Kelly Reports Third-Quarter 2022 Earnings

November 10, 2022
  • Q3 revenue down 2.3%; up 0.3% in constant currency
  • Q3 operating loss of $21.4 million and loss per share of $0.43 down from a year ago on a non-cash goodwill impairment charge
  • Adjusted operating earnings of $9.5 million; up 7% from a year ago or up 21% in constant currency
  • Kelly's Board of Directors approves a $50 million share repurchase plan

TROY, Mich., Nov. 10, 2022 /PRNewswire/ -- Kelly (Nasdaq: KELYA, KELYB), a leading specialty talent solutions provider, today announced results for the third quarter of 2022.

Peter Quigley, president and chief executive officer, announced revenue for the third quarter of 2022 totaled $1.2 billion, a 2.3% decrease, or 0.3% 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 a loss from operations in the third quarter of 2022 of $21.4 million, compared to earnings of $9.0 million reported in the third quarter of 2021. The loss in the third quarter of 2022 resulted from a $30.7 million goodwill impairment charge related to RocketPower. The charge reflects the impact of increasing economic uncertainty including the sharp decline in hiring in the high-tech industry in which RocketPower specializes, as well as slowing growth in the near-term demand for recruitment process outsourcing more broadly. Excluding the impairment charge, adjusted earnings from operations were $9.5 million compared to $8.9 million in the third quarter of 2021.  Earnings improved primarily as a result of structural improvements in the business mix which resulted in higher gross profit.

Loss per share in the third quarter of 2022 was $0.43 compared to earnings per share of $0.87 in the third quarter of 2021. Included in the loss per share in the third quarter of 2022 is a $0.67 per share goodwill impairment charge, net of tax, related to RocketPower, and a $0.01 loss per share, net of tax, related to the completion of the sale of our Russian operations. Included in the third quarter of 2021 earnings per share is a $0.62 gain, net of tax, related to non-cash gains, net of tax, on Persol Holding common shares. On an adjusted basis, earnings per share were $0.25 in the third quarter of 2022, consistent with $0.25 in the corresponding quarter of 2021.

"Kelly's third-quarter performance demonstrates that our more profitable solutions are in demand and our specialty growth strategy is delivering a higher-margin, higher-value business mix even in the face of heightened uncertainty, rising interest rates, and inflationary pressures," said Quigley. "We saw solid revenue growth in our SET and Education specialties, and all five operating segments delivered GP rate growth in the quarter. While challenges precipitated the RocketPower goodwill impairment, we remain confident that with diversification and integration this acquisition will bring strategic long-term value to our business.  Finally, our planned buyback of Kelly Class A common shares highlights our flexible and balanced capital allocation strategy to maximize the return on capital and complements our organic and inorganic specialty growth strategy."

Kelly also reported that on November 9, its board of directors declared a dividend of $0.075 per share. The dividend is payable on December 7, 2022 to stockholders of record as of the close of business on November 23, 2022.

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 10 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 10, 2022, at (866) 207-1041 (toll-free) and (402) 970-0847 (caller-paid). The access code is 8237932#. 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 brand, 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, 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 350,000 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 2021 was $4.9 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

james.polehna@kellyservices.com

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 13 WEEKS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(UNAUDITED)

(In millions of dollars except per share data)








%

CC %


2022

2021

Change

Change

Change












Revenue from services

$

1,167.9

$

1,195.4

$

(27.5)

(2.3)

%

0.3

%












Cost of services

927.3

966.5

(39.2)

(4.0)














Gross profit

240.6

228.9

11.7

5.1

7.6












Selling, general and administrative expenses

231.1

219.9

11.2

5.1

7.1












Goodwill impairment charge

30.7

—

30.7

NM














Loss on disposal

0.2

—

0.2

NM














Earnings (loss) from operations

(21.4)

9.0

(30.4)

NM














Gain on investment in Persol Holdings

—

35.5

(35.5)

NM














Other income (expense), net

0.2

(0.3)

0.5

156.6














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

(21.2)

44.2

(65.4)

NM














Income tax expense (benefit)

(5.0)

11.1

(16.1)

(144.6)














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

(16.2)

33.1

(49.3)

NM














Equity in net earnings (loss) of affiliate

—

1.7

(1.7)

NM














Net earnings (loss)

$

(16.2)

$

34.8

$

(51.0)

NM














Basic earnings (loss) per share

$

(0.43)

$

0.87

$

(1.30)

NM


Diluted earnings (loss) per share

$

(0.43)

$

0.87

$

(1.30)

NM


























STATISTICS:






















Permanent placement revenue (included in
revenue from services)

$

19.8

$

19.7

$

0.1

0.7

%

4.4

%












Gross profit rate

20.6

%

19.2

%

1.4

pts.















Conversion rate

(8.9)

%

3.9

%

(12.8)

pts.















