Kelly Reports Third-Quarter 2023 Earnings, Continued Progress on Business Transformation

November 9, 2023
  • Q3 operating earnings were break-even, or up 60% to $15.5 million on an adjusted basis
  • Q3 revenue down 4.3%; down 5.8% in constant currency
  • Q3 adjusted EBITDA margin increased to 2.3% compared to 1.6% in the prior year driven by meaningful reduction in operating expenses resulting from business transformation initiative
  • Company expects sale of European staffing operations and near-term outcome from growth initiatives to drive further expansion of adjusted EBITDA margin

TROY, Mich., Nov. 9, 2023 /PRNewswire/ -- Kelly (Nasdaq: KELYA, KELYB), a leading global specialty talent solutions provider, today announced results for the third quarter of 2023.

Peter Quigley, president and chief executive officer, announced revenue for the third quarter of 2023 totaled $1.1 billion, a 4.3% decrease, or 5.8% decrease in constant currency, compared to the corresponding quarter of 2022. Year-over-year revenue trends were impacted by customers' more guarded approach to hiring and initiating new projects or capital spending, partially offset by favorable currency impacts.

"In the third quarter, persistent macroeconomic uncertainty continued to temper demand for temporary and permanent staffing services," said Quigley. "As expected, results in SET and P&I reflected these challenges, while our Education segment and more resilient outcome-based solutions in P&I once again delivered year-over-year growth. We continued to focus on what we can control in this challenging operating environment, driving significant progress in the execution of our transformation initiatives – the benefits of which are evident in our operating results."

Kelly reported break-even operating earnings in the third quarter of 2023 compared to a loss of $21.4 million reported in the third quarter of 2022. Earnings in the third quarter of 2023 include $15.4 million of transformation-related charges. Excluding the transformation-related charges, adjusted earnings from operations were $15.5 million. Loss from operations in the third quarter of 2022 included a $30.7 million goodwill impairment charge and adjusted earnings were $9.5 million. Adjusted earnings improved 60% year-over-year primarily as a result of lower operating expenses due to our ongoing transformation initiatives.

Earnings per share in the third quarter of 2023 were $0.18 compared to a loss per share of $0.43 in the third quarter of 2022. Included in the earnings per share in the third quarter of 2023 is a $0.32 loss per share related to transformation-related charges, net of tax. Included in the third quarter of 2022 was a $0.67 loss per share, net of tax, from a goodwill impairment charge. On an adjusted basis, earnings per share were $0.50 in the third quarter of 2023, double the $0.25 earnings per share in the corresponding quarter of 2022.

Quigley went on to provide an update on the company's business transformation initiative.

"Following the implementation of strategic restructuring activities at the outset of the third quarter, we remained focused on sustaining these structural improvements across the enterprise. We also made progress on several initiatives that are positioning Kelly to accelerate profitable growth over the long term. With the efficiency phase of our transformation on-track, our growth initiatives delivering encouraging early results, and the sale of our European staffing business poised to benefit both of these efforts, we remain committed to driving continued improvement of our adjusted EBITDA margin and maximizing value creation."

In the fourth quarter of 2023, Kelly expects to achieve an adjusted EBITDA margin in the range of 2.8% to 3.0%, reflecting the impact of market conditions that are more challenging than anticipated. Assuming the benefit of a full year of its transformation-related savings, the sale of its European staffing business and current top-line trends, the company would expect to reach a normalized, adjusted EBITDA margin in the range of 3.3 to 3.5%.

Kelly also reported that on November 7, its board of directors declared a dividend of $0.075 per share. The dividend is payable on December 6, 2023, to shareholders of record as of the close of business on November 22, 2023.

In conjunction with its third-quarter earnings release, Kelly has published a financial presentation on the Investor Relations page of its public website and will host a conference call at 9 a.m. ET on November 9 to review the results and answer questions. The call may be accessed in one of the following ways:

Via the Internet:
Kellyservices.com

Via the Telephone
(877) 692-8955 (toll free) or (234) 720-6979 (caller paid)
Enter access code 5728672
After the prompt, please enter "#"

A recording of the conference call will be available after 2:30 p.m. ET on November 9, 2023, at (866) 207-1041 (toll-free) and (402) 970-0847 (caller-paid). The access code is 7027637#. The recording will also be available at kellyservices.com during this period.

