Kelly Reports Fourth-Quarter and Full-Year 2022 Earnings

February 16, 2023
  • Q4 revenue down 1.3%; up 0.7% in constant currency
  • Q4 gross profit up 1.7%; up 3.7% in constant currency with Q4 GP rate of 20.3%, an improvement of 60 bps
  • Q4 operating earnings of $4.6 million including non-cash goodwill impairment charge, or $14.0 million on an adjusted basis, down 28% on an adjusted basis from a year ago
  • Full year 2022 operating earnings of $14.8 million, or adjusted earnings of $68.3 million, compared to adjusted earnings of $52.6 million last year, up 30% on an adjusted basis

TROY, Mich., Feb. 16, 2023 /PRNewswire/ -- Kelly (Nasdaq: KELYA, KELYB), a leading specialty talent solutions provider, today announced results for the fourth quarter and full year of 2022.

Peter Quigley, president and chief executive officer, announced revenue for the fourth quarter of 2022 totaled $1.2 billion, a 1.3% decrease, or 0.7% increase in constant currency, compared to the corresponding quarter of 2021. Year-over-year revenue trends were impacted by foreign currency headwinds and the impact of the sale of our Russian operations in July 2022. Year-over-year results in the quarter also reflect the impact of the recent acquisitions of RocketPower, a recruitment process outsourcing firm, and Pediatric Therapeutic Services, a specialty firm providing in-school therapy services.

Kelly reported operating earnings in the fourth quarter of 2022 of $4.6 million, compared to earnings of $15.3 million reported in the fourth quarter of 2021. Earnings in the fourth quarter of 2022 included a $10.3 million goodwill impairment charge related to RocketPower. The charge reflects the acceleration of declines in hiring in the high-tech industry in which RocketPower specializes. Excluding the impairment charge and a $0.9 million gain related to the sale of real property, adjusted earnings from operations were $14.0 million. Earnings in the fourth quarter of 2021 included a $4.1 million restructuring charge and adjusted earnings were $19.4 million. Adjusted earnings declined primarily as a result of higher selling, general and administrative expenses, partially offset by the impact of structural improvements in the business mix which resulted in higher gross profit.

Loss per share in the fourth quarter of 2022 was $0.02 compared to earnings per share of $1.80 in the fourth quarter of 2021. Included in the loss per share in the fourth quarter of 2022 is a $0.23 per share goodwill impairment charge, net of tax, related to RocketPower, partially offset by a $0.02 per share gain on sale of real property, net of tax. Included in the fourth quarter of 2021 is a non-cash gain, net of tax, on Kelly's investment in Persol Holdings common shares of $0.87 and a gain on insurance settlement, net of tax, of $0.36, partially offset by a loss of $0.08 related to restructuring charges, net of tax. On an adjusted basis, earnings per share were $0.18 in the fourth quarter of 2022, a decline from $0.65 per share in the corresponding quarter of 2021.

Operating earnings for the full year of 2022 totaled $14.8 million compared to earnings of $48.6 million for the full year of 2021. The 2022 full-year results included a $41.0 million goodwill impairment charge, an $18.7 million loss on the disposal of Kelly's Russian operations and $6.2 million of gains on the sale of assets. The 2021 full-year results included a $4.0 million restructuring charge. On an adjusted basis, earnings from operations for the full year of 2022 were $68.3 million compared to $52.6 million for the full year of 2021, a 30% improvement.

The loss per share for the full year of 2022 was $1.64 compared to earnings per share for the full year of 2021 of $3.91. Included in the loss per share for the full year of 2022 is a $1.28 loss on Kelly's investment in Persol Holdings common stock, net of tax, an $0.89 goodwill impairment charge, net of tax, a $0.49 loss on sale of Kelly's Russian operations, net of tax, and a $0.43 loss on foreign currency matters, net of tax, partially offset by a $0.12 gain on sale of assets, net of tax. Included in the earnings per share for the full year of 2021 was $2.12 from a non-cash gain on Kelly's investment in Persol Holdings common stock, net of tax, and a $0.36 gain on insurance settlement, net of tax, partially offset by a $0.07 per share restructuring charge, net of tax. On an adjusted basis, earnings per share were $1.33 for the full year of 2022 compared to $1.51 for the full year of 2021.