Adjusted EBITDA

$

19.1

$

17.3

$

1.8




Adjusted EBITDA margin

1.6

%

1.4

%

0.2

pts.















Effective income tax rate

23.4

%

25.2

%

(1.8)

pts.















Average number of shares outstanding (millions):










     Basic

37.9

39.4






     Diluted

37.9

39.5






 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE 39 WEEKS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(UNAUDITED)

(In millions of dollars except per share data)








%

CC %


2022

2021

Change

Change

Change












Revenue from services

$

3,731.6

$

3,659.4

$

72.2

2.0

%

4.0

%












Cost of services

2,970.0

2,986.2

(16.2)

(0.5)














Gross profit

761.6

673.2

88.4

13.1

15.1












Selling, general and administrative expenses

707.3

639.9

67.4

10.5

12.2












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

10.2

33.3

(23.1)

(69.4)














Gain (loss) on investment in Persol Holdings

(67.2)

71.8

(139.0)

NM














Loss on currency translation from liquidation of
subsidiary(1)

(20.4)

—

(20.4)

NM














Other income (expense), net

1.9

(4.0)

5.9

148.0














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

(75.5)

101.1

(176.6)

NM














Income tax expense (benefit)

(13.1)

19.0

(32.1)

(169.1)














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

(62.4)

82.1

(144.5)

NM














Equity in net earnings (loss) of affiliate

0.8

2.3

(1.5)

(66.8)














Net earnings (loss)

$

(61.6)

$

84.4

$

(146.0)

NM














Basic earnings (loss) per share

$

(1.62)

$

2.12

$

(3.74)

NM


Diluted earnings (loss) per share

$

(1.62)

$

2.12

$

(3.74)

NM


























STATISTICS:






















Permanent placement revenue (included in
revenue from services)

$

71.2

$

54.3

$

16.9

31.2

%

34.4

%












Gross profit rate

20.4

%

18.4

%

2.0

pts.















Conversion rate

1.3

%

4.9

%

(3.6)

pts.















Adjusted EBITDA

$

81.5

$

56.4

$

25.1




Adjusted EBITDA margin

2.2

%

1.5

%

0.7

pts.















Effective income tax rate

17.4

%

18.8

%

(1.4)

pts.















Average number of shares outstanding (millions):










     Basic

38.2

39.4






     Diluted

38.2

39.5







(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 %


2022

2021

Change

Change

Professional & Industrial









Revenue from services

$

408.6

$

452.6

(9.7)

%

(9.4)

%

Gross profit

70.3

76.6

(8.3)

(8.0)

Total SG&A expenses

65.3

69.4

(6.0)

(5.8)

Earnings (loss) from operations

5.0

7.2

(30.7)













Gross profit rate

17.2

%

16.9

%

0.3

 pts.












Science, Engineering & Technology









Revenue from services

$

321.3

$

306.2

5.0

%

5.2

%

Gross profit

76.3

68.1

11.9

12.3

Total SG&A expenses

53.4

48.4

10.2

10.4

Earnings (loss) from operations

22.9

19.7

16.2













Gross profit rate

23.7

%

22.3

%

1.4

 pts.












Education









Revenue from services

$

104.3

$

66.6

56.6

%

56.6

%

Gross profit

16.6

10.0

65.4

65.4

Total SG&A expenses

21.4

17.0

25.6

25.6

Earnings (loss) from operations

(4.8)

(7.0)

31.8













Gross profit rate

15.9

%

15.1

%

0.8

 pts.












Outsourcing & Consulting









Revenue from services

$

118.5

$

113.4

4.5

%

5.9

%

Gross profit

44.1

37.3

18.6

21.2

Total SG&A expenses

37.7

30.7

23.4

25.6

Goodwill impairment charge

30.7

—

NM


Earnings (loss) from operations

(24.3)

6.6

NM













Gross profit rate

37.2

%

32.8

%

4.4

pts.












International









Revenue from services

$

215.5

$

256.8

(16.1)

%

(5.4)

%

Gross profit

33.3

36.9

(9.6)

2.0

Total SG&A expenses

31.4

34.5

(9.1)

1.5

Earnings (loss) from operations

1.9

2.4

(16.9)













Gross profit rate

15.5

%

14.4

%

1.1

pts.

 

KELLY SERVICES, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS BY SEGMENT

(UNAUDITED)

(In millions of dollars)













September Year to Date


















%

CC %


2022

2021

Change

Change

Professional & Industrial









Revenue from services

$

1,268.7

$

1,386.7

(8.5)

%

(8.3)

%

Gross profit

231.2

227.7

1.5

1.7

Total SG&A expenses

204.1

207.8

(1.8)

(1.7)

Earnings (loss) from operations

27.1

19.9

36.1













Gross profit rate

18.2

%

16.4

%

1.8

 pts.