This release contains statements that are forward looking in nature and, accordingly, are subject to risks and uncertainties. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about Kelly's financial expectations, are forward-looking statements. Factors that could cause actual results to differ materially from those contained in this release include, but are not limited to, (i) changing market and economic conditions, (ii) disruption in the labor market and weakened demand for human capital resulting from technological advances, loss of large corporate customers and government contractor requirements, (iii) the impact of laws and regulations (including federal, state and international tax laws), (iv) unexpected changes in claim trends on workers' compensation, unemployment, disability and medical benefit plans, (v) litigation and other legal liabilities (including tax liabilities) in excess of our estimates, (vi) our ability to achieve our business's anticipated growth strategies, (vii) our future business development, results of operations and financial condition, (viii) damage to our brands, (ix) dependency on third parties for the execution of critical functions, (x) conducting business in foreign countries, including foreign currency fluctuations, (xi) availability of temporary workers with appropriate skills required by customers, (xii) cyberattacks or other breaches of network or information technology security, and (xiii) other risks, uncertainties and factors discussed in this release and in the Company's filings with the Securities and Exchange Commission. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. All information provided in this press release is as of the date of this press release and we undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

About Kelly®

Kelly Services, Inc. (Nasdaq: KELYA, KELYB) helps companies recruit and manage skilled workers and helps job seekers find great work. Since inventing the staffing industry in 1946, we have become experts in the many industries and local and global markets we serve. With a network of suppliers and partners around the world, we connect more than 450,000 people with work every year. Our suite of outsourcing and consulting services ensures companies have the people they need, when and where they are needed most. Headquartered in Troy, Michigan, we empower businesses and individuals to access limitless opportunities in industries such as science, engineering, technology, education, manufacturing, retail, finance, and energy. Revenue in 2022 was $5.0 billion. Learn more at kellyservices.com.

KLYA-FIN

 

MEDIA CONTACT:



ANALYST CONTACT:

Jane Stehney



Scott Thomas

(248) 765-6864



(248) 251-7264

stehnja@kellyservices.com



scott.thomas@kellyservices.com

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 13 WEEKS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

(UNAUDITED)

(In millions of dollars except per share data)









%


CC %




2023


2022


Change


Change


Change














Revenue from services

$

1,118.0

$

1,167.9

$

(49.9)


(4.3)

%

(5.8)

%













Cost of services


889.5


927.3


(37.8)


(4.1)
















Gross profit


228.5


240.6


(12.1)


(5.1)


(6.3)














Selling, general and administrative expenses


228.4


231.1


(2.7)


(1.2)


(2.4)














Goodwill impairment charge



30.7


(30.7)


NM
















Loss on disposal



0.2


(0.2)


NM
















Earnings (loss) from operations


0.1


(21.4)


21.5


NM
















Other income (expense), net


1.6


0.2


1.4


NM
















Earnings (loss) before taxes


1.7


(21.2)


22.9


NM
















Income tax expense (benefit)


(4.9)


(5.0)


0.1


0.1
















Net earnings (loss)

$

6.6

$

(16.2)

$

22.8


NM
















Basic earnings (loss) per share

$

0.18

$

(0.43)

$

0.61


NM




Diluted earnings (loss) per share

$

0.18

$

(0.43)

$

0.61


NM




























STATISTICS:
























Permanent placement revenue (included in revenue from services)

$

14.6

$

19.8

$

(5.2)


(26.3)

%

(28.5)

%













Gross profit rate


20.4

%

20.6

%

(0.2)

pts.

















Conversion rate


0.0

%

(8.9)

%

8.9

pts.

















Adjusted EBITDA

$

25.5

$

19.1

$

6.4






Adjusted EBITDA margin


2.3

%

1.6

%

0.7

pts.

















Effective income tax rate


(299.3)

%

23.4

%

(322.7)

pts.

