"As macroeconomic uncertainty increased in the fourth quarter, we remained focused on executing our specialty strategy, achieving top-line growth in our Education, SET, and OCG segments, and expanding our gross profit rate on a year-over-year basis as we continue to remix our portfolio toward higher-margin, higher-value products and specialties," said Quigley. "While it's difficult to know how the macroeconomic situation will unfold as we move forward in 2023, we will position Kelly to manage through this economic cycle while staying the course in our aggressive pursuit of profitable growth. With ample capital available to us, we will continue to execute our inorganic strategy and invest in technologies and new products that will improve the talent and customer experience, increase efficiency, and enable organic growth well into the future."

Kelly also reported that on February 14, its board of directors declared a dividend of $0.075 per share. The dividend is payable on March 13, 2023 to stockholders of record as of the close of business on February 27, 2023.

In conjunction with its fourth-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 February 16 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 February 16, 2023, at (866) 207-1041 (toll-free) and (402) 970-0847 (caller-paid). The access code is 1472042#. 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 factors include, but are not limited to, changing market and economic conditions, the impact of the novel coronavirus (COVID-19) outbreak, competitive market pressures including pricing and technology introductions and disruptions, disruption in the labor market and weakened demand for human capital resulting from technological advances, competition law risks, the impact of changes in laws and regulations (including federal, state and international tax laws), unexpected changes in claim trends on workers' compensation, unemployment, disability and medical benefit plans, or the risk of additional tax liabilities in excess of our estimates, our ability to achieve our business strategy, our ability to successfully develop new service offerings, material changes in demand from or loss of large corporate customers as well as changes in their buying practices, risks particular to doing business with government or government contractors, the risk of damage to our brands, our exposure to risks associated with services outside traditional staffing, including business process outsourcing, services of licensed professionals and services connecting talent to independent work, our increasing dependency on third parties for the execution of critical functions, our ability to effectively implement and manage our information technology strategy, the risks associated with past and future acquisitions, including risk of related impairment of goodwill and intangible assets, exposure to risks associated with certain equity investments, including with strategic partners, risks associated with conducting business in foreign countries, including foreign currency fluctuations, risks associated with violations of anti-corruption, trade protection and other laws and regulations, availability of qualified full-time employees, availability of temporary workers with appropriate skills required by customers, liabilities for employment-related claims and losses, including class action lawsuits and collective actions, our ability to sustain critical business applications through our key data centers, risks arising from failure to preserve the privacy of information entrusted to us or to meet our obligations under global privacy laws, the risk of cyberattacks or other breaches of network or information technology security, our ability to realize value from our tax credit and net operating loss carryforwards, our ability to maintain specified financial covenants in our bank facilities to continue to access credit markets, and other risks, uncertainties and factors discussed in this release and in the Company's filings with the Securities and Exchange Commission. Actual results may differ materially from any forward-looking statements contained herein, 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) connects talented people to companies in need of their skills in areas including Science, Engineering, Education, Office, Contact Center, Light Industrial, and more. We're always thinking about what's next in the evolving world of work, and we help people ditch the script on old ways of thinking and embrace the value of all workstyles in the workplace. We directly employ more than 300,000 people around the world, and we connect thousands more with work through our global network of talent suppliers and partners in our outsourcing and consulting practice. Revenue in 2022 was $5.0 billion. Visit kellyservices.com and let us help with what's next for you.

KLYA-FIN

MEDIA CONTACT:

ANALYST CONTACT:

Jane Stehney

James Polehna

(248) 765-6864

(248) 244-4586

stehnja@kellyservices.com

polehjm@kellyservices.com

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

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

(UNAUDITED)

(In millions of dollars except per share data)








%

CC %


2022

2021

Change

Change

Change












Revenue from services

$

1,233.8

$

1,250.3

$

(16.5)

(1.3)

%

0.7

%












Cost of services

983.6

1,004.3

(20.7)

(2.1)














Gross profit

250.2

246.0

4.2

1.7

3.7












Selling, general and administrative expenses

236.2

230.7

5.5

2.4

4.0












Goodwill impairment charge

10.3

—

10.3

NM














Gain on sale of assets

(0.9)

—

(0.9)

NM














Earnings from operations

4.6

15.3

(10.7)

(70.2)














Gain (loss) on investment in Persol Holdings

—

50.0

(50.0)

NM














Gain on insurance settlement

—

19.0

(19.0)

NM














Other income (expense), net

(0.3)

0.4

(0.7)

