they were, you know, in the first half of this year.

And Kevin, as I mentioned in my prepared remarks, we don't know when there will be a return to a more normalized demand, but we are much better positioned to take advantage of that. And we're prepared to take advantage of it when it happens than we were a couple of years ago. Just because of all the steps we've taken to structurally improve the cost base and to be able to leverage when demand returns in a meaningful way. But we're not waiting for that, which is why I focused on the growth initiatives that I mentioned. We turn to an earnest at the beginning of the year and we will continue to lean into those growth initiatives, notwithstanding the external market conditions.

Okay, great. I also want to ask about the trend in adjusted SGA expenses. As you mentioned, you expect them to be down organically three and a half to four point five percent year over year. Just trying to think about, you know, on a sequential basis as we move into the second half of the year, how those will trend organically. If we should think about those kind of being flatish sequentially excluding MRP or, you know, if they come down a little bit more.

Yeah, I would really continue to look at organic meaning excluding our European staffing business and MRP. I think we gave today some specific around the MRP expectation for SGA, excluding DNA, by the way, for the second half of the year. So if you think about Q2 trend, if you go really on adjusted organic, we're at about minus 10 percent like for like in Q2 versus a year ago. In Q1, we're at minus 11, so very similar trend in the second quarter than in the first quarter. When we move to our guidance that you are mentioning for the second half, of course, the comparables are becoming more challenging, right? Because a good portion of our efficiency initiative were already visible in the second half of the year. So this is why we go for this adjusted guidance. But if you think about it more sequentially, you will see that it's basically flat sequentially from first half to second half, or if you look at Q2 to Q3 and Q4. Yes, that's our expectation. And this is where we are trending now.

OK, thank you, Olivier. That is very helpful. And I also wanted to add my congratulations and best wishes for your upcoming retirement. And certainly, you know,

thank you.

It's a pleasure working with you over the years.

I'm going to be still around for a while now. Right. So you're going to hear from me for the next two quarters with pleasure. Oh, right. OK.

Well, look forward to talking to you then. Thank you.

Your next question comes from the line of Joe Gomes from Noble Capital Markets. Please go ahead. Good morning, Joe. Morning, Josh. Morning, Bill

and then for Joe.

Oh, hey, Josh. So

now, you know, we're kind of a couple of months just into the completion of MRP. You know, can you guys describe to me how, you know, the integration of it is kind of coming along and some key takeaways so far into it? Has the company really picked up any new business ones from it so far?

Well, as we explain, Josh, for the foreseeable future, we're going to continue to operate the businesses as they've been operating under their current delivery models and brands. That doesn't mean we're not spending a lot of time with the Motion Recruitment Partners leadership team working on ideas and plans for integration when it makes sense. We have been encouraged by the collaboration between the teams on both the staffing and solution side of the Motion Recruitment Partners business as well as within the seven step business. And there have been opportunities that we've taken advantage of that the combined forces of Kelly and MRP has proven to be an advantage. It's still early, but we're encouraged by what we think is the market and customer reaction to the combination and partnership. And, you know, more to come on that as we further refine what the ideal or optimized operating model will be going forward.

Okay, that's helpful. Thank you. And, yeah, you kind of touched on the M&A side a little bit. But, you know, you guys talked about in the previous quarter how, you know, there's kind of more discussion happening. Is that really still true now? Is there kind of more properties in the market that you're seeing or is it still roughly about the same?

I'd say it's roughly about the same, Josh. There's, you know, it's still not what it was two or three years ago. I think companies are still a little bit cautious about coming off the sidelines so that the flow is not what it was at its height. But, you know, as you know, in our business in particular, not everything comes to market. And so we continue to explore high quality, high growth, high margin businesses and develop relationships that we think could potentially at some point in the future result in a acquisition similar to how we accomplished MRP.

Okay, thank you for the color. And then last one from me, you know, it's been probably a couple quarters you guys commented on the Kelly Arc. Can you guys kind of provide us with an update on that and kind of what's been the interest been like in that program?

Well, the interest is high. You know, the fact is that it's a platform solution that has both the talent and customer side. And in an area of great demand in terms of AI and automation talent, as with any platform driven solution adoption on both the talent side and the customer side takes time. But we have a dozen plus customers on the platform and hundreds of AI automation professionals that are also partaking in the solution. And, you know, it's one of those solutions again, a platform solution as individuals and customers begin to join and register. It has a network effect as people hear about it and learn about it and refer other people to the platform. So we're still optimistic about the solution and the value it brings for both talent and customers. And we'll continue to invest our time and technology into it. Your next question comes from the line of Mark Riddick from Sudoti. Please go ahead. Good morning, Mark.

Good

morning.

Good morning. Good morning. And Olivia, I'm glad you're with us today. So we certainly appreciate that. I wanted to touch a little bit on sort of maybe piggybacking on the acquisition pipeline and opportunities that you see there. I was wondering if you talk maybe shifting a little bit sort of use of comfort levels with that and leverage and sort of how that plays into the thought process of the future acquisition pipeline.

Yeah. I mean, if you remember at the time of the MRP acquisition, our debt level was 263 million to be very precise. We are already now at 210. If you use what I like to use amongst many other metrics, multiple of ABDA. And I'm using the last 12 months ABDA, that is the calculation we use in our bank governance. We are now at about 1.7 debt to ABDA. So we are making progress. You have seen that our free cash flow for the quarter was over 50 million. So I feel comfortable that over time, not this year, but I think we are going to continue to basically leverage as much as we can and as quickly as possible. It's going to take, of course, more than the next 12 months. But I feel that we are on the right track. When you see our working capital, glad to confirm that our DSO now is at 57 days, which is, I would say, a big progress versus where we are before. And we are in a business where the best way to manage your work capital is basically to manage your DSO. So I feel comfortable that what we see in terms of metrics, balance sheet leverage, we are comfortable that we can continue to leverage and comfortable to basically go for an acquisition whenever we are ready to do it and whenever we have attractive properties.

Okay, great. And then I guess one quick little follow up. Is there sort of a general ballpark range we're looking at for any potential technology investments, maybe CAPEX for this year? Are there any sort of investments that you see coming, whether it was in conjunction with MRP, but just maybe enterprise-wide would be great?

I mean, of course, you can assess our CAPEX at least on the cash flow by looking at our cash flow statement. Most of our CAPEX over time have been on technology and it will continue to be the case. You need to think about something in the region of 20, 25 million on a recurring basis. Of course, that does not take into account technology integration of MRP that, as Peter was mentioning, is going to happen as soon as we have the earn out behind us. So after Q1 of next year, we are planning for it now and it will possibly move the 20 to 25 million up for a temporary period. But that's something that knowing our free cash flow generation, I feel comfortable that we can absorb higher capital expenses and the 20, 25 million, at least for a limited period of time, which may happen through this integration of technology for MRP.

Great. Thank

you very much.

Thank you. Thank you, Mark. If there are any additional questions, please press 1 and 0. And at this time, there are no further questions. Okay, Greg, I think we can end the call. Thank you very much. Thank you, Greg. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference.

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