Average number of shares outstanding (millions):












     Basic


35.4


37.9








     Diluted


35.8


37.9








 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 39 WEEKS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

(UNAUDITED)

(In millions of dollars except per share data)









%


CC %




2023


2022


Change


Change


Change














Revenue from services

$

3,603.5

$

3,731.6

$

(128.1)


(3.4)

%

(3.8)

%













Cost of services


2,880.3


2,970.0


(89.7)


(3.0)
















Gross profit


723.2


761.6


(38.4)


(5.0)


(5.2)














Selling, general and administrative expenses


703.8


707.3


(3.5)


(0.5)


(0.8)














Asset impairment charge


2.4



2.4


NM
















Goodwill impairment charge



30.7


(30.7)


NM
















Loss on disposal



18.7


(18.7)


NM
















Gain on sale of assets



(5.3)


5.3


NM
















Earnings from operations


17.0


10.2


6.8


67.0
















Loss on investment in Persol Holdings



(67.2)


67.2


NM
















Loss on currency translation from liquidation of subsidiary(1)



(20.4)


20.4


NM
















Other income (expense), net


3.0


1.9


1.1


55.9
















Earnings (loss) before taxes and equity in net earnings of affiliate


20.0


(75.5)


95.5


NM
















Income tax expense (benefit)


(5.0)


(13.1)


8.1


61.8
















Net earnings (loss) before equity in net earnings of affiliate


25.0


(62.4)


87.4


NM
















Equity in net earnings of affiliate



0.8


(0.8)


NM
















Net earnings (loss)

$

25.0

$

(61.6)

$

86.6


NM
















Basic earnings (loss) per share

$

0.68

$

(1.62)

$

2.30


NM




Diluted earnings (loss) per share

$

0.67

$

(1.62)

$

2.29


NM




























STATISTICS:
























Permanent placement revenue (included in revenue from services)

$

47.8

$

71.2

$

(23.4)


(32.9)

%

(33.3)

%













Gross profit rate


20.1

%

20.4

%

(0.3)

pts.

















Conversion rate


2.4

%

1.3

%

1.1

pts.

















Adjusted EBITDA

$

76.9

$

81.5

$

(4.6)






Adjusted EBITDA margin


2.1

%

2.2

%

(0.1)

pts.

















Effective income tax rate


(25.1)

%

17.4

%

(42.5)

pts.

















Average number of shares outstanding (millions):












     Basic


36.2


38.2








     Diluted


36.5


38.2









(1) Subsequent to the sale of the Persol Holdings investment, the Company commenced the dissolution process of the Kelly Services Japan subsidiary, which was considered substantially liquidated as of the first quarter-end 2022, resulting in the recognition of the $20.4 million loss on currency translation from liquidation of this subsidiary in the first quarter of 2022.

 

KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)














Third Quarter



















%


CC %




2023



2022


Change


Change


Professional & Industrial











Revenue from services

$

364.5


$

408.6


(10.8)

%

(10.5)

%

Gross profit


65.5



70.3


(6.9)


(6.5)


SG&A expenses excluding restructuring charges


53.7



65.3


(17.7)


(17.6)


Restructuring charges


4.0




NM


NM


Total SG&A expenses


57.7



65.3


(11.6)


(11.4)


Earnings from operations


7.8



5.0


54.2




Earnings from operations excluding restructuring charges


11.8



5.0


133.7















Gross profit rate


17.9

%


17.2

%

0.7

 pts.














Science, Engineering & Technology











Revenue from services

$

295.7


$

321.3


(8.0)

%

(8.0)

%

Gross profit


68.0



76.3


(10.8)


(10.9)


Total SG&A expenses


47.8



53.4


(10.4)


(10.5)


Earnings from operations


20.2



22.9


(11.7)















Gross profit rate


23.0

%


23.7

%

(0.7)

 pts.














Education











Revenue from services

$

128.1


$

104.3


22.9

%

22.9

%

Gross profit


19.8



16.6


19.2


19.2


Total SG&A expenses


22.4



21.4


5.0


5.0


Earnings (loss) from operations


(2.6)



(4.8)


44.8















Gross profit rate


15.5

%


15.9

%

(0.4)

 pts.