Science, Engineering & Technology









Revenue from services

$

962.7

$

859.1

12.1

%

12.3

%

Gross profit

225.3

187.8

19.9

20.2

Total SG&A expenses

161.4

131.0

23.2

23.3

Earnings (loss) from operations

63.9

56.8

12.5













Gross profit rate

23.4

%

21.9

%

1.5

 pts.












Education









Revenue from services

$

433.2

$

284.1

52.5

%

52.5

%

Gross profit

69.2

44.0

57.3

57.3

Total SG&A expenses

60.4

46.5

29.9

29.9

Earnings (loss) from operations

8.8

(2.5)

NM













Gross profit rate

16.0

%

15.5

%

0.5

 pts.












Outsourcing & Consulting









Revenue from services

$

352.0

$

320.0

10.0

%

11.2

%

Gross profit

127.6

103.4

23.5

25.7

Total SG&A expenses

111.8

89.2

25.6

27.3

Goodwill impairment charge

30.7

—

NM


Earnings (loss) from operations

(14.9)

14.2

NM













Gross profit rate

36.3

%

32.3

%

4.0

pts.












International









Revenue from services

$

715.9

$

810.1

(11.6)

%

(3.5)

%

Gross profit

108.3

110.3

(1.8)

7.4

Total SG&A expenses

99.2

102.2

(3.0)

5.4

Earnings (loss) from operations

9.1

8.1

13.4













Gross profit rate

15.1

%

13.6

%

1.5

pts.

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In millions of dollars)










October 2, 2022

January 2, 2022

October 3, 2021

Current Assets






  Cash and equivalents

$

122.4

$

112.7

$

43.5

  Trade accounts receivable, less allowances of






    $12.1, $12.6, and $12.3, respectively

1,519.9

1,423.2

1,423.9

  Prepaid expenses and other current assets

83.1

52.8

71.0

Assets held for sale

4.7

—

—

Total current assets

1,730.1

1,588.7

1,538.4








Noncurrent Assets






  Property and equipment, net

24.9

35.3

36.1

  Operating lease right-of-use assets

67.3

75.8

79.3

  Deferred taxes

300.7

302.8

304.0

  Goodwill, net

161.4

114.8

114.8

  Investment in Persol Holdings

—

264.3

222.6

  Investment in equity affiliate

—

123.4

122.0

  Other assets

397.5

389.1

386.3

Total noncurrent assets

951.8

1,305.5

1,265.1








Total Assets

$

2,681.9

$

2,894.2

$

2,803.5








Current Liabilities






  Short-term borrowings

$

0.1

$

—

$

—

  Accounts payable and accrued liabilities

735.2

687.2

645.2

  Operating lease liabilities

14.4

17.5

18.4

  Accrued payroll and related taxes

321.4

318.4

334.9

  Accrued workers' compensation and other claims

24.4

20.8

21.1

  Income and other taxes

47.5

51.3

58.4

Total current liabilities

1,143.0

1,095.2

1,078.0








Noncurrent Liabilities






  Operating lease liabilities

55.6

61.4

64.1

Accrued payroll and related taxes

—

57.6

58.2

  Accrued workers' compensation and other claims

43.4

37.0

39.1

  Accrued retirement benefits

172.7

220.0

213.5

  Other long-term liabilities

14.5

86.8

76.5

Total noncurrent liabilities

286.2

462.8

451.4








Stockholders' Equity






  Common stock

38.5

40.1

40.1

  Treasury stock

(12.4)

(15.1)

(15.2)

  Paid-in capital

26.6

23.9

23.2

  Earnings invested in the business

1,220.1

1,315.0

1,245.3

  Accumulated other comprehensive income (loss)

(20.1)

(27.7)

(19.3)

Total stockholders' equity

1,252.7

1,336.2

1,274.1








Total Liabilities and Stockholders' Equity

$

2,681.9

$

2,894.2

$

2,803.5








STATISTICS:






 Working Capital

$

587.1

$

493.5

$

460.4

 Current Ratio

1.5

1.5

1.4

 Debt-to-capital %

0.0

%

0.0

%

0.0

%

 Global Days Sales Outstanding

64

60

63

 Year-to-Date Free Cash Flow

$

(117.3)

$

73.8

$

23.5

 

KELLY SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE 39 WEEKS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(UNAUDITED)

(In millions of dollars)


2022

2021

Cash flows from operating activities:



Net earnings (loss)

$

(61.6)

$

84.4

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



Goodwill impairment charge

30.7

—

Deferred income taxes on goodwill impairment charge

(5.3)

—

Loss on disposal

18.7

—

Depreciation and amortization

24.7

22.0

Operating lease asset amortization

14.2

16.0

Provision for credit losses and sales allowances

1.7

0.8

Stock-based compensation

5.9

4.0

(Gain) loss on investment in Persol Holdings

67.2

(71.8)

Loss on currency translation from liquidation of subsidiary

20.4

—

Gain on foreign currency remeasurement

(5.5)

—

Gain on sale of assets