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Kelly Services, Inc. (NASDAQ:KELYA) Q3 2023 Earnings Call Transcript

Kelly Services, Inc. (NASDAQ:KELYA) Q3 2023 Earnings Call Transcript November 9, 2023

Kelly Services, Inc. beats earnings expectations. Reported EPS is $0.5, expectations were $0.25.

Operator: Good morning and welcome to Kelly Services Third 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 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.

Peter Quigley: Thank you, Kailey. Hello everyone and welcome to Kelly's third 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 these 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.

A row of desks in a modern office, filled with a diverse workforce.
A row of desks in a modern office, filled with a diverse workforce.

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. We have a lot to cover today so let's get started. Before we turn to Kelly's third quarter results, I'd like to cover our recent announcement regarding another transformative and bold step in our specialty growth journey. On November 2nd Kelly entered into a definitive agreement to sell our European staffing business to GI group for €100 million with €30 million of additional earn-out potential. Under the terms of the agreement, we'll transfer the European staffing business within Kelly's International operating segment to GI Group, while retaining our MSP, RPO, and FSP business with customers in the EMEA region.

We expect the transaction to close in the first quarter of 2024 after which Kelly will maintain its global footprint and continue to provide MSP and RPO solutions customers in the EMEA region through Kelly OCG and our fast-growing FSP solutions through Kelly set. This transaction will unlock significant capital to pursue organic and inorganic investments in our chosen specialties. Furthermore, it sharpens our focus on our higher-margin higher-growth MSP and RPO solutions globally and specialty outcome-based and staffing services in North America. Together we expect these outcomes will accelerate our transformation efforts to significantly improve Kelly's net margin. I'm joined today by Olivier Thirot, our Chief Financial Officer, who will share more details about our expectations later in the call.

Turning to the third quarter, we continue to make progress on the business transformation initiative we launched earlier this year. Following the implementation of strategic restructuring activities at the outset of the quarter, we remained laser-focused on sustaining these structural improvements across the enterprise. Our continued emphasis on organizational efficiency and effectiveness throughout the quarter resulted in a 9.1% decrease in SG&A on an adjusted basis, a substantial year-over-year improvement. With the efficiency phase of our transformation on track and delivering results, our expectation of an adjusted EBITDA margin around 3% exiting 2023 is within sight. As we shared in August, our expectation assumes no change to the market conditions we faced in the second quarter.

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