Outsourcing & Consulting











Revenue from services

$

114.1


$

118.5


(3.8)

%

(4.0)

%

Gross profit


41.5



44.1


(6.0)


(6.7)


SG&A expenses excluding restructuring charges


37.2



37.7


(1.5)


(2.4)


Restructuring charges


1.8




NM


NM


Total SG&A expenses


39.0



37.7


3.3


2.2


Goodwill impairment charge




30.7


NM




Earnings (loss) from operations


2.5



(24.3)


NM




Earnings (loss) from operations excluding restructuring charges


4.3



(24.3)


NM















Gross profit rate


36.4

%


37.2

%

(0.8)

pts.














International











Revenue from services

$

220.6


$

215.5


2.4

%

(6.2)

%

Gross profit


33.7



33.3


1.0


(7.6)


Total SG&A expenses


31.2



31.4


(0.7)


(8.7)


Earnings from operations


2.5



1.9


27.5















Gross profit rate


15.3

%


15.5

%

(0.2)

pts.



 

KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)














September Year to Date



















%


CC %




2023



2022


Change


Change


Professional & Industrial











Revenue from services

$

1,131.3


$

1,268.7


(10.8)

%

(10.4)

%

Gross profit


200.4



231.2


(13.3)


(12.8)


SG&A expenses excluding restructuring charges


176.5



203.8


(13.4)


(13.1)


Restructuring charges


7.3



0.3


NM


NM


Total SG&A expenses


183.8



204.1


(9.9)


(9.6)


Asset impairment charge


0.3




NM




Earnings from operations


16.3



27.1


(40.4)




Earnings from operations excluding restructuring charges


23.6



27.4


(14.4)















Gross profit rate


17.7

%


18.2

%

(0.5)

 pts.














Science, Engineering & Technology











Revenue from services

$

903.5


$

962.7


(6.2)

%

(6.1)

%

Gross profit


207.4



225.3


(7.9)


(7.9)


Total SG&A expenses


150.6



161.4


(6.7)


(6.7)


Asset impairment charge


0.1




NM




Earnings from operations


56.7



63.9


(11.2)















Gross profit rate


23.0

%


23.4

%

(0.4)

 pts.














Education











Revenue from services

$

583.9


$

433.2


34.8

%

34.8

%

Gross profit


91.6



69.2


32.4


32.4


Total SG&A expenses


69.3



60.4


14.8


14.8


Earnings from operations


22.3



8.8


152.7















Gross profit rate


15.7

%


16.0

%

(0.3)

 pts.














Outsourcing & Consulting











Revenue from services

$

342.4


$

352.0


(2.7)

%

(2.3)

%

Gross profit


124.4



127.6


(2.5)


(2.0)


SG&A expenses excluding restructuring charges


114.9



111.7


2.8


2.7


Restructuring charges


2.3



0.1


NM


NM


Total SG&A expenses


117.2



111.8


4.7


4.6


Asset impairment charge


2.0




NM




Goodwill impairment charge




30.7


NM




Earnings from operations


5.2



(14.9)


NM




Earnings from operations excluding restructuring charges


7.5



(14.8)


NM















Gross profit rate


36.3

%


36.3

%

pts.














International











Revenue from services

$

657.5


$

715.9


(8.2)

%

(11.2)

%

Gross profit


99.4



108.3


(8.2)


(11.1)


Total SG&A expenses


96.2



99.2


(3.0)


(5.8)


Earnings from operations


3.2



9.1


(64.9)















Gross profit rate


15.1

%


15.1

%

pts.



 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions of dollars)