(161.1)














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

4.3

84.7

(80.4)

(94.9)














Income tax expense (benefit)


5.2

16.1

(10.9)

(67.7)














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

(0.9)

68.6

(69.5)

NM














Equity in net earnings (loss) of affiliate

—

3.1

(3.1)

NM














Net earnings

$

(0.9)

$

71.7

$

(72.6)

NM

%













Basic earnings (loss) per share

$

(0.02)

$

1.80

$

(1.82)

NM

%

Diluted earnings (loss) per share

$

(0.02)

$

1.80

$

(1.82)

NM

%













STATISTICS:






















Permanent placement income (included in revenue from services)

$

18.4

$

21.1

$

(2.7)

(12.7)

%

(10.0)

%












Gross profit rate

20.3

%

19.7

%

0.6

pts.















Conversion rate

1.8

%

6.2

%

(4.4)

pts.















Adjusted EBITDA

$

24.1

$

27.7

$

(3.6)




Adjusted EBITDA margin

2.0

%

2.2

%

(0.2)

pts.















Effective income tax rate

121.4

%

19.0

%

102.4

pts.















Average number of shares outstanding (millions):









     Basic

37.9

39.4






     Diluted

37.9

39.6






 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 52 WEEKS ENDED JANUARY 1, 2023 AND  JANUARY 2, 2022

(UNAUDITED)

(In millions of dollars except per share data)








%

CC %


2022

2021

Change

Change

Change












Revenue from services

$

4,965.4

$

4,909.7

$

55.7

1.1

%

3.2

%












Cost of services

3,953.6

3,990.5

(36.9)

(0.9)














Gross profit

1,011.8

919.2

92.6

10.1

12.1












Selling, general and administrative expenses

943.5

870.6

72.9

8.4

10.0












Goodwill impairment charge

41.0

—

41.0

NM














Gain on sale of assets

(6.2)

—

(6.2)

NM














Loss on disposal

18.7

—

18.7

NM














Earnings from operations

14.8

48.6

(33.8)

(69.7)














Gain (loss) on investment in Persol Holdings

(67.2)

121.8

(189.0)

NM














Gain on insurance settlement

—

19.0

(19.0)

NM














Loss on currency translation from liquidation of subsidiary

(20.4)

—

(20.4)

NM














Other income (expense), net

1.6

(3.6)

5.2

146.4














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

(71.2)

185.8

(257.0)

NM














Income tax expense (benefit)

(7.9)

35.1

(43.0)

(122.6)














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

(63.3)

150.7

(214.0)

NM














Equity in net earnings (loss) of affiliate

0.8

5.4

(4.6)

(85.9)














Net earnings (loss)

$

(62.5)

$

156.1

$

(218.6)

NM

%













Basic earnings (loss) per share

$

(1.64)

$

3.93

$

(5.57)

NM

%

Diluted earnings (loss) per share

$

(1.64)

$

3.91

$

(5.55)

NM

%













STATISTICS:






















Permanent placement income (included in revenue from services)

$

89.6

$

75.4

$

14.2

18.9

%

21.9

%












Gross profit rate

20.4

%

18.7

%

1.7

pts.















Conversion rate

1.5

%

5.3

%

(3.8)

pts.















Adjusted EBITDA

$

105.6

$

84.1

$

21.5




Adjusted EBITDA margin

2.1

%

1.7

%

0.4

pts.















Effective income tax rate

11.1

%

18.9

%

(7.8)

pts.















Average number of shares outstanding (millions):










     Basic

38.1

39.4






     Diluted

38.1

39.5






 

KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)













Fourth Quarter













2022

2021

%

Change

CC %

Change

Professional & Industrial









Revenue from services

$

397.5

$

450.7

(11.8)

%

(11.2)

%

Gross profit

71.3

82.3

(13.3)

(12.6)

Total SG&A expenses

66.4

70.8

(6.1)

(5.7)

Earnings (loss) from operations

4.9

11.5

(57.9)













Gross profit rate

17.9

%

18.2

%

(0.3)

pts.












Science, Engineering & Technology









Revenue from services

$

302.7

$

297.7

1.7

%

2.0

%

Gross profit

71.7

66.1

8.5

8.7

Total SG&A expenses

53.5

49.2

8.7

8.8

Earnings (loss) from operations

18.2

16.9

7.8













Gross profit rate

23.7

%

22.2

%

1.5

pts.