October 1, 2023


January 1, 2023


October 2, 2022


Current Assets








  Cash and equivalents

$

117.2

$

153.7

$

122.4


  Trade accounts receivable, less allowances of








    $11.1, $11.2, and $12.1, respectively


1,388.2


1,491.6


1,519.9


  Prepaid expenses and other current assets


86.1


69.9


83.1


Assets held for sale




4.7


Total current assets


1,591.5


1,715.2


1,730.1










Noncurrent Assets








  Property and equipment, net


28.8


27.8


24.9


  Operating lease right-of-use assets


59.9


66.8


67.3


  Deferred taxes


315.3


299.7


300.7


  Goodwill, net


151.1


151.1


161.4


  Other assets


403.4


403.2


397.5


Total noncurrent assets


958.5


948.6


951.8










Total Assets

$

2,550.0

$

2,663.8

$

2,681.9










Current Liabilities








  Short-term borrowings

$

$

0.7

$

0.1


  Accounts payable and accrued liabilities


647.5


723.3


735.2


  Operating lease liabilities


13.2


14.7


14.4


  Accrued payroll and related taxes


287.8


315.8


321.4


  Accrued workers' compensation and other claims


22.8


22.9


24.4


  Income and other taxes


54.0


51.4


47.5


Total current liabilities


1,025.3


1,128.8


1,143.0










Noncurrent Liabilities








  Operating lease liabilities


51.5


55.0


55.6


  Accrued workers' compensation and other claims


40.5


40.7


43.4


  Accrued retirement benefits


185.6


174.1


172.7


  Other long-term liabilities


11.4


11.0


14.5


Total noncurrent liabilities


289.0


280.8


286.2










Stockholders' Equity








  Common stock


38.5


38.5


38.5


  Treasury stock


(57.4)


(20.1)


(12.4)


  Paid-in capital


29.3


28.0


26.6


  Earnings invested in the business


1,233.0


1,216.3


1,220.1


  Accumulated other comprehensive income (loss)


(7.7)


(8.5)


(20.1)


Total stockholders' equity


1,235.7


1,254.2


1,252.7










Total Liabilities and Stockholders' Equity

$

2,550.0

$

2,663.8

$

2,681.9










STATISTICS:








 Working Capital

$

566.2

$

586.4

$

587.1


 Current Ratio


1.6


1.5


1.5


 Debt-to-capital %


0.0

%

0.1

%

0.0

%

 Global Days Sales Outstanding


63


61


64


 Year-to-Date Free Cash Flow

$

21.0

$

(88.3)

$

(117.3)


 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE 39 WEEKS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

(UNAUDITED)

(In millions of dollars)



2023


2022

Cash flows from operating activities:





Net earnings (loss)

$

25.0

$

(61.6)

Adjustments to reconcile net earnings (loss) to net cash from operating activities:





Asset impairment charge


2.4


Goodwill impairment charge



30.7

Deferred income taxes on goodwill impairment charge



(5.3)

Loss on disposal



18.7

Depreciation and amortization


25.6


24.7

Operating lease asset amortization


12.4


14.2

Provision for credit losses and sales allowances


1.4


1.7

Stock-based compensation


7.9


5.9

Gain on sale of equity securities


(2.0)


Loss on investment in Persol Holdings



67.2

Loss on currency translation from liquidation of subsidiary



20.4

Gain on foreign currency remeasurement



(5.5)

Gain on sale of assets



(5.3)

Equity in net earnings of PersolKelly Asia Pacific



(0.8)

Other, net


0.5


3.5

Changes in operating assets and liabilities, net of acquisition


(39.8)


(220.2)

Net cash from (used in) operating activities


33.4


(111.7)






Cash flows from investing activities:





Capital expenditures


(12.4)


(5.6)

Proceeds from sale of assets



4.5

Acquisition of company, net of cash received



(143.1)

Cash disposed from sale of Russia, net of proceeds



(6.0)

Proceeds from company-owned life insurance



1.5

Proceeds from sale of Persol Holdings investment



196.9

Proceeds from sale of equity method investment



119.5

Proceeds from equity securities


2.0


Other investing activities


(0.4)


Net cash (used in) from investing activities


(10.8)


167.7






Cash flows from financing activities:





Net change in short-term borrowings


(0.7)


0.2

Financing lease payments


(1.0)


(1.2)

Dividend payments


(8.3)


(7.7)

Payments of tax withholding for stock awards


(1.7)


(0.9)

Buyback of common shares


(42.2)


(27.2)

Contingent consideration payments


(2.5)


(0.7)

Other financing activities


(0.2)


0.1

Net cash used in financing activities


(56.6)


(37.4)






Effect of exchange rates on cash, cash equivalents and restricted cash


(1.9)


(7.4)






Net change in cash, cash equivalents and restricted cash


(35.9)


11.2

Cash, cash equivalents and restricted cash at beginning of period


162.4


119.5






Cash, cash equivalents and restricted cash at end of period

$

126.5

$

130.7

 

KELLY SERVICES, INC. AND SUBSIDIARIES

REVENUE FROM SERVICES BY GEOGRAPHY

(UNAUDITED)

(In millions of dollars)













Third Quarter