Education









Revenue from services

$

203.0

$

132.4

53.3

%

53.3

%

Gross profit

31.1

21.1

47.2

47.2

Total SG&A expenses

21.4

15.6

37.0

37.0

Earnings (loss) from operations

9.7

5.5

76.2













Gross profit rate

15.3

%

15.9

%

(0.6)

pts.












Outsourcing & Consulting









Revenue from services

$

116.0

$

112.1

3.5

%

5.1

%

Gross profit

42.0

38.0

10.5

13.3

Total SG&A expenses

38.0

33.5

13.0

14.8

Goodwill impairment charge

10.3

—

NM


Earnings (loss) from operations

(6.3)

4.5

NM













Gross profit rate

36.3

%

34.0

%

2.3

pts.












International









Revenue from services

$

216.3

$

257.7

(16.1)

%

(8.4)

%

Gross profit

34.1

38.5

(11.7)

(3.4)

SG&A expenses excluding restructuring charges

33.3

35.5

(6.1)

1.7

Restructuring charges

—

1.2

NM

NM

Total SG&A expenses

33.3

36.7

(9.2)

(1.6)

Earnings (loss) from operations

0.8

1.8

(61.4)


Earnings (loss) from operations excluding restructuring charges

0.8

3.0

(76.7)













Gross profit rate

15.8

%

15.0

%

0.8

pts.

 

KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)













December Year to Date













2022

2021

%
Change

CC %
Change

Professional & Industrial









Revenue from services

$

1,666.2

$

1,837.4

(9.3)

%

(9.0)

%

Gross profit

302.5

310.0

(2.4)

(2.1)

Total SG&A expenses

270.5

278.6

(2.9)

(2.7)

Earnings (loss) from operations

32.0

31.4

1.8













Gross profit rate

18.2

%

16.9

%

1.3

pts.












Science, Engineering & Technology









Revenue from services

$

1,265.4

$

1,156.8

9.4

%

9.6

%

Gross profit

297.0

253.9

17.0

17.2

Total SG&A expenses

214.9

180.2

19.2

19.4

Earnings (loss) from operations

82.1

73.7

11.4













Gross profit rate

23.5

%

21.9

%

1.6

pts.












Education









Revenue from services

$

636.2

$

416.5

52.7

%

52.7

%

Gross profit

100.3

65.1

54.0

54.0

Total SG&A expenses

81.8

62.1

31.7

31.7

Earnings (loss) from operations

18.5

3.0

NM













Gross profit rate

15.8

%

15.6

%

0.2

pts.












Outsourcing & Consulting









Revenue from services

$

468.0

$

432.1

8.3

%

9.6

%

Gross profit

169.6

141.4

20.0

22.4

Total SG&A expenses

149.8

122.7

22.1

23.9

Goodwill impairment charge

41.0

—

NM


Earnings (loss) from operations

(21.2)

18.7

NM













Gross profit rate

36.3

%

32.7

%

3.6

pts.












International









Revenue from services

$

932.2

$

1,067.8

(12.7)

%

(4.7)

%

Gross profit

142.4

148.8

(4.3)

4.6

SG&A expenses excluding restructuring charges

132.5

137.7

(3.8)

4.5

Restructuring charges

—

1.2

NM

NM

Total SG&A expenses

132.5

138.9

(4.6)

3.6

Earnings (loss) from operations

9.9

9.9

(0.5)


Earnings (loss) from operations excluding restructuring charges

9.9

11.1

(11.2)













Gross profit rate

15.3

%

13.9

%

1.4

pts.

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions of dollars)


Jan.  1, 2023

Jan.  2, 2022

Current Assets





  Cash and equivalents

$

153.7

$

112.7

  Trade accounts receivable, less allowances of





    $11.2 and $12.6, respectively

1,491.6

1,423.2

  Prepaid expenses and other current assets

69.9

52.8

Total current assets

1,715.2

1,588.7







Noncurrent Assets





Property and equipment, net

27.8

35.3

Operating lease right-of-use assets

66.8

75.8

Deferred taxes

299.7

302.8

Goodwill, net

151.1

114.8

Investment in Persol Holdings

—

264.3

Investment in equity affiliate

—

123.4

Other assets

403.2

389.1

Total noncurrent assets

948.6

1,305.5







Total Assets

$

2,663.8

$

2,894.2







Current Liabilities





  Short-term borrowings

$

0.7

$

—

  Accounts payable and accrued liabilities

723.3

687.2

Operating lease liabilities

14.7

17.5

  Accrued payroll and related taxes

315.8

318.4

  Accrued workers' compensation and other claims

22.9

20.8

  Income and other taxes

51.4

51.3

Total current liabilities

1,128.8

1,095.2







Noncurrent Liabilities





Operating lease liabilities

55.0

61.4

Accrued payroll and related taxes


—

57.6

  Accrued workers' compensation and other claims

40.7

37.0

  Accrued retirement benefits

174.1

220.0

  Other long-term liabilities

11.0

86.8

Total noncurrent liabilities

280.8

462.8







Stockholders' Equity





  Common stock

38.5

40.1

  Treasury stock

(20.1)

(15.1)

  Paid-in capital

28.0

23.9

  Earnings invested in the business

1,216.3

1,315.0

  Accumulated other comprehensive income (loss)

(8.5)

(27.7)







Total stockholders' equity

1,254.2

1,336.2







Total Liabilities and Stockholders' Equity

$

2,663.8

$

2,894.2







Statistics:





 Working Capital

$

586.4

$

493.5

 Current Ratio

1.5

1.5

 Debt-to-capital %

0.1

%

0.0

%

 Global Days Sales Outstanding

61

60

 Year-to-Date Free Cash Flow

$

(88.3)

$

73.8

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE 52 WEEKS ENDED JANUARY 1, 2023 AND  JANUARY 2, 2022

(UNAUDITED)

(In millions of dollars)


2022

2021

Cash flows from operating activities:



Net earnings (loss)

$

(62.5)

$

156.1

Adjustments to reconcile net earnings to net cash from operating activities:



  Goodwill impairment charge

41.0

—

  Deferred income taxes

(72.1)

21.6

  Loss on disposal

18.7

—

  Depreciation and amortization

33.4

29.8

  Operating lease asset amortization

18.5

21.2

  Provision for credit losses and sales allowances

1.5

1.6

  Stock-based compensation

7.8

5.1

  (Gain) loss on investment in Persol Holdings

67.2

(121.8)

  Loss on cumulative translation adjustment reversal

20.4

—

  Gain on foreign currency remeasurement

(5.5)

—

  Gain on insurance settlement

—

(19.0)

  Gain on sale of assets

(6.2)

—

  Equity in net (earnings) loss of PersolKelly Pte. Ltd.

(0.8)

(5.4)

  Other, net

3.3

6.0

Changes in operating assets and liabilities, net of acquisitions

(141.0)

(10.2)

  Net cash (used in) from operating activities

(76.3)

85.0





Cash flows from investing activities:



Capital expenditures

(12.0)

(11.2)

Proceeds from sale of assets

10.1

—

Acquisition of companies, net of cash received

(143.1)

(213.0)

Cash disposed from sale of Russia, net of proceeds

(6.0)

—

Proceeds from sale of Persol Holdings investment

196.9

—

Proceeds from sale of equity method investment

119.5

—

Proceeds from company-owned life insurance

1.5

12.2

Proceeds from insurance settlement

—

19.0

Proceeds (payments) related to loans to equity affiliate

—

5.9

Proceeds from equity securities

—

5.0

Other investing activities

0.6

1.4

  Net cash from (used in) investing activities

167.5

(180.7)





Cash flows from financing activities:



Net change in short-term borrowings

0.8

(0.2)

Financing lease payments

(1.4)

(1.5)

Dividend payments

(10.6)

(4.0)

Payments of tax withholding for stock awards

(0.9)

(0.6)

Buyback of common shares

(27.2)

—

Purchase of treasury stock

(7.8)

—

Contingent consideration payments

(3.3)

(1.6)

Other financing activities

(0.2)

(0.2)

  Net cash used in financing activities

(50.6)

(8.1)





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

2.3

(4.8)





Net change in cash, cash equivalents and restricted cash

42.9

(108.6)

Cash, cash equivalents and restricted cash at beginning of year

119.5

228.1





Cash, cash equivalents and restricted cash at end of year

$

162.4

$

119.5

 

KELLY SERVICES, INC. AND SUBSIDIARIES

REVENUE FROM SERVICES

(UNAUDITED)

(In millions of dollars)












Fourth Quarter
















%

CC %


2022

2021

Change

Change